Foundation Press

SELECTIONS FOR
CONTRACTS
RESTATEMENT SECOND
UCC ARTICLES 1 AND 2
UNIFORM ELECTRONIC TRANSACTIONS ACT
ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COMMERCE ACT
UN SALES CONVENTION
UNIDROIT PRINCIPLES
SELECTED CONTRACTS AND FORMS
Compiled by
E. ALLAN FARNSWORTH
Late Alfred McCormack Professor of Law
Columbia University

CAROL SANGER
Barbara Aronstein Black Professor of Law
Columbia University

NEIL B. COHEN
Jeffrey D. Forchelli Professor of Law
Brooklyn Law School

RICHARD R.W. BROOKS

Professor of Law
Yale Law School

LARRY T. GARVIN
Lawrence D. Staniey Professor of Law
The Ohio State University

FouNDATION PREss
---·----------
2011 THOMSON REUTERs··
 ·¡;
J.
1.:
1

Restatement o
Compilers' r
Table of Cor
Sections ____ _
Restatement o:
Uniform Comn
Compilers' I'
Article 1 (20

, Article 1 (20
Article 2 ---- -
Article 3 -----
1 Uniform ElectJ
Electronic Sig:n
f United Nation

¡ Goods (CISC
Compilers
Articles ...
UNIDROIT Pr
rf Compilers' l'i
Table ofCon
Articles ----- -
© 1980, 1988, 1992, 1998, 2001, 2003 FOUNDATION PRESS Selected Contn
© 2007, 2008, 2010 THOMSON REUTERS/FOUNDATION PRESS Compilers' l\
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Contract in 1
CuuLract in 1
Contract in 1
(Retyped) _
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introductory Notes to th e selections from the Uniform Commercial Code, the Restate ment, Second, of
Contracts, the United Nations Convention on -the Internationa l Sale of Goods and the UNIDROIT 1
Principies.]
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 TABLE OF CONTENTS

Page
Restatement of the Law, Second, Contracts (Selected Sections) ---------------- 1
Compilers' Note --------- -- -------- ---- ------- -- --- --- --------------------------------------- 1
Table ofContents ------------- ----------------------------- -- -- ------------ ---- ------------- 5
Sections ------------- -------- ------ -------- --- ---------- -------------------------------------- -- 15
Restatement ofthe Law, Third, Suretyship and Guaranty, § 11----- ---------- 203
Uniform Commercial Code (UCC) ----------- -------- -------- --- -------------------------- 213
Compilers' Note ------ ------------------------- ----- ------ ---- --- ----- ----- -- --- -- ------- ---- 213
Article 1 (2001) (abridged) ------ -------- -------- ---- --------------------------- _________ _ 215
Article 1 (2000) (abridged) --------------------- _--------- - ---- -- --------~------ - ---------- 233
Article 2 ----------- -------- --- ----- -- ------- _- ------- _-- _-- _-- __ -- _____ -_______________________ _ 241
Article 3 ------ ------ ---- ------- ---- -- ------ -- -------- ------------ ------------ -- ----------------- 311
Uniform Electronic Transactions Act (UETA) ---------------------------------------- 313
Electronic Signatures in Global and National Commerce Act (E-SIGN) ----- 325
United Nations Convention on Contracts for the International Sale of
Goods (CISG)- ----------- --------- --- -------- ------- --- --------------------------------------- 335
Compilers' Note __ ------_--------------------- _________ ------------------~------------ ____ 335
Articles ------- ---- .- .. -.--.---------.--- ----------------------------------------- -- --- ------- 337
UNIDROIT Principies of International Commercial Contracts ----- --- --------- 361
COlnpilers' Note ------------- ------ ---------------------------------------------------------- 361
Table of Contents ------ -- ----------------- --- -- ------- -- -------------- ---:: __ ___ ___ ________ _ 365
Articles ----------.------------.-------------------- :---------- -----------'-------- -------------- 371
Selected Contracts and Standard Form Agreements ---------------- ---------------- 427
Compilers' Note ---------------------- ------------------------------------------------------- 427
S
Contract in Wood u. LuCY- ---------------------------------------------------------------- 428
Contract in Bloor u. Falstaff- ------------------------------------------,~------------ - - - ­ 430
Contract in Peevyhouse u. Garland Goal & Mining Go. ------------------------- 442
Contract in Peevyhouse u. Garland Goal & Mining Go.
(Retyped) --. ----.---- ---.- --------. ----- ----------------------- --- ------,----- -- ------------ 446
Contract in In the Matter of Baby M _____________________ : __ _____ ~-- - --- -- -- ---------- 451
Contract in Dalton u. Educational Testing Service--- -------- ---- ------ ------- --- 457
2007-08 SAT Terms and Conditions --- ----------- ------------- ------ ---- ----- -------- 466
Borat Release ----------- -------------------------------------- --------- ----.--------------- --- - 474
Google Terms of Service ---- --- --- --- ---------------- -------- ----- ----- -- ------------ ----- 476

•blication except the

;atement, Second, of
md the UNIDROIT

· ation concerning lhe

·· persons licensed to
3ring legal or other
Jrney. If you require
>r other prol'essional.
1) avoiding penalties
· or t•ecmnmending to

111
UNIF
ELE(
 S·E LECTIONS FOR
CONTRACTS
RESTATEMENT SECOND
UCC ARTICLES 1 AND 2
UNIFORM ELECTRONIC TRANSACTIONS ACT
ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COMMERCE ACT
UNSALES CONVENTION
UNIDROIT PRINCIPLES .
SELECTED CONTRACTS AND FORMS
1
RES1

TheAm•
a "Commitb
the ImproveJ
judges and 1
Institute, an
Draper Lew
Corporation
nine subjecü:
Contract
Institute beg
in 1932. Prol
ty for prepa1
for the Chap
into a Comrr
whole period
Institute. T1
submitted to
of the Repor
amendment
tentative dn
provement t•
tions and th€
tion, p. x. Fi
the Council
procedure w;
statement, St
In 1962
Second, of (
Robert Brau•
preme Judic:
Pr.ofessor E ..
As origir
by treatises <
that gToup p
the Restaterr
 RESTATEMENT OF THE LAW, SECOND,
CONTRACTS
(Selected Sections)

COMPILERS' NOTE
The American Law lnstitute was formed in 1923 as the outgrowth of
a "Committee on the Establishment of a Permanent Organization for
the Improvement ofthe Law." Its members were to be 400 practitioners,
judges and law professors; there are now about 4,000. The idea of the
Institute, and of "restating" the law, was broached by Professor William
Draper Lewis and fostered by Elihu Root and others. The Carnegie
Corporation supported work on the original Restatement, comprising
nine_subjects, which was completed by 1944.
Contracts was one of the first three subjects upon which the
lnstitute began work, and the Restatement of Contracts was completed
in 1932. Professor Samuel Williston acted as Reporte!', with responsibili-
ty for preparing drafts. (Professor Arthur L. Corbin served as Reporter
for the Chapter on Remedies.) Other experts in the subject weré formed
into a Committee of Advisers who conferred with the Reporter over the
whole period in producing drafts for submission to the Council of the
lnstitute. The plan was "that the drafts of the different chapters
submitted to the Council shall be the product of the conimittee composed
of the Reporter and his advisers; that these drafts after discussion and
amendment by the Council and before revision shall be submitted as
tentative drafts for criticism and suggestion with a view to their im-
provement to the annual meetings of the lnstitute and -to bar associa-
tions and the profession generally." Restatement of Contracts, Introduc-
tion, p. x. Final promulgation depended on approval of the text by both
the Council and the. full meeting of Institute members. The same
procedure was followed in making revisions and in preparing the Re-
statement, Second.
In 1962 the lnstitute initiated the preparation of the Restatement,
Second, of Contracts, parts of which are reproduced here. Professor
Robert Braucher served as Reporter until his appointment to the Su-
preme Judicial Court of Massachusetts in 1971; he was succeeded by
Professor E. Allan Farnsworth. The work was completed in 1980.
As originally conceived, the first Restatement was to be accompanied
by treatises citing and discussing case au~hority, but experience proved
that group production of such volumes was not feasible. As they stand,
the Restatements consist of sections stating rules or principies (the so-

1
 RESTATEMENT OF CONTRACTS-SECOND

called black letter), each followed by one or more comments with rule. If ·
illustrations, and in the Restatement, Second, also by Reporter's Notes knowled,
in which supporting authorities are collected. (Reproduced here are the people w
black letter of selected· sections and in a few instances their comments learned i
and illustrations.) have beE
Assaults on the Restatement, along with sympathetic appraisals, The pre1
have produced a rich literature. An eminent critic of the Restatement of overthro
Contracts immediately objected that the American Law Institute "seems sion. It i
constantly to be seeking the force of a statute without statutory enact- persuasi1
ment." Clark, The Restatement of the Law of Contracts, 42 Yale L.J. Restatement
643, 654 (1933). 1 To what measure of authority is the Restatement 244- 45 (1949
entitled, then, in the courts?
The Res;
This general question can h ave only a general answer. The Supreme Second reflec
Court of Oregon has emphasized the difference between statutory and Corbin and F
Restatement texts: 2 sometimes d
Although this court frequently quotes sections of the Restatements critica! revie'
of the American Law Institute, it does not literally "adopt" them in much ofthe ·
the manner of a legislature enacting, for instance, a draft prepared Restatement,
by the Commissioners on Uniform State Laws, such as the Res.i den- affected the
tial Landlord and Tenant Act. In the nature of common law, such contributiom
quotations in opinions are no more than shorthand expressions of
the cour t's view that the analysis summarized in the Restatement In restat
corresponds to Oregon law applicable to the facts of the case befare century, an e
the court. They do not enact the exact phrasing of the Restatement subject had 1
rule, complete with cqmments, illustrations, and caveats. Such quo- to a lesser ex
tations should not be relied on in briefs as if they committed his enterprise w;
court or lower courts to track every ueLail uf Lhe Res La Lement importance e
analysis in other cases. The Restatements themselves purport to be made this cla
just that, "restatements" of law found in other sources, although at The
times they candidly report that the law is in flux and offer a formula highligh1
preferred on policy grounds. governm
There is agreement among those who applaud the Restatement and in respor
those who deprecate it about the persuasiveness of an ideal restatement A contin
of the law. "A restatement, then, can have no other authority than as wisdom ·o r l
the product of m en learned in the subject who have studied and precedents, Íl
deliberated over it. It needs no other, and what could be higher?" Clark, law . Professc
op. cit. supra, p. 655. Judge H erb ert Goodrich, for many years Director posed "a wor
of the lnstitute, explained : Council: "we
If an advocate thinks the Restatement was wrong as applied to his of the consid'
case, he can urge the court not to follow it, but to apply sorne other
3 . For symp1
l. On occasion a legislature has given the rules of decision . . . in cases to which m ent, Second, SE
statutory backing to the Restatement. T h e they apply, in the a bse nce of local laws to and 67 Cornelll
Virgin Isla nd s Code (Title 1, § 4) provides: th e contrary. " 4. Braucher,
"The rules of th e com mon law, as expressed the Second Res
in the restatem en ts of the law approved by 2. Brewer v. Erwin, 600 P .2d 398, 410 (1969). See als
the American Law lnstitute ... , sh all be n. 12 (0r. 1979). from Arthur L.

2
 RESTATEMENT OF CONTRACTS-SECOND

)mments with rule. If the court agrees, it will do so, but it will so do with the
:porter's Notes· knowledge that the rule which it rejects has been written by the
!d .here are the people who by training and reputation are supposed to be eminently
heir comments learned in the particular subject and that the specialist's conclusions
have been discussed and defended before a body of very able critics.
~tic appraisals, The presumption is in favor of the Restatement. . . . Yet it can be
. Restatement of overthrown and that fact leaves Restatement acceptance to persua-
· 1stitute "seems sion. It is common law "persuasive authority" with a high degree of
tatutory enact- persuasion.
s, 42 Yale L.J. Restatement and Codification, David D. Field Centenary Essays 241,
.e Restatement 244-45 (1949).
The Restatement Second. To a substantial extent the Restatement
·. The Supreme Second reflects the thought of two men in particular: Professor Arthur
t statutory and Corbin and Professor Karl Llewellyn, who shared an attitude toward law
sometimes described as "legal realism. " 3 Professor Corbin prepared a
~ ·Restatements critica! review of the original Restatement, which "has been the basis for
adopt" them in much of the work on the revision. " 4 He served also as consultant for the
draft prepared Restatement, Second, in its early stages. Professor Llewellyn's efforts
as the Residen- affected the revision less directly, largely through the impact of his
tmon law, such contributions to the Uniform Commercial Code.
expressions of
In restating the law of contracts for the second half .of the twentieth
·1e Restatement
century, an obvious difficulty arose from the fact that large tracts of the
.the case before
.b.e ·Restatement subject had recently been occupied by legislation such as the Code and,
to a lesser extent, consumer-protection statutes. Indeed, the worth of the
~ats. Such quo-
. cómmitted his enterprise was questioned on the ground of an apparently diminishing
te Restatement importance of common law doctrine. In response, Professor Braucher
,s purport to be made this claim:
~es; although at The effort to restate the law of contracts .in modern terms
offer a formula highlights the reliance of private autonomy in an era of expanding
government activity. . . . Freedom of contract, refined and redefined
~statement and in response to social change, has power as it always had. 5
· eal restatement A continuing theme of controversy about the Restatements is the
thority than as wisdom or unwisdom of departing from rules d~rived from existing
ie studied and precedents, in the interest of·a more just and more convenient regime of
higher?" Clark, law. Professor Herbert Wechsler, when Director of the Institute, pro-
' years Director posed "a working formula" that r eceived the unanimous approval of the
Council: "we should feel obliged in our deliberations to give weight to all
s applied to his of the considerations that the courts, under a proper view of the judicial
)ply sorne other
3. For symposía devoted to the Rest at e- Annotated, 50 Wash. & Lee L. Rev. 755
. in cases to which ment, Second, see 81 Colum.L.Rev. 1 (1981 ) (1993).
and 67 Cornell L.Rev. 631 (1982).
nce· of local laws to 5. Jci. at 615- 16. For another comment
4_ Braucher , Formatíon of Contract ancl by Professor Brauch er , see Offer a nd Accep-
th e Second Rest atement, 78 Yale L.J. 598 ta nce in the Seco ncl Restatement, 74 Ya le
600 P .2d 398, 410 (1969). See also P erillo, Twelve Letters L.J. 302 (1964) .
from Arthur L. C01·bin to Robert Braucher

3
 RESTATEMENT OF CONTRACTS-SECOND

function, deem it right to weigh in theirs." 6 An example of creative

restating from the first Restatement of Contracts was the formulation of
the doctrine of promissory estoppel, in section 90. 7

6. Wechsler, The Course of the Restate- as a "bold sally." Notwithstanding that, the
ments, 55 A.B.A.J. 147, 150 (1969). section has gained widespread adherence.
7. The Oregon opinion quoted abo ve re-
fers to a section of the Torts Restatement

Section
l. Contract
2. Promise;
3. Agreeme
4. How a P
5. Terms oJ
6. Formal (
7. Voidable
8. Unenfor<

9. Parties F
10. Multiple
11. When a]
12. Capacity
13. Persons.
14. lnfants
15. Mental I
16. Intoxicat

17. Requiren

TOPJ
18. Manifest
19. Conduct
20. Effect of
21. Intentior
22 .. Mode of.
2.? . Necessit)

24. Offer Del

25. Option C

l. Copyright,
Law Institute. Re
th e American La\

4
ple of creative
formulation of
RESTATEMENT (SECOND)
1
hstanding tha t, the OF CONTRACTS
lSpread adherence.
(Selected Sections)
Table of Contents
CHAP'¡ER 1.. MEANING OF TERMS
Section
l. Contract Defined
2. Promise; Promisor; Promisee; Beneficiary
3. Agreement Defined; Bargaín Defined
4. How a Promise May Be Made
5. Terms of Pro mise, Agreement, or Contract
6. Formal Contracts ·
7. Voídable Contracts .
8. Unenforceable Contracts

CHAPTER 2 . . FORMATION OF CONTRACTS-

PARTIES AND CAPACITY

9. Parties Required
10. Multiple Promisors and Promisees of the Same Performance
11. When a Person May Be Both Promisor and Promisee
12. Capacity to Contract
13. Persons Affected by Guardianship
14. Infants
15. Mental Illness ot Defect·
16. Intoxicated Persons

CHAPTER 3. · FORMATION OF CONTRACTS-

. . MÚ'TUAL ASSENT

TOPIC l. IN GENERAL
17. Requirement of a Barga1n

TOPIC 2. MANIFESTATION OF ASSENT IN GENERAL

18. Manifestation of Mutual Assent
19. Conductas Manifestaban of Assent
20. Effect of Misunderstanding
21. Intention to Be Legally Bound
22. Mode of Assent: Offer and Acceptance
23. Necessity That Ma nifestations Have Reference to Each Other

TOPIC 3. MAKING OF OFFERS

24. Offer Defined
25. Option Contracts

l. Copyright, © 1981 by the American

Law Institute. Reprinted with permission of
the American Law lnstiiAite · · . .. ·. ·

5
 RESTA1'EMENT OF CONTRACTS-SECOND

Section CHAPTEB
26. Preliminary N egotili.tions
27. Existence of Contract Where Written Memorial Is Contemplated TO:
28. Auctions · Section
29. To Whom an Offer Is Addressed 71. Require
30. Form of Acceptance Invited 72. Exchan!
31. Offer Proposing a Single Contract ora Number of Contracts 73. Perform
32. Invitation of Promise or Performance 74. Settlem•
33. Certainty 75. Exchan!
34. Certainty and Choice of Terms; Effect of Performance or Reliance 76. Conditic
77. Illusory
TOPIC 4. DURATION OF THE OFFEREE'S POWER OF ACCEPTANCE 78. Voidabh
35. The Offeree's Power ofAcceptance 79. Adequa<
36. Methods of Terminatioh of the Power of Acceptance 80. Multiple
37. Termination of Power of Acceptance Under Option Contract 81. Conside•
38. Rejection
39. Counter-Offers TO
40. Time When Rejectíon or Counter-Offer Terminates the Power of 82. Promise
Acceptance 83. Promise
41. Lapse of Time 84. Pro mise
42. Revocation by Communication From Offeror Received by Offeree
tion
43. lndirect Communication of Revocation
44. Effect of Deposit on Revocability of Offer 85. Promise
45. Option Contract Created by Part Performance or Tender 86. Pro mise
46. Revocation of General Offer 87. Option (
4 7. Revocation of D1v1sible Offer 88. Guarant
48. Death or lncapacity ·of Offeror or Offeree 89. Modifica
49. Effect of Delay in qom¡:nunication of Offer 90. Pro mise
91. Effect of
TOPIC 5. ACCEPTANCE OF OFFERS 92. ToWhm
93. Promise
50. Acceptanee of Offer Defined; Acceptance by Performance; Acceptance 94. S ti pulat i
by Promise
51. Effect of Part Performance Without Knowledge of Offer TO
52. Who May Accept.an Offer
53. Acceptance by Perfonhance; Manifestation of Intention Not to Ac-
cept 95. Requirm
54. Acceptance by Performance; Necessity of Notification to Offeror ment
55. Acceptance of N on-Promissory Offers 96. What Ce
56. Acceptance by Promise; Necessity of Notification to Offeror 97. Whena
57. Effect of Equivoca! Acceptance 98. Adopt:
58. N ecessity <ifAcceptímce Complying With Terms of Offer 99. AdoptiOI
59. Purported Acceptance Which Adds Qualifications 100. Recital e
60. Acceptance of Offer Which States Place, Time, or Manner of Accep- 101. Delivery
tance · 102. Uncondi
61. Acceptance Which Requests Change of Terms 103. Delivery
62. Effect of Perform;mce by Offeree Where Offer Invites Either Per- 104. Acceptm
formance or Promise 105. Accepta1
63. Time When Acceptance Takes Effect 106. What Ar
64. Acceptance By Telephone Or Teletype 107. Creation
65. Reasonableness of Medium of Acceptance 108. Require1
66. Acceptance Must Be Properly Dispatched 109 . . Enforcm
67. Effect of Receipt ofAcceptance Improperly Dispatched or Sea
68. What Constitutes Receipt of Revocation, Rejection, or Acceptance
69. Acceptance by Silence or Exercise of Dominion
70. Effect of Receipt By Offeror of a Late or Otherwise Defective
Acceptance 110. Classes 1

6
) RESTATEMENT OF CONTRACTS-SECOND

CHAPTER 4. FORMATION OF CONTRACTS-CONSIDERATION

nplated TOPIC l. THE REQUIREMENT OF CONSIDERATION
Section
71. Requirement of Exchange; Types of Exchange
72 . Exchange of Promise for Performance
.cts 73. Performance of Legal Duty
74. Settlement of Claims
75. Exchange of Promise for Promise
Reliance 76. Conditional Promise .
77. Illusory and Alternative Promises
ACCEPTANCE 78. Voidable and Unenforceable Promises
79. Adequacy of Consideration; Mutuality of Obligation
80. Multiple Exchanges
act 81. Consideration as Motive or Inducing Clause

TOPIC 2. CONTRACTS WITHOUT CONSIDERATION

te Power of 82. Promis~ to Pay lndebtedness; Effect on the Statute of Limitations
83. Promise to Pay lndebtedness Discharged in Bankruptcy
84. Promise to Perform a Duty in Spite of Non-Occurrence of a Condi-
Offeree
tion
85. Promise to Perform a Voidable Duty
86. Promise for Benefit Received
87. Option Contract
88. Guaranty
89. Modification of Executory Contract
90. Promise Reasonably Inducing Action or Forbearance
91. Effect of Promises Enumerated in §§ 82-90 When Conditional
92. To Whom Promises Enumerated in§§ 82-85 Must Be Made
93. Promises Enumerated in §§ 82-85 Made in lgnorance of Facts
; Acceptance 94. Stipulations

TOPIC 3. CONTRACTS UNDER SEAL; WRITING AS

. Not to Ac- A STATUTORY SUBSTITUTE FOR THE SEAL
95. Requirements for Sealed Contract or Written Contract or Instru-
)fferor ment
96. What Constitutes a Sea!
·or 97. When a Promise Is Sealed
98. Adoption of a Seal by Delivery
99. Adoption of the Same Sea! by Severa! Parties
100. Recital of Sealing or Delivery
er of Accep- 101. Delivery
102. Unconditional Delivery
103. Delivery in Escrow; Conditional Delivery to the Promisee
Either Per- 104. Acceptance or Disclaimer by the Promisee
105. Acceptance Where Return Promise Is ~ontemplatecl
106. What Amounts to Acceptance of lnstrmnent
107. Creation of Unsealed Contract by Acceptance by Promisee
108. Requiremen t of N aming or Describing Promisor and Promisee
109. Enforcement of a Sealed Contract by Promisee Who Does Not Sign
or Sea! It
;eptance
CHAPTER 5. THE STATUTE OF FRAUDS
;e Defective
110. Classes of Contracts Covered

7
 RESTATEMENT OF CONTRACTS-SECOND

TOPIC l. THE EXECUTOR-ADMINISTRATOR PROVISION

Section
111. Contract ofExecutor or Administrator Section
151. Mistake
TOPIC 2. THE SURETYSHIP PROVISION 152. When l\1
153. When lV
112. Requirement of Suretyship
154. When a
113. Promises of the Same Performance for the Same Consideration
114. Independent Duty of Promisor 155. When Il
115. Novation Refor:
116. Main Purpose; Advanüige to Surety 156. Mistake
117. Promise to Signa Written Contract of Suretyship 157. Effect o
118. Promise to Indemnify a Surety 158. Relief h
119. Assumption of Duty by Another
120. Obligations on Negotiable Instruments e
121. Contract of Assignor or Factor
122. · Contract to Buy a Right From the Obligee
123. Contract to Discharge the Promisee's Duty

TOPIC 3. THE MARRIAGE PROVISION 159. Misrepr

124. Contract Made U pon Consideration of Marriage 160. When A
161. When N
TOPIC 4. THE LAND CONTRACT PROVISION 162. When a
125. Contract to Transfer, Buy, or Pay for an Interest in Land 163. When a
126. Contract to Procure Transfer or to Act as Agent 164. When a
127. Interest in Land 165. Cure by
128. Boundary and Partition Agreements 166. When a
129. Action in Reliance; Specific Performance 167. When a
168. Relianc~
TOPIC 5. THE ONE-YEAR PROVISION 169. When R
170. Relianc~
130. Contract Not to.Be Performed Within aYear
171. When R
TOPIC 6. SATISFACTION OF THE STATUTE BY A MEMORANDUM 172. When F.
173. When A
131. General Requisites of a Memorandum
132. Severa! Writings
133. Memorandum Not Made as Such
134. Signature 174. When I
135. Who Must Sign Contr.
136. Time of Memorandum 175. When D
137. Loss or Destruction of a Memorandum 176. When a
177. When U
TOPIC 7. CONSEQUENCES OF NON-COMPLIANCE
138. Unenforceability
139. Enforcement by Virtue of Action in Reliance
140. Defense of Failure to Perform
141. Action for Value of Performance Un·der Unenforceable Contract
142. Tort Liability for Acts Under Un~nforceable Contract
143. Unenforceable Contractas Evidence 178. When a
144. Effect of Unenforceable Contract as to Third Parties 179. Bases of
145. Effect of Full Performance 180. Effect oi
146. Rights of Competing Transferees of Property 181. Effect oi
147. Contract Containing Multiple Promises 182. Effect oi
148. Rescission by Oral Agreement 183. When A:
149. Oral Modification 184. When R
150. Reliance on Oral Modification 185. Excuse <

8
 RESTATEMENT OF CONTRACTS-SECOND

· WISION CHAPTER 6. MISTAKE

Section
151. Mistake Defined
152. When Mistake of Both Parties Makes a Contract Voidable
153 . . When Mistake of One Party Makes a Contract Voidable
154. When a Party Bears the Risk of a Mistake
ca.tion .
155. When Mistake of Both Parties as to Written Expression Justifies
Reformation ,
156. Mistake as to Contract Within the Statute of Frauds
157. Effect of Fault of Party Seeking Relief
158. Relief Including Restitution

CHAPTER 7. MISREPRESENTATION, DURESS

AND UNDUE INFLUENCE

TOPIC l. MISREPRESENTATION
159. Misrepresentation Defined
160. When Action is Equivalent toan Assertion (Concealment)
161. When Non-Disclosure Is Equivalent toan Assertion
162. When a Misrepresentation Is Fraudulent or Material
163. When a Misrepresentation Prevents Formation of a Contract
164. When a Misrepresentation Makes a Contract Voidable
165. Cure by Change of Circumstances
166. When a Misrepresentation as to a Writing Justifies Reformation
167. When a Misrepresentation Is an lnducing Cause
168. Reliance on Assertions of Opinion
169. When Reliance on an Assertion of Opinion Is Not Justified
170. Reliance on Assertions as to Matters of Law
171. When Reliance on an Assertion of Intention Is Not Justified ·
· MORANDUM 172. When Fault Makes Reliance Unjustified
173. When Abuse of a Fiduciary Relation Makes a Contract Voidable

TOPIC 2. DURESS AND UNDUE INFLUENCE

17 4. When Duress by Physical Compulsion Prevents Formation of a
Contract
175. When Duress by Threat Makes a Contract Voidable
176. When a Threat Is lmproper
177. When Undue Influence Makes a Contract Voidable
\,N CE

CHAPTER 8. UNENFORCEABILITY ON
GROUNDS OF PUBLIC POLICY
•ntract
TOPIC l. UNENFORCEABILITY IN GENERAL
178. When a Term Is Unenforceable on Grounds of Public Policy
179. Bases of Public Policies Against Enforcement
180. Effect of Excusable Ignoran ce
181. Effect of Failure to Comply With Licensing or Similar Requirement
182. Effect of Performance If In tended Use Is Improper
183. When AgTeement Is Enforceable as to Agreed Equivalents
184. When Rest of Agreement Is Enforceable
185. Excuse of a Condition on Grounds of Public Policy

9
 RESTATEMENT OF CONTRACTS-SECOND

TOPIC 2. RESTRAINT OF TRADE

Section Section
186. Promise in Restraint of Trade 219. Usage
187. Non-Ancillary Restraints on Competition 220. Usage I
188. Ancillary Restraints on Competition 221. Usage E
222. Usage o
TOPIC 3. IMPAIRMENT OF FAMILY RELATIONS 223. Course
189. Pro mise in Restraint of Marriage
190. Promise Detrimental to Marital Relationship
191. Promise Mfecting Custody
224. Conditi1
TOPIC 4. INTERFERENCE WITH OTHER PROTECTED INTERESTS 225. Effects
192. Promise Involving Commission of a Tort 226. Howan
193. Promise Inducing Violation of Fiduciary Duty 227. Standar
194. Promise Interfering with Contract with Another 228. Satisfac
195. Term Exempting From Liability for Harm Caused Intentionally, 229. Excuse
Recklessly or Negligently 230. Event 'I
196. Term Exempting From Consequences of Misrepresentation
CHAPT
TOPIC 5. RESTITUTION
197. Restitution Generally Unavailable 1
198. Restitution in Favor of Party Who Is Excusably 'Ignorant or Is Not
Equally in the Wrong 231. Criterio
199. Restitution Where Party Withdraws or Situation Is Contrary to Unde:
Public Interest 232. When i
Un de:
CHAPTER 9. THE SCOPE OF CONTRACTUAL OBLÜJATIONS 233. Perforrr
TOPIC l. THE MEANING OF AGREEMENTS 234. Order o
200. Interpretation of Promise or Agreement
201. Whose Meaning Prevails TOPIC 2.
202. Rules in Aid of Interpretation 235. Effect <
203. Standards of Preference in Interpretation Breac
204. Supplying an Omitted Essential Term 236. Claims J
237. Effect o
TOPIC 2. CONSIDERATIONS OF FAIRNESS 238. Effect o:
AND THE PUBLIC INTEREST 239. Effect <
205 . Duty of Good Faith and Fair Dealing Occur
206. Interpretation Against the Draftsman 240. Part Pe1
207. Interpretation Favoring the Public 241. Circmm
208. Unconscionable Contract or Term Ma ter
242. Circum<
TOPIC 3. EFFECT OF ADOPTION OF A WRITING AreD
209. Integrated Agreements 243. Effect o:
210. Completely and Partially Integrated Agreements Dama
211. Standardized Agreements 244. Effeét ol
212. Interpretation of Integrated Agreement 245. Etfect <
213. Effect of Integrated Agreement on Prior Agreements (Paro! Evidence Occur
Rule) · 246. Effect oJ
214. Evidence of Prior or Contemporaneous ·Agreements and Negotiations 247. Effect o
215. Contradiction of Integrated Terms quent
216. Consistent Additional 'l'erms 248. Effect o
217. Integrated Agreement Subject to Oral Requirement of a Condition Occur
218. Untrue Recitals; Evidence of Consideration 249. WhenP

10
 RESTATEMENT OF CONTRACTS-SECOND

TOPIC 4. SCOPE AS AFFECTED BY USAGE

Section
219. Usage
220. Usage Relevant to Interpi·etation
221. Usage Supplementing an Agreement
222. Usage of Trade
)NS . 223. Course of Dealing

TOPIC 5. CONDITIONS AND SIMILAR EVENTS

224. Condition Defined
1 INTERESTS 225. Effects of the Non-Occ~1:rer{c~ of a Condition
226. How an Event May Be Made a Condition
227. Standards of Preference With Regard to Conditions
228. Satisfaction of the Obligar as a Condition
1tentionally, 229. Excuse of a Condition to Avoid Forfeiture
230. Event That Terminates a Duty

CHAPTER 10. PERFORMANCE AND NON-PERFORMANCE

TOPIC l. PERFORMANCES TO BE EXCHANGED

lt or Is Not UNDER AN EXCHANGE OF PROMISES
231. Criterion for Determining When Performances Are to Be Exchanged
jontrary to Under an Exchange of Pro mises
232. When it is Presuined · That • Performances Are to Be Exchanged
Under an Exchange· of Promises
LIGATIONS 233. Performance at One Time or. in Installments
'S 234. Order of Performances ·

TOPIC 2. EFFECT OF PERFORMANCE AND NON-PERFORMANCE

235. Effect of Performance as Discharge and of Non-Performance As
Breach ·
236. Claims for Damages foi· Total and for Partial Breach
237. Effect on Other Party's Duties of a Failure to Render Performance
S 238. Effect on Other Party's Duties of a Failure to Offer Performance
239. Effect on Other Par(Y.'s Duties of a Failure Justified By Non-
Occurrence of a Condition .
240. Part Performances as Agreed Equivalents
241. Circumstances · Significant iri Determining Whether a Failure Is
Material
242. Circumstances Significant ·in Determining When . Remaining Duties
'ING Are Discharged
243. Effect of a Breach by Non-Performance as Giving Rise toa Claim for
Damages for Tot¡:¡l Breach .
244. Effect of Subsequent Events on Duty to Pay Damages
245. Effect of a Breach by Non- Performance as Excusing the Non-
:ol Evidence Occurrence of a Condition
246. Effect of Acc(;;)ptance as Excusü1g the Non-Occurrence Of a Condition
>J"egotiations 247. Effect of Acceptance of Part Performance as Excusing the Subse-
quent Non-Occurrence of a: Condition
248. Effect of Insufficient Reason for Rejection as Excusing the Non-
:ondition Occurrence of a Condition
249. When Payment Other Than by Legal Tender Is Sufficient

11
 RESTATEMENT OF CONTRACTS-SECOND

TOPIC 3. EFFECT OF PROSPECTIVE NON-PERFORMANCE

Section Section
250. When a Statement or an Act Is a Repudiation 286. Alteratic
251. When a Failure to Give Assurance May Be Treated as a Repudiation 287. Assent to
252. Effect of Insolvency
253. Effect of a Repudiation as a Breach and on Other Party's Duties
254. Effect of Subsequent Events on Duty to Pay Damages
255. Effect of a Repudiation as Excusing the Non- Occurrence Of a
Condition
256. Nullification of Repudiation or Basis for Repudiation
257. Effect of Urging' Performance in S pite of Repudiation 288. Promise:
289. Joint, St
TOPIC 4. APPLICATION OF PERFORMANCES formal
290. Compul~
258. Obligor's Direction of Application 291. Judgme1
259. Creditor's Application · 292. Effect of
260. Application of Payments Where Neither Party Exercises His Power 293. Effect of
261. Discharge by Supervenirrg Impracticability 294. Effect of
262. Death or Incapacity of Persori N ecessary for Performance 295 . Effect of
263. Destruction, Deterior.a tion ·or Failure to Come Into Existence of 296. Survivor
Thing N ecessary for Performance
264. Prevention by Governmental Regulation or Order
265. Discharge by Superveriing Frustration
266. Existing Impracticability or Frustration 297. Obligees
267. Effect on Other Party's Duties of a Failure Justified by Impractica- 298. Compul~
bility or Fnistration · 299. Dischar~
268. Effect on Other Party's Duties of a Prospective Failure Justified by 300. Effect of
Impracticability or Frustration 301. Survivor
269. Temporary Impracticability or Frustration
270. Partial Impracticab~lity ·
271. Impracticability as ExcuseJor Non-Occurrence Of a Condition
272. Relief Including Restíttitiori 302. Intendec
303. Conditio
CHAPTER 12. DISCHARGE BY ASSENT OR ALTERATION 304. Creation
305. Overlap¡
TOPIC l. THE REQUIREMENT OF CONSIDERATION 306. Disclaim
273. Requirement of Consideration or a Substitute 307. Remedy
274. Cancellation, Destruction or Surrender of a Writing 308. Identific
275. Assent to Discharge Duty ofReturn Performance 309. Defense1
276. Assent to Discharge Duty to Transfer Property 310. Remedie
277. Renunciation Debt;
311. Varia tío:
TOPIC 2. SUBSTITUTED PERFORMANCE, SUBSTITUTED 312.. Mistake
313. Governn
CONTRACT, ACCORD AND ACCOUNT STATED
314. Suretysl
278. Substituted Performance · 315. Effect oJ
279. Substituted Contract . 316. Scope of
280. Novation
281. Accord and Satisfaction CE
282. Account Stated
TOF
TOPIC 3. AGREEMENT OF RESCISSION, RELEASE
317. Assignm
AND CONTRACT NOT TO SUE 318. Delega ti
283. Agreement of Rescission 319. Delega ti
284. Release 320. Assignrr
285. Contract N ot to Su e 321. Assigmr

12
 RESTATEMENT OF CONTRACTS-SECOND

RMANCE TOPIC 4. ALTERATION

Section
286. Alteration of Writing
~epudiation 287. Assent to or Forgiveness of Alteration
Duties CHAPTER 13. JOINT AND SEVERAL
PROMISORS AND PROMISEES
·ence Of a
TOPIC l. JOINT AND SEVERAL PROMISORS
288. Promises of the Same Performance
289. Joint, Several, and Joint and Several Promisors of the Same Per-
~S
formance
290. Compulsory Joinder of Joint Promisors
291. Judgment in an Action Against Co-Promisors
292. Effect of Judgment for or Against Co-Promisors
lis Power 293. Effect of Performance or Satisfaction on Co-Promisors
294. Effect of Discharge on Co-Promisors
295. Effect of Contract Not to Sue; Reservation of Rights
;xistence of 296. Survivorship of Joint Duties

TOPIC 2. JOINT AND SEVERAL PROMISEES

297. Obligees of the Same Promised Performance
!mpractica- 298. Compulsory Joinder of Joint Obligees
299. Discharge by or Tender to One Joint Obligee
Justified by 300. Effect ofViolation of Duty toa Co-Obligee
301. Survivorship of Joint Rights

CHAPTER 14. CONTRACT BENEFICIARlES

ition
302. Intended and Incidental Beneficiaries
303 . Conditional Promises; Promises Under Seal
e;RATION 304. Creation of Duty to Beneficiary
305. Overlapping Duties to Beneficiary and Promisee
riON 306. Disclaimer by a Beneficiary
307. Remedy of Specific Performance
308. Identification of Beneficiaries
309. Defenses Against the Beneficiary
310. Remedies of the Beneficiary of a Promise to Pay the Promisee's
Debt; Reimbursement of Promisee
311. Variation of a Duty toa Beneficiary
TUTED 312. Mistake as to Duty to Beneficiary
:D 313. Government Contracts
314. Suretyship Defenses
315. Effect of a Promise of Incidental Benefit
316. Scope of This Chapter

CHAPTER 15. ASSIGNMENT AND DELEGATION

TOPIC l. WHAT CAN BE ASSIGNED OR DELEGATED
:ASE
317. Assignment of a Right
318. Delegation of Performance of Duty
319. Delegation of Performance of Conclition
320. Assignment of Conditional Rights
321. Assignment of Future Rights

13
 RESTATEMENT OF CONTRACTS-SECOND

Section
322. Contractual Prohibition of Assignment
323. Obligor's Assent to Assignment or Delegation .Section
357. Availabi
TOPIC 2. MODE OF ASSIGNMENT OR DELEGATION 358. Form of
324. Mode of Assignment in General 359. Effect ol
325. Order as Assignment 360. · Factors
326. Partial Assignment 361. Effect ol
327. Acceptance or Disclaimer by the Assignee 362. Effect ol
328. Interpretation of Words of Assignment; Effect of Acceptance of 363. Effect ol
Assignment ·364. · Effect ol
329. Repudiation by Assignor and Novation With Assignee 365. Effect ol
330. Contracts to Assign in the Future, or to Transfer Proceeds to Be 366: Effect ol
Received 367. Contrae:
368. Effect ol
TOPIC 3. EFFECT BETWEEN ASSIGNOR AND ASSIGNEE 369: Effect ol
331. Partially Effective Assignments
332. Revocability of Gratuitous Assignments Require1
370.
333. Warranties of an Assignor Measun
371.
372. Specific
TOPIC 4. EFFECT ON THE OBLIGOR'S DUTY 373. Restitut
334. Variation of Obligor's Duty by Assignment 374. Restitut
335. Assignment by a Joint Obligee 375. Restitut
336. Defenses Against an Assignee 376. Restitut
337. Elimination of Defenses by Subsequent Events •377. Restitut
338. Discharge of an Obligor After Assignment rence
339. Protection of Obligor in Cases of Adverse Claims
TOPIC
TOPIC 5. PRIORITIES BETWEEN ASSIGNEE 378. Election
AND ADVERSE CLAIMANTS 319. Election
340. Effect of Assignment on Priority and Security Disch¡
341. Creditors of an Assignor 380. Loss ofl
342. Successive Assignees From the Same Assignor 381.. Loss of l
343. Latent Equities 382. Loss of l
383 .. Avoidan
CHAPTER 16. REMEDIES 384. Require1
385. Effect o
TOPIC l. IN GENERAL Arisin
344. Purposes of Remedies
345. Judicial Remedies Available CH
TOPIC 2. ENFORCEMENT BY AWARD OF DAMAGES § l. Cont
346. Availability of Damages
347. Measure of Damages in General . ·A contra•
348. Alterna ti ves to Loss in Valu e of Performance · the law gives
349. Damages Based on Reliance Interest · recognizes as
350. Avoidability as a Limitation on Damages
351. Unforeseeability and Related Limitations on Damages
352. Uncertainty as a Limitation on Damages § 2. Pron
353. Loss Due to Emotional Disturbance (1) A prc
354. Interest as Damages
355. Punitive Damages . 9-cting in a sp
356. Liquidated Damages and Penalties ing that a cor

14

!&.; ••
D MEANING OF TERMS §2
TOPIC 3. ENFORCEMENT BY SPECIFIC
PERFORMANCE AND INJUNCTION
Section
357. Availability of Specific Performance and lnjunction
ATION 358. Form of Order and Other Relief
359. Effect of Adequacy of Damages
360. Factors Affecting Adequacy of Damages
361. Effect of Provision for Liquidated Damages
362. Effect of U ncertainty of Terms
cceptance of 363. Effect of Insecurity as to the Agreed Exchange
364. Effect of U nfairness
365. Effect of Public Policy
)Ceeds to Be 366. Effect of Difficulty in Enforcement or Supervision
367. Contracts for Personal Service or Supervision
368. Effect of Power of Termination
SSIGNEE · · 369. Effect of Breach by Party Seeking Relief

TOPIC 4. RESTITUTION
370. Requirement That Benefit Be Conferred
371. Measure of Restitution lnterest
372. Specific Restitution
fTY 373. Restitution When Other Party Is in Breach
374. Restitution in Favor of Party in Breach
375. Restitution When Contract Is Within Statute of Frauds
376. Restitution When Contract Is Voidable
377. Restitution in Cases of Impracticability, Frustration, Non-Occur-
rence of Condition or Disclaimer by Beneficiary

TOPIC 5. PRECLUSION BY ELECTION AND AFFIRMANCE

378. Election Among Remedies
379. Election to Treat Duties of Performance Under Aleatory Contract as
Discharged
380. Loss of Power of Avoidance by Affirmance
381. Loss of Power of Avoidance by Delay
382. Loss of Power to Affirm by Prior Avoidance
383. Avoidance in Part
384. Requirement That Party Seeking Restitution Return .Benefit
385. Effect of Power of Avoidance on Duty of Performance or on Duty
Arising Out of Breach

CHAPTER l. MEANING OF TERMS

· dAGES § l. Contract Defined
A contract is a promise or a set of promises for the breach of which
the law gives a remedy, or the performance of which the law in saine way
recognizes as a duty.

§ 2. Promise; Promisor; Promisee; Be.neficiary

(1) A promise is a manifestation of intention to act or refrain from
acting in a specified way, so made asto justify a promisee in understand-
ing that a commitment has been made.

15
 §2 RESTATEMENT OF CONTRACTS-SECOND

(2) The person manifesting the intention is the promisor. but which i
performance,
(3) The person to whom the manifestation is addressed is the
promisee.
( 4) Where performance will benefit a person other than the promis- CHAPTJ
ee, that person is a beneficiary.

§ 3. Agreement Defined; Bargain Defined

§ 9. Part
There m
An agreement is a manifestation of mutual assent on the part of two
promisee, bu
or more persons. A bargain is an agreement to exchange promises or to
exchange a promise for a performance or to exchange performances.
§ 10. Mu
§ 4. How a Promise May Be Made
(1) Whe
A promise may be stated in words either oral or written, or may be
inferred wholly or partly from conduct. all of them rr
also promise1
§ 5. Terms of Promise, Agreement, or Contract (2) Whe

(1) A term of a promise or agreement is that portion of the inten-

promise may
tion or assent manifested which relates to a particular matter. the same or
ofthem.
(2) A term of a contract is that portion of the legal relations
resulting from the promise or set of promises which relates to a particu- § 11. Wl1
lar matter, whether or not the parties manifest an intention to create
those relations. A contra
unit and om
§ 6. Formal Contracts singly or witl

The following types of contracts are subject in sorne respects to § 12. Ca

· special rules that depend on their formal characteristics ~nd differ from
those governing contracts in general: (1) No e
incur at leaE
(a) Contracts under seal, partial and
(b) Recognizances, depend upon
(e) Negotiable instruments and documents, (2) A na
legal capacit~
(d) Letters of credit.
(a)
§ 7. Voidable Contracts (b)
A voidable contract is one where one or more parties have the (e) 1
power, by a manifestation of election to do so, to avoid the legal relations
created by the contract, or by ratification of the contract to extinguish (d)
the power of avoidance.
§ 13. Pe
§ 8. Unenforceable Contracts A persm
An unenforceable contract is one for the breach of which neither the is under gua
remedy of damages nor the remedy of specific performance is iwailable, defect.

16
D PARTIES AND CAPACITY § 13
nisor. but which is recognized in sorne other way as creating a duty of
Lddressed 1s the performance, though there has been no ratification.

than the promis- CHAPTER 2. FORMATlON OF CONTRACTS-

PARTIES AND CAPACITY
§ 9. Parties Required
n the pait of two There must be at least two parties to a contract, a promisor and a
:e promises or to promisee, but there may be any greater number.
re performances.
§ 10. Multiple Promisors ami Promisees of the Same Per-
formance
·itten, or may be (1) Where there are more prorrlisors than one in a contract, sorne or
all of them may promise the same performance, whether or not there are
also promises of separate performances.
(2) Where there are more promisees than one in a contract, a
ion of the inten- promise may be made to sorne or all of them as a unit, whether or not
.atter. the same or another performance is separately promised to one or more
ofthem.
: legal relations
Ltes to a particu- § 11. When a Person May Be Both Promisor and Promisee
ention to create
A contr.act may be formed between two or more persons acting as a
unit and one or more but fewer thari all of these persons, acting either
singly or with other persol).s,
ome respects to § 12. Capacity to Contract
: and differ from
(1) No one can be bound by contract who has not legal capacity to
incur at least voidable contractual duties. Capacity to contract may be
partial and its existence in respect of a particular transaction may
depend upon the nature of the t'ransaction 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 guard~anship; or ·
(b) an infant, or
1arties have the
(e) mentally ill or defective, or
1e legal relations
tct to extinguish (d) intoxicated.

§ 13. Persons Affected by Guárdianship

A person has no capacity to incur contractual duties if his property
hich neither the is under guardianship by reason of an adjudication of mental illness or
mee is available, defect.

1'7
§ 14 RESTATEMENT OF CONTRACTS-SECOND

§ 14. Infants TI
Unless a statute provides otherwise, a natural person has the
capacity to incur only vciidable contractual duties until the beginning of
§ 18. M~
the day before the person's eighteenth birthday.
Manifes1
§ 15. Mental Illness or Defect · party either •
(1) A person incurs only voidable contractual duties by entering into § 19. Co
a transaction if by reason of mental illness or defect
·(1) The
(a) he is unable to · understand in a reasonable manner the wri tten or s¡:
nature and consequences of the transaction, or ·(2) The
(b) he is unable to act in a reasonable manner in relation to the assent unles
transaction and the other party has reason to know of his reason to kn
condition. · assents.
(2) Where the contract is made on fair terms and the other party is (3) The
without knowledge of the mental illness or defect, the power of avoid- not in fact ~
ance under Subsection (1) terminates to the extent that the contract has because of fr
been so performed in whole or in part or the circumstances have so
changed that avoidance would be unjust. In such a case a court may § 20. EfJ
grant relief on such equitable terms as justice requires. (1) The1
parties attac
§ 16. Intoxicated Persons . · (a)
A person incurs only v:oidable contractual duties by entering into a
transaction if the other party has reason to know that by reason of (b)
intoxication
(a) he is unable to understand in a reat:iunable manner the (2) The
nature and consequences of the transaction, or with the me¡
(b) he is unable to act in a r:easonable manner in relation to the (a)
transaction.

(b)
CHAPTER 3. FORMATION OF
CONTRACTS- · MUTUAL ASSENT
TOPIC l. IN GENERAL § 21. In1
§ 17. Requirement of a l3argain Neither
ing is essen'
(1) Except as stated in Subsection (2), the formation of a contract intention th:
requires a bargain in which there is a manifestation of mutual assent to formation of
the exchange and a consideration. ·
(2) Whether or not there ·is a bargain a contract m ay be formed § 22. M(
under special rules applicable to formal contracts or under the rules (1) The
stated in §§ 82-94. takes the fe
acceptance b

18
)
MUTUAL ASSENT § 22

TOPIC 2. MANIFESTATION OF ASSENT

:lerson has the IN GENERAL
he beginning of
§ 18. Manifestation of Mutual Assent
Manifestation of mutual assent to an exchange requires that each
party either make a promise or begin or render a performance.
by entering into § 19. Conductas Manifestation of Assent
(1) The manifestation of assent· may be made wholly or partly by
>le manner tlie written or spoken words or by other acts or by failure to act.
or
(2) The conduct of a party is not effective as a manifestation of his
1 relation to the assent unless he intends to engage in the conduct and knows or has
to know of his reason to know that the other party may infer from his conduct that he
assents .
.e other party is (3) The conduct of a party may manifest assent even though he does
power of avoid- not in fact assent. In such cases a resulting contract may be voidable
;he contract has because of fraud, duress, mistake, or other invalidating cause.
;tances have so
se a court may § 20. Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the
parties attach materially different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning
entering into a attached by the other; or
tt by reason of (b) each party knows or each party has reason to lmow the
meaning attached by the other.
1le manner the (2) The manifestations of the part.ies are operative .in accurdance
)1' .with the meaning attached to them by one of the parti'es if
1 relation to the (a) that party does not know of any different meaning attached
by the other, and the other knows the meaning attached by
the first party; or
-
tF (b) that party has no reason to know of any different meaning
attached by the other, and the other has reason to lmow the
NT meaning attached by the first party.

§ 21. Intention to Be Legally Bound

Neither real nor apparent intention that a promise be legally bind-
ing is essential to the formation of a contract, but a manifestation of
'n of a contract intention that a promise shall not affect legal relations may prevent the
mtual assent to formation of a contract. ·

may be formed § 22. Mode of Assent: Offer and Acceptance

mder the rules (1) The manifestation of mutual assent to an exchange ordinarily
takes the form of an offer or proposal by one party followed by an
acceptance by the other party or parties.

19
.. § 22 RESTATEMENT OF CONTRACTS-SECOND

(2) A manifestation of mutual assent may be made even though (e) w

neither offer nor acceptance can be identified and even though the w
moment of formation cannot be determined. C(
r(
§ 23. Necessity That Manifestations Have Reference to Each (2) Unles
Other embody term1
It is essential to a bargain that each party manifest assent with tion of whicl
reference to the manifestation of the other. annúuncemen

TOPIC 3. MAKING OF OFFERS § 29. To l

(1) The n
§ 24. Offer Defined persons in wh
An offer is the manifestation of willingness to enter into a bargain, (2) An of
so made as to justify another person in understanding that his assent to or in. . one or
that bargain is invited and will conclude it. separately or
promise or re1
§ 25. Option Contracts
An option contract is a promise which meets the requirements for
§ · 30. For
the formation of a contract and limits the promisor's power to revoke an (1) An ol
offer. affirmative m
forming a spe
§ 26. Preliminary Negotiations of terms in hi
A manifestation of willingness to enter into a bargain is not an offer (2) Unle~
if the person to whom it is addressed knows or has reason to know that stances, an oJ
· the person making it does not intend to conclude a bar gain until he has reasciriable in
made a further manifestation of assent.
§. 31. Off¡
§ 2 7. Existence of Contract Where Written Memorial Is Con-
templated ·. An-offer
acceptance 01
Manifestations of assent that are in themselves sufficient to~ con-
acceptances fJ
elude a contract will not be prevented from so operating by the fact that
the parties also manifest an intention to prepare and adopt a written
memorial thereof; but the circumstances may show that the agreements
§ 32.· Inv
are preliminary negotiations. In case <
accept either
§ 28. Auctions rendering the
(1) At an auction, unless a contrary intentión is manifested, § 33. Cm
(a) the auctioneer invites offers from successive bidders which (1) Even
he may accept or reject; urtderstood a
(b) when goods. are put up without reserve, the auctioneer unless the te1
makes an offer to s·eii at any price bid by the highest bidder, . (2) The
and after the auctioneer calls for bids the goods cannot be . basis . for de
withdrawn unless no bid is made within a reasonable time; appropriate r

20
D MUTUAL ASSENT § 33
.de even though (e) whether or not the auction is without reserve, a bidder may
ven though . the withdraw his bid until the auctioneer's announcement of
completion of the sale, but a bidder's retraction does not
revive any previous bid.
~rence to Each
(2) Unless a contrary intention is manifested, bids at an auction
embody terms made known by advertisement, posting or other publica-
fest assent with tion of which bidders are or should be aware, as modified by any
announcement made by the auctioneer when the goods are put up.

§ 29. To Whom an Offer Is Addre~sed

(1) The manifested intention of the offeror determines the person or
persons in whom is created a power of acceptance.
~ into a bargain, (2) An offer may create a power of acceptance in a specified person
1.at his assent to or in one or more of a specified group or class of persons, acting
separately or together, or in anyone or everyone who makes a specified
promise or renders a specified performance.

·equirements fár § 30. Form of Acceptance Invited

;ver to revoke an (1) An offer may invite or require acceptance to be made by an
affirmative answer in words, or by performing or refraining from per-
forming a specified act, or may empower the offeree to make a selection
of terms in his acceptance.
n is not an ·offei.: (2) Unless otherwise indicated by the language or the circum-
on to know that stances, an offer invites acceptance in any manner and by any medium
ain· untii he has reasonable in the circumstances.

§ 31. Offer Proposing a Single Contract or a Number of Con-

morial Is Con- tracts
An offer may propase the formation of a single contract by a single
1fficient to. con- acceptance or the formation of a number of contracts by successive
by the fact that acceptances from time to time.
adopt a written
the agreements § 32. Invitation of Promise or Performance
In case of doubt an offer is interpreted as inviting the offeree to
accept either by promising to perform what the offer requests or by
rendering the performance, as thE_J offeree chooses.
ifested, ·
§ 33. Certainty
3 bidders which (1) Even though a manifestation of intention is intended to be
understood as an offer, it cannot be accepted so as to form a contract
the auctioneer unless the terms of the contract are reasonably certain.
' highest bidder, (2) The terms of a contract are reasonably certain if they provide a
soods cannot be basis for determining the existence of a breach and for giving an
·easonable ·time; appropriate remedy.

21
§ 33 RESTATEMENT OF CONTRACTS-SECOND

(3) The fact that one or more terms of a proposed bargain are left (2) A mm
open or uncertain may show that a manifestation of intention is not unless the oJ
intended to be understood as an offer or as an acceptance. advisement.

§ 34. Certainty and Choice of Terms; Effect of Performance § 39. Cou

orReliance (1) A cou
(1) The terms of a contract may be reasonably certain even though relating to tl
it empowers one or both parties to make a selection of terms in the substituted b1
course of performance. (2) An of
(2) Part performance under an agreement may remove uncertainty a counter-offe
and establish 'that a contract enforceable as a bargain has been formed. unless the en
(3) Action in reliance on an agreement may make a contractual
§ 40. Tim
remedy appropriate even though uncertainty is not removed.

Rejection
TOPIC 4. DURATION OF THE OFFEREE'S POWER the power of
OF ACCEPTANCE power so that
§ 35. The Offeree's Power of Acceptance of an otherwü
unless the ac1
(1) An offer gives to the offeree a continuing power to complete the
manifestation ofmutual assent by acceptance ofthe offer. rejection or ce
(2) A contract cannot be created by acceptance of an offer after ·the § 41. Lap
power of acceptance has been terminated in one of the ways listed in
. (1) An o:
§ 36.
specified in th
§ . 36. Methods of Termination of the Power of Acceptance time.
(1) An offeree's power of acceptance may be terminated by (2) What
(a) rejection or counter-offer by the offeree, or the circumsta
made.
(b) lapse of time, or
(e) revocation by the offeror, or (3) Unles
stances, and 1
(d) death or incapacity of the offeror or offeree.
seasonably a<
(2) In addition, an offeree's power of acceptance is terminated by midnight on t
the non-occurrence of any condition of acceptance under the terms of the
offer. · § 42. Rev
§ 37. Termination of Power of Acceptance Under Option Con-
tract An offen
receives from
Notwithstanding §§ 38-49, the power of acceptance under an option
into the propc
contract is not terminated by rejection or counter-offer, by revocation, or
by death or incapacity of the offeror, unless the requirements are met for
the discharge of a contractual duty. § 43. Ind
An offen
§ 38. Rejection takes definitE
(1) An offeree's power of acceptance is terminated by his rejectio11 of proposed con1
the offer, unless the offeror has manifested a contrary intention. effect.

22
VD MUTUAL ASSENT § 43
l bargain are left (2) A manifestation of intention not to accept an offer is a rejection
· intention is not unless the offeree manifests an intention to take it under further
:e. advisement.

>f Performance § 39. Counter-Offers

(1) A counter-offer is an offer made by an offeree to his offeror
tain even though relating . to the same matter as the original offer and proposing a
of terms in the substituted bargain differing from that
.
proposed by. the original offer.
(2) An offeree's power of acceptance is terminated by his making of
nove uncertainty a counter-offer, unless the offeror has man!fested a contrary intention or
has been formed. unless the counter-offer manifests a contrary intention of the offeree.
ke a contractual
Jved. § 40. Time When Rejection or ColiJlter-Offer Terminates the
Power of Acceptance
:'S POWER Rejection or counter-offer by mail or telegram does not termínate
the power of acceptance until recl;)ived by the offeror, but limits the
power so that a letter or telegram of acceptance started after the sending
of an otherwise effective rejection or counter-offer is only a counter-offer
r to complete the unless the acceptance is receiVEid by the. offeror befare he receives the
'r. rejection or counter-offer.
m offer after the
te ways listed in § 41. Lapse of Time
(1) An offeree's power of acceptance is terminated at the time
specified in the offer, or, if no time ·is specified, at the end of a reasonable
\cceptance time.
ated by (2) What is a reasonable time is a question of fact, depending on all
the circumstances existing when the offer and attempted acceptance are
made.
(3) Unless otherwise indicated by the language or the circum-
stances, and subject to the rule stated in·§ 49, an offer sent by mail is
seasonably accepted if an acceptarice is mailed at any time befare
is terminated by midnight on the day on which the offer is received.
the terms of the
§ 42. Revocation by Communication From Offeror Received
.er Option Con- by Offeree
An offeree's power of acceptance is terminated when the offeree
under an option receives from the offeror a manifestation of an intention not to enter
by revocation, or into the proposed contract.
1ents are met for
§ 43. Indirect Communication of Revocation
An offeree's power of acceptance is terminated when the offeror
takes definite action inconsistent with an intention to enter into the
y his rejection of proposed contract and the offeree acquires reliable information to that
.tention. effect.

23
§ 44 RESTATEMENT OF CONTRACTS-SECOND

§ · 44. Effect of Deposit on Revocability of Offer ordinarily furn

creates a contJ
An offeror's power of revocation is ilot limited by the deposit of
money or other properLy Lo be forfeited in the event of revocation, but This is so wl
carries with it :
the deposit may be forfeited .to the extent that it is not a penalty.
See §§ 54, 62.
made by the of
§ 45. Option Contract Created by Part Performance or Ten- option contract
der
(1) Where an offer invites an offeree to accept by rendering a Illustration:
performance and does not invite ·a ·proniissory acceptance, an option 3. A pr01
contract is created when the offeree tenders or begins the invited specified <
performance or tenders a beginning of it. that Bis n
pays the
(2) The offeror's duty of performance under any option contract so within a 1
created is conditional on completion or tender of the invited performance refuses to l
in accordance with the terms of the offer. is a breach
Comment: . Illustrations: d. Beginnin
a. Offer limited to acceptance by vited performm
l. B owes A $5000 payable in
performance only. This Section is limit- tation to perfo
installments over a five-year peri-
ed to cases where the offer does not an invitation t.
od. A proposes that B discharge
invite a promissory acceptance. Such most such case
.the debt by paying $4,500 cash
an offer has often been referred ·.to as formance carri•
within one month, but reserves
an "offer for a unilateral contract." implied promiE
the right to refuse any such pay-
Typical illustrations are found in offers ance. See § 6~
~p.ent. A has not made an offer. A
of rewards or prizes and in non-com- . case where the
· tender by B in accordance with
mercüil arrangements among relatives plate or invite
the propasa! is an offer by B. ee, the beginni
and friends . See Comment b to ~ .3 2 . .
As to analogom; CFIRP.R arising under ·2: A, an insurance company, iR- ertheless comp
offers which .give the offeree power to sues a bulletin to its agents, enti- of mutual asse1
accept either by performing or by tled "Extra Earnings Agreement," eration for ar
promising to perform, as he chooses, · · providing for annual bonus pay- § 25. If the be
see §§ 32, 62. ments to the agents varying ac- requires the co
cording to "monthly premiums in tendei· of par1
!>· Manifestation of contrary inten- force" and "lapse ratio," but re- same effect. Pl
tion. The rule of this Section is de-
serving the right to change or dis- der may also c1
signed to protect the offeree in justifi-
continue the bonus, individually or in a situation ·
able reliance on the offeror's p1'o:iriise,
collectively, with or without no- vited to take u
and the rule yields to a manifestation
. tice, at any time before payment. a promise, if th
of intention which makes reliance . ün-
There is no offer or promise. nary performa1
justified. A reservation of power to re-
the offeree's fir
voke after performance has begun c. Tender of performance. A pro pos-
means that as yet there is no promise · . al to receive a payment ·or money or a
Illustrations:
and no offer . See §§ 2, 24. In particu- delivery of goods is an offer only if
lar, if the performance is one which · acceptance can be completed without 4. A offe1
requires the cooperation of both par- further cooperation by the offeror. If turn of loE
ties, such as the payment of mo~ey or there is an offer, it follows that accep- to the off.
the manual delivery of goods, a person tanee must be complete at the latest property a
who reserves the right to refuse to when performance is tendered. A ten- fíes B that
receive the performance has not :made der of performance, so bargained for mal{es a te
an offer. See § 26. ·· · and g iven in exchange for the offer, A conditio
VD MUTUAL ASSENT § 45
r ordinarily furnishes consideration and reward, and A refuses. There is a
creates a contract. See §§ 17, 71, 72. breach of contract by A.
)Y the deposit of
)[ revocation, but Thís is so whether or not the tender 5. A, a magazine, offers prizes in
is not a penalty. carríes with it any incidental promises. a subscription contest. At a time
See §§ 54, 62. If no commitment is when B has submitted the largest
made by the offeree, the contract is an number of subscriptions, A cancels
rmance or Ten- the contest. A has broken its con-
option contract. See § 25.
tract with B.
by rendering a lllustration: 6. A writes to her daughter B,
>tance, an option· 3. A promises B to sell him a living in another state, an offer to
lgins the invited specified chattel for $5, stating leave A's farm to B if B gives up
that B is not to be bound until he her borne and cares for A during
pays the money. B tenders $5 A's life, B remaining free to termí-
>ption contract so nate the arrangement at any time.
withín a reasonable time, but A
rited performance B gives up her home, moves to A's
refuses to accept the tender. There
is a breach of contract. farm, and begins caring for A. A is
bound by an option contract.
d. Beginning to perform. If the in-
vited performance takes time, the invi- 7. A offers to sell a piece of land
$5000 payable in to B, and promises that if B incurs
·er a five-year peri- tation to perform necessarily includes
an invitation to begin performance. In expense in employing experts to
; that B discharge appraise · the property the offer
aying $4,500 cash most such cases the beginning of per-
formance carries with it an express or will be irrevocable for 30 days. B
mth, but reserves hires experts and pays for their
fuse any such pay- implied promise to complete perform-
ance. See § 62. In the less common transportation to the land. A is
>t made an offer. A bound by an option contract.
·case where the offer does not contem-
n accordance with
:m offer by B. plate or invite a promise by the offer- 8. In January A, an employer,
ee, the beginning of performance nev- publishes a notice to his employ-
rance company, is- ertheless completes the manifestation ees, promising a stated Christmas
to its agents, enti- of mutual assent and furnishes consid- bonus to any employee who is con-
·nings Agreement," er~tion for an option contract. See tinuously in A's employ from Jan-
mnual bonus pay- §. 25. If the beginning of performance uary to Christmas. B, an employee
3.gents varying ac- requires the cooperation of the offeror, hired by the week, reads the no-
nthly premiums in tender of part performance has the tice and continues at work beyond
pse ratio," but re- same effect. Part performance or ten- the expiration of the current week..
tt to change or dis- der may also create an option contract A is bound by an option contract,
nus, individually or in a situation where the offeree is in- and if B is continuously in A's
;h or without no- vited to take up the option by making employ until Christmas a notice of
te before payment. a promise, if the offer invites a prelimi- revocation of the bonus is ineffec-
r or promise. nary performance before the time for tive.
(JI·mance. A propos- the offeree's final commitment. e. Completion of performance.
tent of money or a Where part performance or tender by
s an offer only if Illustrations: the offeree cre~tes an option contract,
completed without 4. A offers a reward for the re- the offeree is not bound to complete
by the offeror. If turn of lost property. In response performance. The offeror alone is
follows that accep- to the offer, B searches for the bound, but his duty of performance is
plete at the latest property and finds it. A then noti- conditional on completion of the offer-
is tendered. A ten- fies B that the offer is revoked. B ee's performance. If the offeree aban-
, so bargained for mal{es a tender of the property to dons performance, the offeror's duty to
mge for the offer, A conditional on payment of the perform never arises. See § 224, defin-

25
 RESTATEMENT OF CONTRACTS-SECOND

ing "condition," and Illustration 4 to of dealing, and any relevant usages of § 48~ Dea
that Section. But the condition may be trade. An offer(
excused, for example, if.the offeror pre-
vents performance, waives it, or repu- .offeror dies <
Illustration:
diates. See Comment b to § 225 and contract.
§§ 239, 278.
9. A makes a written promise to

f Preparations for performance.

pay $5000 to B, a hospital, "to aid § 49. Eff.
B in its humanitarian work." Re-
What is begun or tendered must be lying upon this and other like If COffiffil
part of the actual performance invited promises, B proceeds in its hu- within which
in order to preclude revocation under manitarian work, expending large extended if tl
this Section. Beginning preparations, sums of money and incurring large it is dueto tl
though they may be essential to carry- liabilities. Performance by B has the offeror o
ing out the contract or to accepting the begun, and A's offer is irrevocable. offeree neithE
offer, is not enough. Preparations to a contract ca
perform may, however, constitute jus- g. Agency contracts. This Section
frequently applies to agency arrange- have been pe
tifiable reliance sufficient to make the
offeror's promise binding under ments, particularly offers made to real Íts arrival see
§ 87(2). estate brokers. Sometimes there is a
In many cases what is invited de- return promise by the agent, particu- 1
pends on what is a reasonable mode of larly if there is an agreement for exclu-
acceptance. See § 30. The distinction sive dealing, since such an agreement § 50. Act
between preparing for performance normally imposes an obligation on the
and beginning performance in such agent to use best efforts. See Uniform (1) Acce¡
cases may turn on many factors: the Commercial Code § 2-306(2); compare
thereof made
extent to which the offeree's conduct is Restatement, Second, Agency § 378. In
other cases the agent does not promise .(2) Acce¡·
clearly referable to the offer, the defi-
nite and substantial character of that to act, but the principal must compen- the offer reql:
conduct, and the extent to which it is sate him if he does act. The rules gov- perfotmante ·
of actual or prospective benefit to the erning the principal's duty of compen- (3) · Acce¡
offeror rather than the offeree, as well sation are stated in detail in Chapter act essential1
as. the terms of the communications 14 of the Restatement, Second, Agen-
between the parties, their prior course cy, particularly §§ 443-57. § 51.. Eff;
§ 46. Revocation of General Offer Unless tl
learns of an e
Where an offer is made by advertisement in a newspaper or other . ed by .the ofl
general notification to the public or to a number of persons whose
· identity is unknown to the offeror, the offeree's power of acceptance is § 52 . . Wh
terminated when a notice of termination is given publicity by advertise- An offer
ment or other general notification equal to that given to the offer and no the considera
better means of notification is reasonably available.
§ 53. Acc
§ 4 7. Revocation of Divisible Offer
An offer contemplating a series of independent contracts by separate · (1) An ol
acceptances may be effectively revoked so as to terminate the power to if the offer in
create future contracts, though one or more of the proposed contracts (2) ExceJ
have already been formed by the offeree's acceptance. not con.s titut
exercises rea

26

·. t .. 1
'D MUTUAL ASSENT §53
relevant usages of . § 48. Death or Incapacity of Offeror or Offeree
An offeree's power of acceptance is terminated when the offeree or
offeror dies or is deprived of legal capacity to enter into the proposed
contract.
Nritten promise to
a hospital, "to aid § 49. Effect of Delay in Communication of Offer
itarian work." Re-
s and other like If communication of an offer to the offeree is delayed, the period
oceeds in its hu- within which a contract can be created by acceptance is not thereby
te, expending large : extended if the offeree knows or has reason to know of the delay, though
md incurring large it is due to the fault of the offeror; but if the delay is due to the fault of
·rmance by B has the offeror or to the means of transmission adopted by him, and the
>ffer is irrevocable. offeree neither knows nor has reason to know that there has been delay,
:cts. This Section a contract can be created by acceptance within the period which would
o agency m·range- have been permissible if the offer had been dispatched at the time that
>ffers made to real its arrival seems to indicate.
.etimes there is .a
he agent, particu- . TOPIC 5. ACCEPTANCE OF OFFERS
Teement for exclu~
uch an agreement § 50. Acceptance of Offer Defined; Acceptance by Perform-
L obligation on the ance; Acceptance by Promise
'orts. See .Uniform
(1) Acceptance of an offer is a manifestation of assent to the terms
2-306(2); compare
, Agency § 378. in thereof made by the offeree in a manner invited or required by the offer.
~ does not promise · (2) Acceptance by performance requires that at least part of what
ipal must compen- the offer requests be performed or tendered and includes acceptance by a
tct. The rules. gov- .. performance which operates as a return promise.
s duty of compen- (3) Acceptance by a promise requires that the offeree complete every
detail in Chapte!: act essential to the making of the promise.
nt, Second, Agen-
l3-57 .
§ 51. Effect of Part Performance Without Knowledge of Offer .
Unless the offeror manifests a contrary intention, an offeree who
learns of an offer after he has rendered part of the performance request-
rspaper or other ed by the offer may accept by completing the requested performance.
· persons whose ··
of acceptance is § 52. Who May Accept an Offer
ity by advertise- An offer can be accept ed only by a person whom it invites to furnish
the offer and no the consideration.

§ 53. Acceptance by Performance; Manifestation of Intention

Not to Accept
·acts by separate (1) An offer can be accept ed by the r endering of a performance only
tte the power to if the offer invites su ch an acceptance.
)posed contracts (2) Except as stated in § 69, the rendering of a performance does
not constitute an acceptance if within a r easonable time the offeree
exercises reasonable diligence to notify the offeror of non-acceptance.

27
§53 RESTATEMENT OF CONTRACTS-SECOND

(3) Where an offer of a promise invites acceptance by performance § 60. Ac•

and does not invite a promissory acceptance, the rendering of the invited
performance does not constitute an acceptance if befare the offeror
If an ofi
performs his promise the offeree manifests an intention not to accept.
terms in this
§ 54. Acceptance by Performance; Necessity of Notification If an offer
to Offeror acceptance, a
(1) Where an offer invites an offeree to accept by rendering a
performance, no notification is necessary to make such an acceptance § 61. Aé•
effective unless the offer requests such a notification. An accer
(2) If an offeree who accepts by rendering a performance has reason the offer is
to know that the offeror has no adequate means of learning of the depend on ar
performance with reasonable promptness and certainty, the contractual
duty of the offeror is discharged unless § 62. Eff
(a) the offeree exercises reasonable diligence to notify the offer-
or of acceptance, or (1) Whe1
(b) the offeror learns of th e performance within a reasonable by promise a
time, or the invited p
(e) the offer indicates that notification of acceptance is not by performar
required.
(2) Such
§ 55. Acceptance of Non-Promissory Offers performance.
Acceptance by promise may create a contract in which the offeror's
performance is completed when the offeree's promise is made.
§ 63. Th1
Unless tl
§ 56. Acceptance by Promise; Nt!cesslty of Notification to
(a) !
Offt!rur
Except as stated in § 69 or where the offer manifests a contrary .
intention, it is essential to an acceptance by promise either that the
offeree exercise reasonable diligence to notify the offeror of acceptance or
that the offeror receive the acceptance seasonably. (b)

§ 57. Effect of Equivoca! Acceptance

Where notification is essential to acceptanc~ by promise, the offeror § 64. · Acc
is not bound by an acceptance in equivocal terms unless he reasonably Acceptar
understands it as an acceptance.
instantaneou
§ 58. Necessity of Acceptance Complying With Terms of Offer applicable to
other.
An acceptance must comply with the requirements of the offer as to
the promise to be made or the performance to be renclered.
§ 65. Re:
§ 59. Purported Acceptance Which Adds Qualificatioris Unless e
A reply to an offer which purports to accept it but is conditional on medium of a<
the offeror's assent to terms adclitional to or different from those offered one customm
is notan acceptance but is a counter-offer. received.

28

4
,·~,~~·~·:·. ;,~,1_,.
D MUTUAL ASSENT .·· § 65
by performance § 60. Acceptance of Offer Which States Place, Time or Man-
ng of the invited ner of Acceptance
fore the offeror
•n not to accept. lf an offer prescribes the place, time or. manner of acceptance its
terms in this respect must be complied with in arder to create a contract.
>f Notification If an offer merely suggests a permitted place, time or manner of
acceptance, another method of acceptance is not precluded.
by rendering a
h an acceptance § 61. Acceptance Which Requests Chaitg'e of Terms
An acceptance which requests a charige Ór addition to the terms of
tance has reason the offer is not thereby invalidated unless the acceptance is made to
learning of the depend on an assent to the changed or added terms .
. the contractual
§ 62. Effect of Performance by Offeree Where Offer Invites
notify the offer- Either Performance or Promise .
(1) Where an offer invites an offeree .to choose between acceptance
tin a reasonable by promise and acceptance by performance, the tender or beginning of
the invited performance or a tender of a beginning of it is an acceptance
ceptance is not by performance.
(2) Such an acceptance operates as a promise to render complete
performance .
.ich the offeror's
nade. § 63. Time When Acceptance Ta~es Effeét
Unless the offer provides otherwise,
¡otification to
(a) an acceptance .made in a manner and by a medium invited
by an offer is operative and co.mpletes the manifestation of
fests a contrary
mutual assent as soon as putout of .the offeree's possession,
either that the
without regard to whether it ever reaches the offeror; but
of acceptance or
(b) an acceptance under an option contract is not operative
until received by the offeror. ·

nise, the offeror § 64. Acceptance By Telephone Or Teietype

;s he reasonably
Acceptance given by telephone . or other medium of substantially
instantaneous two-way communication is govei·ned by the principles
rerms of Offer applicable to acceptances where the parties are in the presence of each
other. ·
>f the offer as to
d.
§ 65. Reasonableness of Medium of Acceptance
ications Unless circumstances known to the offeree indicate otherwise, a
s conditional on medium of acceptance is reasonable if it is the one used by the offeror or
>m those offered one customary in similar transactions at the time and place the offer is
received.

29
§ 66 RESTATEMENT OF CONTRACTS-SECOND

§ 66. Acceptance Must Be Properiy Dispatched

An acceptance sent by mail · or otherwise from a distance is not
operati ve when dispatched, unless it is ·ptoperly addressed and su eh
e
other precautions taken as are ordinarily observed to insure safe trans- TOPIC l.
mission of similar messages.
§ 71. Req
§ 67. Effect of Receipt of Acceptance lmproperly Dispatched (1) To co
Where an acceptance is seasonably dispatched but the offeree uses must be bargE_
means of transmission not invited by · the · offer or fails to exercise (2) A per
reasonable diligence to insure safe transmission, it is treated as operative by the promis
upon dispatch if received within the time in which a properly dispatched in exchange f(
acceptance would normally have arrived. (3) The p

§ 68. What Constitutes Receipt of R:evocation, Rejection, or (a) · a

Acceptance (b) a
A written revocation, rejection, or acceptance is received when the (e) tl
writing comes into the possession of the person addressed, or of sorne (4) The ¡:
person authorized by him to receive it for him, or when it is deposited in
sor or to sornE
sorne place which he has authorized as the place for this or similar
other person.
communications to be deposited for him.
e
§ 69. Acceptance by Silence or Exercise of Dominion a. Othe1~ m
(1) Where an offeree fails to. reply ·to · an offer, his silence and ation." The wc
inaction operate as an acceptance in the following cases only: often been use<
(a) Where an offeree takes the beiiefit of offered services with ent from that
used merely to
reasonable opportunity to ·reject them and reason to know
clusion that a
that they were offered with the expectation of compensation.
Historically, its
(b) Where the offeror has stated or given the offeree reason to have been tha
understand that assent may be· manifested by silence or met under whi<
inaction, and the offeree in remaining silent and inactive sit would lie. I
intends to accept the offer. equivalent of
quired in an a<
(e) Where because of previous dtmliri.gs or otherwise, it is rea-
has been said,
sonable that the offeree should notify the offeror if he does ation," althoug:
not intend to accept. . no element of b
(2) An offeree who does any act inconsistent with the offeror's enforcement of
ownership of offered property is bound .in . accordance with the offered On the other l
terms unless they are manifestly unreasonable. But if the act is wrongful sometimes bee:r
as against the offeror it is an acceptance only if ratified by him. any reason as
promise, even ·
§ 70. Effect of Receipt By Offerol.· of a Late or Otherwise insufficient. In
erences to prm
Defective Acceptance
of love and aff,
A late or otherwise defective acceptarice may be effective as an offer sideration," to
to the original offeror, but his silence operates as an acceptance in such a and to conside1
case only as stated in § 69. ance on a gratu

30
TD CONSIDERATION § 71

CHAPTER 4. FORMATION OF
distance is not CONTRACTS-CONSIDERATION
ressed and such
nsure safe trans- TOPIC l. THE REQUIREMENT OF CONSIDERATION
§ 71. Requirement of Exchange; Types of Exchange
!rly Dispatched (1) To constitute consideration, a performance or a return promise
the offeree uses must be bargained for.
fails to exercise (2) A performance or return promise is bargained for if it is sought
'ated as operative by the promisor in exchange for his promise and is given by the promisee
)perly dispatched in exchange for that promise.
(3) The performance may consist of
t, Rejection, or (a) an act other than a promise, or
(b) a forbearance, or
)Ceived when the (e) the creation, modification, or destruction of a legal relation.
ssed, or of sorne
(4) The performance or r eturn promise may be given to the promi-
it is deposited in
sor or to sorne other person. It may be given by the promi"see or by sorne
~ this or similar
other person.
Comment: Consideration h as also been used to
1inion refer to the element of exchange with-
a. Other meanings of "consider-
his silence and out regard to legal consequences. Con-
ation. " The word "consideration" has
only: sistent with that usage h as been the
often been used with meanings differ-
use of the phrase "sufficient consider-
red services with ent from that given here. It is often
ation" to express the legal conclusion
. reason to know used m~rely to express the legal con-
that one requirem ent for an enforce-
of compensation. clusion that a promise is enforceable.
able bargain is m et . Here § 17 states
Historically, its primary meaning m ay
offeree r eason to the element of exchange required for a
have .been that the conditions were
ed by silence or contract enforceable as a bargain as "a
met under which an action of assump-
consideration." Thus "consideration"
ent and inactive sit would lie. It was also used as the
r efers toan element of exchange which
equivalent of the quid pro quo re-
is sufficient to satisfy the legal require-
quired in an action of debt. A seal, it
erwise, it is rea- ment; the word "suffícient" would be
has been said, " imports a consider-
)fferor if he does redundant and is not used.
ation,". although the law was clear tha t
no element of bargain was necessary to b. "Bargained for." In the typical
ith the offeror's enforcement of a promise under sea!. bargain, the consideration and the
with the offered On the other hand, consideration has promise bear -a reciproca! relation of
te act is wrongful sometimes been u sed to refer to almost motive or inducen~e nt : the consider-
ratified by him. any reason asserted for enforcing a ation induces the making of the prom-
promise, even though the reason was ise and the promise induces the fur-
) or Otherwise insufficient. In this sense we find ref- nishing of the consideration. Here, as
erenc·es to promises " in consideration in the matter of mutual assent, the law
of !ove and affection," to "illegal con- is concerned with the externa! man-
~ctive as an offer sideration," to "past consideration," ifestation rather than the undisclosed
~ptance in such a and to consideration furnished by reli- mental state: it is enough that one
ance on a gratuitous promise. party manifests an intention to induce

31
§ 71 RES1'ATEMENT OF CONTRACTS-SECOND

the other's response and to be induced ise. As to the enforcement of such pose a burden o
by it and that the other responds in promises, see § 90. the donor. See
accordance with the inducement. See 4. A desires to make a binding
In such cases t:
§ 81; compare §§ 19, 20. But it is not promise to give $1000 to his son B. bargain and giJ.
enough that the promise induces the Being advised that a gratuitous depending on t:
conduct of the promisee or that the promise is not binding, A writes by the parties.
conduct of the promisee induces the out and signs a false recital that B may be no ha
making of the promise; both elements has sold him a car for $1000 and a agreement is e
must be present, or there is no bar- promise to pay that amount. performance n:
gain. Moreover, a mere pretense of There is no considenition for A's ation or the a¡
bargain does not suffice, as where pro mise. fully or partly e
there is a false recital of consideration the reliance of (
5. A desires to make a binding enrichment ·of
or where the purported consideration promise to give $1000 to his son B. § 90.
is merely nominal. In such cases there Being advised that a gratuitous
is no consideration and the promise is promise is not binding, A offers to Illustrations:
enforced, if at all, as a promise binding buy from B for $1000 a book
without consideration under §§ 82-94. 6. A offen
worth less than $1. B accepts the
See Comments b ande to § 87. by B arid to
offer lmowing that the purchase of
therefor. B'
the book is a mere pretense. There
of the boo1
Illustrations: is no consideration for A's promise
A's promise
l. A offers to buy a book owned to pay $1000.
ties knpw ti
by B and to pay B $10 in exchange c. Mixture of bargain and gift. In ·ly sell for ~
therefor. B accepts the offer and most commercial bargains there is a motive in 1
delivers the book to A. The trans- rough equivalence between the value make a gif
fer and delivery of the book consti- promised and the value received as 7. A. own!
tute a performance and are con- consideration. But the social functions
which is su
sideration for A's promise. See of ba.rgains include the provision of secure··a· dE
Uniform Commercial Code §§ 2- opportunity for free individual action
isE:JS to ma.H
106, 2-301. This is so even though and exercise of judgment and the fix-
his son B a
A at the time he makes the offer ing of values by prívate action, either
gage, and
secretly intends to pay B $10 generally or for purposes of the partic-
subject ~o
whether or not he gets the book, ular transaction. Those functions
ceptance-of
or even though B at the time he would be impaired by judicial review of
era~ion for
accepts secretly intends not to col- the values so fixed. Ordinarily, thére- mortgage ¿,
lect the $10. fore, courts do not inquire into the
adequacy of consideration, particularly 8. A and l
2. A receives a gift from B of a where one or both of the values ex- vanee $100
book worth $10. Subsequently A changed are difficult to measure. See loan. B's 1
promises to pay B the value of the § 79. Even where both parties know loan is · not
book. There is no consideration for that a transaction is in part a bargain promise to
A's promise. This is so even and in part 1:! gift, the element of bar- when mad'
though B at the time he makes the gain may nevertheless furnish consid- · B's.promise
gift secretly hopes that A will pay eration for ·the entire transaction. d. Types ofc
him for it. As to the enforcement ation may consi
On the other hand, a gift is not
of such promises, see § 86. of a return pro
ordinarily treated as a bargain, and a
3. A promises to make a gift of promise to make a gift is not made a way of perform1
$10 to B. In reliance on the prom- bargain by the promise of the prospec- · act of forbearan
ise B buys a book from C and tive donee to accept the gift, or by his al specified ac
promises to pay C $10 for it. There acceptance of part of it. This may be · which the -offer
is no consideration for A's prom- true even thoqgh the terms of gift im- m· such conduct

32

~
..!f,,:¿l...:;*b..i;; ....
'D CONSIDERATION § 71
tforcement of such pose a burden on the donee as well as ified result. Or either the offeror or the
90. the donor. See Illustration 2 to § 24. offeree may request as consideration
J make a binding
In such cases the distinction between the creation, modification or destruc-
$1000 to his son B. bargain and gift may be a fine one, tion of a purely intangible legal rela-
that a gratuitous depending on the motives manifested tion. N ot infrequently the consider-
binding, A writes by the parties. In sorne cases there ation bargained for is an act with the
false recital that B may be no bargain so long as the added requirement that a certain legal
ar for $1000 anda agreement is entirely executory, but result shall be produced. Consideration
ty that amount. performance may furnish consider- by way of return promise requires a
tsideration for A's ation or the agreement may become promise as defined in § 2. Consider-
fully or partly enforceable by virtue of ation may consist partly of promise
the reliance of one party or the unjust and partly of other acts or forbear-
) make a binding
enrichment of the other. Compare ances, and the consideration invited
lilOOO to his son B.
§ 90. may be a performance or a return
that a gratuitous
·inding, A offers to promise in the alternative. Though a
Illustrations: promise is itself an act, it is treated
)r $1000 a book
6. A offers to huy a book owned separately from other acts. See § 75.
$1. B accepts the
tat the purchase of by B and to pay B $10 in exchange
therefor. B's transfer and delivery Illustrations:
re pretense. There
of the book are consideration for
on for A's promise 9. A promises B, his nephew
A's promise even though both par-
aged 16, that A will pay B $1000
ties know that such books regular-
-gain and gift. In when B becomes 21 if B does not
ly sell for $5 and that part of A's
trgains there is a smoke before then. B's forbear-
motive in making the offer is to
>etween the value ance to smoke is a performance
make a gift to B. See §§ 79, 81.
value received as and if bargained for is consider-
1e social functions 7. A owns land worth $10,000 ation for A's promise.
the provision of · which is subject to a mortgage to
secure a debt of $5,000. A prom- 10. A says to B, the owner of a
individual action garage, "I will pay you $100 if you
ment and the fix~ ises to make a g·ift of the land to
his son B and to pay off the mort- will make my car run properly."
vate action, either The production of this result is
10ses of the partic- gage, and later gives B a deed
subject to the mortgage. B's ac- consideration for A's promise.
Those functions
ceptance of the deed is not consid- 11. A has B's h01·se. in his posses-
1 judicialreview of
Ordinarily, there- eration for A's promise to pay the sion. B writes to A, "If you will
mortgage debt. promise me $100 for the horse, he
inquire into the
ation, particularly 8. A and B agree that A will ad- is yours." A promptly replies mak-
of the values ex- . vance $1000 to B as a gratuitous ing the requested promise. The
t to measure. See loan. B's promise to accept the property in the horse at once
10th parties know loan is not consideration for A's passes to A. The change in owner-
in part a bargain promise to make it. But the loan ship is consideration for A's prom-
1e element of bar- when made is consideration for ise.
ss furnish consid- . B's promise to repay. 12. A promises to pay B $1,000 if
transaction. d. Types of consideration. Consider- B will make an offer to C to sell C
nd, a gift is not ation may consist of a performance or certain land for $25,000 and will
a bargain, and a of a r eturn promise. Consideration by leave the offer open for 24 hours.
\ift is not made a. way of performance may be a specified B makes the requested offer and
ise of the prospe~ ­ act of forbearance, or any one of sever- forbears to revoke it ·for 24 hoúrs,
the gift, or by his a! specified acts or forbearances of but C does not accept. The cre-
f it. This may be which the offeree is given the choice, ation of a power of acceptance in e
l terms of gift ini- or such conduct as will produce a spec- is consideration for A's promise.

33
 §71 RESTATEMENT OF CONTRACTS-SECOND

13. A mails a written order to B, to C is consideration for A's prom- § 75. Ex

offering to huy specified machin- ise.
Except a
ery on specified terms. The order 15. A makes a promissory note consideratim
provides "Ship at once." B's payable to B in return for a pay-
prompt shipinent or promise to eration.
ment by B to C. The payment is
ship is consideration for A's prom- consideration for the note.
ise to pay the price. See § 32; Uni-
16. A, at C's request and in ex- a. The exe•
form Commercial Code § 2-
change for $1 paid by e, promises ern times the
206(1)(b).
B to give him a book. The pay- is not limited
e. Consideration moving from or to ment is consideration for A's ed, but is exte
a third person. It matters not from promise. utory exchan¡
whom the consideration moves or to 17. A promises B to pay B $1, in exchanged for
whom it goes. If it is bargained for and exchange for 'C's promise to A to the element '
given in exchange for the promise, the give A a book. The promises are not present; f
promise is not gratuitous. consideration for one another. present at all
18. A promises to pay $1,000 to rect than in t
Illustrations: B, a bank, in exchange for the pleted exchar
14. A promises B to guarantee delivery of a car by C to A's son D. forced by virV
payment of a bill of goods if B sells The delivery of the car is consider- without more.
the goods to C. Selling the goods ation for A's promise. bargains are ·
stood and is r
§ 72. Exchange of Promise for Performance tions by cust
fact of bargair
Except as stated in §§ 73 and 74, any performance which 1s bar-· cautionary an•
gained for is consideration. form . Compat
§ 72. Evident
are largely
§ 73. Performance of Legal Duty
Frauds rather
Performance of a legal duty owed to a promisor which is neither of considerati<
doubtful nor the subject of honest dispute is not consideration; but a b. Promise
similar performance is consideration if it differs from what was required principie of tl
by the duty in a way which reflects more than a pretense of bargain. termining wh
ation, one's v
§ 7 4. Settlement of Claims deed but no h
are stated in
(1) Forbearance to assert or the surrender of a claim or defense which the ap]
which proves to be invalid is not consideration unless has pmduced
which have so
(a) the claim or defense is in fact doubtful because of uncertain- b e exceptions
ty asto the facts or the law, or mented upon ·
(b) the forbearing or surrendering party believes that the claim c. Perform
or defense may be fairly determined to be valid. settlement of <
form a legal <
(2) The execution of a written instrument surrendering a claim or for a return
defense by one who is under no duty to execute it Íp consideration if the ance would bt
execution of the written instrument is bargained for even though he is surrender a e:
not asserting the claim or defense and believes that no valid claim or bear from as~
defense exists. only if perfor
pro mise of sw

34

••
ND CONSIDERATION § 75
ration for A's prom- § 75. Exchangeof Promise for Promise
Except as stated in§§ 76 and 77, a promise which is bargained for is
a promissory note consideration if, but only if, the promised performance would be consid-
n return for a pay-
eration.
C. The payment is
or the note. Comment: the same questions as the performance
request and in ex- a. The exécutory exchange. In mod- would: ls the duty owed to the maker
paid by e, promises ern times the enforcement of bargains of the return promise? ls the claim or
, a book. The pay- is not limited to those partly complet- defénse known to be invalid? See
3ideration for A's §§ 73, 74.
ed, but is extended to the wholly exec-
utory exchange in which promise is Illustrations:
lS B to pay B $1, in exchanged for promise. In such a case
~'s promise to A to the element of unjust enrichment is l. · A promises to pay a debt to B,
. The promises are not present; the element of reliance, if or to perform an existing contrac-
or one another. present at all, is less tangible and di- tual duty to B, or to perform his
duty as a public official. The legal
3S to pay $1,000 to rect than in the case of the half-com-
duty is neither doubtful nor the
exchange for the pleted exchange. The promise is en-
subject of honest dispute, but A
T by e to A's son D. forced by virtue of the fact of bargain,
would not have fulfilled the duty
· the car is consider- without more. Since the principie that
but for B's return promise. A's
·omise. bargains are binding is widely under-
promise is not consideration for
stood and is reinforced in many situa·-
.B's return promise. Compare § 73.
tions by custom and convention, the
fact of bargain also tends to satisfy the · 2. A promises B to surrender or
~ce which is bar- cautionary and channeling functions of to forbear su.it upon a claim either
form. Compare Comments b and e to against B or against C. A knows
§ 72. Evidentiary safeguards, however,. .the claim is invalid. A's promise is
are largely left to the Statute of . not consideration for a return
Frauds rather than to the requirement. promise by B. Compare§ 74.
which is neither of consideration. See Chapter 5. d. "Void" promi:;es. The value uf a
tsideration; but a promise does not necessarily depend
b. Promise and performance. The
vhat was required upon the availability of a legal remedy
principie of this Section is that, in de-
for bi·each, and bargains are often
~tense of bargain. termining whether there is consider-
made 'in consideration of promises .
ation, one's word is as good as one's
~hich ·are voidable or unenforceable.
deed but no better. More detailed rules
Such a promise may be consideration
are stated in §§ 76- 78 for cases in
claim or defense for a return promise. See § 78. But it
which the application of this principie
is sometimes suggested that a promise
has produced problems. Certain . cases
is not consideration if it is not binding,
which have sometimes been thought to
mse of uncertain- or if .i t is "void." The examples used
be exceptions to the principie are com-
commonly involve total lack of capacity
mented upon below.
to contract (see §§ 12, 13), indefinite
;es that the claim c. Performance of legal cluty . and .. .promises (see §§ 33-3:4), promises
ralid. settlement of claims. A promise to per- lacking consideration, or promises un-
form a legal duty is not consideration . enforceable as against public policy
dering a claim or for a return promise unless perform- (see Chapter 8). Such cases are not
•nsideration if the ance would be. Similarly, a promise to · exceptions to the rule stated in this
!Ven though he is surrender a claim or defense or to for- Section. In sorne of them there is no
no valid claim or bear from asserting it is consideration promise within the definition in § 2, in
only if performance would be. Thus a others the return promise would not
promise of such performance may raise · ·be binding whether the consideration

35
§ 75 RESTATEMENT OF CONTRACTS-SECOND

consisted of a promise or of perform- On either basis, B's promise is § 78. Ve

ance, in sorne the invalidity of the re- oconditional on A's forbearance and
turn promise rests on other policies The fac1
can be enforced only if the condi-
than those embodied in the require- ble does not
tion is met.
ment of considenition.
5. A, a married man, and B, an § 79. Ac
Illustrations: unmarried woman, make mutual
promises to marry. B neither
If the r
3. While A's property is under
knows noro has reason to know requirement
guardianship by reason of an adju-
dication of mental illness, A makes othat A is married. B's promise is (a)
an agreement with B in which B consideration and B may recover
makes a promise. B's promise is odamages from A for breach of his
(b)
not a contract, whether the con- promise though B would have a
sideration consists of a promise by defense to a similar action by A. (e)
A or performance by A. Compare oSee§ 180.
§ 13; Restatement of Restitution
o o6. A promises B $100 in return
§ '80. M1
§ 139.
o for B's promise to cut timber on (1) The
4. A promises to forbear suito
land upon which A is a trespasser. for and giv
against B in exchange for B's
promise to pay a liquidated and B neither knows nor has reason to promise in t
undisputed debt to A. A's promise oknow that A is not privileged to (2) The
is not binding because B's promise ocut the timber. B's promise is con-
consideratio:
is not consideration under § 73, sideration and B may recover
the whole fr,
but A's promise is neve1~theless damages from A for breach of his
consideration for B's. Moreover; promise though B would have a
odefense to a similar action by A.
§ 81. e(]
B's promise would be enforceable
without consideration under § 82. o
0
'See Illustration 2 to § 180. (1) The
making of a
§ 76. Conditional Prorilise o
pro mise.
(1) A conditional promise is not consideration if the promisor lmows (2) The
at the time of making the promise that the condition cannot occur. or return pr
from being e
(2) A promise conditional on ~ per(ormance by the promisor is a
promise of alternati ve performances within § 77 unless occurrence of the
condition is also promised. ·

§ 77. Illusory and Alternative Promises § 82. Pr

A promise or apparent promise is not consideration if by its terms
the promisor or purported promisor reserves a choice of alternative
o
(1) A p
performances unless quasi -contra
indebtednes!
(a) each of the alternative performances would have been con- statute of lir
sideration if it alone had been bargained for; or (2) The
(b) one of the alternative performances would have been consid- indicate a di
eraban and there is or appears to the parties to be a (a)
substantial possibility that befare the promisor exercises his
choice events may eliminate the alternatives which would (b) o

not have been consideratiori:

36
'D CONSIDERATION § 82
s, B's promise is § 78. Voidable and Unenforceable Promises
.'s forbearance and
The fact that a rule of law renders a promise voidable or unenforcea-
. only if the condi-
ble does not prevent it from being consideration.

d man, and B, an § 79~ Adequacy of Consideration; Mutuality of Obligation

1an, make mutual
narry. B neither If the requirement of consideration is met, there is no additional
; reason to know requirement of
ied. B's promise is (a) a gain, advantage, or benefit -to the promisor or a loss,
nd B may recover disadvantage, or detriment to the promisee; or
\ for breach of his
(b) equivalence in the values exchanged; or
1 B would have a
milar action by A (e) "mutuality of obligation."

B $100 in return
§ 80. Multiple' Exchanges
~ to cut timber on (1) There is consideration for a set of promises if what is bargained
hA is a trespasser. for and given in exchange would have been consideration for each
s nor has reason to promise in the set if exchanged for that promise alone.
3 not privileged to
(2). The fact that part of what is bargained for would not have been
B's promise is con-
consideration if that part alone had been bargained for does not prevent
B may recover
the whole from being consideration.
A. for breach of his
1 B would have a
milar action by A
§ 8L Consideration as Motive or lnducing Cause
2 to § 180. (1) The fact that what is bargained for does not of itself induce the
making of a promise does not prevent it from being consideration for the
pro mise.
e promisor knows (2) The fact that a promise does not of itself induce a performance
on cannot occur. or return promise does not prevent the performance or return promise
from being consideration for the promise.
;he promisor is a
occurrence of the
TOPIC 2. CONTRACTS WITHOUT
CONSIDERATION
§ 82. Promise to Pay lndebtedness; Effect on the Statute of
m if by its terms Limitations ·
.ce of alternative (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 a
ld have been con- . statute of limitations. ·
r; or (2) The following facts operate as such a promise unless other facts
have been consid- indicate a different intention:
parties to be a (a) A voluntary acknowledgment to the obligee, admitting the
nisor exercises his present existence of the antecedent indebtedness; or
ives which would (b) A voluntary transfer of money, a negotiable instrument, or
other thing by the obligar to the obligee, macle as interest on

37
§ 82 RESTATEMENT OF CONTRACTS-SECOND

or part payment of or collateral security for the antecedent (2) Apr

indebtedness; or (a)
(e) A statement to the obligee that the statute of limitations
will not be pleaded as a defense.
(b)
§ 83. Promise to Pay Indebtedness Discharged in Bankruptcy
An express promise to pay all or part of an indebtedness of the
promisor, discharged or dischargeable in bankruptcy proceedings begun a. "Past ce
befare the promise is made, is binding. ligation." Erif
pay for benefi
§ 84. Promise to Perform a Duty in Spite of Non-Occurrence been said to
of a Condition ation" or on 1
(1) Except as stated in Subsection (2), a promise to perform all or the promisor;
part of a conditional duty under an antecedent contract in spite of the such terms
terms are not
non-occurrence of the condition is binding, whether the promise is made eration" is im
befare or after the time for the condition to occur' unless ing of cÓnside:
(a) occurrence of the condition was a material part of the there seems t
agreed exchange for the performance of the duty and the what cori.stitu
promisee was under no duty that it occur; or The mere Ja:.
thought to cr
(b) uncertainty of the occurrence of the condition was an ele- but it is d!'lar
ment of the risk assumed by the promisor. enforced. N 01
(2) If such a promise is made befare the time for the occurrence of based sol~ly o
the condition has expired and the condition is within the control of the sufficiEnJ.t of ·
promisee ora beneficiary, the promisor can make his duty again subject subsequent pr
to the condition by notifying the promisee or beneficiary of his intention
Illustrations
t.o rlo so if
1. A gi\r,
(a) the notification is received while there is still a reasonable
adult son
time to cause the condition to occur under the antecedent · without J
terms or an extension given by the promisor; and subsequeJ
(b) reinstatement of the requirement óf the condition is not burse A
unjust because of a material change of position by the promise i
promisee or beneficiary; and . Sectiori.
(e) the promise is not binding apart from the rule stated in 2. A len
Subsection (1). dies. B's
the debt.
§ 85. Promise to Perform a Voidable Duty ing under
Except as stated in § 93, a promise to perforrn all or part of an
·3: A. ha:
B, a won
antecedent contract of the promisor, previously voidable by him, but not injury. A
avoided prior to the making of the promise, is binding. .reimburs•
bincling u
§ 86. Promise for Benefit Received
· b. Rationa
(1) A promise made in recognition of a benefit previously received .person who h
by the promisor from the promisee is binding to the extent necessary to ·at the expen:
prevent injustice. to make rest:

38
rn CONSIDERATION § 86
•r the antecedent .. (2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other
te of limitations reasons the promisor has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the bene-
in Bankruptcy fit.
~btedness of the Comment: nied in many cases in order to protect
·oceedings begun a. "Past consideration "; "moral ob- persons who have had benefits thrust
ligation. " Enforcement of promises to upon them. See Restatement of Resti-
pay for benefit received has sometimes tution §§ i, 2, 112. In other cases res-
on-Occurrence been said to rest on "past consider- titution is denied by virtue of rules
ation" or on the "moral obligation" of designed to guard against false claims,
the promisor, and there are statutes in stale claims, claims already litigated,
;o perform all or and the like. In many such cases a
:t in spite of the such terms in a few states. Those
terms are not used here: "past consid- subsequent promise to make restitu-
promise is made ·'. tion removes the reason for the denial
eration" is inconsistent with the mean-
ing of consideration stated in§ 71, and of relief, and the policy against unjust
rial part of the there . eems to be no consensus asto enrichment then prevails. Compare
he duty and the . what .constitutes a "moral obligation." Restatement, Second, Agency § 462 on
The mere fact of promise has been ratification of the acts of a person who
r
thought to create a moral obligation, officiously purports to act as an agent.
tion was an ele- Enforcement of the subsequent prom-
but it is clear that not all promises are
enforced. Nor are moral obligations ise sometimes makes it unnecessary to
he occurrence of based solely on gratitude or sentiment decide a difficult question as to the
1e control of the sufficient of themselves to support a limits on quasi-contractual relief.
1ty again subject subsequent promise. Many of the cases governed by the
r of his intentio.n . rules stated in §§ 82-85 are within the
lllustrations: broader principie stated in this Sec-
l. A gives emergency care to B's tion. But the broader principie is not
till a reasonable so firmly established as those rules,
adult son while the son is sick and
· the antecedent · and it may not be applied if there. is
without funds far from home. B
·; and subsequently promises to reim- doubt whether the objections to resti-
condition is not burse A for his expenses. The tution are fully met by the subsequent
position by the promise is not binding under this promise. Facts such as the definite and
Section. substantial character of the benefit re-
ceived, formality in the making of the
e rule stated m 2. A lends money to B, who later
promise, part performance of the .
dies. B's widow promises to pay promise, reliance on the promise or the
the debt. The promise is not bind- probability of such reliance may be rel-
ing under this Section. evant to show that no imposition r e-
11 or part of an 3. A has immoral relations with sults from enforcement. ·
B, a woman not his wife, to her c. Promise to correct a mistahe. One
by him, but not
injury. A's subsequent promise to who makes a mistake in the conferring
reimburse B for her loss is not of a benefit is commonly entitled to
binding under this Section. restitution regardless of any ¡:Jromisc.
b. Rationale. Although in general a But restitution is often denied to avoid
~viously received person who has been unjustly enriched prejudice to the recipient of the bene-
ent necessary to at the expense of another is required fit. Thus restitution of the value of
to make restitution, restitution is ele- services or of improvements to land or

39
§ 86 RESTATEMENT OF CONTRACTS-SECOND

chattels may require a payment which 8 years until he dies. The promise parties. Compare
the recipient cannot afford. See Re- is binding. if a third person :
statement of Restitution §§ 41, 42. result of the perf.
e. Benefit conferred as a gift. In the
Where a subsequent promise shows this Section does
absence of mistake or the like, there is
that the usual protection is not needed subsequent prom:
no element of unjust enrichment in the
in the particular case, restitution is to pay extra com
receipt of a gift, and the rule of this
granted to the extent promised. forming party. B1
Section has no application to a promise
substitution for
to pay for a past gift. Similarly, when a
Illustrations: ance called for. b:
debt is discharged by a binding agree-
binding under thi
4. A is employed by B to repair a ment, thé transaction is closed even
vacant house. By mistake A re- though full payment is not made. But Illustration:
pairs the house next door, which marginal cases arise in which both par-
ties understand that what is in form a 10. A digs
belongs to C. A subsequent prom-
gift is intended to be reimbursed indi- performance
ise by C to pay A the value of the
rectly, or in which a subsequent prom- tenant C. C
repairs is binding.
ise to pay is expressly contemplated. agreed, and
5. A pays B a debt and gets a the reasonal:
See Illustration 3 to § 83. Enforce-
signed receipt. Later B obtains a The promise
ment of the subsequent promise is
default judgment against A for the g. Obligation
proper in some such cases.
amount of the debt, and A pays the Statute of Fra
again. B's subsequent promise to Illustrations: a debt unenforce~
refund the second payment if A of Frauds is very
8. A submits to B at B's request
has a receipt is binding. ises governed b~
a plan for advertising products
d. Emergency seruices and neces- manufactured by B, expecting pay- problem seldom
saries. The law of restitution in the ment only if the plan is adopted. · ance often rende1
absence of promise severely limits re- Because of a change in B's selling cable; if it does
covery for necessaries furnished to a arrangements, B rejects the plan be made enforce:
person under disability and for emer- without giving it. fair consider- memorandum.
gency services. See Restatement of ation. B's subsequent promise to event, the Statut
Restitution §§ 113-17, 139. A subse- reimburse A's exp!3nses in prepar- foreclose the rem
quent promise in such a case may re- ing the plan is binding. § 375. Where thE
move doubt as to the reality of the 9. A contributes capital to B, an the new promise
benefit and as to its value, and may insurance comp~ny, on the under- cy of the Statute :
negate any danger of imposition or standing that B is not liable to
false claim. A positive showing that Illustration:
reimburse A but that A will be
payment was expected is not then re- reimbursed through salary and 11. By statl
quired; an intention to make a gift commissions. Later A withdraws thorizing a :
must be shown to defeat restitution. from the.company ·and B promises sell land for
to pay him ten p ~rcent of premi- unless the a¡
Illustrations: randum ther
ums received until he is reim-
6. A finds B's escaped bull and bursed. The promise is binding. real estate b1
feeds and cares for it. B's subse- chaser for I
f Benefit conferred pursuant to
quent promise to pay reasonable written agreE
contract. By virtue of the policy of en-
compensation to A is binding. sale agreemE
forcing bargains, the enrichment of
promises to ¡
7. A saves B's life in an emergen- one party as a result of an unequal
commission,
cy and is totally and permanently exchange is not régarded as unjust,
clerecl." The
disabled in so doing. One month and this Section has no application to
later B promises to pay A $15 ev- a promise to pay or perform more or to h. Obligation
ery two weeks for the rest of A's accept less than is called for by a pre- . usurious. If a pro
life, and B makes the payments for existing bargain between the same because it is usur

40
D CONSIDERATION § 86

dies. The promise parties. Compare §§ 79, 89. Similarly, renewal or substitution for it that pro-
if a third person receives a benefit as a vides for a payment including the usu-
result of the performance of a bargain, rious interest is also unenforceable,
?d as a gift. In the
this Section does not make binding the · even though the interest from the date
r the like, there is
subsequent pro mise of the third person ' of renewa!'or substitution is not usuri-
enrichment in the
to pay extra compensation to the per- ous. However, a promise to pay the
:l the rule of this
forming party. But a promise to pay in original debt. with interest that is not
:ation to a promise
substitution for the return perform- usurious in substitution for the usuri-
Similarly, when a
ance called for by the bargain may be ous interest is enforceable.
;¡ a binding agree- ' '
binding under this Section.
m is closed even i . . [>artial . enforcement. The rules
is not made. But Illustration: stated in §§ 82-85 refer to promises to
in which both par-
what is in form a 10. A digs a well on B's land in perform all ·or part of an antecedent
l reimbursed indi-
performance of a bargain with B's duty, and do not make enforceable a
subsequent prom- tenant C. C is unable to pay as promise todo more. Similarly, where a
;sly contemplated. agreed, and B promises to pay A benefit received is a liquidated sum of
~o § 83. Enforce-
the reasonable value of the well. money, ·a promise is not enforceable
The promise is binding. under this Section beyond the amount
:¡uent promise is
of the benefit. Where the value of the
cases. g. Obligation unenforceable under
· the Statute of Frauds. A promise to pay benefit is uncertain, a promise to pay
a debt unenforceable under the Statute the value is binding and a promise to
of Frauds is very similar to the prom- pay a liquidated sum may serve to fix
J B at B's request
ises governed by §§ 82-85. But the the amount due if in all the Circum-
·ertising products
' B, expecting pay- problem seldom m·ises. Part perform- · stances it is not disproportionate to
l plan is adopted. ance often renders the Statute inappli- the benefit. See Illustration 7. A prom-
mge in B's selling cable; if it does not, the contract can ise which is excessive may sometimes
~ rejects the plan be made enforceable by a subsequent bf! enfotced· to the extent of the value
it fair consider- memorandum. See § 136. In any of the benefit, and the remedy may be
:quent promise to event, the Statute does not ordinarily thought of .as quasi-contractual rather
cpenses in prepar- foreclose the remedy of restitution. See than contractual. In other cases a
nding. § 375. Where the question does ru:ise, promise of disproportionate value may
:s capital to B, an the new promise is binding if the poli- · tend to show unfair pressure or other
cy of the Sta tute is satisfied. conduct by the promisee such that jus-
my, on the under- tice does not require any enforcement
1 is not liable to
Illustration: of the pro mise. Compare Comment e to
1t that A will be § 72. '
ough salary and 11. By statute an agreement au-
1ter A withdraws thorizing a real estate broker to
1y and B promise~ sell land for compensation is void Illustrations:
percent of premi- unless the agreement or a memo- 12. A, a married woman of sixty,
mtil he is reim- randum thereof is in writing. A, a has rendered household services
omise is binding. real estate broker, procures a pur- without compensation over a peri-
chaser for B's land without any . od ofyears for B, a man of eighty
,·ed pursuant to
written agreement. In the written living alone and having no close
f the policy of en-
sale agreement, signed by B, B relatives. B has a net worth of
le enrichment of
tlt of an unequal
promises to pay A $200, the usual three ~illion dollars and has often
commission, "for services ren- . assured A that she will be well
~arded as unjust,
dered." The pro mise is binding. paid for her services, whose rea-
no application to
'erform more ·or to h. Obligation unenforceable because sonable value is not in excess of
1lled for by a pre- usurious. If a pro mise is unenforceable . $6,000. B executes and delivers to
:tween the same because it is usur ious, an agreement in A a written promise to pay A

41
§ 86 RESTATEMENT OF CONTRACTS-SECOND

$25,000 "to be taken from my es- 'i se is made orally and is to leave A tion is also relat
tate." The promise is binding. his entire estate. A cannot recover conditions: it n
13. The ·racts being otherwise as · more than the reasonable value of which § 84 is i
stated in Illustration 12, B's prom- her si:n·vices. condition is ma
or risk. As in c1
§ 8 7. Option Contract relation to a b1
(1) An affer is binding as an aption contract if it the cautionary
tions of legal for
(a) is in writing and signed by the offeror, recites a purported e to § 72. The :
consideration for the rriakihg of the offer, and propases an prevent enforce1
exchange on fair terms within a reasonable time; or reliance. See §§
mal r equiremen
(b) is made irrevocable by statute.
b. Performar.
(2) An offer which the offeror should reasonably expect to induce rule of § 73 fin<
action or farbearance of a substantial character on the part of the offeree tion in cases of :
befare acceptance and which daes induce such action ar farbearance is take or induced
binding as an option contract to the extent necessary to avoid injustice. application to e
ments are abser
§ 88. Guaranty cized and is avoi
this Section is :
A promise ta be surety far the performance of a contractual obli- tion to a modiJ
gation, made to the obligee, is binding if and equitable" ¡
(a) the pramise is in writing and .signed by the pramisor and coercían and r•
recites a purported considera:tion; or demonstrable r
modificaban. C<
(b) the promise is made binding by statute; or mercial Code §
(e) the promisor should reasanabl:y expect the pramise to induce reason for mod
action or forbearance of a substantial character on the part circumstances
of the promisee or a third person, and the promise does part of the con1
tract was mad
induce such action or forbearance.
event may be
purpose if it w1
§ 89. Modification of Executory Contract ered, even thou¡
A promise modifying a duty under a contract not fully performed on r emate possibili1
either side is binding is present, tl
strength of the
(a) if the modification is féiir and equitable in view of circum- with which the
stances not anticipated by the parties when the contract was the extent to wl
made; or · · relied on and ot
(b) to the extent provided by statute; or be relevant to s
tion or unfair su
(e) to the extent that justice .requires . enforcement in' view of
The same res
material change of position in reliance on the promise. graph (a) is som
ground that the
Comment: . presumptive utility. See §§ 72, 87, 88.
"rescinded" by :
a. Rationale. This Section relates Indeed, paragraph (a) deals with bar- that new prom
primarily to adjustments in on-going · gains which are without consideration which furnished
transactions. Like offers and guaran~ only because of the rule that perform- other. That the<
ties, such adjustments are ancillary to a nce of.a legal duty to the promisor is cause it is fictit
exchanges and have sorne of the same not consideraban. See § 73. This Sec- sion " and new 1
42
 CONSIDERATION § 89
.ly and is to leave A tion is also related to § 84 on waiver of neous, and because if logically carried
e. A cannot recover conditions: it may apply to cases in out it might uphold unfair and inequi-
reasonable value of which § 84 is inapplicable because a table modifications.
condition is material to the exchange
or risk. As in cases governed by § 84, Illustrations:
relation to a bargain tends to satisfy l. By a written contract A agrees
the cautionary and channeling func- to excavate a cellar for B for a
tions of legal formalities. See Comment stated price. Salid rock is unex-
cites a purported e to § 72. The Statute of Frauds may pectedly encountered and A so no-
and propases an prevent enforcement in the absence of tifies B. A and B then orally agree
time; or reliance. See §§ 149-50. Otherwise for- that A will remove the rock at a
mal requirements are at a mínimum. unit price which is reasonable but
b. Performance of legal duty. The nine times that used in computing
expect to induce rule of § . 73 finds its modern justifica- the original price, and A completes
>art of the offeree tion in cases of pro mises made by mis- the job. B is bound to pay the
or forbearance is take or induced by unfair pressure. Its increased amount.
.o avoid injustice. application to cases where those ele-
2. A contracts with B to supply
ments are absent has been much criti-
for $300 a laundry chute for a
cized and is avoided if paragraph (a) of
building B has contracted to build
this Section is applicable. The limita-
contractual obli- tion to a modification which is "fair
for the Government for $150,000.
Later A discovers that he made an
and equitable" goes beyond absence of
error as to the type of material to
;he promisor and coercion and requires an objectively
be used and should have bid
demonstrable reason for seeking a
$1,200. A offers to supply the
modification. Compare Uniform Com-
chute for $1000, eliminating over-
mercial Code § 2-209 Comment. The
head and profit. After ascertaining
)romise to induce reason for modification must rest in
that other suppliers would charge
acter on the part circumsta¡;:¡ces not "anticipated" as
more, B agrees. The new agree-
he promise does part of the context in which the con-
ment is binding.
tract was made, but a frustrating
event may be unanticipated for this 3. A is employed by B as a de-
purpose· if it was not adequately cov- signer of coats at $90 a week for a
ered, even though it was foreseen as a year beginning November 1 under
tlly performed on remote possibility. When such a reason a written contract executed Sep-
is present, the relative financia! tember l. A is offered $115 a week
strength of the parties, the formality by another employer and so in-
view of circum- with which the modification is made, forms B. A and B then agree that
the contract was the extent to which it is performed or A will be paid $100 a week and in
relied on and other circumstances may October execute a new written
be relevant to show or negate imposi- contract to that effect, simulta-
tion or unfair surprise. neously tearing up the prior con-
!ment in view of The same result called for by para- tract. The new CO)ltract is binding.
on the promise. graph (a) is sometimes reached on the 4. A contracts to manufacture
ground · that the original contract was and sell to B 2,000 steel roofs for
See §§ 72, 87, 88.
"rescinded" by mutual agreement and corn cribs at.$60. Befare A begins
:a) deals with bar-
that new promises were then made manufacture a threat of a nation-
;hout consideration
which furnished consideration for each wide steel strike raises the cost of
rule that perform- other. That theory is rejected here be- steel about $10 per roof, and A
to the promisor is cause it is fictitious when the "rescis- and B agree orally to increase the
iee § 73. This Sec- sion" ·arid new agreement are simulta- price to $70 per roof. A thereafter

43
§ 89 RESTATEMENT OF CONTRACTS-SECOND

manufactures and delivers 1700 of Code § 2-209. Even though the prom- ly rented,
the roofs, and B pays for 1,500 of ise is not binding when made, it may the full ren
them at the increased price with- become binding in whole or in part by must be p;
out protest, increasing the selling reason of action or forbearance by the the full re:
price of the corn cribs by $10. The promisee or third persons in reliance able time 1
new agreement is binding. on it. In some cases the result can be notificatior.
5. A contracfs to manufacture viewed as based either on estoppel to 8. A cont1
and sell to B 100,000 castings for contradict a representation of fact or shipment <
lawn mowers at 50 cents each. M- on reliance on a promise. Ordinarily tion. Durir
ter partial delivery and after B has reliance by the promisee is reasonably the voyage
contracted to sell a substantial foreseeable and makes the modiflca-
number of lawn mowers at a flxed tiori binding with respect to perform- § 90. Pro
price, A notifies B that increased ance by the promisee under it and any (1) A prc
metal costs require that the price return performance owed by the prom- induce action
be increased to 75 cents. Substi- isor. · But as under § 84 the original
person and w
tute castings are available at 55 terms can be reinstated for the future
by reasonable notification received by injustice can 1
cents, but only after several
months delay. B protests but is the promisee unless reinstatement granted for .b1
forced to agree to the new price to would be unjust in view of a change of (2) A ch1
keep its plant in operation. The position on his part. Compare Uniform under Subsec
modiflcation is not binding. Commercial Code § 2-209(5). forbearance.
c. Statutes. Uniform Commercial
Code §. 2-209 dispenses with the re-
Illustrations: e
quirement of consideration for an 6. A defaults in payment of a a. Relation
agreement modifying a contract for the premium on a life insurance policy gations and rer
sale of goods. Under that section the issued by B, an insurance compa- ar.e not .peculí
original contract can provide against ny . Pursuant to the terms of the tracts. This Sec
oral modiflcation, and the require- policy, B notifles A of the lapse of in ter:ms · of '~1
ments of the Statute of Frauds must the policy and undertakes to con- phrase suggest
be met .if the contract as modifled is tinue the insurance until a speci- doctrine of este
within· its provisions; but an ineffective fied future date, but by mistake a person from
modiflcation can operate as a waiver. specifies a date two months later trary to a repr
The Comment indicates that extortion than the insured would be entitled by him after aJ
of a modiflcation without legitimate to under the policy. On inquiry by representatiim.
commercial reason is ineffective as a A two years later, B repeats the ond, Agency §
violation of the .duty of good faith im- mistalce, offering A an option to ond, Torts §§ f
posed by the Code. A similar limitation take a cash payment. A fails to do a significant fe
may be applicable under statutes · so, and dies one month before the in the law of
which give effect to a signed writing as specified date. B is bound to pay restitutíon. SeE
a substitute for the seal, or under stat- the insurance. ond, Agency §§
utes which give effect to acceptance by Second, Torts
7. A is the less.ee of an apartment
the proinisee of the modified perform- ment of · Rest
house under a 99-year lease from
ance. In sorne States statutes or consti- cases those rul
B at a rent ·of $10,000 per year.
tutional provisions flatly forbid the lap; in others
Because of war conditions many of
payment of extra compensation to useful in detE
the apartments become vacant,
Government contractors. whl.ch · enforcE
and in order to enable A to stay in
avoid injustice.
d. Reliance. Paragraph (e) states business B agrees to reduce the
the application of § 90 to modiflcation rent to $5,000. The reduced rent is It is fairly a1
of ·an executory contract in language paid for five years. The war being ment of infop
adapted from Uniform Commercial over, the apartments are then fui- tion of assum¡:

44
D CONSIDERATION § 90

though the prom- ly rented, and B notifies A that ment on the ship breaks down,
hen made, it may the full rent called for by the lease and A offers either to continue
rhole or in part by must be paid. A is bound to pay under ventilation or to hold the
'orbearance by the the full rent only from a reason- cargo at the first port for later
able time after the receipt of the shipment. B agrees to shipment
ersons in reliance
notification. under ventilation but later
the result can be
b.er on estoppel to 8. A contracts with B to carry a changes his mind. A receives noti-
mtation of fact or shipment of fish under refrigera-. fication of the change befare he
romise. Ordinarily tion. During the short first leg of has changed his position. A is
üsee is reasonably . the voyage the refrigeration equip- bound to ship under refrigeration.
.kes the modifica-
espect to perform- § 90. Promise Reasonably Inducing Action or Forbearance
e under it and any (1) A promise which the promisor should reasonably expect to
owed by the prom- induce action or forbearance on the part of the promisee or a third
§ 84 the original
person and which does induce such action or forbearance is binding if
1ted for the future
injustice can be avoided only by enforcement of the promise. The remedy
cation received by
~ss reinstatement granted for breach may be limited as justice requires.
riew of a change of (2) A charitable subscription or a marriage settlement is binding
Compare Uniform under Subsection (1) without proof that the promise induced action or
2-209(5). forbearance.

Comment: justifiable reliance on a p1:omise. Cer-

in payment of a a. Relation to other rules. Obli- tainly reliance is one of the main bases
fe insurance policy gations and remedies based on reliance for enforcement of the half-completed
. insurance campa- are not peculiar to the law of con- exchange, and the probability of reli-
) the terms of the tracts. This Section is often referred to ance lends support to the enforcement
,s A of the lapi)e. of . in terms of "promissory estoppel," a of the executory exchange. See Com-
undertakes to con- phrase suggesting an extension of the ments to §§ 72, 75. This Section thus
ance until a speci- doctrine of estoppel. Estoppel prevents states a basic principie which often
e, but by mistake a person from showing the truth con- renders inquiry unnecessary as to the
two months later · trary to a representation of fact made precise scope of the policy of enforcing .
d would be entitled by him after another has relied on the bargains. Sections 87-89 state particu-
licy. On inquiry by representation. See Restatement, Sec- lar applications of the same principie
ter, B repeats the ond, Agency § 8B; Restatement, Sec- to promises ancillary to bargains, and
1g A an option to ond, Torts §§ 872, 894. Reliance is also it also applies in a wide variety of non-
ment. A fails to do a significant feature of numerous rules commercial situations. See, e.g., § 94.
~ month befare the in the law of negligence, deceit and
B is bound to pay restitution. See, e.g., Restatement, Sec- Illustration:
ond, Agency §§ 354, 378; Restatement, l. A, knowing that B is going to
Second, Torts §§ 323, 537; Restate- college, promises B that A will give
;ee of an apartment
ment of Restitution § 55. In sorne him $5,000 on completion of bis
99-year lease from
cases those rules and this Section over- course. B goes to college, and bor-
$10,000 per year.
lap; in others they provide analogies rows and spen'ds more than $5,000
conditions many of useful in determining the extent to
s become vacant, for college expenses. When he has
which enforcement is necessary to nearly completed his course, A no-
enable A to stay in
.·ees to reduce the
avoid injustice. tifies him of an inte~tion to re~oke
The reduced rent is It is fairly arguable that the enforce- the promise. A's promise is bind-
ars. The war being ment of informal contracts in the ac- ing and B is entitled to payment
ments are then ful- tion of assumpsit rested historically on on completion of the course with-

45
§ 90 RESTATEMENT OF CONTRACTS-SECOND

out regare! to whether his per- plied promise that no harm to A on the tn
fm·mance was "bargained for" un- will result bars B from asserting band takt
der § 71. the statute of limitations as a de- there for
b. Character of reliance protected. fense . dies. The
The principie of this Section is flexible. 4. A has been employed by B for by C's hu
The promisor is affected only by reli- 40 years. B promises to pay A a those by e
ance which he does or should foresee, pension of $200 per month when justice req
and enforcement must be necessary to A retires. A retires and forbears to promise ag
avoid injustice. Satisfaction of the lat- work elsewhere for severa! years d. Partial t
ter requirement may ·depend on the while B · pays the pension. B's binding under
reasonableness of the promisee's reli- promise is binding. tract, and ful
ance, on its definite and substantial normal remedí
c. Reliance by third persons. If a
character in relation to the remedy But the same
promise is made to one party for the
sought, on the formality with which whether any r
benefit of another, it is often foresee-
the promise is made, on the extent to also bear on tl
able that the beneficiary will rely on
which the evidentiary, cautionary, de- of the remedy.
the promise. Enforcement of the prom-
terrent and channeling functions of sometimes be :
ise in such cases rests on the same
form are met by the commercial set- to damages or
basis and depends on the same factors
ting or otherwise, and on the extent to by the extent
as in cases of reliance by the promisee.
which such other policies as the en- ance rather th
Justifiable reliance by third persons
forcement of bargains and the preven- promise. See !
who are not beneficiaries is less likely,
tion of unjust enrichment are relevan t. statement, Se·
but may sometimes reinforce the claim
Compare Comment to § 72. The force damages for fr:
of the promisee or beneficiary.
of particular factors varíes in different just enrichmen
types of cases: thus reliance need not Illustrations: ages should no
be of substantial character in charita- better positior
ble subscription cases, but must in 5. A holds a mortgage on B's
the promise w
cases of firm offers and guaranties. land. To enable B to obtain a loan,
§§ 344, 349. 1!
Co~pare Subsection (2) with §§ 87, A promises B in writing to release
to make a gift
88. part of the land from the mortgage
er to award
upon payment of a stated sum. As
which would pl
Illustrations: A contemplated, C lends money to ·
the promisor t
2. A promises B not to foreclose, B on a second mortgage, relying
have imposed.
for a specified time, a mortgage on A's promise. The promise is
which A holds on B's land. B binding and may be enforced by C. Illustrations:
thereafter makes im provemen ts 6. A executes and delivers a 8. A appl
on the land. A's promise is binding promissory note to B, a bank, to radios mai
and may be enforced by denial of give B a false. appearance of assets, "dealer fra ·
foreclosure befare the time has deceive the banking authorities, ucts. Such
elapsed. and enable the bank to continue to at will. B
3. A sues B in a municipal court operate. After severa! years B fails that e ha
for damages for personal injuries and is taken over by e, a represen- tion and w
caused by B's negligence. After the tative of B's creditors. A's note is chise, that
one year statute of limitations has enforceable by C. ploy sales¡
run, B requests A to discontinue 7. A and B, husband and wife, and that J
the action and start again in the are tenants by the entirety ·of a delivery oJ
superior court where the action tract of land. They make an oral expends $1
can be consolidated with other ac- promise to B's niece C to give her business, l:
tions against B arising out of the the tract. B, e and C's husband franchise e
same accident. A does so. B's 1m- expend money in building a house toA for th

46
D CONSIDERATION § 90
1at no harm to A on the tract and e and her hus- lost profit on 30 radios. Compare
B from asserting band take possession and live Restatement, Second, Agency
mitations as a de- there for severa! years until B § 329.
dies. The expenditure~:> by B and 9. The faCts being otherwise as
employed by B for by e's husband are treated like stated in Illustration 8, B gives A
1mises to pay A a those by e in determining whether the erroneous information deliber-
1 per month when
justice requires enforcement of the ately and with C's approval and
res and forbears to promise against A. requires . A to huy the assets of a
for severa! years d. Partial enforcement. A promise deceased former dealer and thus
the pension. B's binding under this section is a con- · discha:rge C's "moral obligation"
ng. tract, and full-scale enforcement by to the widow. e is liable to A not
7.ird persons. If a normal remedies is often appropriate. only for A's· expenses but also for
one party for the But the same factors which bear on the lost profit on 30 radios.
it is often foresee- whether any relief should be granted 10. A, who owns and operates a
iciary will rely on also bear on the character and extent bakery, desires to go into the gro-
Jment of the prom- of the remedy. In particular, relief may cery .business. He approaches B, a
·ests on the same sometimes be limited to restitution or franchisor of supermarkets. B
n the same factors to damages or specific relief measured states to A that for $18,000 B will
:e by the promisee. by the extent of the promisee's reli- establish A in a store. B also ad-
by third persons ance rather than by the terms of the vises A to move to another town
iaries is less likely, promise. See §§ 84, 89; compare Re- and huy a small grocery to gain
reinforce the claim statement, Second, Torts § 549 on experience. A does so. Later B ad-
eneficiary. damages for fraud. Unless there is un- vises A to sell the grocery, which
just enrichment of the promisor, dam- A does, · taking a capital loss and
ages should not put the promisee in a foregoing expected profits from
better position than performance of tl~e surilme.l: tourist trade. B also
mortgage on B's
the promise would have put him. See advises A to sell his bakery to
B to obtain a loan,
§§ 344, 349. In the case of a promise .raise capital for the supermarket
1 writing to r eleaRP.
to make a gift it would rarely be prop- fnmchise, saying "Everything is
from the mortgage
er to award consequential damages ready. to go. Get your money to-
>f a stated sum. As which would place a greater burden on
' e lends money to gether and we are se t ." A sells the
the promisor than performance would bakery taking a capital loss on
mortgage, relying
have imposed. this sale as well. Still later, B tells
l. The promise is
y be enforced by C. A that considerably more than an
Illustratioñs: $18,000 inyestment will be need-
1 and delivers a 8. A applies to B, a distributor of ed, and .the negotiations between
e to B, a bank, to radios manufactured by e, for a the parties i:ollapse. At the point
>pearance of assets, "dealer franchise" to sell C's prod- of collap¡¡e many details of the
mking authorities, ucts. Such franchises are revocable . proposed agreement between the
bank to continue to at will. B erroneously informs A parties are i.mresolved. The assur-
everal years B fails that e has accepted the applica- ances froin B to A are promises 011
lr by e, a represen- tion and will soon award the fran- which B reasonably should have
editors. A's note is chise, that A can proceed to em- expected A to rely, and A is enti-
ploy salesmen and solicit orders, tled to his actual losses 011 the
husband and wife, and that A will receive an initial sales of the bakery and grocery
the entirety of a delivery of at least 30 radios. A and for bis moving and temporary
rhey make an oral expends $1,150 in preparing to do living · expenses. Since the pro-
niece e to give her business, but does not receive the posed agreement was never made,
: and C's husband franchise or any radios. B is liable however, A is not entitled to lost
in building a house toA for the $1,150 but not for the · p1~ofits fl;om·the sale of the grocery

47
§ 90 RESTATEMENT OF CONTRACTS-SECOND

or to his expectation interest in Illustrations: on reliance in suc

the proposed franchise from B. of reliance is eno
13. A; a bank, lends money to B
made to sort out
11. A is about to buy a house on · on the security of a mortgage on
consider whether
a hill. Befare buying he obtains a . B's new home. The mortgage re-
would be appropr:
promise from B, who owns adjoin- quire¡;; B to insure the property. At
ing land, that B will not build on a the clm;;ing of the transaction A Illustrations:
particular portian of his lot, where promises to arrange for the re-
15. A promi
a building would obstruct the view quired insurance, and in reliance
that B desir
from the house. A then buys the on the promise B. fails to insure.
purchase of
house in reliance on the promise. . · Six months later the property, still
duced thereb
B's promise is binding, but will be uninsured, is destroyed by fire. any payment
specifically enforced only so long The promise is binding. paree!. A the1
as A and his successors do not 14. A sells an airplane to B, re- draws his pro
permanently termínate the use of tainirig' title to secure payment of not binding.
the view. the price. After the closing A 16. A orally
12. A promises to make a gift of promises to keep the airplane cov- son B a tract
a tract of land to B, his son-in-law. . ered by insurance until B can ob- A intended,
B takes possession and lives on tain insurance. B could obtain in- stead elsewho
the land for 17 years, making s:urance in three days but makes of the land, 1
valuable improvements. A then no effort to do so, and the airplane and makes
dispossesses B, and specific per- is destroyed after six days. A is not ments. A's pr
formance is denied because the subject to liability by virtue of the
proof of the terms of the promise proi?isé. § 91. Effec1
is not sufficiently clear and defi- f Charitable subscriptions, mar- ti·
nite. B is entitled to a lien on the riage settlements, and other gifts. One If a promis(
land for the value of the improve- of the ftinctions of the doctrine of con-
performable at
ments, not exceeding their cost .. . sideration .is to deny enforcement to a
formance becom
promise to make a gift. Such a promise
e. Gratuitous promises to procure the arrival of th
insurance. This Section is to be applied is ordinarily enforced by virtue of the
promisee's. reliance only if his conduct
with caution to promises to procure § 92. To W
is foreseéable and reasonable and in-
insurance. The appropriate remedy for
volves a :definite and substantial M
breach of such a promise makes the
promisGr an insurer, and thus may re- change of . position which would not The new pr
have occurred if the promise had not made to a per
sult in a liability which is very large in
been made. In sorne cases, however,
relation to the value of the promised
service. Often the promise is properiy . other polieies reinforce the promisee's § 93. Prom
to be construed merely as a promise to claim. Thus the promisor might be un- F;
justly enriched if he could reclaim the
use reasonable efforts to procure the ·
subject of the promised gift after the A promise'
insurance, and reliance by the promis-
promiseé has improved it. promisor lmew 1
ee may be unjustified or may be justi-
fied only for a short time. Or it may be ·Subs.e cbon (2) identifies two other transaction to "'
doubtful whether he did in fact rely. classes of. cases in which the promis- effect of the fact
Such difficulties may be removed if the ee's claün is similarly reinforced.
proof of the promise and the reliance American courts have traditionally fa- § 94. Stipul
are clear, or if the promise is made vored .charitable subscriptions and
with sorne formality, or if part per- marrlage settlements, and have found A promise ,
fm·mance or a commercial setting or a consideration in many cases where the ceeding, made l
potential benefit to the promisor pro~ . element of. exchange was doubtful or without conside
vide a substitute for formality. i1on.existent. Where recovery is rested generally bindin

48
D CONSIDERATION § 94
on reliance in such cases, a probability 170 A orally promises to pay B, a
of reliance is e11ough, and no effort is university, $100,000 in five an11ual
lends money to B
made to sort out mixed motives or to installments for the purposes of its
of a mortgage on
co11sider whether partial enforcement fund-raisi11g campaign then in
The mortgage re-
would be appropriateo progresso The promise is con-
:e the propertyo At
;he transaction A firmed in writi11g by A's agent,
Illustrations:
:ange for the re- and two an11ual i11stallments are
150 A promises B $5000, knowing paid before A dieso The continu-
e, and in reliance
that B desires that sum for the a11ce of the_fund-raising campaign
B fails to insureo ·
purchase of a parcel of lando 111- by B is sufficient reliance to make
othe property, still
duced thereby, B secures without the promise bi11ding 011 A and his
lestroyed by fireo any payment an optio11 to huy the
•indingo estate o
parcel. A then tells B that he with-
airplane to B, re- draws his promiseo A's promise is 180 A and B are engaged to be
3ecure payment of not bi11ding: marriedo In anticipatio11 of the
!l' the closing A 160 A orally promises to give her marriage A and bis father e e11ter
) the airplane cov- son B a tract of la11d to live ono As into a formal writte11 agreeme11t
ce until B can ob- Á inte11ded, B gives up a home- by which e promises to leave cer-
B could obtain in- stead elsewhere, takes possession tai11 property to A by will. A's
e days but makes of the land, lives there for a year subsequent marriage to B is suffi-
), and the airplane and makes · substa11tial improve- cient reliance to make the promise
r six dayso A is not mentso A's promise is bi11dingo bi11di11g 011 e and bis estateo
ty by virtue of the
§ 91. Effect of Promises Enumerated in §§ 82-90 When Condi-
bscriptions, mar- tional
.d other giftso One If a promise within the terms of §§ 82-90 is in terms conditional or
1e doctrine of con- performable at a future time the promisor is bound thereby, but per-
, enforcement to a
formance becomes due only upon the occurrence of the condition or u pon
ifto Such a promise
J Ly vir Lue of Lhe
the arrival of the Hpecified timflo
mly if his conduct
oeasonable and in- § 92. To .. Whom Promises Enumerated in §§ 82-85 Must Be
and substantial M a de
which would not The new promise referred to in §§ 82-85 is not binding unless it is
l promise had not
made to a person who is then an obligee of the antecedent dutyo
.e cases, however ,
rce the promisee's
nisor might be un- § 93. Promises Enumerated in §§ 82-85 Made in Ignorance of
could reclaim the Facts
ised gift after the A promise within the terms of §§ 82-85 is not binding unless the
edito promisor lmew or had reason to know the essential facts of the previous
;mtifies two other transaction to which the promise relates, but bis knowledge of. the legal
which the promis- effect of the facts is immaterial. o
tilarly reinforcedo
ve traditionally fa- § 94. Stipulations
mbscriptions and
s, and have fou11d · A promise or agreement with reference to a pending judicial pro-
1y cases where the ceeding, made by a party to the proceeding or his attorney, is binding
e was doubtful or without considoerationo By statute or rule of court such an agreement is
recovery is rested generally binding only

49

' .~

' o
§ 94 RESTATEMENT OF CONTRACTS-SECOND

(a) if it is in writing and signed by the party or attorney, or any seal then 01 .
(b) if it is made or admitted in t he presence of the cour t, or signature or to tl
(e) to the extent that justice requires enforcement in view of § 99~ · Adopti
material change . of position in reliance on the pro mise or
Any number
agreement.
§ 100. Recit
TOPIC 3. CONTRACTS UNDER SEAL; WRITING AS A recital of t
A STATUTORY SUBSTITUTE FOR THE SEAL essential to its vi
the fact of sealin,
§ 95. Requirements for Sealed Contract or Written Contract the equivalent of
or Instrument
(1) In the absence of statute a promise is binding without consider- § 101. Deliv
ation if A written p:
(a) it is in writing and sealed; and promisor in escr
(b) the document containing the promise is delivered; and
(e) the promisor and promisee are named in the document or so
§ 102. UncQ
described as to be capable of identification when it is deliv- A written pr
ered. puts it out of his
effect at once acce
(2) When a statute provides in effect that a written contract or
instrum~nt is binding without consideration or that lack of consideration
is an affirmative defense to an action on a written contract or instru-
§ 103. Deliv'
is
ment, in order to be subject to the statute a promise must either
(1) A writter
(a) be expressed in a document signed or otherwise assented to
he puts it into
by the promisor and delivered; or
without reserviri€
(b) be expressed in a writing or writings to which both promisor the document is t
and promisee manifest assent. of a stated con<;lit:
§ · 96. . What Constitutes a Seal (2) A writte1
when the prornis·
(1) A seal is a manifestation in tangible and conventional form of an reservmg a pówf
intention that a document be sealed. document is to ta
(2) A seal may take the form of a piece of wax, a wafer or other a stated condition
substance affixed to the document or of an impression made on the (3) Delivery .
docuri:lent. ery to the promis
(3) By statute or decision in most States in which the seal retains have if the requil
significance a seal may take the form of a written or printed seal, word, (4) In the ab
scrawl or other sign. delivery of a ·seal,
promisee is irrev
§ 97. When a Promise Is Sealed occurrence of the
A written promise is sealed if the promisor affixes or impresses a time.
seal on the document or adopts a seal already thereon.
§ 104. Acce¡
§ 98. Adoption of a Seal by Delivery (1) . Neither a
Unless extrinsic circumstances manifest a contrary intention, the existence of a prc
delivery of a written promise by the promisor amounts to the adoption of delivery of a wri
50
1/D CONSIDERATION § 104
· attorney, or any seal then on the document which has apparent reference to his
the court, or signature or to the signature of another party to the document.
ement in view. of § 99. Adoption of the Same Seal by Severa} Parties
n the promise or Any number of parties to the same instrument may adopt one seal.

§ 100. Recital of Sealing or Delivery

TRITING AS A recital of the sealing or of the delivery of a written promise is not
[E SEAL essential to its validity as a contract under seal and is not conclusive of
the fact of sealing or delivery unless a statute makes a recital of sealing
·ritten Contract the equivalent of a seal.

without consider- § 101. Delivery

A written promise, sealed or unsealed, may be delivered by the
promisor in escrow, conditionally to the promisee, or unconditionally.
livered; and
§ 102. Unconditional Delivery
1e document or so
t when it is deliv-
A written promise is delivered unconditionally when the promisor
puts it out of his possession and manifests an intention that it is to take
effect at once according to its terms.
~itten contract or
k of consideration § 103. Delivery in Escrow; Conditional Delivery to the Prom-
ontract or instru- isee
mise must either
(1) A written promise is delivered in escrow by the promisor when
~rwise assented te
he puts it into the possession of a person other than the promisee
without reserving a power of revocation and manifests an intention that
.ich both promisor the document is to take effect according to its terms upon the occurrence
of a stated condition but not otherwise.
(2) A written promise is delivered conditionally to the promisee
when the promisor puts it into the possession of the promisee without
ntional form of an reserving a power of revocation and manifests an intention that the
document is to take effect according to its terms upon the occurrence of
a wafer or other a stated condition but not otherwise.
;ion macle on the (3) Delivery of a written promise in escrow or its conditional deliv-
ery to the promisee has the same effect as uricondition_al delivery would
h the seal retains have if the requirement of the condition were expressed in the writing.
)rintecl seal, word, (4) In the absence of a statute modifying the significance of a seal,
delivery of a sealecl promise in escrow or its conclitional clelivery to the
·promisee is irrevocable for the time specified by the promisor for the
occurrence of the conclition, or, if no time is specified, for a reasonable
:es or impresses a time.

§ 104. Acceptance or Disclaimer by the Promisee ·

(1) Neither acceptance by the promisee nor knowleclge by him of the
ary intention, the existence of a promise is essential to the formation of a contract by the
to the adoption cif delivery of a written pr:omise which is binding without consicleration.

51
§ 104 RESTATEMENT OF CONTRACTS-SECOND

(2) A promisee who has not manifested assent to a written promise CHAPTE:
may, within a reasonable time after learning of its existence and terms,
render it inoperative by disclaimer. § 110. Class•
(3) Acceptance or disclaimer is irrevocable. (1) The follo
commonly called
§ 105. Acceptance Where Return Promise Is Contemplated there is a written
Where a conveyance or a document containing a promise also (a) a con
purports to contain a return promise by the · grantee or promisee, duty ·
acceptance by the grantee or promisee is essential to create any contrac- (b) a con
tual obligation other than an option contract binding on the grantor or
provii
promisor.
(e) a con
§ 106. What Amounts to Acceptance of Instrument riage
Acceptance of a conveyance or of a document containing a promise is (d) a cor
a manifestation of assent to the terms thereof made, either befare or contr.
after delivery, in accordance with any requirements imposed by the
(e) a con
grantor or promisor. If the acceptance occurs befare delivery and is not
the m
binding as an option contract, it is revocable until the moment of
delivery. (2) The follo
subject to the Sta1
§ 107. Creation of Unsealed Contract by Acceptance by provisions of the 1
Promisee
(a) a COnl
Where a gTantee or promisee accepts a sealed document which (Unif,
purports to contain a return promise by him, he makes the return
(b) a con
promise. But if he does not sign or seal the document his promise is not
under seal, and whether it is binding depends on the rules governing. Code
unsealed contracts. (e) a con
caven
§ 108. Requirement of Naming or Describing Promisor and defen:
Promisee forro t
A promise under seal is not binding without consideration unless (3) In additic
.both the promisor and the promisee are named in the document or so signed by the deb
described asto be capable of identification when it is delivered. security interest i1
the secured party.
§ 109. Enforcement of a Sealed Contract by Promisee Who
Does N ot Sign or Se al lt (4) Statutes
promise is sufficie
The promisee of a promise under seal is not precluded from enforc-
case out of the op'
ing it as a sealed contract because he has not signed .or sealeq the
writing signed by
document, unless bis doing so was a condition of the delivery, whether or
alter the effect of;
not the document contains a promise by him .
(5) In many
requirement of a v

52
 THE STATUTE OF. FRAUDS § 110

L written promise CHAPTER 5. THE STATUTE OF FRAUDS

3tence and terms,
§ 110. Classes of Contracts Covered
(1) The following classes of contracts are subject to a statute,
commonly called the Statute of Frauds, forbidding enforcement unless
~ ontemplated there is a written memorandum or an applicable exception:
· · a promise also (a) a contract of an executor or administrator to answer for a
tee or promisee, duty of his decedent (the executor-administrator provision);
·eate any contrac- (b) a contract to answer for the duty of another (the suretyship
on the grantor or provision);
(e) a contract made upon consideration of marriage (the mar-
ment riage provision);
ining a promise is (d) a contract for the sale of an interest in land (the land
, either before or contract provision);
imposed by the
(e) a contract that is not to be performed within one year from
elivery and is not
the making thereof (the one~year provision).
l the moment of
(2) The following classes of contracts 1 which were traditionally
subject to the Statute of Frauds, are now governed by Statute of Frauds
Acceptance by provisions of the Uniform Commercial Code:
(a) a contract for the sale of goods for the price of $500 or more
document which (Uniform Commercial Code § 2-201)¡ .
nakes the return
(b) a contract for the sale of securities (Uniform Commercial
his promise is not
Code § 8-319);
e rules governing
(e) a contract for the sale of pers~nal i:rroperty not otherwise
covered, to the extent of enforcement by way of action or
g Promisor and defense beyond $5,000 in amount or value of remedy (Uni-
form Commercial Code § 1-206).
1sideration unless (3) In addition the Uniform Coirimerciai Code requires a writing
.e document or so signed by the debtor for an agTeement which creates or provides for a
~livered. security interest in personal property or fixtures not in the possession of
the secured party.
r Promisee Who
(4) Statutes in most states provide that . no acknowledgment or
promise is sufficient evidence of a new or contirtuing contract to take a
.uded from enforc- case out of the operation of a statute of limitations unless made in sorne
led or sealed the writing signed by the party to be charged, but that the statute does not
llivery, whether or
alter the effect of any payment of prineipal ot interest.
(5) In many states other classes of cóntracts are ·subject to a
r equirement of a writing.

53
§ 111 RESTATEMENT OF CONTRACTS-SECOND

TOPIC l. THE EXECUTOR-ADMINISTRATOR (e) per

PROVISION his
the
§ 111. Contract of Executor or Administrator
A contract of an executor or administrator to answer personally for § 115. No-..
a duty of his decedent is within the Statute of Frauds if a similar A contract
contract to answer for the duty of a living person would be within the existing duty of
Statute as a contract to answer for the duty of another. of Frauds as a e

TOPIC 2. THE SURETYSHIP PROVISION § 116. Mai

A contract ·
§ 112. Requirement of Suretyship shall be satisfiE
A contract is not within the Statute of Frauds as a contract to answer for the
answer for the duty of another unless the pr01nisee is an obligee of the fact or apparen
other's duty, the promisor is a surety for the other, and the promisee advantage, rath
knows or has reason to know of the suretyship relation. the considerati•
within the Statl
§ 113. Promises of the Same Performance for the Same Con- Cm
sideration
a. Rationale.
Where promises of the same performance .are made by two persons what is often c2
for a consideration which inures to the benefit of only one of them, the pose" or "leadin¡
promise of the other is within the Statute Of Frauds as a contract to the surety-promi1
his own pecunim
answer for the duty of another, whether or ncit the promise is in terms tage, the gratuito
condl.tional on default by the one to · whose benefit the consideration ment often pres
inures, unless eliminated, the li;
tion in the value
(a) the other is not a surety for the one to whose benefit the
promisor and pro
consideration inures; or . · the commercial C<
(b) the promises are in terms joint and· do not create several vides evidentiar:
duties or joint and several duties·; or .. there is less ne<
.evidentiary form
(e) the promisee neither knows nor has reason to know that the cases of suretysl
consideration does not inure to the benefit of both promi- comparable to a .
sors. third person's obl
outside the purpc
provision of the ~
§ 114. Independent Duty of Promisor §§ 121, 122. H
A contract to perform or otherwise to sabs(y all or part of a ciuty of could be reconcil•
a third person to the promisee is not within the Statute of Frauds as a the Statute on th<
contract to answer for the duty of another if, by the terms of the promise isor who received
fit could be sued i
when it is made, performance therecif can ihvolve no more than assumpsit; hence
(a) the application of funds or property l:ield by the promisor for his own debt ratl
the purpose, or another", and ti
"special" in the 1
(b) performance of any other duty · owing, irrespective of his sumpsit was the <
promise, by the promisor to the promisee, or edy. In modern

54
 lj
lí

ND THE STATUTE OF FRAUDS § 116

iTRATOR (e) performance of a duty which is either owing, irrespective of

bis promise, by the promisor to the third person, or which
the promisee reasonably believes to be so owing.

wer personally for § 115. Novation

auds if a similar A contract that is itself accepted in satisfaction of a previously
uld be within the existing duty of a third person to the promisee is not within the Statute
of Frauds as a contract to answer for the duty of ~mother.

VISION § . 116. Main Purpose; Advantage to Surety

A contract that all or part of a duty of a third person to the promisee
shall be satisfied is not within the Statute of Frauds as a promise to
as a contract to answer for the duty of another if the consideration for the promise is in
: an obligee of the fact or apparently desired by the promisor mainly for his own economic
and the promisee advantage, rather than in order to benefit the third person. If, however,
the consideration is merely a premium for insurance, the contract is
within the Statute.
r the Same Con- Comment: rule is applied in terms of its reason
a. Rationale. This Section states rather than to accord with abandoned
:le by two persons what is often caBed the "main pur- procedural categories.
r one of them, the pose" or "leading object" rule. Where b. Factors affecting application of
3 as a contract to
the surety-promisor's main purpose is the rule. The fact that there is consid-
his own pecuniary or business advan- eration for the surety's promise is in-
romise is in terms tage, the gratuitous or sentjmental ele-
the consideration sufficient to bring the rule into play.
ment often present in suretyship is
Slight and indirect possible advantage
eliminated, the likelihood of dispropor-
to the promisor is similarly insuffi-
tion in the values exchanged between
whose benefit the cient. The expected advantage must be
promisor and promisee is reduced, and
the cqmmer.cial context commonly pro- such as to justify the conclusion that
vides evidentiary safeguards. Thus his main purpose in making the prom-
not create several ise is to advance his own interests.
there is less need for cautionary or
evídentiary formality than in other Facts such as the following tend to
1 to know that the cases of suretyship. The situation is indicate such a main purpose when
fit of both promi- comparable to a sale or purchase of a there is an expected pecuniary or busi-
third person 's obligation, which is also ness advantage: prior default, inability
outsíde the purposes of the suretyship or repudiation of the principal obligar;
provision of the Statute of Frauds. See forbearance of the creditor to enforce a
§§ 121, 122. Historically, the rule líen on property in which the promisor
r part of a duty of could be reconciled with the words of has an interest or which he intends to
the Statute on the ground that a prom- use; equivalence between· the value of
lte of Frauds as a
isor who r eceived a bargained-for bene- the benefit and the amou~t promised;
·ms of the promise lack of participation by the principal
fit could be sued in debt or indebitatus
ore than assumpsit; . hence he promised to pay obligar in the making of the surety's
y the promisor for bis own debt rather than the debt "of promise; a larger transaction to which
another", and the promise was not the suretyship is incidental. The bene-
"special" in· the sense that special as- fit may be supplied to the promisor by
rrespective of his sumpsit was the only appropriate rem- the promisee , by the principal obligar,
or ecly. In ·moclern times, however, the or by some other person; if it is sub-

55
 § 116 RESTATEMENT OF CONTRACTS-SECOND

stantial and meets the main purpose price not only for the materials § 118. Prom
test it may come indirectly through already furnished but also for the
A promise to
benefit to the principal obligar. remaining materials if D fails to
do so. S's promise is enforceable.
to
promisee. beco
Illustrations: contract to answE
4. e, a bank, discounts negotia-
l. D owes e $1,000. e is about to ble promissory notes of D, a corpo- § 119. Assm
levy an attachment on D's factory. ration. D becomes financially in-
S, who is a friend of D's desiring
A contract nt
volved. An official bank examiner for the duty of
to prevent his friend's financia! threatens to clase the bank on ac-
ruin, orally promises e that if e subsequent prorr.
count of the impairment of its as-
will forbear to take legal proceed- duty as principal
sets because of the loans to D. S, a
ings against D for three months S substantial shareholder of the
will pay D's debt ifD fails todo so. bank, in consideration of forbear-
§ 120. Oblig
S has no purpose to benefit him- ance by the examiner, orally prom- (1) An oblig~
self and e has no reason to sup- ises the bank that if D fails to pay on the instrumen
pose so. S's promise is not enforce-
the note, he will do so. The prom- (2) A promis
able.
ise of S is enforceable. who has been bt
2. D owes e $1,000. e is about to making presentm
c. Insurance premiwns. The rule of
levy an áttachment on D's factory . not within the St
this Section excludes from the main
S, who is also a creditor of D's,
purpose rule contracts of guaranty in-
fearing that the attachment will
surance whether making such con- § 121. ContJ
ruin D'.s. business and ther eby dc-
stroy his own chance of collecting
tracts is or is not the promisor's regu- (1) A contra
his claim, orally promises e that if lar business. Promises of commercial assigned right wi
e will forbear to take legal pro- surety companies are practically al- as a contract to a
ceedings against D for three ways in writing. See Restatement of
(2) A contra•
months, ·s will pay D's debt if D Security § 82 eomment i, defining
principal's goods
fails to do so. S's promise is en- "compensated surety." An isolated
~ ·' oral guaranty by an individual is with-
not within the St
forceable. another.
in the reason of the Statute if a small
3. D. contracts with S to build a fee is paid for guaranty of a much
house for S. e contracts with D to larger debt.
§ 122. Cont:
furnish materials for the purpose. A contract 1
D, in violation of his contract with Illustration: acquire against 2.
e, fails to pay e for some of the
5. In consideration of a premium contract to answ{
materials furnished. e justifiably
refuses to furnish further materi- of $100, S guarantees e in an un-
als. S orally promises e, that if e signed writing the fidelity of D, § 123. Cont
will continue to furnish D with C's employee, during D's term of A contract t
materials that e had previously employment. The guaranty is not person is not wi1
agreed to furnish, S will pay the enforceable. the duty of anoth

§ 117 ~ Promise to Sign a Written Contract of Suretyship

TOPJ
A promise to signa written contractas a surety for the performance
of a duty owed to the promisee or to sign a negotiable instrument for the
§ 124. Co:llt
accommodation of a person other than the promisee is within the Statute A promise l
of Frauds, marriage or a pn
the case of an . ag
persons to niarry

56
D THE STATUTE OF FRAUDS § 124

for the materials § 118. Promise to lndemnify a Surety

!d but also for the A promise to indemnify against liability or loss made to induce the
1rials if D fails to promisee to become a surety is not within the Statute of Frauds as a
1ise is enforceable. contract to answer for the duty of another.
discounts negotia-
Iotes of D, a corpo~ § 119. Assumption of Duty by Another
nes financially in- A contract not within the Statute of Frauds as a contract to answer
ial bank examiner for the duty of another when made is not brought within it by a
se the bank on ac- subsequent promise of another person to assume ·performance of the
pairment of its as- duty as principal obligor.
;he loans to D. S, a
areholder of the § 120. Obligations on Negotiable Instruments
eration of forbear-
(1) An obligation on a negotiable instrument or a guaranty written
niner, orally prom-
mt if D fails to pay on the instrument is not within the Statute of Frauds.
.l do so. The prom- (2) A promise to pay a negotiable instrument, made by a party to it
:eable. who has been or may be discharged by the holder's failure or delay in
making presentment or giving notice of dishonor or in making protest, is
niums. The rule of
.es from the main not within the Statute of Frauds .
.cts of guaranty in-
naking such con- § 121. Contract of Assignor or Factor
. , ·. ..
(1) A contract by the assignor of a right that the obligor of the
1e prom1sor s regu-
ises of commercial assigned right will perform his duty is not within the Statute of Frauds
are practically al- ~s a contract to answer for the duty of another.
ee Restatement of. (2) A contract by an agent with his principal that a purchaser of the
nment i, defining principal's goods through the agent will pay their price to the principal is
~ty. " An isolatEid
not within the Statute of Frauds as a contract to answer for the cluty of
. individual is with- · another.
~ Statute if a small
aranty of a much § 122. Contract to Buy a Right From the Obligee
A contract to purchase a right which the promisee has or may
acquire against a third person is not within the Statute of Frauds as a
contract to answer for the duty of another.
ation of a premium
·antees e in an un~ § 123. Contract to Discharge the Promisee's Duty
the fidelity of D,
during D's term of A contract to discharge a cluty owed by the promisee to a third
~h e guaranty is not person is not within the Statute of Frauds as a contract to answer for
the duty of another.

3uretyship TOPIC 3. THE MARRIAGE PROVISION

~the performance § 124. Contract Made U pon Consideration of Marriage
nstrument for the
A promise for which all or part of the consideratim1 is either
Nithin the Statute marriage or a promise to marry is within the Statute of Frauds, except in
the case of an agreement which consists only of mutual promises of two
persons to marry each other.

57
§ 125 RESTATEMENT OF CONTRACTS-SECOND

TOPIC 4. THE LAND CONTRACT PROVISION it is established

reliance on the <
§ 125. Contract to Transfer, Buy, or Pay for an Interest in against whom enl
Land injustice can be av
(1) A promise to transfer to any person any interest in land is
within the Statute of Frauds. TOPII
(2) A promise to buy any interést in land is within the Statute of
Frauds, irrespective of the person to whom the transfer is to be made. § 130. Contr
(3) When a transfer of an interest in land has been made, a promise (1) Where ar.
to pay the price, if originally within the Statute of Frauds, ceases to be within a year fro1
within it unless the promised price is itself in whole or in part an contract are withi
interest in land. completes his perf
(4) Statutes in most states except from the land contract and one- (2) When onE
year provisions of the Statute of Frauds short-term leases and contracts the one-year prov
to lease, usually for a term not longer than one year. the promises of ot

§ 126. Contract to Procure Transfer orto Act as Agent

TOPIC e
(1) A contract to procure the transfer of an interest in land by a
person other than the promisor is within the Statute of Frauds.
(2) A contract to act as agent for another in endeavoring to procure § 131. Gene1
the transfer of any interest in land by someone other than the promisor Unless additi
is not within the Statute of Frauds as a contract for the sale of an statute, a contrae
interest in land. evidenced by any
charged, which
§ 12 7. Interest in Land (a) reaso:
An interest in land within the meaning of the Statute is any right, (b) is suf
privilege, power or immunity, or combination thereof, which is an has b
interest in land· under the law of property and is not "goods" within the to thE
Uniform Commercial Code. (e) states
unper
§ 128. Boundary and Partition Agreements
(1) A con,tract between owners of adjoining tracts of land fixing a § 132. Sever
dividing boundary is within the Statute of Frauds but if the location of The memora:
the boundary was honestly disputed the contract becomes enforceable writings is signed'
notwithstanding the Statute when the agreed boundary has been marked that they relate to
or has been recognized in the subsequent use of the tracts.
(2) A contract by joint tenants or tenants in common to partition § 133. Memo
land into separate tracts for each tenant is within the Statute of Frauds Except in the
but becomes enforceable notwithstanding the Statute as to each tract ation of marriage
when possession of it is taken in severalty in accordance with the made as a memon
agreement.
§ 134. Signa
§ 129. Action in Reliance; Specific Performance The · signatur
A contract for the transfer of an interest in land may be specifically adopted with an
enforced notwithstanding failure to comply with the Statute of Frauds if wri ting as that of

58
IJD THE STATUTE OF FRAUDS. § 134

OVISION it is established that the party seeking enforcement, in reasonable

reliance on the contract and on the continuing 1;1ssent of the party
· an Interest in against whom enforcement is sought, has so changed his position that
injustice can be avoided only by specific enforcement~
terest in land is
TOPIC 5. THE ONE-YEAR PROVISION
.in .the Statute of
'er is to be made. § 130. Contract Not to Be Performed Within aYear
t made, a promise
(1) Where any promise in a contrq.ct cannot be fully performed
mds, ceases to be within a year from the time the contract is rriáde; all
promises in the
le or in part an contract are within the Statute of Frauds until one party to the contract
completes his performance.
contract and one- (2) When one party to a contract has completed his performance,
tses and contracts the one-year provision of the Statute does not prevent enforcement of
the promises of other parties.

asAgent TOPIC 6. SATISFACTION OF THE STATUTE

rest in land by a BY A MEMORANDUM
'Frauds.
tvoring to procure
§ 131. General Requisites of a Memorandum
;han the promisor Unless additional requirements are ptescribed by the particular
)r the sale of an statute, a contract within the Statute of Fraudil'is enforceable if it is
evidenced by any writing, signed by or on behalf. of the party to be
charged, which
(a) reasonably identifies the subject n1atter of the contract,
ttute is any right, (b) is sufficient to indicate that a contract with respect thereto
·eof, which is an has been made between the parties or offered by the signer
goods" within the to the other party, and
(e) states with reasonable certainty the essential terms of the
unperformed promises in the contra:ct.

.s of land fixing a § 132. Severa! Writings

; if the location of The memorandum may consist of · several writings if one of the
comes enforceable writings is signed and the writings in the circumstances clearly indicate
t has been marked that they relate to the same transaction.
tcts.
nmon to partition § 133. Memorandum Not Made as Such
Statute of Frauds Except in the case of a writing evidencing a cohtract upon consider-
~ as to each tract ation of marriage, the Statute may be satisfied by a signed writing not
ordance with the made as a memorandum of a contract.

§ 134. Signature
1ce The signature to a memorandum may be . a:ny symbol made or
nay be specifically adopted with an intention, actual or apparent, to authenticate the
tatute of Frauds if writing as that of the signer.

59
§ 135 RESTATEMENT OF CONTRACTS:..:......SECOND

§ 135. Who Must Sign Comn

Where a memorandum of a contract within the Statute is signed by a. Relation to oti
fewer than all parties to the contract and the Statute is not otherwise tion is complernent:
satisfied, the contract is enforceable against the signers but not against dispenses with the r
the others. sideration if the SE
met, but it also a
supported by consid
§ 136. Time of Memorandum this Section overla
A memorandum sufficient to satisfy the .Statute may be made or with rules based on
signed at any time before or after the formation of the contract. it states a basic pri
times renders inqu
§ 137. Loss or Destruction of a Memorandum to the precise scop•
Sections 128 and 1
The loss or destruction of a memorandum .does not deprive it of applications of the
effect under the Statute. land contracts; §§
also rest on it in I
§ 138. Unenforceability form Commercial G
Where a contract within the Statute of Frauds is not enforceable 319(b). Where a prc
against the party to be charged by an action against him, it is not out intention to per
der this Section ma
enforceable by a set-off or counterclaim in an action brought by him, or
remedies for fraud.
as a defense to a claim by him. ·
§ 313; Restatemer
§ 530.
TOPIC 7. CONSEQUENCES OF NON-COMPLIANCE b. Avoidance of .
this Section states
§ 139. Enforcement by Virtue of Action iri Reliance but the requireme1
(1) A promise which the promisor should reasonably expect to is more easily disp
induce action or forbearance on the part .of the promisee or a third quirement of a wr
person and which does induce the action or forbearance is enforceable must be foreseeabl·
notwithstanding the Statute of Frauds if injustice can be avoided only by and enforcernent m
enforcement of the promise. The remedy granted for breach is to be avoid injustice. 81
some of the releva1
limited as justice requires.
ing the latter requil
(2) In determining whether injustice can.be avoided only by enforce- relates either to tl
ment of the promise, the following circumstan~es are significant: reliance furnishes
stantive basis for r
(a) the availability and adequacy of other remedies, particularly the expectations cr·
cancellation and restitution; ise or to the exten
(b) the definite and substantial character of the action or for- cumstances satisf3
bearance in relation to the remedy sought; purpose of the Sta1
cautionary, deterre
(e) the extent to which the action or forbearance corroborates functions it may ser
evidence of the making and . terms of the promise, or the
making and terms are . otherwise . established by clear and Illustrations:
convincing evidence; l. J\ is lesseE
(d) the reasonableness of the action or forbearance; five years at ~
h as sublet it
(e) the extent to which the action or forbearance was foresee- $100 per montl
able by the promisor. B to purchase j

60
IND THE STATUTE OF FRAUDS § 139
Comment: that end orally promises to assign
a. Relation to other rules. This Sec- to B the lease and sublease and to
tatute is signed by execute a written assignment as
.e is not otherwise tion is complementary to § 90, which
dispenses with the requirement of con- soon as B obtains a deed. B pur-
!fS but not against chases the building in reliance on
sideration if the same conditions are
met, but it also applies to promises the promise. B is entitled to the
supported by consideration. Like § 90, rentals from the sublease.
this Section overlaps in some cases 2. A is a pilot with an established
may be made or with rules based on estoppel or fraud; airline haviBg rights to continued
of the contract. it states a basic principie which sorne- employment, and could take up to
times renders inquiry unnecessary as six months leave without prejudice
to the precise scope of other policies. to those rights. He takes such
Sections 128 and 129 state particular leave to become general manager
not deprive it of applications of the same principie to of B, a small airline which hopes
land contracts; §§ 125(3) and 130(2) to expand if a certificate to operate
also rest on it in part. See also Uni- over an important route is grant-
form Commercial Code §§ 2-201(3), 8- ed. When his six months leave is
is not enforceable 319(b). Where a promise is made with- about to expire, A demands defi-
out intention to perform, remedies un- nite employment because of that
nst him, it is not
der this Section may be alternative to fact, and B orally agrees to employ
:>rought by him, or remedies for fraud. See Comment b to A for two years and on the grant-
§ 313; Restatement, Second, Torts ing of the certificate to give A an
§ 530. increase in salary and a written
OMPLIANCE b. Avoidance .of injustice. Like § 90 contract. In reliance on this agree-
this Section states a flexible principie, ment A lets his right to return to
~liance but the requirement of consideration his prior employer expire. The cer-
.sonably expect to is more easily displaced than the re- tificate is soon gTanted, but A is
quirement of a writing. The reliance discharged in breach of the agree-
·omiscc or a third
must be foreseeable by the promisor, ment. 'l'he tltatute ot' l<'rauds does
mee is enforceable not prevent recovery of damages
and enforcement must be necessary to
be avoided only by by A.
avoid inj_ustic~. . Subsection (2) lists
or breach is to be some of the relevant factors in apply- c. Particular f'actors. The force of
ing the latter requirement. Each factor the factors listed varíes in different
!ed only by enforce- relates either to the extent to which types of cases, and additional factors
3ignificant: reliance furnishes a compelling sub- may affect particular types of con-
stantive basis for relief in addition to tracts. Thus reliance of the kinds usual
nedies, particularly the expectations created by the prom- in suretyship. transactions is not suffi-
ise or to the extent to which the cir- cient to justify enforcement of an oral
cumstances satisfy the evidentiary guaranty, where the evidentiary and
f the action or for-
purpose of the Statute and fulfill any cautionary functions performed by the
t; cautionary, deterrent and channeling statutory formalities are not. fulfilled.
trance corroborates functions it may serve. See Comment a to § 112. In 'the case
:1.e promise, or the of a contract between 'prospective
ished by clear and Illustrations: spouses made upon consideration of
l. A is lessee of a building for marriage, the policy of the Statute is
five years at $75 per month and reinforced by a policy against legal in-
trance; terference in the marriage relation,
has sublet it for three years at
trance was foresee- $100 per month. A seeks to induce ancl reliance incident to the marriage
B to purchase the building, and to relation does not make the contract

61
§ 139 RESTATEMENT OF CONTRACTS-SECOND

enforceable. See Comment d to § 124. § 375); where restitution is an ade- does not mak
Where restitution is an unavailable quate remedy, other remedies are not repudiation of
remedy because to grant it would nulli- made available by the rule stated in
fy the statutory purpose, a remedy this Section. Again, when specific en-
based on reliance will ordinarily also forcement is available under the rule
§ 143. Un
be denied. See Comment a to § 375. stated in § 129, an ordinary action for The Statu
damages is commonly less satisfactory, inadmissible ir.
Illustration:
and justice then does not require en- violation of the
3. A orally promises to pay B a forcement in such an action. See Com-
commission for services in negoti-
ating the sale of a business oppor-
ment e to § 129. In sorne cases it may § 144~ Eff
be appropriate to measure relief by the
tunity, and B finds a purchaser to extent of the promisee's reliance rath- Only a pm
whom A sells the business oppor- er than by the terms of the promise. the contract e
tunity. A statute extends the Stat- See § 90 Comment e and Illustrations. Statute of Frat
ute of Frauds to such promises,
and is interpreted to preclude re-
covery of the reasonable value of
Illustration: § 145. Eff
such services. The promise is not 4. A renders services to B under Where the
made enforceable by B's reliance an oral contract within the Statute parties, the St:
on it. by which B promises to pay for the parties.
d. P(u·tial enforcement; particular services. On discharge without
remedies. The same factors which bear cause in breach of the contract, A
on whether any relief should be grant- is entitled to the reasonable value § 146. Rig
ed also bear on the character and ex- of the services, but in the absence (1) Where
tent . of the remedy. In particular, the of additional circumstances is not forceable agaiil
remedy of restitution is not ordinarily entitled to damages for wrongful quently becorn
affected by the Statute of Frauds (see discharge. priority it ·w ot
§ 140. Defense of Failure to Perform intervening coi
third person.
The Statute of Frauds does not invalidate defenses based on the
plaintiffs failure to perform a condition of his claim or defenses based on (2) If the t
his present or prospective breach of the contract he seeks to enforce: transaction be
contract is un
§ 141. Action for Value of Performance Under Unenforceable
Contract § 147. C01
(1) In an action for the value of performance under a contract, (1) Where
except as stated in Subsection (2), the Statute of Frauds does not it to the Statu
invalidate any defense which would be· available of the contract were party by agree
enforceable against both parties. of the contract
(2) Where a party to a contract which is unenforceable against him transfer proper
refuses either to perform the contract or to sign a sufficient memoran-
dum, the other party is justified in suspending any performance for
(2) . Where
which he has not already received the agreed rEiturn, and such a have become e
suspension is not a defense in an action for the value of performance discharged by
rendered before the suspension. enforcement of
(3) Except
§ 142. Tort Liability for Acts Under Unenforceable Contract promises in a
. Where because of the existence of a contract conduct would not be Statute . of Fra
tortious, unenforceability of the contract under the Statute of Frauds against him.

62
JND THE STATUTE OF FRAUDS § 147
:stitution is an ade- does not make the conduct tortious if it occurs without notice of
ler remedies are not repudiation of the contract.
y the rule stated in .
in, when specific en- § 143. Unenforceable Contract as Evidence
labie under the rule
n ordinary action for The Statute of Frauds does not make an unenforceable contract
only less satisfactory, inadmissible in evidence for any purpose other than its enforcement in
does not require en- violation of the Statute.
l an action. See Coro-

In sorne cases it may § 144. Effect of Unenforceable Contract as to Third Parties

measure relief by the
nisee's reliance rath- Only a party to a contract or a transferee or successor of a party to
~rms of the promise. the contract can assert that the contract is unenforceable under the
1t e and Illustrations. Statute of Frauds.

§ 145. Effect ofFull Performance

; services to B under Where the promises in a contract have been fully performed by all
tet within the Statute parties, the Statute of Frauds does not affect the legal relations of the
:omises to pay for the parties.
discharge without
.e h of the contract, A
the reasonable value
§ 146. Rights of Competing Transferees of Property
·s, but in the absence (1) Where a contract to transfer property or a transfer was unen-
circumstances is not forceable against the transferor under the Statute of Frauds but subse-
amages for wrongful quently becomes enforceable, the contract or transfer has whatever
priority it would have had aside from the Statute of Frauds over an
intervening contract by the transferor to transfer the same property to a
third person.
:nses based on the
r defenses based on (2) If the third person obtains title to the property by an enforceable
e seeks to enforce. transaction before the prior contract becomes enforceable, the prior
contract is unenforceable against him and does not affect his title.
er Unenforceable
§ 14 7. Contract Containing Multiple Promises
under a contract, (1) Where performance of the promises in a contract which subject
f Frauds does not it to the Statute of Frauds is exclusively beneficia! to one party, that
the contract were party by agreeing to forego the performance may render the remainder
of the contract enforceable, but this rule does not apply to a contract to
:ceable against him transfer property on the promisor's death.
ufficient memoran-
.(2) Where the promises in a contract which subject it to the Statute
ty performance for ·
have become enforceable or where the duty to perform them has been
Jturn, and such a
discharged by performance or otherwise, the Statute does not prevent
lue of performance
enforcement of the remaining pro mises.
(3) Except as stated in this Section, where sorne of the unperformed
•rceable Contrae! promises in a contract are unenforceable against a party under the
1duct would not be Statute of Frauds, all the promises in the contract are unenforceable
Statute of Frauds against him.

63
§ 148 RESTATEMENT OF CONTRACTS- SECOND

§ 148. Rescission by Oral Agreernent Illustrations:

N otwithstanding the Statute of Frauds, all unperformed duties l. A contracts
under an enforceable contract may be discharged by an oral agreement and float B's b1
of rescission. The Statute may, however, apply to a contract to rescinda aground on a n
transfer of property. making the co:
that the sea will
§ 149. Oral Modification the work is e
days later, duril
(1) For the purpose of determining whether the. Statute of Frauds the boat slips ir
applies to a contract modifying but not rescinding a prior contract, the fills with mud, r
second contract is treated as containing the originally agreed terms as ficult for A to r;
modified. The Statute may, however, apply independently of the original may have showr
terms to a contract to modify a transfer of property. making the con1
mistake of eithE
(2) Where the second contract is unenforceable by virtue of the rules stated in t
Statute of Frauds and there has been no material change of position in apply. Whether
reliance on it, the prior contract is not modified. supervening iJ
governed by n
§ 150. Reliance on Oral Modification Chapter 11. Se•
§ 261. If, howe
Where the parties to an enforceable contract subsequently agree
already slipped
that all or part of a duty n eed not be performed or of a condition need the time the e<
not occur, the Statute of Frauds does not prevent enforcement of the although they b•
subsequent agreement if reinstatement of the original terms would be was still on the
unjust in view of a material change of position in reliance on the have been a mis
subsequent agreement. B. Its legal cor
would be gove:
stated in § 152.
CHAPTER 6. MISTAKE
2. A contracts
§ 151. Mistake Defined buy stock amou
ling interest in
A mistake is a belief that is not in accord with the facts . the time of m a
Comment: tency. Fur thermore, the erroneous b e- both A and B b
lief must r elate to the facts as they poration will
a. B elief as to facts. In this Restate- $1,000,000 dur
ment th e word "mistake" is used to exist at the time of the making of the
contract. A party's prediction or judg- fiscal year. Be<
refer to a n erroneous belief. A party's quent economic
erroneous belief is therefore said to be ment as to events to occur in the fu -
a " mist ake" of that party. The belief ture, even if erroneous, is not a "mis-
need n ot be an articulated one, and a take" as that word is defined her e. An
§ 152. When
p¡:¡rty may have a belief as t o a fact erroneous belief as to the contents or ab
when h e merely makes an assumption effect of a writing that expresses the (1 ) Where a n
with respect to it, without being aware agr eement is, however, a mistake. Mis- as to a basic assun
of altern atives. The word "mistake" is t ake alone, in the sense in which the effect on the agr e1
not usecl here, as it is sometimes u sed word is u sed h ere, has no legal conse-
by the adversely E
in common speech, to refer to an im- quences. The legal consequences Gf
under the rule sta1
proviclent act, including the m aking of mistake in connection with the cr e-
a contract, that is the result of such a n ation of contractu al liability ar e det er- (2) In determ
erroneou s belief. This usage is avoided mined by the rules stated in the r est of agreed exchange o
here for t he sake of clarity and consis- this Chapter . of reformation, r e::
64
•ND MISTAKE. § 152
Illustrations: poration earns less than $500,000
tperformed duties l. A contracts with B to raise during that year. Although B may
and float B's boat which has run have shown poor judgment in
m oral agreement
aground on a reef. At the time of ·making the· contract, there was no
1tract to rescind a
making the contract, A believes mistake of either A or B, and the
that the sea will remain calm until rules stated in this ehapter do not
the work is completed. Several apply. See Uniform Commercial
a
days later, during sudden storm, eode § 8-306(2).
Statute of Frauds the boat slips into deep water and b. Facts include law. The rules
)rior contract, the fills with mud, making it more dif- stated in this Cliapter do not draw the
y agreed terms as ficult for A to raise it. Although A distinction that is sometimes made be-
1tly of the original may have shown poor judgment in tween "fact" and. "law." They treat
making the contract, there was no
the law in existence at the time of the
mistake of either A or B, and the
by virtue of the making of the contract as part of the
rules stated in this ehapter do not
mge of position in total state of facts at that time. A
apply. Whether A is discharged by
party's erroneous· beliefwith respect to
supervening impracticability is
the law, as . found in statute, regula-
governed by the rules stated in
tion, judicial decü;ion, or elsewhere, or
ehapter 11. See Illustration 5 to
§ 261. If, however, the boat had
with respect to the legal consequences
ubsequently agree already slipped into deep water at of bis acts, may, therefore, come with-
f a condition need the time the contract was made, in these rules.
nforcement of the although they both believed that it
:1l terms would be was still on the reef, there would Illustratioi-1:
1 reliance on the have been a mistake of both A and 3. A contracts to sell a tract of
B. Its legal consequences, if any, land. to B. Both parties understand
would be governed by the rule that B · pla.n s to erect an office
stated in § 152. building on the land and believe
2. A contracts to sell and B to that .he . can lawfully do so. Un-
huy stock amounting to a control- known to them, . two days earlier a
ling interest in e eorporation. At municipal ordinance was enacted
facts. the time of making the contract, requiring a pe1:mit for lawful erec-
both A and B believe that e eor- tion of such a building. There is a
·e, the erroneous be- mistake ·o,f both A and B. Its legal
poration will have earnings of
o the facts as they consequences,. if any, are governed
$1,000,000 during the following
)f the making of the by the rule stated in § 152. See
fiscal year. Because of a subse-
s prediction or judg- quent economic recession, e eor- · Illustnitioi1 7 to § 152.
: to occur in the fu-
teous, is not a "mis- § 152. When Mistake of Both Parties Makes a Contract Void-
i is defined here. An
able
s to the contents or
~ that expresses the (1) Where a mistake of both parties at the time a contract was made
ever, a mistake. Mis- asto a basic assumption on which the contract was made has a material
' sense in which the effect on the agreed exchange of performances, the · contract is voidable
, has no legal conse- by the adversely affected party unless he b.ears the risk of the mistake
:al consequences of under the rule stated in § 154.
dion with the ere-
al liability are deter- (2) In determining whether the mistake has a material effect on the
; stated in the rest of agreed exchange of performances, account is taken of any relief by way
of reformation, restitution, or otherwise. ·· · ··

65
§ 152 RESTATEMENT OF CONTRACTS_:_SECOND

Comment: sic assumptíon" has the same meaning 3. A contract!

a. Rationale. Before making a con- here as it does in Chapter 11 in con- huy a tract of
tract, a party ordinarily evaluates the nection with impracticability (§§ 261, pay A $100,00
proposed exchange of performances on 266(1)) and · frustration (§§ 265, assume a mort
the basis of a variety of assumptions 266(2)). See Uniform Commercial Code on the tract. Be
with respect to existing facts. Many of § 2-615(a). For example, market con- that the amom
these assumptions are shared by the ditions and the financia] situation of is $50,000, but
other party, in the sense that the other the parties are . ordinarily not sueh as- $10,000. The e
party is aware that they are made. The sumptions, and, generally, just as by A, unless tl
mere fact that both parties are mistak- shifts in.market conditions or financia] term under wh
en with respect to such an assumption ability do not effect discharge under enforce the con
does not, of itself, afford a reason for the rules governing impracticability, pay an appr
avoidance of the contract by the ad- mistakes ·as to · market conditions or sum, and B do
versely affected party. Relief is only financia] ability do not justify avoid- tion 2 to § 158.
appropriate in situations where a mis- ance under the rules governing mis- 4. A contract¡
take of both parties has such a materi- take. See Gornment b to § 261. The huy a debt ow•
al effect on the agreed exchange of parties may have had such a "basic secured by a
performances as to upset the very b a- assumption," e~en though they were and B believe tl
sis for the contract. not conscious of alternatives. See In- ing on the mor
This Section applies to such situa- troductory Note to Chapter 11. Where, the value of the
tions. Under it, the contract is voidable for example, a party purchases an an- ty exceeds that
by the adversely affected party if three nuity on the life of another person, it fact there is no
conditions are met. First, the mistake can be said that it was a basic assump- is less than ha
must relate to a "basic assumption on tion that. thé . other person was alive at The contract is
which the contract was made." Second, the time, even though the parties nev- § 333.
the party seeking avoidance must show er COJ!SCiously addressed themselves to 5. A contracts
that the mistake has a material effect the possibility that he was dead. See $100 a $10,000
on the agreed exchange of perform- Illustration.6 . .. e, who is insol,
ances. Third, the mistake must noL be believe that th1
one as to which the party seeking relief lllustrations: and is therefor
bears the risk. The parol evidence rule less, but in fa,
l. A contracts to sell and B to
does not preclude the use of prior or stock worth ap]
contemporaneous agreements or nego- huy a tract. of land, the value of
which· has depended mainly on the The contract is
tiations to establish that the parties
were mistakén. See § 214(d). However, · timber. on it. Both A and B believe 6. A pays B, a
since mistakes are the exception rather that the timber is still there, but ny, $100,000 f(
than the rule, the trier of the facts in fact it has been destroyed by tract under w
should examine the evidence with par- fire. The co~tract is voidable by B. make quarterl:
ticular care when a party attempts to 2. A .contracts to sell and B to who is 50 yea
avoid liability by proving mistake. See huy a tract of land, on the basis of amount for thE
Comment e to § 155. The rule stated the report of a surveyor whom A and B believe
in this Section is subject to that in luts . employed to determine. the health and hm
§ 157 on fault of the party seeking acreage. The price is, however, a pectancy, but
relief. It is also subject to the rules on lump sum not calculated from the The contract is
exercise of the power of avoidance stat- act;eage. ·Because of an error in c. Material effe
ed in §§ 378-85. computation by the surveyor, the change. A party CE
b. Basic assumption. A mistake of tract contains ten per cent more tract merely becaus
both parties does not make the con- acreage than h e reports. 'l'he con- mistaken as to a b:
tract voidable unless it is one as to a tract is voidable by A. Compare which it was made.
basic assumption on which both par- Illustrations 8 and 11 to this Sec- tion, show that the
ties made the contract. The term "ba- tion and Illustration 2 to § 158. terial effect on the

66
JND MISTAKE § 152
as the same meaning 3. A contracts to sell and B to performances. It is not enough for him
1 Chapter 11 in con- buy a tract of land. B agrees to to prove that he would not have made
racticability (§§ 261, pay A $100,000 in cash and to the contract had it not been for the
rustration (§§ 265, assume a mortgage that C holds mistake. He must show that the result-
rm Commercial Code on the tract. Both A and B believe ing imbalance in the agreed exchange
xample, market con- that the aniount of the mortgage is so severe that he can not fairly be
'inancial situation of is $50,000, but in fact it is only required to carry it out. Ordinarily he
dinarily not such as- $10,000. The contract is voidable will be able to do this by showing that
generally, just as by A, unless the court supplies a the exchange is not only less desirable
onditions or financia! term under which B is entitled to to him but is afso more advantageous
fect discharge under enforce the contract if he agrees to to the other party. Sometimes this is
,ing impracticability, pay an appropriate additional so because the adversely affected party
narket conditions or sum, and B does so. See Illustra- will give, and the other party will re-
lo not justify avoid- tion 2 to § 158. ceive, something more than they sup-
:ules governing mis- 4. A contracts to sell and -B to posed. Sometimes it is so because the
mt b to § 261. The buy a debt owed by C to A, and other party will give, and the adversely
~ had such a ''basic secured by a mortgage. Both A affected party will receive, something
n though they were and B believe that there is a build- less than they supposed. In such cases
alternatives. See In- ing on the mortgaged land so that the materiality of the effect on the
o Chapter 11. Where, the valu e of the mortgaged proper- agreed exchange will be determined by
rty purchases an an- ty exceeds that of the debt, but in the overall impact on both parties. In
of another person, it fact there is none so that its value exceptional cases the adversely affect-
; was a basic assump- is less than half that of the debt. ed party may be able to show that the
'r person was alive at The contract is voidable by B. See effect on the agreed exchange has been
:mgh the parties nev- § 333. material simply on the ground that the
lressed themselves to 5. A contracts to assign to B for exchange has become less desirable for
at he was dead. See $100 a $10,000 debt owed to A by him, even though there has been no
C, who is insolvent. Both A and B effect on the other party. Cases of
believe that the debt is unsecured hardship that result in no advantage to
and is therefore, virtually worth- the other party are, howevcr, ordinari-
cts to sell and B to less, but in fact it is secured by ly appropriately left to the rules on
Jf land, the value of stoc~ worth approximately $5,000. impracticability and frustration. See Il-
pended mainly on the The contract is voidable by A lustration 9 and § 266. The standard
Both A and B believe 6. A pays B, an insurance compa- of materiality here, as elsewhere in
Jer is still there, but ny, $100,000 fot an annuity con- this Restatement (e.g., § 237), is a
.s been destroyed by tract undei· which B agrees to flexible one to be applied in the light of
;ract is voidable by B. make quarterly payments to e, all the circumstances.
cts to sell and B to who is .50 years old, in a fixed
amount for the rest of C's life. A Illustratioris:
f land, on the basis of
· a surveyor whom A and B believe that C is in good 7. The facts being as stated in
el to determine the health and has a normal life ex- Illustration 3 to § 151, in deter-
price is, however, a pectancy, out in fact e is dead. mining whether the effect on the
,t calculated from the The contract is voidable by A agreed exchange is matérial, and
ause of an error in c. Material effect on agreed ex- the contract therefore' voidable by
by the surveyor, the change. A party cannot avoid a con- B, the court will consider not only
s ten per cent more tract merely because both parties were the decrease in its desirability to B
he reports. The con- mistaken as to a basic assumption on but also any advantage to A
able by A Compare which it was made. He must, in addi- through bis receiving a higher
8 and 11 to this Sec- tion, show that the mistake has a ma- price than the land would have
tstration 2 to § 158. terial effect on the agreed exchange of brought on the market had the

67
§ 152 RESTATEMENT OF CONTRACTS-SECOND

facts been known. See Illustration isting mortgage of $50,000. In re- stated in § 154. See
3 to § 151. ducing the agreement to WTiting, 14.)
8. A contracts to sell and B to B's lawyer erroneously omits the f Releases. Relea
huy a tract of land, which they provision for assumption of the afforded partictilarly
believe contains 100 acres, at a mortgage, and neither A nor B the invocation of the
price of $1,000 an acre. In fact the notices the omission. Under the Section. lt is, of cm
tract contains 110 acres. The con- rule stated in § 155, at the re- policy of the law to 1
tract is not voidable by either A or quest of either party, the court as a means of settlii
B, unless additional facts show will decree that the writing be re- resort to litigation. ~
that the effect on the agreed ex- formed to add the provision for § 74. Nevertheless, a
change of performances is materi- assumption of the mortgage. The executed such a rele~
al. contract is, therefore, not voidable to attack it. The si1
by A because, when account is tak- with respect to any e
9. A contracts to sell and B to
en of the availability to him of ularly common e
huy a dredge which B tells A he
reformation, the effect on the claims for personal
intends to use for a special and
agreed exchange of performances claimant may have
unusual purpose, but B does not
is not material. See Illustration 1 lease without full 1
rely on A's skill and judgment. A
to § 155. extent or, perhaps, E
and B believe that the dredge is fit
of his injuries. Such
for B's purpose, but in fact it is 11. A contracts to sell and B to variety of possible gJ
not, although it is merchantable. huy a tract of land, described in ing the release on di
The contract is not voidable by B
the contract as containing 100 injuries are more seJ
because the effect on the agreed
acres, ata price of $100,000, calcu- initially supposed.
exchange of performances is not
lated from the acreage at $1,000 have the release in
material. If B's purpose is sub-
an acre. In fact the tract contains the draftsman so as
stantially frustrated, he may have
only 90 acres. If B is entitled to a to the newly dü
relief under § 266(2). See also
reduction in price of $10,000, un- (§ 206) . He may see
Uniform Commercial Code §§ 2-
der the rule stated in § 158(2), the lease reformed on t!
314,2-315. does not correctly ·,
contract is not voidable by B be-
d . Signi fi can:r.e nf nthP.r rP.liP.f Un- cause when account is taken of the agreement o[ the p¡
der the rule sta,ted in Subsection (2), availability to him of a reduction may seek to avoid t
before d_etermining the effect on the in price, the effect on the agreed ground that it was
agreed exchange, the court wíll first exchange of performances is not through misrepreser
take account of any r elief that may be material. See Illustration 1 to undue influence (Ch
available to him or granted to the oth- seek to have the re
§ 158. As to the possibility of an
er party undeT the rules stated in that part purporting
argument based on frustration,
§§ 155 (see Illustration 10) and 158 ly discovered injuries
see § 266(2).
(see Illustration 11). A party may ble as unconscionab
choose to se.e k relief by means of refor- e. Allocdtion of risk. A party may may seek to avoid t
mation even though it makes his own be considered to have undertal~en to ground that both r
performance more onerous when, ab- perform in spite of a mistake that has party were mistaken
sent reformation, the contract would a m aterial effect on the agreed ex- or extent of his injur'
be voidable by · the other party. See change of performances. He 'then b ears the release is prope
Introductory Note and Comment e to the risk of the mistake . Because of the cover unknown injur
§ 155. significance of the allocation of risk in not unfairly obtaine
the law of mistake, the scope of this ble, his case wíll tm
Illustrations: exception is spelled out in detail in tion of the rule stat
10. A and. B agr ee that A will sell § 154. (lt is assumed in the íllustra- to his claim of mista!
and B will huy a tract of land for tions to the present Section that the such attacks on 1
$100,000, payable by $50,000 in adversely affected party does not bear should be particular
cash and the assumption of an ex- the risk of the mistake under the rule scure or misleading 1

68
 MISTAKE § 152
re of $50,000. In re- stated in § 154. See, e.g., Illustration cially alert to the possibility of unfair-
reement to writing, 14.) ness or unconscionability. However,
roneously omits the f Releases. Releases of claims have the same rules relating to mistake ap-
assumption of the afforded particularly fertile ground for ply to such releases as apply to other
l neither A nor B the invocation of the rule stated in this contracts, and if the results sometimes
mission. Under the Section. It is, of course, a traditional seem at variance with those rules, the
t § 155, at the re- policy of the law to favor compromises variance can usually be attributed to
3r party, the court as a means of settling claims without the presence of one of the alternative
1.t the writing be re- resort to litigation. See Comment a to grounds listed above.
d the provision for . § 74. N evertheless, a claimant who has
A claimant's attempt at avoidance
· the mortgage. The executed such a release may later wish
based on mistake of both parties,
erefore, not voidable to attack it. The situation may arise
therefore, will frequently turn on a
when account is tak- · with respect to any claim, but a partic-
determination, in the light of all the
'iilability to him of ularly common example involves
claims for personal injury, where the circumstances, of the basic assump-
the effect on the tions of the parties at the time of the
tge of performances claimant may have executed the re-
lease without full knowledge of the release. These circumstances may in-
Ll. See Illustration 1 elude the fair amount that would be
extent or, perhaps, even of the nature
of his injuries. Such a claimant has a required to compensate the claimant
cts to sell and B to variety of possible grounds for attack- for his known injuries, the probability
f land, described in ing the release on discoverir¡.g that his that the other party would be held
as containing 100 injuries are more serious than he had liable on that claim, the amount re-
:e of $100,000, calcu- initially supposed. He may seek to ceived by the claimant in settlement of
e acreage at $1,000 have the release interpreted against his claim, and the relationship be-
~t the tract contains the draftsman so as to be inapplicable tween the known injuries and the
If B is entitled to a to the newly discovered mJuries newly discovered injuries. If, for exam-
lrice of $10,000, un- (§ 206). He may seek to have the re- ple, the amount received by the claim-
ated in § 158(2), the lease reformed on the ground that it ant is reasonable in comparison with
't voidable by B be- · does not correctly express the prior the fair amount required to compen-
count is taken of the agreement of the parties (§ 155). He sate him for his known injuries and
him of a reduction may seek to avoid the release on the the probability of the other party be-
3ffect on the agreec!l ground that it was unfairly obtained ing held liable on that claim, this sug-
)erformances is not through misrepresentation, duress or gests that the parties assumed that his
, Illustration 1 to undue influence (Chapter 7). He may injuries were only those known. Fur-
the possibility of an seek to have the release, or at least thermore, even if the parties do not
sed on frustration, that part purporting to cover the new- assume that his injuries are only those
ly discovered injuries, held unenforcea- known, they may assume that any un-
ble as unconscionable (§ 208). Or he known injuries are of the same general
r risk. A party may may seek to avoid the release on the nature as the known ones, while dif-
have undertaken to ground that both he and the other fering in extent. Although the parties
f a mistake that has party were mistaken as to the nature may fix the assumptions on which the
on the agreed ex- or extent of his injuries. Assuming that contract is based by an express provi-
ances. He then bears the ·release is properly interpreted to sion, fairly bargained for, the common
;take.· Because of the cover unknown injuries and that it was recital that the release covers al! inju-
allocation of risk in not unfairly obtained or unconsciona- ries, known or unknown and of what-
:e, the scope of this ble, his case will turn on the applica- ever nature or extent, may be disre-
ed out in detail ·in tion of the rule stated in this Section garded as unconscionable if, in view of
med in the illustra~ to his claim of mistake. In dealing with the circumstances of the parÜes, their
mt Section that the such attacks on releases, a court legal r epresentation, and the setting of
party does not bear should be particularly sensitive to ob- the negotiations, it f1ies in the face of
stake under the rUlé scure or misleading language and espe- wha t would otherwise be regarded as a

69
§ 152 RESTATEMENT OF CONTRACTS-SECOND

basic assumption of the parties. What broad scope of a seller's warranties, a § 153. When
has been said here with respect to re- buyer is more often entitled to relief bl
leases of claims for personal injury is based on a claim of breach of warranty
generally true for releases executed in than on a claim based on mistake. Fur- Where a mist.
other contexts. thermore, because relief for breach of a basic assumptio
warranty is generally based on the val- on the agreed ex
Illustrations: ue that the property would have had if contract is voidab
12. A has a claim against B for it had been as warranted (see Uniform under the rule sta
B's admitted negligence, which ap- Commercial Code § 2-714(2)), it is or- (a) the e
pears to have caused damage to dinarily more extensive than that af-
contr.
A's automobile in an amount fairly forded if he merely seeks to avoid the
valued at $600. In consideration of contract on the ground of mistake. (b) the o
B's payment of $600, A executes a N evertheless, the warranties are not fault
release of "all claims for injury to necessarily exclusive and, even absent
person or property" that he may a warranty, a buyer may be able to § 154. When
have against B. Both A and B be- avoid on the ground of mistake if he
brings himself within the rule stated A party bears
lieve that A has suffered damage
to property only, but A later dis- in this Section. The effect, on a buyer's (a) The 1
covers that he has also suffered claim of mistake, of language purport-
(b) he is
personal injuries in the extent of ing to disclaim the seller's responsibili-
ty for the goods is governed by the
only
$20,000. The release is voidable by
rules on interpretation stated in Chap- the 1
A
ter 9 . suffic
13. A has a claim against B for
(e) the ri
B's admitted negligence, which ap- Illustration:
pears to have caused personal in- it is r
juries to A's back in an amount 14. A, a violinist, contracts to sell
Com1
fairly valued at $10,000, although and B, another violinist, to huy a
the parties are aware that A may viuliu. BoLh A and D believe that a.. Rationale. A
require further treatment. In con- the violín is a Stradivarius, but in the contrary, a con1
sideration of B's payment of fact it is a clever imitation. A the risk of most s1
$15,000, A executes a release of makes no express warranty and, in circumstances,
"all claims for injury to person or because he is not a merchant with upset basic assump
property" that he may have respect to violins, makes no im- edly affect the agre
against B. A later incurs addition- plied warranty of merchantability formances, unless
al expenses of $20,000 in connec- under Uniform Commercial Code treme hardship as ·
tion with his back, which was in- § 2-314. The contract is voidable the ground of imp
jured more seriously than he had by B. fm·mance or frustr.
believed. The release is not voida- party also bears th
h. Mistahes as to different assump- takes as to existing
ble by A tions. The rule stated in this Section though they upset
g. Relation to breach of warranty. applies only where both parties are and unexpectedly a
The rule stated in this Section has a mistaken as to the same basic assump- change of perform1
close relationship to the rules govern- tion. Their mistakes need not be, and it is commonly u:
ing warranties sale by a seller of goods often they will not be, identical. lf, seller 6f farm lan
or of other kinds of property. A buyer however, the parties are mistaken as avoid the contract
usually finds it more advantageous to to different assumptions, the rule stat-· discovery by both ¡:
rely on the law of warranty than on ed in § 153, rather than that stated in contains valuable
the law of mistake. Because of the this Section, applies. even though the p
on the basic assmT
was suitable only 1

70
)ND MISTAKE § 154
;eller's warranties, a § 153. When Mistake of One Party Makes a Contract Voida-
;en entitled to relief ble
tf breach of warranty
tsed on mistake. Fur- Where a mistake of one party at the time a contract was made as to
l relief for breach of a basic assumption on which he made the contract hás a material effect
:1lly based on the val- on the agreed exchange of performances that is adverse to him the
:ty would have had if contract is voidable by him if he does not bear the risk of the mi~take
~ranted (see Uniform under the rule stated iri § 154, and
§ 2-714(2)), it is or- (a) the effect of the mistake is such that ~nforcement of the
ensive than that af-
contract would be unconscionable, or .
ly seeks to avoid the
ground of mistake . (b) the other party had reason to know of the mistake or his
warranties are not fault caused the mistake. .
ive and, even absent
.yer may be able to § 154. When a Party Bears the Risk of a Mistake
md of mistake if he
thin the rule stated
A party bears the risk of a mistake when
te effect, on a buyer's (a) The risk is allocated to him by agreement of the parties, or
of language purport-
(b) he is aware, at the time the contract is made, that he has
) seller's responsibili-
only limited knowledge with respe.ct to the facts to which
is governed by the
ation stated in Chap- the mistake relates but treats his limited knowledge as
sufficient, or
(e) the risk is allocated to him by the ~o~rt ~n the ground that
it is reasonable in the circumstances t6 do so.
inist, contracts to sell
Comment: effect on the . agreed ·exchange of per-
er violinist, to buy a
a. Rationale. Absent provlsiOn to fm·mances is material. In· such a case a
\. and B believe that
the contrary, a contracting party takes court wili in;dinarlly .allocate the risk
L Stradivarius, but in
the risk of most supervening changes of the mistake to the seller, so that he
clever imitation. A
in circumstances, even though they is under a duty to perform regardless
press warranty and,
upset basic assumptions and unexpect- of the mistake: The l.-ule stated in this
nota merchant with
edly affect the agreed exchange of per- Section determines whether a party
olins, makes no im-
formances, unless there is such ex- bears the risk · of a · mistake for the
;y of merchantability
treme hardship as will justify relief on purposes of both §§ i52 and 153. Stat-
m Commercial Code
the ground of impracticability of per- ing these rules in terms of the alloca-
contract is voidable
formance or frustration of purpose. A tion of risk avoids such artificial and
party also bears the risk of many mis- specious distinctions as are sometimes
to different asswnp- takes as to existing circumstances even drawn betwee·n "Íntrinsic" and "ex-
;ated in this Section though they upset basic assumptions trinsic" mistakes or between mistakes
,re both parties are and unexpectedly affect the agTeed ex- that go to the "identity" or "exis-
:l same basic assump- change of performances. For example, tence" of the subject matter and those ·
{es need not be, and it is commonly understood that the that go merely · to its "attributes,"
10t be, identical. If, seller of farm land generally cannot "quality" or. "value." Even though a
ties are mistaken as avoid the contract of sale upon later mistaken party does not bear the risk
tptions, the rule stat- discovery by both parties that the land of a mistake,. he in ay be barred from
lr than that statecl in contains valuable mineral deposits, avoidance·if the mistake was the result
es. even though the price was negotiated of his failure to act in good faith and
on the basic assumption that the land in accordance with reasonable stan-
was suitable only for farming ancl the dards offaii· dealing'. See § 157.

71
 § 154 RESTATEMENT OF CONTRACTS-SECOND .

b. Allocation by agreement. The Illustration: 4. A, an owner

most obvious case of allocation of the builder, make
2. The . facts being otherwise as
risk of a mistake is one in which the which B is to t¡
stated .i n Illustration 2 to § 152, A
parties themselves provide for it by at a stated rate
propases to B during the negotia-
their agreement. Just as a party may the grave! and E
tions the inclusion of a provision
agree to perform in spite of impractica- the constructim
under which the adversely affected
bility or frustration that would other- amount estimat
wise justify his non-performance, he party can cancel .the contract in cubic yards. A ¡
may also agree, by appropriate lan- the event of a : material error . in all of the grave!
guage or other manifestations, to per- the sunreyor's . report, but B re- water level and ·
form in spite of mistake that would fuses to agree to such a provision. ordinary means,
otherwise justify his avoidance. An in- The contract is not voidable by A, one quarter of
surer, for example, may expressly un- because A bears the risk of the level, so that re
dertake the risk of loss of property mistake. special equipmeJ
covered as of a date already past. d. Risk allocated by the court. In cost of about t'A
Whether the agreement places the risk sorne inst.ances it i.s . reasonably clear contract is not ·
on the mistaken party is a question to cause the court
that a party should be;:~r the risk of a
be answered under the rules generally the risk of the
mistake for reasons other than those
applicable to the scope of contractual Illustration 5 to
stated in Subparag:t:aphs (a) and (b). In
obligations, including those on inter- such instances, under the rule stated
pretation, usage and unconscionability. in Subparag:t·aph (e), the court will al-
§ 155. When
See Chapter 9. sic
locate the risk to that party on the
Illustration: ground that it ís rea,somible to do so. A Where a writi
court will generally do this, for exam- or in part fails to
l. A contracts to sell imd B to ple, where the selle~ <;>f farro land seeks parties as to the e
huy a tract of land. A and B both to avoid the ·co11tract of sale on the
believe that A has good title, but
request of a party ·
ground that valuable mineral rights the extent that ri~
neither has made a title search. have newly beeh found. · See Comment
The contract provides that A will value will be unfai:
a. In dealing with such issues, the
convey only such title as he has,
court will consider the purposes of the
and A makes no representation
parties a:rid will .'have ·recourse to its
§ 156. Mista1
with respect to title. In fact, A's
own general knowledge· of human be- If reformatiOJ
title is defective. The contract is
havior in bargairi · transactions, as it precluded by the f
not voidable by ~' because the risk
will in the analogous situation in
of the mistake is allocated to B by
agreement of the parties. which it is asked to ·supply a term § 157. Effect
under the rule . stated · in § 204. The
c. Conscious ignorance. Even rule stated in Subsection (e) is subject A mistaken p
though ~he mistaken party did not to contrary agreemeilt and to usage befare making the
agree to bear the risk, he may have (§ 221). tion under the ruh
been aware when he made the contract
failure to act in gc
that his knowledge with respect to the Illustrations:
·. facts to which the mistake relates was
of fair dealing.
limited. If he was not only so aware 3. The facts being otherwise as
that his knowledge was limited but stated in Illustration 6 to § 152, e § 158. Relief
undertook to perform in the face of is not. dead but is afflicted with an
(1) In any cas
that awareness, he bears the risk of incurable fatal disease and cannot
party may have a
the mistake. It is sometimes said in live more th~m a year. The con-
such a situation that, in a sense, there tract is not voidable by A, because stated in §§ 240 ar
was not mistake but "conscious igno- the court will allocate to A the risk (2) In any cas'
rance.'' of the mistake. rules together wi
72
;QND MISTAKE § 158
4. A, an owner of land, and B, a 5. A contracts with B to build a
;s being otherwise as builder, make a contract under house on B's land. A and B believe
1stration 2 to § 152, A which B is to take from A's land, that subsoil conditions are normal,
B during the negotia- at a stated rate per cubic yard, all but in fact sorne of the land must
clusion of a provision the gravel and earth necessary for be drained at an expense that will
the construction of a bridge, an leave A no profit under the con-
the adversely affected
amount estimated to be 114,000 tract. The contract is not voidable
ancel the contract in
cubic yards. A and B believe that by A, because the court will allo-
f a material error in
all of the grave! and earth is above cate to A the :t:isk of the mistake.
r's report, but B re- water leve! and can be removed by
le to such a provision. Compare Illustration 8 to § 266.
ordinary means, but in fact about
G is not voidable by A, one quarter of it is below water 6. The facts being otherwise as
)ears the risk of the leve!, so that removal will require stated in Illustration 1 to § 153,
special equipment at an additional the $50,000 error in A's bid is the
ated by the court. In cost of about twenty percent. The result of A's mistaken estímate as
it is reasonably clear contract is not voidable by B, be- to the amount of labor required to
uld bear the risk of a cause the court will allocate to B do the work. A cannot avoid the
;ons other than those the risk of the mistake. Compare contract, because the court will al-
Illustration 5 to § 266. locate to A the risk of the mistake.
agraphs (a) and (b). In
under the rule stated
. (e), the court will al-
§ 155. When Mistake of Both Parties as to Written Expres-
to that party on the
sion Justifies Reformation
reasonable to do so. A Where a writing that evidences or embodies an agreement in whole
1lly do this, for exam- or in part fails to· express the agreement because of a mistake of both
ller of farm land seeks parties as to the contents or effect of the writing, the court may at the
ntract of sale on the requést of a party reform the writing to express the agreement, except to
luable mineral rights the extent that rights of third parties such as good faith purchasers for
found. See Comment value will be unfairly affected.
vith such issues, the
er the purposes of the
have recourse to its § 156. Mistake asto Contract Within the Statute of Frauds
>wledge of human be- If refo'rmaÜon of a writing is otherwise appropriate, it is not
in transactions, as it precluded by the fact that the contract is within the Statute of Frauds .
.alogous situation in
ed to supply a term § 15 7. Effect of F~:mlt of Party Seeking Relief
stated in § 204. The
tbsection (e) is subject A mistaken party's fault in failing to know or discover the facts
~ement and to usage before making the contract does not bar him from avoidance or reforma-
tion under the rules stated in this Chapter, unless his fault amounts toa
failure to act in good faith and in accordance with reasonable standards
of fair dealing.
;s being otherwise as
LStration 6 to § 152, C § 158. Relief Including Restitution
mt is afflicted with an
(1) In any case governed by the rules stated in this Chapter, either
~al disease and cannot
1an a year. The con-
party may have a claim for relief including restitution under the rules
midable by A, because statecl in §§ 240 and 376.
11 allocate to A the risk (2) In any case governed by the rules stated in this Chapter, if those
~:e . rules togethei' with the rules stated in Chapter 16 will not avoid

73
§ 158 RES1'ATEMENT OF CONTRACTS-SECOND

injustice, the court may grant relief on such terms as justice requires (e) know
including protection of the parties' reliance interest. impli
(2) A misrep:
CHAPTER 7. MISREPRESENTATION, reasonable persor
would be likely to
DURESS AND UNDUE INFLUENCE
TOPIC l. MISREPRESENTATION § 163. When
e
§ 159. Misrepresentation Defined
If a misrepn
A misrepresentation is an assertion that is not in accord with the proposed contrac1
facts. assent by one w
lmow of the chm
§ 160. When Action is Equivalent to an Assertion (Conceal- conduct is not eff
ment)
Action intended or known to be likely to prevent another from § 164. Whe11
learning a fact is equivalent to an assertion that the fact does not exist. (1) If a par
fraudulent or a
§ 161. When Non-Disclosure Is Equivalent toan Assertion which the recipie
A person's non-disclosure of a fact known to him is equivalent toan recipient.
assertion that the . fact does not exist in the following cases only: (2) If a par
(a) whete he knows that disclosure of the fact is necessary to fraudulent or a n
the transaction
prevent sorne previous assertion from being a misrepresen-
contract is vüid1
tation or from being fraudulent or material.
transaction in go'
(b) where he knows that disclosure of the fact would correct a tation either give
mistake of the other party as to a basic assumption on
which that party is making the contract and if non-disclo- § 165. Cure
sure of the fact amounts to a failure to act in good faith and
in accordance with reasonable standards of fair dealing. If a contract
notice of an inte
(e) where he knows that disclosure of the fact would correct a with the assertio:
mistake of the other party as to the contents or effect of a has been harmed
writing, evidencing or embodying an agreement in whole or
in part. § 166. Whe1
(d) where the other person is entitled to know the fact because E
of a relation of trust and confidence between them. If a party's :
fraudulent mistE
§ 162. When a Misrepresentation Is Fraudulent or Material evidencing or em
(1) A misrep):esentation is fraudulent if the maker intends his the request of th
assertion to induce a party to manifest his assent and the maker of the agreement
(a) knows or believes that the assertion is not in accord with (a) if th
the faets, or tion,
(b) cloes not have the confidence that he states or implies in the (b) exce
truth of the assertion, or faitl

74
>ND MISREPRESEN1'ATION, ETC. § 166

as justice requires (e) knows that he does not have the basis that he states or
implies for the assertion.
(2) A misrepresentation is material if it would be likely to induce a
'ATION, reasonable person to manifest his assent, or if the maker knows that it
would be likely to induce the recipient to do so.
ENCE
:oN § 163. When a Misrepresentation Prevents Formation of a
Contract
If a misrepresentation as to the character or essentiál terms of a
[n accord with the proposed contract induces conduct that appears to be a manifestation of
assent by one who neither knows nor has reasonable opportunity to
know of the character or essential terms of .the proposed contract, his
:ertion (Conceal- conduct is not effective as a manifestation of assent.

rent another from § 164. When a Misrepresentation Makes a Contract Voidable

fact does not exist. (1) If a party's manifestation of assent is induced by either a
fraudulent or a material misrepresentation by the other party upon
' an Assertion which the recipient is justified in relying, the contract is voidable by the
is equivalent to an recipient.
owing cases only: (2) If a party's manifestation of assent is induced by either a
act is necessary to fraudulent or a material misrepresentation by one who is not a party to
ing a misrepresen- the transaction upon which the recipient is justified in relying, the
contract is voidable by the recipient, unless the other party to the
:tl.
transaction in good faith and without reason to know of the misrepresen-
tct would correct a tation either gives value or relies materially on the transaction.
sic assumption on
. and if non-disclo- § 165. Cure by Change of Circumstances
t in good faith and
ls of fair dealing. If a contract is voidable because of a misrepresentation and, before
notice of an intention to avoid the contract, the facts come into accord
tct would correct a with the assertion, the contract is no longer voidable unless the recipient
tents or effect of a has been harmed by relying on the misrepresentation.
!ement in whole or
§ 166. When a Misrepresentation as to a Writing Justifies
•W the fact because Reformation
~en them. If a party's manifestation of assent is induced by the other party's
fraudul~nt misrepresentation as to the contents or effect of a writing
mt or Material evidencing or embodying in whole or in part an agreement, the court at
naker intends his the request of the recipient may reform the writing to express the terms
tt and the maker of the agreement as asserted,
not in accord with (a) if the recipient was justified in relying on the misrepresenta-
tion, and
es or implies in the (b) except to the extent that rights of third parties such as good
faith purchasers for value will be unfairly affected.

75
§ 167 RESTATEMENT OF CONTRACTS-SECOND

§ 167. When a Misrepresentation Is an Inducing Cause § 172. Whenl

A misrepresentation induces a party's manifestation of assent if it A recipient's J
substantially contributes to his decision to manifest his assent. making the contn
amounts to a fai
§ 168. Reliance on Assertions of Opinion reasonable standar
(1) An assertion is one of opinion if it expresses only a belief,
without certainty, as to the existence of a · fact or expresses only a § 173. When,
judgment asto quality, value, authenticity, or similar matters. Vo
(2) If it is reasonable to do so, the recipient of an assertion of a
If a fiduciary
person's opinion asto facts not disclosed and not otherwise known to the matters within tl
recipient may properly interpret it as an assertion voidable by the ber
(a) it is or
(a) that the facts known to that person are not incompatible
with his opinion, or (b) all pa1
unden
(b) that he knows facts sufficient to justify him in forming it.
that ti
§ 169. When Reliance on an Assertion of Opinion Is Not
Justified TOPIC 2.
To the extent that an assertion is one of opinion only, the recipient § 174. When
is not justified in relying on it unless the recipient m2
(a) stands in such a relation of trust and confidence to the If conduct tha
person whose opinion is asserted that the recipient is rea- who does not inten
sonable in relying on it, or duress, the conduc
(b) reasonably believ~s that, as compared with himself, the
perso~ whose opinion is asserted has special skill, judgment § 175. When:
or objectivity with respect to the subject matter, or
(1) If a party'
(e) is for sorne other special reason particularly susceptible to a threat by the othe
misrepresentation of the type involved. tive, the contract i:
(2) If a party':
§ 170. Reliance on Assertions as to Matters of Law
a party to the trar
If an assertion is one as to a matter of law, the same rules that apply the other party to
in the case of other assertions determine whether the recipient is know of the dur
justified in relying on it. transaction.

§ 171. When Reliance on an Assertion of Intention is Not § 176. When

Justified
(1) A threat ü
(1) To the extent that an assertion is one of intention only, the
recipient is not justified in relying on it if in the circumstances a . (a) what
misrepresentation of intention is consistent with reasonable standards of would
dealing. prope1

(2) If it is reasonable to do so, the promisee may properly interpret (b) what
a promise as an assertion that the promisor intends to perform the (e) what
prom1se. is ma<

76
IND MISREPRESENTATION, ETC. § 176
ing Cause § 172. When Fault Makes Reliance Unjustified ·
;ion of assent if it A recipient's fault in not knowing or discovering the facts befare
> assent. making the contract does not make his reliance unjustified unless it
amounts to a failure to act in good faith and in accordance with
reasonable standards of fair dealing.
ses only a belief,
expresses only a § 173. When Abuse of · ~ Fiduciary Relation Makes a Contract
natters. Voidable · ·

an assertion of a If a fiduciary makes a contract with his beneficiary relating to

wise known to the matters within the scope of the fiduciary relation, the contract is
voidable by the beneficiary, unless

' not incompatible (a) it is on fair terms, and

(b) all parties beneficially interested manifest assent with full
n in forming it. understanding of their legal rights and of all relevant facts
that the fiduciary knows or should know.
Opinion Is N ot
TOPIC 2. DURESS AND UNDUE INFLUENCE
only, the recipient § 174. When Duress by Physical Compulsion Prevents For-
mation of a Contract
confidence to the If conduct that appears to be a manifestation of assent by a party
e recipient is rea- who does not intend to engage in that conduct is physically compelled by
duress, the conduct is not effective as a manifestation· of assent:
with himself, the
:ial skill, judgment § 175. When Duress by Threat Makes a ContractVoid.able
tatter, or
(1) If a party's manifestation of assent is induced by an improper
·ly susceptible to a threat by the other party that leaves the victim no reasonable alterna-
tive, the contract is voidable by the victim.
. .
(2) If a party's ~anifestation of assent is induced by one who is not
fLaw
a party to the transaction, the contract is voidable by the victim unless
ne rules that apply the other party to the transaction in good faith and without reason to
~ the recipient is know of the duress either gives value or relies rriaterially on the
transaction.

ntention is Not § 176. When a Threat Is Improper

(1) A threat is improper if
J.tention only, the
~ circumstances a
(a) what is threatened is a crime or a tort, or the threat itself
nable standards of would be a crime or a tort if it resulted in obtaining
property,
properly interpret (b) what is threatened is a criminal prosecution,
ls to perform the (e) what is threatened is the use of civil process and the threat
is made in bad faith, or

77
 § 176 RESTATEMENT OF CONTRACTS-SECOND u

(d) the threat is a breach of the duty of good faith and fair (3) In weighin.
dealing under a contract with the recipient. account is taken of
(2) A threat is improper if the resulting exchange is not on fair (a) thc str'
terms, and judicial
(a) the threatened act would harm the recipient and would not (b) the lik~
significantly benefit the party making the threat, that po
(b) the effectiveness of the threat in inducing the manifestation (e) the seri
of assent is significantly increased by prior unfair dealing by which i
the party making the threat, or (d) the dir
(e) what is threatened is otherwise a use of power for illegiti- and th~
mate ends. ·
§ 179. Bases o
§ 177. When Undue lnfluence Makes a Contract Voidable A public policy
(1) Undue influence is unfair persuasion of a party who is under the may be derived by t
domination of the person exercising the persuasion or who by virtue of (a) legislat
the relation between them is justified in assuming that that person will (b) the ne~
not act in a manner inconsistent with his welfare. · the cas
(2) If a party's manifestation of assent is induced by undue influ- (i) res·
ence by the other party, the contract is voidable by the victim.
(ii) im
(3) If a party's manifestation of assent is induced by oire who is not
(iii) m
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 H
know of the undue influence either gives val u e or relies materially on the
transaction. · · · · · § 180. Effect «
If a promisee
1;
minor character, of
CHAPTER 8. UNENFORCEABILITYON the absence of whic
1;
GROUNDS OF PUBLIC POLICY a claim for damag
anything that he l
TOPIC l. UNENFORCEABILITY IN GENERAL
§ 178. When a Term Is Unenforceable on Grounds of Public § 181. Effect •
Policy Re<

(1) A promise or other term of an agreement is u:benforceable on If a party is pl

grounds of public policy if legislation provides that it is unenforceable or comply with a licei
the interest in its enforcement is clearly outweighed in the circum- in consideration ol
st~nces by a public policy against the enforcement of such terms. unenforceable on g1
(2) In weighing the interest in the enforcement of a term, account is (a) the req
taken of (b) the in'
(a) the parties' justified expectations, outwei
(b) any forfeiture that would result if enforcementwete denied,
and § 182. Effect'
(e) any special public interest in the enforcement of the particu- If the promiseE
lar term. ise is not precluded

78
OND UNENFORCEABILITY ON GROUNDS § 182

süüd faith and fair (3) In weighing a public policy against enforcement of a term,
nt. account is taken of
mge is not on fair (a) the strength of that policy as manifested by legislation or
judicial decisions,
1ient and would not (b) the likelihood that a refusal to enforce the term will further
3 threat, that policy,
g the manifestation (e) the seriousness of any misconduct involved and the extent to
Jr unfair dealing by which it was deliberate, and
(d) the directness of the connection between that misconduct
f power for illegiti- and the term.

§ 179. Bases of Public Policies Against Enforcement

ract Voidable A public policy against the enforcement of promises or other terms
ty who is under the may be derived by the court from
)r who by virtue of (a) legislation relevant to such a policy, or
1at that person will (b) the need to protect sorne aspect or' the public welfare, as is
the case for th.e judicial policies against, for example,
:ed by undue influ- (i) restraint of trade (§§ 186-188),
e victim.
(ii) impairment of family relations (§§ 189-191), and
d by one who is not
'Y the victim unless (iii) interferEmce with other protected interests (§§ 192-
l without reason to 196, 356).
es materially on the
§ 180. Effect of Excusable Ignorance
If a promisee is excusably ignorant cif facts or of legislation of a
minor character, of which the promisor is not excusably ignorant and in
[LITYON the absence of which the promise would be enforceable, the promisee has
~ICY a claim · for damages for its breach but cannot recover damages for
anything that he has done after he learns of the facts or legislation.
GENERAL
frounds of Publi<; § 181. Effect of Failure to Comply With Licensing or Similar
Requirement
.s unenforceable on If a party is prohibited from doing an act because of· his failure to
is unenforceable or comply with a licensing, registration or similar requirement, a promise
1ed in the circuín- in consideration of his doing that act or of his promise to do it is
'nt of such terms. unenforceable on grounds of public policy if
,fa term, account is (a) the requirement has a regulatory purpose, and
(b) the interest in the enforcement of the promise is · clearly
outweighed by the public policy behind the requirement.
ement were denied,
§ 182. Effect of Performance if Intended Use Is Improper
nent of the particu- If the promisee has substantially performed, enforcement of a prom-
ise is not precluded on gtounds of public policy because of sorne improper

79
§ 182 RESTATEMENT OF CONTRACTS-SECOND

use that the promisor intends to make of what he obtains unless the § 188. Ancill:
promisee (1) A promise
(a) acted for the purpose of furthering the improper use, or that is ancillary '
unreasonably in re
(b) knew of the use and the use involves grave social harm.
(a) the re
§ 183. When Agreement is Enforceable asto Agreed Equiva- ee's le
lents (b) the p1
If the parties' performances can be apportioned into corresponding pro mi
pairs of part performances so that the parts of each pair are properly (2) Promises i
regarded as agreed equivalents and one pair is not offensive to public action or relations:
policy, that portion of the agreement is enforceable by a party who did
(a) a pror
not engage in serious misconduct.
buyer
sold;
§ 184. When Rest of Agreement Is Enforceable
(b) a pro:
(1) If less than all of an agreement is unenforceable under the rule
with l
stated in § 178, a court may nevertheless enforce the rest of the
agreement in favor of a party who did not engage in serious misconduct (e) a pror
if the performance as to which the agreement is unenforceable is not an
Comn
essential part of the agTeed exchange.
a. Rule of reasor
(2) A court may tr~at only part of a term an unenforceable under in this Section apply
the rule stated in Subsection (1) if the party who seeks to enforce the compete that, becau
term obtained it in good faith and in accordance with reasonable stan- cillary restraints, a
dards of fair dealing. invalid. Subsection (
detail the general
§ 186 as it applies
§ 185. Excuse of a Condition on Grounds of Public Policy
Undcr this formulE
To the extent that a. term requiring the occurrence of a condition is may be unreasonah
unenforceable un~er the rule stated in § 178, a court may excuse the situations. The firs
non-occurrence of the condition unless its occurrence was an essential restraint is greater
part of the agTeed exchange. protect the legitima
promisee. The sec'
even though the res
TOPIC 2. RESTRAINT OF TRADE er than necessary t
terests, the promise'
§ 186. Promise in Restraint of Trade tion is outweighed ·
(1) A promise is unenforceable on grounds of public policy if it is the promisor and t
the public. In the SI
unreasonably in restraint of trade. court may be faced
(2) A promise is in ·restraint of trade if its performance would limit ·. difficult task of ba
competition in any business or restrict the promisor in the exercise of .a interests. No mat:
gainful occupation. can be offered for th
b. Need of the .
§ 187. Non-Ancillary Restraints on Competition straint is not ancill
action or relationsh:
A promise to refrain from competition that imposes a restraint that an interest worthy
is not ancillary to an otherwise valid transaction or relationship is promise is necess1
unreasonably in restraint of trade. under the rule stat1

80
 ~-

'OND UNENFORCEABILITY ON GROUNDS § 188

obtains unless the § 188. Ancillary Restraints on Competition

(1) A promise to refrain from competition that imposes a restraint
1proper use, or that is ancillary to an otherwise valid transaction or relationship is
unreasonably in restraint of trade if
ve social harm.
(a) the restraint is greater than is needed to protect the promis-
o Agreed Equiva- ee's legitimate interest, or
(b) the promisee's need is outweighed by the hardship to the
into corresponding promisor and the likely injury to the public.
h pair are properly (2) Promises imposing restraints that are ancillary to a valid trans-
offensive to public action or relationship include the following:
by a party who did
(a) a promise by the seller of a business not to compete with the
buyer in such a way as to injure the value of the business
sold;
Jle
(b) a promise by an employee or other agent not to compete
able under the rule
with his employer or other principal;
~e the rest of the
serious misconduct (e) a promise by a partner not to compete with the partnership.
nforceable is not an
Comment: Section. In sorne instances, however, a
a. Rule of reason. The rules stated promise to refrain from competition is
nenforceable under in this Section apply to promises not to a natural and reasonable means of pro-
eeks to enforce the compete that, because they impose an- tecting a legitimate interest of the
th reasonable stan- cillary restraints, are not necessarily promisee arising out of the transaction
invalid. Subsection (1) restates in more to which the restraint is ancillary. In
detail the general rule of reason of those instances the same reasons ar-
§ 186 as it applies to such promises. gue for its enforceability as in the case
Public Policy
Under this forrnulation the restraint of any other promise. For example,
1ce of a condition is may be unreasonable in either of two competitors who are combining their
ut may excuse the situations. The first occurs when the efforts in a partnership may promise
3e was an essential restraint is greater than necessary to as part of the transaction not to com-
protect the legitimate interests of the pete with the partnership. Assuming
promisee. The second occurs when,
that the combination is not monopolis-
even though the restraint is nút great-
tic, such promises, reasonable in scope,
ADE er than necessary to protect those in-
will be upheld in view of the interest of
terests, the promisee's need for protec-
tion is outweighed by the hardship to each party as promisee. See Subsection
the promisor and the likely injury to (2)(c) and Comment h. (It is assumed
mblic policy if it is in the Illustrations to this Section that
the public. In the second situation the
court may be faced with a particularly the arrangements are not objectionable
rmance would limit difficult task of balancing competing on grounds other than those that come
in the exercise of a interests. No mathematical formula within its scope.) The extent to which
can be offered for this process. the restraint is needed to protect the
b. Need of the promisee. If a re- promisee's interests will vary with the
straint is not ancillary to sorne trans- nature of the transaction. Where a sale
tion of good will is involved, for example;
action or relationship that gives rise to
'ses a restraint that an interest worthy of protection, the the buyer's interest in what he has
or relationship is promise is necessarily unreasonable acquired cannot be effectively realized
under the rule stated in the preceding unless the seller engages not to act so

81
§ 188 RESTATEMENT OF CONTRACTS-SECOND

as unreasonably to diminish the value the harm caused to the employee may respect to the thre1
of what he has sold. The same is true be excessive if the restraint inhibits bis set out in Subsect:
of any other property interest of which personal freedom by preventing him these situations t
exclusive use is part of the value. See from earning his livelihood if he quits; have need for prot
Subsection (2)(a) and Comment f. In the likely injury to the public may be sustain a promise t•
the case of a post-employment re- too great if it is seriously harmed by petition as long as
straint, however, the promisee's inter- the impairment of his economic mobili- extent. They invoh
est is less clear. Such a restraint, in ty or by the unavailability of the skills seller of a business,
contrast to one accompanying a sale of developed in his employment. See agent, and by a par
good will, is not necessary in order for Comment g. Not every restraint causes an exclusive one ;
the employer to get the full value of injury to the public, however, and even other situations in '
what he has acquired. lnstead, it must a post-employment restraint may in- action or relationsh
usually be justified on the ground that ee a legitimate in·
crease efficiency by encouraging the
the employer has a legitimate interest sustain a promise n
employer to entrust confidential infor-
in restraining the employee from ap-
propriating valuable trade information
mation to the employee. f. Promise by se,
and customer relationships to which d. Extent of the restraint. The ex- promise to refrain
he has had access in the course of his tent of the restraint is a critica! factor made in connectioJ
employment. Arguably the employer in determining its reasonableness. The business may be
does not get the full value of the em- light of the buyer's
extent may be limited in three ways:
ployment contract if he cannot confi-. value of the good
by type of activity, by geographical
dently give the employee access to con- acquired. In effect,
area, and by time. If the promise pro-
fidential information needed for most not to act so as to
scribes types of activity more extensive
efficient performance of his job. But it of what he has sold
than necessary to protect those en-
is often difficult to distinguish between ation arises when t:
gaged in by the promisee, it goes be-
such information and normal skills of ration's business <
yond what is necessary to protect his
the trade, and preventing use of one the good will of o
legitimate interests and is unreason-
may well prevent or inhibit use of the officers or sharehol
able. If it covers a geographical area
other. See Subsection (2)(b) and Com- tion, officers or sha
more extensive than necessary to pro-
ment g . Because of this difference in the sale of their sb
tect bis interests, it is also unreason-
the interest of the promisee, courts of the corporatim
able. And if the restraint is to last
have generally been more willing to make an enforceal
longer than is required in light of
uphold promises to refrain from com- compete with the 1
those interests, taking account of such the purchaser of it
petition made in connection with sales
factors as the permanent or transitory the corporation its•
of good will than those made in con-
nature of technology and information, its business maH
nection with contracts of employment.
it is unreasonable. Since, in any of promise to refrain
c. Hann to the promisor and injury these cases, the restraint is too broad
to the public. E ven if the restraint is no to be justified by the promisee's need,
greater than is needed to protect the Illustrations:
a court may hold it to be unreasonable
promisee's interest, the promisee's l. A sells his
without the necessity of weighing the
need may be outweighed by the harm B and as part
countervailing interests of the promi-
to the prqmisor and the likely injury to promises not t
sor and the public. What limits as to
the public. In the case of a sale of a ness of the s1
activity, geographical area, and time
business, the harm caused to· the seller hundred miles
are appropriate in a particular case
may be excessive if the restraint neces- business of bo1
depends on all the circumstances. As
sitates his complete withdrawal from to a radius of ;
to the possibility of divisibility, .see
business; the likely injury to the public that competiti<
§ 183.
may be too great if it has the effect of that radius wc
removing a former competitor from e. Examples of ancillary restraints. ness. The res·
competition. See Comment f. In the The rule stated in Subsection (1) has extensive than
case of a post-employment restraint, its most significant applications with protection. A's

82
)]\fD UNENFORCEABILITY ON GROUNDS .§ 188
to the employee may respect to the three types of promises reasonably in restraint of trade
restraint inhibits his set out in Subsection (2). In each of and enforcement is not precluded
by preventing him these situations the promisee may on grounds of public policy. ·
.ivelihood if he quits; have need for protection sufficient to 2. The facts being otherwise as
;o the public may be sustain a promise to refrain from com- stated in Illustration 1, neither A's
seriously harmed by petition as long as it is reasonable in nor B's business extends toa radi-
· his economic mobili- extent. They involve promises by the us of a hundred miles. The area
lilability of the skills seller of a business, by an employee or fixed is more extensive than is
3 employment. See agent, and by a partner. The list is not necessary for B's protection. A's
'very restraint causes an exclusive one and there may be promise is unreasonably . in re-
.e, however, and even other situations in which a valid trans- straint of trade and is unenforcea-
1t restraint may in- action or relationship gives the promis- ble on grounds of public policy. As
by encouraging the ee a legitimate interest sufficient to to the possibility of refusal · to en-
.st confidential infor- sustain a promise not to compete . force limited to part of the prom-
'loyee. f Promise by seller of a business. A ise, see § 184(2). ·
~e restraint. The ex- promise to refrain from competition
3. A sells his grocery hu.s.iness to
nt is a critical factor made in connection with a sale of a
B and as part of the agreement
reasonableness. The business may be reasonable in the
promises not to engage in business
nited in three ways: light of the buyer's need to protect the
of any kind within the city for
ity, by geographical value of the good will that he has
three years. The activity pro-
. If the promise pro- acquired. In effect, the seller promises
scribed is more extensive than is
tivity more extensive not to act so as to diminish the value
necessary for B's protection. A's
of what he has sold. An analogous situ-
o protect those en- promise is únreasonably is re-
ation arises when the value of a corpo-
)romisee, it goes be- straint of trade and is unenforcea-
ration's business depends largely on
:')Ssary to protect his ble on grounds of public policy. As
the good will of one or more of the
ts and is unreason- to the possibility pf refusaf .to en-
officers or shareholders. In that situa-
a geographical area force only part of proinise, see
tion, officers or shareholders, either on
.an necessary to pro- § 184(2) .
the sale of their shares or on the sale
it is alsó unreason- 4. A sells his grocery business to
of the corporation's business, may
restraint is to last B and as part of the agreement
make an enforceable promise not to
equired in light of promises not to engage in a busi-
compete with the corporation or with
king account of such ness of the same kind within the
the purchaser of its business, just as
nanent or transitory city for twenty-five ·. years, al-
the corporation itself could on sale of
)gy and information, though B has ample oppottunity
its business make an eñforceable
e. Since, in any of to make A's former good will his
promise to refrain from competition.
estraint is too broad own in a much shorter period of
the promisee's need, Illustrations: time. The time fixed is longer than
ít to be unreasonable is necessary for A's protection. A's
:sity of weighing the l. A sells his grocery business to
B and as part of the agreement promise is unreasonably · in re-
erests of the promi- straint of trade and is unenforcea-
c. What limits as to promises not to engage in a busi-
ness of the same kind within a ble on grounds of public policy. As
.ical area, and time to the possibility of refusal to en-
hundred miles for three years. The
n a particular case force only part of the promise, see
'business of both A and B extends
· te circumstances. As § 184(2).
to a radius of a hundred miles, so
of divisibility, see
that competition anywhere within 5. A, a corporation, sells its busi-
that radius would harm B's busi- ness to B. As part of the agree-
' ancillary restraints. ness. The restraint is not more ment, C and D, officers .ai1d large
1 Subsection (1) has extensive than is necessary for B's shareholders of A, prornise not to
ht applications with protection. A's promise is not un- compete with B wíthiri the territo-

83
 ~-
§ 188 RESTATEMENT OF CONTRACTS-SECOND [

ry in which A did business for on the ground of the einployee's ability dential trade in
three years. Their promises are to attract customers, the . nature, ex- work. B's promis
not unreasonably in restraint of tent and locale of the employee's con- in restraint of t1
trade and enforcement is not pre- tacts with customers are relevant. A forceable on grou
cluded on grounds of public policy. restraint is easier to justify if it is icy. Compare I
g. Promise by employee or agent. limited to one field of activity among § 185.
The employer's interest in exacting many that are available to the employ- 8. A employs B
from his employee a promise not to ee. The same is true if the restraint is in his dance stuc ·
compete after termination of the em- limited to the taking of his former employment agr·
ployment is usually explained on the employer's customers as contrasted ises not to worl
ground that the employee has acquired with competition in general. A re- structor in the
either confidential trade information straint may be ancillary to a relation- three years afte1
relating to sorne process or method or ship although, as in the case of an of his employm«
the means to attract customers away employment at will, no con.tract of em- five years and d
from the employer. Whether the risk ployment is involved. Analogous rules customers but de
that the employee may do injury to the apply to restraints impm:¡ed on agents any customer for
employer is sufficient to justify a by their principals. As to the duty of riod of time and
promise to refrain from competition an agent not to compete with his prin- dential informat
after the termination of the employ- cipal during the agency relationship, B's promise is m
ment will depend on the facts of the see Restatement, Second; Agency straint of trade E
particular case. Post-employment re- §§ 393, 394. ble on grounds
straints are scrutinized with particular
9. A employs
care because they are often the prod- Illustrations: .
chemist in his na
uct of unequal bargaining power and 6. A employs B ~:~s a fitter of con- ceutical busines!
because the employee is likely to give tact lenses under a one-year em- employment agr
scant attention to the hardship he may ployment contract. As part of the ises not to work i
later suffer through loss of his liveli- employment agreement, B prom- tical industry at
hood. This is especially so where the
ises not to .work as a fitter of con- country for thre
restraint is imposed by the employer's
tact lenses in the same town for t ermination of h
standardized printed form. Cf. § 208.
three years aft er the t er m ination works for five y
A line must be drawn between the
of his employment·. B works for A valuable confide
general skills and knowledge of the
for five years, du~ing wli.ich time that would be u
trade and information that is peculiar
he has close relationships with A's petitors and wo
to the employer's business. If the em-
customers, who come to .rely upon harm A's busine;
ployer seeks to justify the restraint on
him. B's contacts wÍth A's custom- ployment as a
the ground of the employee's knowl-
ers are such as to attract them outside of the p
edge of a process or method, the confi-
away froin A. B's pi·omÜ;e is not dustry. B's pron
dentiality of that process or method
unreasonably in restraint of trade sonably in restr
and its technological life may be criti-
ca!. The public interest in workable and enforcement is not precluded enforcement is
employer-employee relationships with on grounds of public policy. grounds of publi«
an efficient use of employees must be 7. A employs B as advertising 10. A employs
balanced against the interest in indi- manager of h1s · reütil clothing rapidly changing
v.idual economic freedom . The court store. As part of the employment parts of which e1
will take account of any diminution in agreement, B ·p romises not to fidential inform
competition likely to result from slow- work in . the . retail clothing busi- the agreement I
ing down the dissemination of ideas ness in the same town for three work for any co
and of any impairment of the function years after the termination of bis ten years after t
of the market in shifting manpower to employment. B works for A for the employment
areas of greatest productivity. lf the five years but does .not deal with information mac
employer seeks to justify the restraint customers and acquir.es no confi- will probably re

84
70ND UNENF0RCEABILITY ON GROUNDS § 188
· tbe employee's ability dential trade information in his only a much shorter period. The
mers, tbe nature, ex- work. B's promise is unreasonably time fixed is longer than is neces-
)f tbe employee's con- in restraint of trade and is unen- sary for A's protection. B's prom-
'mers are relevant. A for ceable on grounds of public pol- ise is u nreasonably in r estraint of
ier to justify if it is icy. Compare Illustratjon 1 to trade and is unenforceable on
ield of activity among § 185. grounds of public policy. As to the
railable to tbe employ- 8. A employs B as an instructor possibility of refusal to enforce
true if tbe restraint is in bis dance studio. As part of tbe only part of the promise, see
taking of bis former employment agreement, B prom- § 184(2).
omers as contrasted ises not to· work as a dance in-
n in generaL A re- h. Promise by partner. A rule simi-
structor in the same town for lar to that applicable to an employee or
mcillary to a relation- three years after tbe termination
lS in tbe case of an agent applies to a partner who makes a
of bis employment. B works for promise not to compete that is ancil-
rill, no contract of em- five years and deals directly witb
•lved. Analogous rules lary to the partnership agreement or
customers but does not work with
tts imposed on agents to an agreement by which he disposes
any customer for a substantial pe-
lls. As to the duty of of bis partnership interest. The same
riod of time and acquires no confi-
:ompete with his prin- is true of joint adventurers, wbo are
dential information in bis work.
~ agency relationsbip, treated as partners in this respect.
B's promise is unreasonably in re-
1t, Second, Agency straint of trade and is unenforcea-
Illustrations:
ble on grounds of public policy.
9. A employs B as a research 11. A, B and C form a partner-
cbemist in his nationwide pbarma- ship to practice veterinary medi-
y-s B as a fitter of con- ceutical business. As part of the cine in a town for ten years. In the
lnder a one-year em- employment agreement, B prom- partnership agreement, each
ntract. As part of the ises not to work in the pbarmaceu- promises that if, on the termi-
agreement, B prom- tical industry at any place in the nation of the partnersbip, the
'Ork as a fitter of con- country for three years after the practice is continued by the other
n the same town for termination of bis employment. B two members, he will not practice
after the ter mination works for five years and acquires veterinary medici ne in the same
yment. B works for A valuable confidential information town during its continuance up to
·s, during which time tbat would be useful.to A's com- a maximum of three years. The
relationships with A's petitors and would unreasonably restraint is not more extensive
rho come to rely upon barm A's business. B can find em- than is necessary for the protec-
tacts with A's custom- ployment as a researcb chemist tion of each partner's interest in
1 as to attract them outside of the pharmaceutical in- the partnership. Their promises
\. B's promise is not dustry. B's promise is not unrea- are not unreasonably in restraint
r in restraint of trade sonably in restraint of trade and of trade and enforcement is not
nent is not precluded enforcement is not precluded on precluded on gromids of public
f public policy. grounds of public policy. policy.
'YS B as advertising 10. A employs B to work with 12. A, an experienced dentist and
bis retail clothing rapidly changing tecbnology, sorne oral surgeon, takes into partner-
et of the employment parts of which entail valuable con- ship B, a younger dentist and oral
B promises not to fidential information . . As part of surgeon. In the partnership agree:
retail clothing busi- the agreement B promises not to ment, B promises that, if h e with-
same town for three work for any competítor of A for draws from the partnership, he
he termination of bis t~n years after the termination of will not practice dentistry or oral
B works for A for the employment. The confidential surgery in the city for three years.
tt does not deal with information made available to A Their practice is limited to oral
J.d acquires no confi- will probably remaili valuable for surgery, and does not include den-

85
§ 188 RESTATEMENT OF CONTRACTS-SECOND

tistry. The activity proscribed is 14. A, a doctor who has a general § 191. Prom:
more extensive than is necessary practice in a remote area, takes A promise af
for A's protection. B's promise is into partnership B, a younger doc- forceable on groUJ
unreason~bly in restraint of trade tor. In the partnership agreement,
is consistent with
and is unenforceable· on grounds B promises that, if he withdraws
of public policy. Asto the possibili- from the partnership, he will not
ty of refusal to enforce only part of engage in the practice of medicine TOPIC
the promise, see § 184(2). within the area for three years. lf
B's unavailability in the area will
13. A works for five years as a
partner in a nationwide firm of
be likely to cause injury to the § 192. Prom
public because of the shortage of A promise to
accountants. In the partnership
doctors there, the court may deter- unenforceable on
agreement, A promises not to en-
mine that B's promise is unrea-
gage in accounting in any city
sonably in restraint of trade and is
where the firm has im office for
unenforceable on grounds of pub-
§ 193. Prom
three years after his withdrawal A promise b)
lic policy.
from the partnership. The firm that tends to in<
has offices in the twenty largest 15. A and B attend an art auc-
public policy.
cities in the United States. A's tion and each plans to bid on a ·
promise imposes great hardship on valuable painting. They decide to
him because this area ·in eludes al- acquire it as a joint venture and
§ 194. Prom
most all that in which he could each promises the other to bid for A promise tl:
engage in a comparable accounting its purchase jointly and, if success- with a third pers
practice. The promise is unreason- ful, to deal with it jointly. Their of contract is une
ably in restraint of ·trade and is promises are not unreasonably in
unenforceable on grounds of pub- restraint of trade and are ·n ot un- § 195. Term
lic policy. As to the possibility of enforceable on grounds of public t•
refusal to enforce only part of the policy. Compare Illustrations 3
(1) A term <
promise, see § 184(2). and 4 to § 187.
intention::Jlly or· 1
(2) A term 1
TOPIC 3. IMPAIRMENT OF FAMILY RELATIONS negligently is une
§ 189. Promise in Restraint of Marriage (a) the 1
for i
A promise is unenforceable on grounds of public policy if it is
unreasonably in restraint of marriage. (b) the ·
frorr
sati<
§ 190. Promise Detrimental to Marital Relationship
(e) the
(1) A promise by a person contemplating marriage or by a married agai:
person, other than as part of an enforceable separation agreement, is
(3) A term
unenforceable on grounds of public policy if it would change sorne. liability for phy:
essential incident of the marital relationship in a way detrimental to t~1e grounds of publ
public interest in the marriage relationship. A separation agreement is consistent with 1
unenforceable on grounds of public policy unless it is made after separa-
tion or in contemplation of an immediate separation and is fair in the § 196. Ter11
circumstances. 1
(2) A promise that tends unreasonably to encourage divorce or A term unn
separation is unenforceable on grounds of public policy. of a misreprese

86
 '::OND UNENFORCEABILITY ON GROUNDS § 196
ctor who has a general § 191. Promise Mfecting Custody
a remote area, takes
·ship B, a younger doc-
A promise affecting the right of custody of a minor child is unen-
>artnership agreement, forceable on grounds of public policy unless the disposition as to custody
that, if he withdraws is consistent with the best interest of the child.
trtnership, he will not
1e practice of medicine TOPIC 4. INTERFERENCE WITH OTHER
rrea for three years. If
PROTECTEDINTERESTS
1bility in the area will
> cause injury to the § 192. Promise Involving Commission of a Tort
.tse of the shortage of
e, the court may deter-
A promise to commit a tort or to induce the commission of a tort is
B's promise is unrea- unenforceable on grounds of public policy.
estraint of trade and is
·le on grounds of pub- § 193. Promise Inducing Violation of Fiduciary Duty
A promise by a fiduciary to violate bis fiduciary duty or a promise
B attend an art auc- that tends to induce such a violation is unenforceable on grounds of
.ch plans to bid on a public policy .
inting. They decide to
.s a joint venture and § 194. Promise Interfering with Contract with Another
es the other to bid for A promise that tortiously interferes with performance of a contract
jointly and, if success- i with a third person or a tortiously induced promise to commit a breach
with it jointly. Their . { of contract is unenforceable on grounds ofpublic policy.
e not unreasonably in
¡
'
trade and are not un- § 195. Term Exempting From Liability for Harm Caused In-
on grounds of public tentionally, Recklessly or Negligently
1pare Illustrations 3
87. (1) A term exempting a party from tort liability for harm caused
intentionally or recklessly is unenforceable on grounds of public policy.
RELATIONS (2) A term exempting a party from tort liability for harm caused
negligently is unenforceable on grounds of public policy if
(a) the term exempts an employer from liability toan employee
_ ublic policy if it is for injury in the course of his employment;
(b) the term exempts one charged with a duty of public service
from liability to one to whom that duty is owed for compen-
tionship sation for breach of that duty, or
(e) the other party is similarly a member of a class protected
age or by a married
against the class to which the first party belongs.
ation agreement, is
vould change sorne (3) A term exempting a seller of a product from his special tort
liability for ·physical harm to a user or consumer is unenforceable on
y detrimental to the
grounds of public policy unless the term is fairly bargained for and is
ration agreement is
consistent with the policy underlying that liability.
3 made after separa-
n and is fair in the § 196. Term Exempting From Consequences of Misrepresen-.
tation
tcourage divorce or A term unreasonably exempting a party from the legal consequences
~y. of a misrepresentation is unenforceable on grounds of public policy.

87
 ·~
,!

§ 197 RESTATEMENT OF CONTRACTS-SECOND

TOPIC 5. RESTITUTION tionate. Restitution

is subject to the r
§ 197. Restitution Generally Unavailable
Illustrations:
Except as stated in §§ 198 and 199, a party has no claim in
3. A makes an
restitution for performance that he has rendered under or in return for a to sell to B for
promise that is unenforceable on grounds of public policy unless denial that A, as B l!
of restitution would cause disproportionate forfeiture. contracted to s
$5,000 in advm
Comment: favor of a party who is ex.cusably igno-
though B's pr
a. Rationale. In general, if a court rant or is not equally in the wrong
price is unenfo:
will not, on grounds of public policy, (§ 198) and in favor of a party who has
of public policy
aid a promisee by enforcing the prom- withdrawn or where the situation is restitution wou
ise, it will not aid him by granting him contrary to public policy (§ 199). portionate fori
restitution for performance that he has These exceptions are dealt with in the claim in res ti tt
rendered in return for the unenforcea- two sections that follow. In addition, $5,000.
ble promise. Neither will it aid the the rule is subject to the exception
stated in this Section that allows resti- 4. A, a for
promisor by allowing a claim in resti-
makes an agree
tution for performance that he has tution in favor of a party who would
B goods for $1,
rendered under the unenforceable otherwise suffer a forfeiture that is
goods but does
promise. It will simply leave both par- disproportionate in relation to the con-
state statute tl
ties as it finds them, even though this travention of public policy involved.
eign corporatio
may result in one of them retaining a Account will be taken of such factors ness in the sta·
benefit that he has received as a result as the extent of the party's deliberate ing an agent fo
of the transaction . involvement in any misconduct, the and provides tl
gravity of that misconduct, and the in violation of
Illustrations: strength of the public policy. See
l. A, the owner of a newspaper, § 178(3). The exception is especially § 198. ResW
promises B that he will publish a appropriate in the case of technical r~
statement about C known to A rules or regulations that are drawn so
and B to be false and defamatory, that their strict application would re- A party has
if B pays him $10,000. B pays A sult in such forfeiture if restitution rendered under •
$10,000. Since A's promise is un- were not allowed. Here, as elsewhere grounds of public
enforceable on grounds of public in this Restatement, the term "forfei- (a) he w:
policy (§ 192), B has no claim in ture" is used to refer to the denial of
restitution against A See Illustra- mino
compensation that results when the
tion 6 to § 178. be en
obligee loses his right to the agreed
2. A induces B to make an agree- exchange after he has relied. substan- (b) he w:
ment to huy goods on credit from tially, as by preparation or perform-
A by bribing B's purchasing agent. ance, on the expectation of that ex- § 199. Resti1
A's bribe tends to induce the agent change. See Comment b to § 227 ancl e
to vialate his fiduciary duty. A cle- Comment b to § 229. Whether the for-
livers the goocls to .B. Since B's feiture is "disproportionate" for the A party has
promise to pay the price is unen- purposes of this Section will depend on rendered under '
forceable on grouncls of public pol- the extent of that denial of compensa- grounds of public
icy, A has no claim in restitution tion as compared with the gravity· of (a) he "
against B. See § 193 ancl Illustra- the public interest involved and the
tion 14 to § 178. purp'
extent of the contravention. If the
b. Exceptions. Exceptions to the claimant has threatened grave social (b) allo"
rule clenying restitution are macle m hann, no forfeiture will be dispropor- situa

88
'COND UNENFORCEABILITY ON GROUNDS .§ 199

tionate. Restitution under this Section enforceable. Although B's promise

is subject to the rules of §§ 370-77. to pay the price is unénforceable
on grounds of public policy, denial
Illustrations: of restitution would caus«;J A dis-
ty has no claim in
3. A makes an agreement with B proportionate forfeiture. A has a
der or in return for a claim in restitution against B for
to sell to B for $10,000 a painting
policy unless denial the goods or their value to B. .
that A, as B knows, has already
e. contracted to sell to C. B pays · A 5. A, a city, makes an agreement
who is excusably igno- $5,000 in advance of delivery. Al- with B under which B is to instan
equally in the wrong though B's promise to pay the traffic signals . for $50,000. In
:~vor of a party who has
price is unenforceable on grounds making the agreemimt, A fails to
.vhere the situation is of public policy (§ 194), denial of comply with a state statute that
ublic policy (§ 199). restitution would .cause B dispro- prescribes procedures for making
portionate forfeiture. B has a municipal contracts, so that A's
s ·are dealt with in the
claim in restitutibn against A for promise is · unenforceable on
at follow. In addition,
$5,000. grounds of public policy. Although
Jject to the exception
!Ction that allows r esti- 4. A, a foreign corporation, B knows this; he installs the sig-
of a party who would makes an agreement with B to sell nals. In determining whether B
r a forfeiture that is · B goods for $1,000. A delivers the has a claim in r estitution against
! in relation to the con-
goods but does not comply with a A fór the value of the signals to A,
mblic policy involved. state statute that prohibits a for- the court will consider the extent
taken of such factors eign corporation from doing busi- of the forfeiture that would result
' the party's deliberate ness in the state without appoint- from the denial of such a claim in
ing an agent for service of process r elation to the gravÚ;y of thé pub-
. any misconduct, the
and provides that contracts made líe policy involved and the extent
misconduct, and the
in violation of the statute are un- of the contravention .
.e public policy. See
~xception is especially
the case of technical
§ 198. Restitution in Favor of Party Who Is Excusably Igno-
rant or Is Not Equally il) the Wrong ·
ions that are drawn so
application would r e- A party has a claim in restitution for performance that he has
. 1rfeiture if restitution rendered under or in return for a promise that is unenforceable on
!d. Here, as elsewhere grounds of public policy if
1ent, th ~ t erm "forfei-
. refer to the denia l of
(a) he was excusably ignorant of the facts or of legi~lation of a
hat results when the minor character, in the absence of which the proinise would
s right to the agreed be enforceable, or
he has relied subst an- (b) he was not equally in the wrong with the promisor .
eparation or perform-
cpectation of that ex- § 199. Restitution Where Party Withdraws or Situation Is
nment b to § 227 and Contrary to Public Interest
.229. Whether the for-
roportionate" for the A party has a claim in restitution for performance that he has
. Section will depend on rendered under or in return for a promise that is unenforceable on
:~ t denial of compensa- grounds of public policy if he did not engage in serious misconduct and
. !d with the gravity of
(a) he withdraws from the transaction before the improper
·est involved · and the
purpose has been achieved, or
contravention. If the
1reatened grave social (b) allowance of the claim would put an end to a continuing
üre will be dispropor- situation that is contrary to the public interest . ·

89
 1
§ 200 RESTATEMENT OF CONTRACTS-SECOND SCC

CHAPTER 9. THE SCOPE OF ance accepted or a<

the interpretation '
CONTRACTUAL OBLIGATIONS
(5) Wherever
TOPIC l. THE MEANING OF AGREEMENTS parties to a prom
each other and ~
§ 200. lnterpretation of Promise or Agreement dealing, or usage o
Interpretation of a promise or agreement or a term thereof is the
ascertainment of its meaning. § 203. Stand:
In the interpr
§ 20 l. Whose Meaning Prevails the following stanc
(1) Where the parties have attached the same meaning toa promise (a) an in
or agreement or a term thereof, it is interpreted in accordance with that effecti
meaning. pretat
noeff<
(2) Where the parties have attached different meaning·s to a promise
or agreement or a term thereof, it is interpreted in accordance with the (b) expref
meaning attached by one of them if at the time the agreement was made forma
perfor
(a) that party did not know of any different meaning attached or us;
by the other, and the other lmew the meaning attached by weigh
the first party; or
(e) specifi
(b) that party had no reason to know of any different meaning gen en
attached by the other, and the other had reason to k,now the
meaning attached by the first party. · . (d) sepan
weigh
(3) Except as stated in this Section, neither party is bound. by the rately
meaning attached by the other, even though the result may be a failure
of mutual assent. · § 204. Suppl;
When the par
§ 202. Rules in Aid of Interpretation have not agreed w
(1) Words and other conduct are interpreted in the light of all the tion of their rigl
circumstances, and if the principal purpose of the parties is ascertainable circumstances is s·
it is given great weight.
(2) A writing is interpreted as a whole, and all writings that are part TOPIC 2.
of the same transaction are interpreted together.
¡
(3) Unless a different intention is manifested, § 205. Duty•
(a) where language has a generally prevailing · meaning, it is Every contrae
interpreted in accordance with that meaning; dealing in its perft
(b) technical terms and words of art are given · their technical
meaning w:hen used in a transaction within their technical § 206. InterJ
fiel d. In choosing a
(4) Where an agreement involves repeated occasions for perform- ment or a term
ance by either party with lmowledge of the nature of the performance operates against
and opportunity for objection to it by the other, any course of perform- writing otherwise

90
~OND SCOPE OF .CONTRACTUAL OBLIGATIONS § 206

:oF ance accepted or acquiesced in without objection is given great weight in

:ONS the interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the
~EMENTS parties to a promise or agreement are interpreted as consistent with
each other and with any relevant course of performance, course of
ent
dealing, or usage of trade.
term thereof is the
§ 203. Standards of Preference in Interpretation
In the interpretation of a promise or agreement or a term thereof,
the following standards of preference are generally applicable:
~aning to a promise (a) an interpretation which gives a reasonable, lawful, and
xordance with that effective meaning to all the terms is preferred to an inter-
pretation which leaves a part unreasonable, unlawful, or of
anings to a promise no effect;
LCcordance with the (b) express terms are given greater weight than course of per-
;reement was made formance, course of dealíng, and usage of trade, course of
t meaning attached performance is given greater weight than course of dealing
eaning attached by or usage of trade, and course of dealing is given greater
weight than usage of trade;
(e) specific terms and exact terms are given greater weight than
' different meaning
generallanguage;
reason to know the
(d) separately negotiated or added terms are given greater
weight than standardized terms or other terms not sepa-
ty is bound by the
rately negotiated.
llt may be a failure
§ 204. Supplying an Omitted Essential Term
When the parties ~o a bargain sufficiently defined to be a contract
have not agreed with respect toa term which is essential toa determina-
the light of all the tion of their rights and duties, a term which is reasonable in the
;ies is ascertainable circumstances is supplied by the court.

itings that are part TOPIC 2. CONSIDERATIONS OF FAIRNESS AND

THE PUBLIC INTEREST
§ 205. Duty of Good Faith and Fair Dealing
ing meaning, it is
Every contract imposes upon each party a duty of good faith and fair
mg;
dealing in its performance and its enforcement.
ren their technical
hin their technical § 206. Interpretation Against the Draftsman
In choosiilg among the reasonable meanings of a promise or agree-
sions for perform- ment or a term thereof, that meaning is generally preferred which
,f the performance operates against the party who supplies the words or from whom a
course of perform- writing otherwise proceeds.

91
§ 207 RESTATEMENT OF CONTRACTS-SECOND so
§ 207. Interpretation Favoring the Public §§ 79, 364. Such a
corroborate indicati
In choosing among the reasonable meanings of a promise or agree-
the bargaining proc
ment or á term thereof, a meaning that serves the public interest is the remedy to be gJ
generally preferred. is a violation of a 1
Theoretically it is 1
§ 208. Unconscionable Contract or Term tract . to be oppre:
If a contract or term thereof is unconscionable at the time the whoie, even though
ness in the bargaini
contract is made a court may refuse to enforce the contract, or may
single term which
enforce the remainder of the contract without the unconscionable term,
scionable. Ordinaril:
or may so limit the application of any unconscionable term as to avoid conscionable contra
any unconscionable result. factors as well as
Comment: hand, and as no honest and fair man Illustrations:
a. Scope. Like the obligation of would accept on the other;" damages
were then limited to those to which l. A, an indiv
good faith and fair dealing (§ 205), the
the aggrieved party was "equitably" June to sell at a
policy against unconscionable con-
entitled. Hume v. United States, 132 to B, a large S•
tracts or terms applies to a wide vari-
U.S. 406 (1889), quoting Earl of Ches- the carrots to
ety of types of conduct. The determina-
tion that a contract or term is or is not terfield v. Janssen, 2 Ves.Sen. 125, farro. The contr
unconscionable is made in the light of 155, 28 Eng.Rep. 82, 100 (Ch.1750) . standard printe
its setting, purpose and effect. Rele- Even though a contract was fully en- ly drawn to pr
vant factors include weaknesses in the forceable in an action for damages, eq- and not A's; it ·
contracting process like thcise involved uitable remedies such as specific per- provisions to
in more specific rules as to contractual formance were refused where "the various contin¡
capacity, fraud, and other invalidating sum total of its provisions drives too giving analogm:
causes; the policy also overlaps with hard a bargain for a court of con- Each of the el:
rules which render particular bargains science to assist." Campbell Soup Co. restrictively so
or terms unenforceable on grounds of v. Wentz, 172 F.2d 80, 84 (3d Cir. conscionable, b
public policy. Policing against uncon- 1948). Modern procedural reforms read literally t<
scionable contracts or terms .has sorne- have blurred the distinction between discretion to B.
times been accomphshed ·"by adverse remedies at law and in equity. For the market pri•
construction of language, by manipu- contracts for the sale of goods, Uni- the contract p
lation of the rules of offer and accep- form Commercial Code § 2-302 states the contract, aJ
tance or by determinations that the the rule of this Section without distinc- performance. I
clause is contrary to public policy or to tion between law and equity. Comment justification by
the dominant purpose of the contract." 1 to that section adds, "The principie mercial setting,
. Uniform Commercial Code § 2-302 is one of the prevention· of oppression the court may ·
Comment l. Particularly in the case of and unfair surprise (Cf. Campbell Soup contract as a
standardized agreements, the rule of Co. v. Wentz,) and not of disturbance scionable wher
this Section permits the court to pass of allocation of risks because of superi- then deny speci
directly on the unconscionability of the or bargaining power." 2. A, a home
contract or clause rather than to avoid c. Overall imbalance. Inadequacy of standard print~
unconscionable results by interpreta- consideration does not of itself invali- a merchant,
tion. Compare § 211. clate a bargain, but gross disparity in $1,700 for speci
b. ·Historie &tandards. Traditional- the values exchanged may be an im- ments. A also
ly, a bargain was said to . be uncon- portant factor in a cletermination that application ask
scionable in an action at law if it was a contract is unconscionable and may 60 monthly insi
"such as no man in hi s senses and not be sufficient ground, without more, for fying no rate. I<
under delusion would make on the one denying specific performance. See informed that

92
OND SCOPE OF CONTRACTUAL OBLIGATIONS § 208
§§ 79, 364. Such a disparity may also tion has been approved and is giv-
corroborate indications of defects in en a payment schedule calling for
:1 promise or agree-
the bargaining process, or may affect fi nance and insurance charges
~ public interest is the remedy to be granted when there amounting to $800 in acldition to
is a violation of a more specific rule. the $1,700. Before B does any of
Theoretically it is possible for a con- the work, A repudiates the agree-
tract to be oppressive taken as a ment, and B sues A for $800 dam-
whole, even though there is no weak- ages, claiming that a commission
le at the time the
ness in .the bargaining process and no of $800 was paid to B 'S salesman
e contract, or may in reliance on the agreement. The
single term which is in itself uncon-
1conscionable term, court may determine that the
scionable. Ordinarily, however, an un-
le term as to avoid conscionable contract involves other agreement was unconscionable
factors as well as overall imbalance. when made, and may then dismiss
the claim.
honest and fair man
Illustrations: d. Weakness in the bargaining pro-
the other;" damages
,d to those to which l. A, an individual, contracts in cess. A bargain is not unconscionable
Lrty was "equitably" June to sell at a fixed price per ton merely because the parties to it are
'. United States, 132 to B, a large soup manufacturer, unequal in bargaining position, nor
quoting Earl of Ches- the carrots to be grown on A's even because the inequality results in
.en, 2 Ves.Sen. 125, farm. The contract, written on B's an allocation of risks to the weaker
standard printed form, is obvious- party. But gross inequality of bargain-
'· 82, 100 (Ch.1750).
ly drawn to protect B's interests ing power, together with terms unrea-
ontract was fully ·e n-
and not A's; it contains numerous sonably favorable to the stronger par-
:tion for damages, eq-
provisions to protect B against ty, may confirm indications that the
such as specific per-
various . contingencies and none transaction involved elements of de-
refused where "the
giving analogous protection to A. ception or compulsion, or may show
provisions drives too
that the weaker party had no meaning-
for a court of .con- Each of the clauses can be read
ful choice, no real alternative, or did
" Campbell Soup Co. restrictively so that it is not un-
not in fact assent or appear to assent
".2d 80, 84 (3d Cir. conscioriable, but several can be
to the unfair terms. Factors which may
procedural reforms read literally to give unrestricted
con tribute to a finding of unconsciona-
! distinction between discretion to B. In January, when
bility in the bargaining process include
and in equity. For the market price has risen above
the following: belief by the stronger
! sale of goods, Uni- the contract price, A repudiates
party that there is no reasonable prob-
Code § 2-302 states the contract, and B seeks specific
ability that the weaker party will fully
:ction without distinc- performance. In the absence of perform the contract; knowledge of the
and equity. Comment justification by evidence of com- stronger party that the weaker party
adds, "The principie mercial setting, purpose, or effect, will be unable to receive substantial
vention of oppression the court may determine that the benefits from the contract; knowledge
se (Cf. Campbell Soup contract as . a whole was uncon- of the stronger party that the weaker
1d not of disturbance scionable when macle, and may party is unable reasonably to protect
sks because of superi- then deny specific performance. his interests by reason of physical or
ter." 2. A, a ·homeowner, executes a mental infirmities, ignorance, illiteracy
·alance. Inadequacy of standard printed form used by B, or inability to understand the language
!S not of itself invali- a merchant, agreeing . to pay of the agreement, or similar factors .
mt gross disparity in $1,700 for specified home improve- See Uniform Consumer Credit Code
nged may be an im- ments. A also executes a credit § 6.111.
a determination that application asking for payment in
:onscionable and may 60 monthly installments but speci- Illustration:
nd, without more, for . fying no rate. Four days la ter A is 3. A, literate only in Spanish, is
performance. See informed that the credit applica- visited in his home by a salesman

93
§ 208 RESTATEMENT OF CONTRACTS-SECOND SCC

of refrigerator-freezers for B. They court may determine that the but the parties are
negotiate in Spanish; A tells the quoted clause is unconscionable as opportunity to presE
salesman he cannot afford to buy appliecl to latent defects and does commercial setting, 1
the appliance because his job will not bar a claim for damages for to aid the court in
end in one week, and the salesman breach of warranty by B against A. Incidental findings o
tells A that A will be paid numer- 5. A, a retail furniture store, sells the court rather th1
ous $25 commissions on sales to are accorded the usu
furniture on installment credit to
his friends. A signs a complex in- such findings of fac
B, retaining a security interest. As
stallment contract printed in En- view. An appellate e
A knows, B is a woman of limited
glish. The contract provides for a sider whether propE
education, separated from her
cash price of $900 plus a finance applied.
husband, maintaining herself and
charge of $250. A defaults after seven children by means of $218 Illustration:
paying $32, and B sues for the per month public assistance. After
balance plus late charges and a 7. A, a financ
13 purchases over a period of five
20% attorney's fee authorized by money to B, a m
years for a total of $1,200, B owes
the contract. The appliance cost B pany, on the sec
A $164. B then buys a stereo set
$350 .. The court may determine ment by B of it
for $514. Each contract contains a able. The agree
that the contract was unconscion- paragraph of sorne 800 words in loans of 75% ol
able when made, and may then extremely fine print, in the middle signed accounts
limit B's recovery to a reasonable of which are the words "al! pay- and forbids B t<
su m. ments shall be credited pro rata pothecate any ~
e. Unconscionable terms. Particular on al! outstanding accounts." The written consent.
terms may be unconscionable whether effect of this language is to keep a est rate of 18%
or not the contract as a whole is un- balance due on each ítem until all but for a statut<
conscionable. Sorne types of terms are are paid for. On B's default, A poration from r
not enforced, regardless of context; ex- sues for possession of al! the items of usury. Substa
amples are provisions for unreasonably solcl. It may be determinecl that made, and the
large liquidated damages, or limita- either the quoted clause or the $14,000 when
tions on a debtor's right to redeem contract as a whole was uncon- rupt, three mon
collateral. See Uniform Commercial scionable when made.
Code §§ 2-718, 9-501(3). Other terms 6. A, a corporation with its prin-
TOPIC 3.
may be unconscionable in sorne con- cipal office in State X, contracts
texts but not in others. Overall imba- with B, a resident of State X, to § 209. Integr
lance and weaknesses in the bargain- make improvements on B's home
in State X. The contract is made
(1) An integr~
ing process are then importan t.
on A's standard. printed form, final expression of
Illustrations: which contains a clause by which (2) Whether t
4. A, a packer, sells and ships the parties submit to the Jllrisdic- the court as a qu
300 cases of canned catsup to B, a tion of a court in State Y, 200 interpretation or t.
wholesale grocer. The contract miles away. No reason for the
(3) Where thE
provides, "Al! claims other than clause appears except to make liti-
view · of its comp
swells rriust be made within ten gation inconvenient ancl expensive
for B. The clause is unconsciona- complete agreemeJ
days from receipt of goods." Six
ble. is established by
months later a government inspec-
final expression .
tor, upon microscopic examination f Law and fact. A determination
of samples, finds excessive molcl in that a contract or term is unconsciona-·
the cans and obtains a court arder ble is made by the court in the light of
§ 210. Compl
for destruction of the 270 remain- al! the material facts. Under Uniform (1) A complet
ing cases in B's warehouse. In the Commercial Code § 2-302, the deter- adopted by the p
absence of justifying evidence, the mination is made "as a matter of law, " terms of the agree

94
 W/) SCOPE OF CONTRACTUAL OBLIGATIONS . § 210
.etermine that the but the parties are to be afforded an advance. A determination that the
is unconscionable as opportunity to present evidence as to agreement is unconscionable on its
mt defects and does commercial setting, purpose and effect face, without regard to context, is
im for damages for to aid the court in its determination. error. The agreement is . uncon-
·anty by B against A. Incidental findings of fact are made by scionable only if it is not a reason-
the court rather than by a jury, but able commercial device in the light
furniture store, sells
are accorded the usual weight given to of all the circumstances when it
nstallment credit to
such findings of fact in appellate re-
security interest. As was made.
view. An appellate court will also con-
a woman of limited
sider whether proper standards were g. Remedies. Perhaps the simplest
:parated from her applied. application of the policy against uil.con-
ataining herself and
scionable agreements is the denial of
1 by means of $218 Illustration: specific performance where · the . con-
blic assistance. After
7. A, a finance company, lends tract as a whole was unconscionable
over a period of five
money to B, a manufacturing com- when made. If such a contract is en-
;al of $1,200, B owes
pany, on the security of an assign- tirely executory, denial of money dam-
m buys a stereo set ment by B of its accounts receiv-
1 contract contains a
ages may also be appropriate. But the
able. The agreement provides for policy is not penal: unless tlie parties
sorne 800 words in loans of 75% of the value of as-
'print, in the middle can be restored to their pre-contract
signed accounts acceptable to A,
the words "all pay- positions, the offending party will ordi-
and forbids B to dispose of or hy-
>e credited pro rata narily be awarded at least the reason-
pothecate any assets without A's
ding accounts." The written consent. The agreed inter- able value of performance rendered by
anguage is to keep a est rate of 18% would be usurious him. Where a term rather than the
n. e¡:¡.ch item until all but for a statute precluding a cor- entire contract is unconscionable; the
On B's default, A poration from raising the defense appropriate remedy is ordinarily to
ssion of all the items of usury. Substantial advances are deny effect to the unconscionable term.
be determined that made, and the balance owed is In such cases as that of an .exculpatory
wted clause or the $14,000 when B bécomes bank- term, the effect may be to enlarge the
, whole was uncon- rupt, three months after the first liability of the offending party. ·
n made.
1ration with its prin- TOPIC 3. EFFECT OF ADOPTION OF A WRITING
t· State X, contracts
ident of State X, to § 209. Integrated Agreements
3ments on B's home
(1) An integrated agreement is a writing or writings coristituting a
he contract is made
dard printed form, final expression of one or more terms of an agreement.
ts a clause by which (2) Whether there is an integrated agreement is to he .deterniined hy
tbmit to the jurisdic- the court as a question preliminary to determination of a question of
Irt in State Y, 200 interpretation or to application of the parol evidence rule . .
No reason for the (3) Where the parties reduce an agreement to a writing which in
3 except to make liti-
view of its completeness and specificity reasonably appears to be a
·1 :~;:";;~~'~':::::~:' compléte agreement, it is taken to be an integrated agreetri.ent unless it
is es.tablished by other evidence that the writing did not constitute a
final expression.
~ct. A determination
term is unconsciona- § 210. Completely and Partially Integrated Agreements
: court in the light of
:J.cts. Under Uniform (1) A completely integrated agreement is an integrated agTeement
§ 2-302, the deter- adopted by the parties as a complete and exclusive · statemen"t of the
·"as a matter of Jaw," terms of the agreement.

95
§ 210 RESTATEMENT OF CONTRACTS-SECOND

(2) A partially integrated agreement is an integrated · agreement § 211. Stand:

other than a completely integrated agreement. (1) Except as
(3) Whether an agreement is completely or partially integrated is to ment signs or othE
be determined by the court as a question preliminary to determination of believe that like "'
a question of interpretation or to application of the parol evidence rule. ments of the sam1
ment with respect
Comment: facilities in an adjacent building
(2) Such a w:
a. Complete integration. The defini- and to provide heat. The parties
subsequently· exeGute a · written
alike all those sin
tion in Subsection (1) is to be read
lease agreement which makes no understanding of t
with the definition of integrated agree-
ment in § 209, to reject the assump- mention of facilities or himt. The (3) Where th
tion sometimes made that because a question whether the written lease manifesting such
writing has been worked out which is was adopted as a completely inte- contained a parti-
final on sorne matters, it is to be taken grated agreement is to be decided
as including all the matters agreed
upon. Ev~n though there is an inte-
on the basis of all relevant evi- § 212. Inter¡:
dence of the prior and contempo-
grated agreement, consistent addition- (1) The inter¡
raneous conduct and language of
al terms not reduced to writing may be meaning of the t
the parties.
shown, unless the court finds that the circumstances, in
writing was assented to by both parties c. Partial integration. It is often
as a complete and exclusive statement clear from the face of a wríting that it (2) A questim
of all the terms. Upon such a finding, is incomplete and cannot be more than determined by the
however, evidence of the alleged mak- a partially integrated .agteement. In- evidence or on a •
ing of consistent additional terms must completeness may also be shown by extrinsic evidence
be kept from the trier of fact. See other writings, whü,h may or· may not ed agreement is te
§ 216; Uniform Commercial Code § 2-
become part of a completely or partial-
202 Comment 3.
b. Proa( of complete integration.
ly integrated agreement .. Ot .it may be § 213. Effec1
shown by any relevant evidence, oral (P
That a writing was or was not adopted
or written, that an apparently com-
as a completely integrated agreement (1) A binding
plete writing never became fully effec-
may be proved by any relevant evi- the extent that it ·
dence. A document in the form of a tive, or that it was modified after ini-
written contract, signed by both par- tial adoption. (2) A bindin¡
ties and apparently complete on its agreements to the
face, may be decisive of the issue in the Illustration:
(3) An integr
absence of credible contrary evidence. 2. A writes to B a letter offer
But a writing cannot of itself prove its
and avoided does
containing four provisions. B re- agreement, everi. t
own completeness, and wide latitude
plies by letter that · three of the tive a term whicl
must be allowed for inquiry into cir-
provisions are satisfactory, but been integrated.
cumstances bearing on the intention of
makes a counter proposal as to the
the parties.
fourth . After futther discussion of
the fourth provision, the parties
§ 214. Evide
Illustration: aJ
l. A, a college, owns premises come to oral agreement on a revi-
which have no toilet or plumbing sion of it,. but make no Jurther Agreements ~
facilities or heating equipment. In statements as to the other three adoption of a writ
negotiating a lease to B for use of t erms. A's letter is a partially inte- (a) that 1
the premises as a radio station, A grated agreement ·with respect to
orally agrees to permit the use of the first three prov.isions. (b) that
parti

96
70ND SCOPE O.F CONTRACTUAL OBLIGATIONS § 214

tegrated agreement § 211. Standardized Agreements

(1) Except as stated in Subsection (3), where a party to an agree-
.ally integrated is to ment signs or otherwise manifests assent to a writing and has reason to
to determination of believe that like writings are regularly used to embody terms of agree-
parol evidence rule. ments of the same type, he adopts the writing as an integrated agree-
ment with respect to the terms included in the writing.
an adjacent building
ide heat. The parties (2) Such a writing is interpreted wherever reasonable as treating
' execute a written alike all those similarly situated, without regard to their knowledge or
1ent which makes no understanding of the standard terms of the writing.
:'acilities or heat. The (3) Where the other party has reason to believe that the party
~ther the written lease manifesting such assent would not do so if he knew that the writing
as a completely inte- contained a particular term, the term is not part of the agreement.
ment is to be decided
3 of all relevant evi-
§ 212. Interpretation of Integrated Agreement
prior and contempo-
duct and language of (1) The interpretation of an integrated agreement is directed to the
meaning of the terms of the writing or writings in the light of the
circumstances, in accordance with the rules stated in this Chapter.
'egration. lt is often
.ce of a writing that it (2) A question of interpretation of an integrated agreement is to be
l cannot be more than determined by the trier of fact if it depends on the credibility of extrinsic
;rated agreement. In- evidence or on a choice among reasonable inferences to be drawn from
lY . also be shown by extrinsic evidence. Otherwise a questiori of interpretation of an integrat-
rhich may or may not ed agreement is to be determined as a question oflaw.
completely or partial-
eement. Or it may be § 213. Effect of Integrated Agreement on Prior Agreements
3levant evidence, oral (Parol .Evidence Rule)
an apparently com-
·er became fully effec- (1) A binding integrated agreement discharges prior agreements to
ras modified after ini- the extent that i~ is il).consistent with them.
(2) A binding completely integrated agreement discharges prior
agreements to the extent that they are within its scope.
(3) An integrated agreement that is not binding or that is voidable
; to B a letter offer and avoided does not . discharge a prior agreement. But an integrated
our provisions. B re- agreement, even though not binding, may be effective to .render inopera-
;er that three of the tive a term which would have been part of the agreement if it had not
1re satisfactory, but been integrated.
1ter proposal as to the
· further discussion of
§ 214. Evidence of Prior or Contemporaneous Agreemen~
Jrovision, the parties
and Negotiations
agreement on a revi-
mt make no further Agreements and negotiations prior to or contemporaneous with the
lS to the other three adoption of a writing are admissible in evidence to establish
tter is a partially inte-
(a) that the writing is or is not an integrated agreement;
ment with respect to
'e provisions. (b) that the integrated agreement, if any, is completely or
partially integrated;

97
§ 214 RESTATEMENT OF CONTRACTS-SECOND se
(e) the meaning of the writing, whether or not integrated; knew or had reaS(
(d) illegality, fraud, duress, mistake, lack of consideration, or inconsistent with
other invalidating cause; (2) When th
(e) ground for gtanting or denying rescission, reformation, spe- relevant usage an
cific performance, or other remedy. the other is treatE
attached by the fi:
§ 215. Contradiction of lntegrated Terms
Except as stated in the preceding Section, where there is a binding § 221. Usag.:
agreement, either completely or partially integrated, evidence of prior or An agreemen
contemporaneous agreements or negotiations is not admissible in evi- with respect to a!
dence to contradict a term of the writing. reason to know o
know that the otl
§ 216. Consistent Additional Terms
(1) Evidence of a consistent additional term is admissible to supple- § 222. Usag«
ment an integrated agreement unless the court finds that the agreement
was completely integrated. (1) A usage (
in a place, vocati•
(2) An agreement is not completely integrated if the writing omits a
observed with res
consistent additional agreed term which is
of rules regularl:
(a) agreed to for separate consideration, or from time to timE
(b) such a terrn as in the circumstances might naturally be
(2) The exist
omitted from the writing.
as questions of f:
§ 21 7. Integrated, Agreement Subject to Oral Requirement of similar writing tl
a Condition the court as a qut
Where the parties to a written agreement agree orally that perform- (3) Unless o
ance of the agreement is subject to the occurrence of a stated condition, trade in which th
the agreement is. not integrated with respect to the oral condition. know or have r
qualifies their ag¡
§ 218. Untrue Recitals; Evidence of Consideration
(1) A recital of a fact in an integrated agreement may be shown to § 223. Cour
be untrue. · (1) A course
(2) Evidence is admissible to prove whether or not there is consider- the parties to an
ation for a pro mise, ·even though the parties have reduced their agree- a common basis •
ment to a writing which appears to be a completely integrated agree- other conduct.
ment. (2) Unless O'
gives meaning to
TOPIC 4. SCOPE AS AFFECTED BY USAGE
§ 219. Usage TOPIC 5 .
.Usage is.habitual or customary practice. § 224. Cono
§ 220. Usage Relevant to Interpretation A condition
(1) An agreement is interpreted in accordance with a relevant usage unless its non-o<
if each party knew or had reason to know of the usage and neither party tract becomes du

98
~OND SCOPE OF CONTRACTUAL OBLIGATIONS § 224

ot integrated; ,. knew or had reason to know that the meaning attached by the other was
';
)[ consideration, or inconsistent with the usage.
(2) When the meaning attached by one party accorded with a
n, reformation, spe- relevant usage and the other knew or had reason to know of the usage,
the other is treated as having known or had reason to know the meaning
attached by the first party.

e there is a binding § 22 l. Usage Supplementing an Agreement .

evidence of prior or An agreement is supplemented or qualified by a reasonable · usage
; admissible in evi- with respect to agreements of the same type if each party knows or has
reason to know of the usage and neither party knows or has reason to
know that the other party has an intention inconsistent with the usage.

:lmissible to supple- § 222. Usage of Trade

that the agreement
(1) A usage of trade is a usage having such regularity of observance
in a place, vocation, or trade as to justify an expectation that it will be
the writing omits a
observed with respect to a particular agreement. It may include a system
of rules regularly observed even though particular rules are changed
from time to time.
might naturally be
(2) The existence and scope of a usage of trade are to be determined
as questions of fact. If a usage is embodied in a written trade code or
tl Requirement of similar writing the interpretaban of the writing is to be determined by
the court as a question of law.
)rally that perform- (3) Unless otherwise agreed, a usagE) of trade in the vocation or
: a stated condition, trade in which the parties are engaged ora usage of trade of which they
the oral condition. know or have reason to know gives meaning to or supplements or
qualifies their agreement.
ration
tt may be shown to § 223. Course of Dealing
(1) A course of dealing is a sequence of previous conduct between
)t there is consider- the parties to an agreement which is fairly to be regarded as establishing
. educed their agree- a common basis of understanding for interpreting their expressions and
Y integrated agree- other conduct.
(2) Unless otherwise agreed, a course of dealing between the parties
gives meaning. to or supplements or qualifies their agreement.
' Y USAGE
TOPIC 5. CONDITIONS AND SIMILAR EVENTS
§ 224. Condition Defined
A condition is an event, not certain to occur, which must occur,
th a relevant usage unless its non-occurrence is excused, before performance under a con-
e and neither party tract becomes due.

99
 RESTATEMENT OF CONTRACTS-SECOND scc
Comment: event. Therefore, the mere passage of rier (Uniform (
time, as to which there is no uncer- § 2-320(2)). If t
a. "Condition" limited to event.
tainty, is nota condition and a duty is in transit, B is m
"Condition" is used in this Restate-
unconditional if nothing but the pas- the price when
.ment to denote an event which quali-
sage of time is necessary to give rise to · have arrived Cl
fies a duty under a contract. See the
a duty of performance. Moreover, an cial Code §§
Introductory Note to this Topic. It is
event is not a condition, even though 321(3)). The arri
recognized that "condition" is used
its occurrence is uncertain, if it is re- not a condition <
·. With a wide Vl:\I"iety of other meanings
ferred to merely to measure the pas- for the goods.
in legal discourse . Sometimes it is used
sage of time after which an obligar is
tó denote an event that limits or quali- c. Necessity of a ·
to perform. See Comment b to § 227.
fies a transfer of property. In the law for an event to be a
Performance under a contract becomes
of. trusts, for example, it is used to qualizy a duty unde1
due when all necessary events, includ-
denote an event such as the death of tract. Events which
ing any conditions and the passage of
the settlor that qualifies his disposition process of formatio:
any required time, have occurred so
of property in trust. See Restatement, such as offer and
that a failure of performance will be a
Second, Trusts § 360. See also the therefore excluded ur
breach. See §§ 231- 43.
rules on "conditional" delivery (§ 103) in this section. It is
and "conditional" assignment (§§ 103, The event need not, in order to be a call such events co
331): Sometimes it is used to refer to a condition, be one that is to occur after § 36(2) ("condition
term (§ 5) in an agreement that makes the making of the contract, although For ·the most part,
an event a condition, or more broadly that is commonly the case. It may re- by law and may not
to .refer to any term in an agreement late to the present or even to the past, by the parties, while
. (e.g., "standard conditions of sale"). as is the case where a marine policy result of, or at least
·For the salce of precision, "condition" insures against a loss that may already ment. Where, howe'
is .not used here in these other senses. have occurred. Furthermore, a duty become an option cm
may be conditioned upon the failure of payment of a dallar
Illustration: something to happen rather than upon tance is a condition
its happening, and in that case its fail- tion ·i n this section.
l. A contracts to sell and B to
ure to happen is the event that is the
buy goods pursuant to a writing
condition. Illustration:
which provides, under the heading
· · "Conditions of Sale," that "the 4. A tells B, "
Illustrations:
: obligations of the parties are con- you $1,000 if
ditional on B obtaining from X 2. A tells B, "If you will paint my house." B begi
Bank by June 30 a letter of cred- house, 1 will pay you $1,000 on house. Since B's
it" on stated terms. The quoted condition that 30 days have passed invited perform~
language is a term of the agree- after you have finished." B paints an option contra
ment (§ 5), not a condition. The A's house. Although A is not un- of performance
event referred to by the term, ob- der a duty to pay B $1,000 until 30 A's duty under
taining the letter of credit by June days have passed, the passage of pay B $1,000. Se•
30, is a condition. that time is not a condition of A's
d. Relationship '
duty to pay B $1,000.
b. Uncertainty o/ event. Whether duty may be subject
the reason for making an event a con- 3. A contracts to sell and B to conditions, which m
dition is to shift to the obligee the risk huy goods to be shipped "C.I.F.," each other in variou:
.of its non-occurrence, or wh ether it is payment to be "on arrival of be cumulative so tha1
to . induce the obligee to cause the goods." Risk of loss of the goods not become due unle
event to occur (see Introductory Note passes from A to B when A, having cur. They may be a·
to this Topic), there is inherent in the otherwise compli ~d with the C.I.F. performance may bE
concept of condition some clegree of term of the contract, puts the one of them occurs.
.uncertainty as to the occurrence of the goods in the possession of the car- cumulative ancl somE

100
JND SCOPE OF CONTRACTUAL OBLIGATIONS § 224
the mere passage of rier (Uniform Commercial Code thermore, a condition may qualify the
1 there is no uncer- § 2-320(2)) . If the goods are lost duties of both parties. Cf. § 217.
ndition and a duty is in transit, B is under a duty to pay
10thing but the pas- the price when the goods should Illustrations:
:essary to give rise to have arrived (Uniform Commer- 5. A, as the result of financia!
nance. Moreover, an cial Code §§ 2-709(1)(a), 2- reverses, sells B a valuable paint-
ndition, even though 321(3)). The arrival of the goods is ing for $1,000,000, but reserves a
uncertain, if it is re- not a condition of B's duty to pay right to repurchase it by tendering
to measure the pas- for the goods. the same price on or before Au-
. which an obligor is gust 18 if he again finds liimself in
c. Necéssity of a contract. In order
;omment b to § 227. such a financia! condition that he
for an event to be a condition, it must
lr a contract becomes can keep it for his personal enjoy-
qualify a duty under an existing con-
Jssary events, includ- ment. A's tender of $1,000,000 by
tract. Events which are part of the
.s and the passage of August 18 and his being in such
process of formation of a contract,
te, have occurred so financia! condition that .he can
such as offer and acceptance, are
>erformance will be a keep the painting for his personal
therefore excluded under the definition enjoyment are cumulative condi-
1-43.
in this section. It is not customary to tions and redelivery of the paint-
not, in order to be a cal! such events conditions. But cf. ing does not become due unless
that is to occur after § 36(2) ("condition of acceptance").
both of them occur.
te contract, although For the most part, they are required
· the case. It may re- by law and may not be dispensed with 6. A purchases land from Mrs. B,
.t or even to the past, by the parties, while conditions are the who is unable to get Mr. B to join
h.ere a marine policy result of, or at least subject to, agree- her in signing the deed because
loss that may already ment. Wheré, however, an offer has they are engaged in divorce pro-
<'urthermore, a duty become an option contract,· e.g., by the ceedings. A takes possession under
ed upon the failure of payment of a dollar (§ 87), the accep- a deed signed by Mrs. B, pays Mrs.
pen rather than upon tance is a condition· under the defini- B $10,000 and promises to pay an
d in that case its fail- tion in this section. additional $5,000 "if, within one
the event that is the year, (1) Mr. and Mrs. B execute a
Illustration: quitclaim deed to A, or (2) Mrs. B
furnishes A with a certificate of
4. A tells B, "I _promise to pay the death of Mr. B with Mrs. B
you $1,000 if you paint my surviving him, or (3) Mrs. B as a
. "If you will paint my house." B begins to paint A's single person executes a quitclaim
1 pay you $1,000 on house. Since B's beginning of the deed to A after having been
tt 30 days have passed invited performance gives rise to awarded the land following the en-
ve finished." B paints an option contract, B's completion try of a final decree of divorce
Jthough A is not un- of performance is a . condition of from Mr. B." The three enumerat-
pay B $1,000 until 30 A's duty under that contract to ed events are alternative condi-
assed, the passage of pay B $1,000. See § 45. tions and A's payment of $5,000 to
not a condition of A's Mrs. B becomes due if any of them
d. Relationship of conditions. A
3 $1,000. occurs.
duty may be subject to any number of
tcts to sell and B to conditions, which may be related to 7. A and B contract to merge
> be shipped "C.I.F.," each other in various ways. They may their corporate holdings into a sin-
be "on m-rival of be cumulative so that performance will gle new company. It is agreed that
: of loss of the goods not become due unless all of them oc- the project is not to be operative
A to B when A, having cur. They may b.e alternative so that unless the parties raise $600,000
mplied with the C.I.F. performance may become dne if any additional capital. The raising of
e contract, puts the one of them occurs. Or some may be the additional capital is a concli-
possession of the car- cumulative and some alterhative. Fur- tion of the duties of both A and B.

101
§ 224 RESTATEMENT OF CONTRACTS-SECOND SC(

If it is not raised, neither A's nor duty to pay and that suit must be § 226. How ru
B's performance becomes due. brought within one year after loss.
An event may
e. Occurrence of event as discharge. Since it can be seen from the cir-
parties or by a terr.
Parties sometimes provide that the oc- cumstances that notice must ordi-
currence of an event, such as the fail- narily be given before payment by
§ 227. Stand~
ure of one of them to commence an A can be expected, B's notification
action within a prescribed time, will of A within 30 days after loss is a (1) In resolvin
extinguish a duty after performance condition of A's duty. B's bringing of an obligor's dut)
has become due, along with any claim suit against A within a year after tion is preferred tl
for' breach. Such an event has often loss is not a condition of A's duty. the event is withi:
been called a "condition subsequent," B's failure to bring suit within that he has assumE
while an event of the kind defined in that time will discharge A's duty
this section has been called a "condi- (2) Unless thE
after payment has become due,
tion precedent." This terminology· is along with any claim for breach.
generally undertak
not followed here. Since a "condition (a) a duty
subsequent," so-called, is subject to 9. A and B make a contract un-
the rules on discharge in § 230, and der which A promises to pay B (b) the ev
not to the following rules on condi- $10,000 in annual installments of (e) the ev
tions, it is not called a "condition" in $1,000 each, beginning the follow- duty iE
this Restatement. Occasionally, al- ing January 1, with a provision
though the language of an agreement that "no installments whether or the first interpretl
says that if an event does not occur a not overdue and unpaid shall be control.
duty is "extinguished," "discharged," payable in case of A's death within (3) In case of
or "terminated," it can be seen fróm the 10 years." A's being alive is a condition of an ob
the circumstances that the event must condition of his duty to pay any which the non-occ1
ordinarily occur before performance of installment. A's death within ten
the duty can be expected. When a duty after it has bE
years will discharge his duty to
court concludes that, for this reason, pay any installment after payment Comm
performance is not to become due un- has become due, along with any
less the event occurs, the event is, in
a. Scope. The
claim for breach. states three standa
spite of the language, a condition. of
f Sealed contracts. The rules gov- used in the process
the duty. See § 227(3). See · also Com-
erning conditions stated in the Re- with regard to condil
ment a to § 230.
ment the standards
statement of this Subject are applica-
§ 203, as well as ti
Illustrations: ble to sealed as well as unsealed
out in Topics 1 throt
8. A insures B's property against contracts. The same rules have tradi- ter.
theft. The policy provides that B's tionally been applied to both types of
contract with technical exceptions
b. Condition or n
failure to notify A within 30 days
rence of a conditio
after loss shall "termínate" A's that are no longer of significance.
duty may cause the
right to the agreed
§ 225. Effects of the Non-Occurrence of a Condition has relied substantia
(1) Performance of a duty subject to a condition cannot become due tion of that exchan¡
tion or performance.
unless the condition occurs or its non-occurrence is excused.
tu re" is u sed in th
(2) Unless it has been excused, the non-occurrence of a condition refer to the denial
discharges the duty when the condition can no longer occur. that results in such
favoring freedom of
(3) Non-occurrence of a condition is not a breach by a party unless that, within broad
he is under a duty that the condition occur. the agreement of th
honored even thougl

102
)ND SCOPE OF CONTRACTUAL OBLIGATIONS § 227
nd that suit must be § 226. How an Event May Be Made a Condition
n one year after loss.
An event may be made a condition either by the agreement of the
'e seen from the cir-
¡at notice must ordi-
. parties or by a term supplied by the court.
n befare payment by
cted, B's notification § 227. Standards ofPreference With Regard to Conditions
) days after loss is a (1) In resolving doubts as to whether an event is made a condition
.'s duty. B's bringing . of an obligor's duty, and as to the nature of such an event, an interpreta-
, within a year after tion is preferred that will reduce the obligee's risk ot' forfeiture, unless
ondition of A's duty. .the event is within the obligee's control or the circumstances indic"ate
J bring suit within that he has assumed the risk.
l discharge A's duty
.t has become due,
(2) Unless the contract is of a type under which only one party
1y claim for breach. generally undertakes duties, when it is doubtful whether
make a contract un- (a) a duty is imposed on an obligee that an event occur, or
promises to pay B (b) the event is made a condition of the obligor's duty, or
nual installments of
(e) the event is made a condition of the obligor's duty and a
>eginning the follow-
duty is imposed on the obligee that the event occur,
1, with a provision
allments whether or the first ínterpretation is preferred if the event is within the obligee's
md unpaid shall be control.
e of A's death within
¡t
(3) In case of doubt, an interpretation under which an event is a
' A's being alive is a condition of an obligor's duty is preferred over an interpretation under
1is duty to pay any
yvhich the non-occurrence of the event is a ground for discharge of that
~·s death within ten
duty after it has become a duty to perform.
;charge his duty to
lment after payment Comment: When, however, it is doubtful whether
lue, along with any a. Scope. The present Section or not the agreement makes an event a
ch. l condition of an obligor's duty, an inter-
¡ · states three standards of preference
1 :u sed in the process of interpretation pretation is preferred that will reduce
acts. The rules gov-
stated in the Re- ~ith regard to conditions. They supple- the risk of forfeiture. For example, un-
Subject are applica- 1 ment the standards of preference in der a provision that a duty is to be
t § 203, as well as the other rules set performed "when" an event occurs, it
; well as unsealed
out in Tapies 1 through 4 of this Chap- may be doubtful whether it is to be
ne rules have tradi- performed only if that event occurs, in
t ter.
.ied to both types of which case the event is a condition, or
echnical exceptions b. Condition or not. The non-occur-
rence of a condition of an obligor's at such time as it would ordinarily
e of significance. occur, in which case the event is re-·
duty may cause the obligee to lose his
right to the agreed exchange after he ferred to merely to measure the pas-
ndition 1
¡ has relied substantially on the expecta-
tion of that exchañge, as by prepara-
sage of time. In the latter case, if the
event does not occur sorne alternative
:annot become due
tion or performance. The word "forfei- means will be found to measure the
:used. passage of time, and the non-occur-
ture" is used in this Restatement to
nce of a condition refer to the denial of compensation rence of the event will not prevent the
JCCUr . that results in such a case. The policy obligor's duty from becoming one of
favoring freedom of contract requires performance. If the event is a condi-
by a party unless that, within broad limits (see § 229), tion, however, the obligee takes the
the agreement of the parties should be risk that its non-occurrence will dis-
· honored even though forfeiture results. charge the obligor's duty. See § 225(2).

103
 RESTATEMENT OF CONTRACTS-SECOND scc
When the nature of the condition is $100,000, "no part of which shall c. Nature of even
such that the uncertainty as to the be due until five days after Owner the nature of the evE
event will be resolved before either shall have paid eontractor there- condition by the agr
pin'ty has relied on its anticipated oc- for." B does the plumbing work, termining whether
currence, both parties can be entirely but the owner becomes insolvent makes an event a cm
relieved of their duties, and the obligee and fails to pay A. A is under a place (see Comment i
risks . only the loss of his expectations. duty to pay B after a reasonable narily be supposed
When, however, the nature of the con- time. assumed the risk of
dition is such that the uncertainty is 2. A, a mining company, hires B, the language is doul
. not likely to be resolved until after the an engineer, to help reopen one of tation is generally p
obligee has relied by preparing to per- its mines for "$10,000 to be pay- avoid this risk. This
forni or by performing at least in part, able as soon as the mine is in erence finds an imp
he rlsks forfeiture. If the event is with- successful operation." $10,000 is a in the case of promis
in · .his control, he will often assume reasonable compensation for B's done .if some indepe1
this risk. If it is not within his control, service. B performs the required such as an architect,
ít . .is sufficiently unusual for him to services, but the attempt to reopen neer, is satisfied witl:
assume the risk that, in case of doubt, the mine is unsuccessful and A of forfeiture in the e
an · interpretation is preferred under abandons it. A is under a duty to that is dishonest or
which the event is not a condition. The pay B $10,000 after the passage of mistake as to the fa
rule is, of course, subject to a showing a reasonable time. The standard does n(
of a contrary intention, and even with- party · if the condit
3. A, a mining company, con-
out clear language, circumstances may tracts with B, the owner of an control or if the cir•
· show that he assumed the risk of its untested experimental patented wise indicate that
non-occurrence. process, to help reopen one of its risk ...
. Although the rule is consistent with mines for $5,000 paid in advance
Illustrations:
a. policy of avoiding forfeiture and un- and an additional "$15,000 to be
just enrichment, it is not directed at payable as soon as the mine is in 5. A contracts
··the· avoidance of actual forfeiture and successful operation." $10,000 is a B~s building for
unjust enrichment. Since the inten- reasonable compensation for B's to be made "on
ticins of the parties must be taken as of services. B performs the required e, B's architect,
the . time the contract was made, the services, but because the process of his certificat
test is whether a particular interpreta- proves to be unsuccessful, A aban- .repairs, but e r•
tion · would have avoided the risk of dons the attempt to reopen the certificate, and e
. forfeiture viewed as of that time, not mine. A is under no duty to pay B not satisfied. Ot
whether it will avoid actual forfeiture any additional amount. In all the field consider A
in the resolution of a dispute that has circumstances the risk of failure of be satisfactory :
m·isen later. Excuse of the non-occur- the process was, to that extent, C's explanation
rence of a condition because of actual assumed by B. against B. The (
forfeiture is dealt with in § 229, and 4. A contracts to sell and B to sufficiently clea
rules for the avoidance of unjust en- (1) does not app
huy land for $100,000. At the
richment as such are dealt with in the same time, A contracts to pay C, a not satisfied, B i
· .Restatement of Restltution and in real estate broker, as his commis- pay A, and it m
Chapter 16 of this Restatement, partic- sion, $5,000 "on the closing of ti- if his dissatisfa(
ulai'ly §§ 370-77. tle." B refuses to consummate the sonable.
sale. Absent a showing of a con- 6. The facts b
Illustrations: trary intention, a court may con- stated in Illu str
l. A, a general contractor, con- elude that e assumed this risk, to issue his cert:
tracts with B, a sub-contractor, for and that A's duty is conditional on admits that he i
· the plumbing work on a construc- th e sale being consummated. A is daim against E
tion project. B is to receive then under no duty to pay C. quoted languagE

104
)ND SCOPE OF CONTRACTUAL OBLIGATIONS §.227

> part of which shall c. Nature of event. In determining ed so that the requirement of the
ive days after Owner the nature of the event that is made a certificate is merely evidentiary
Lid Contractor there- condition by the agreement, as in de- and the condition occurs when .
the plumbing work, termining whether the agreement there is, as here, adequate evi-
lr becomes insolvent makes an event a condition in the first dence that e is honestly satisfiel
)ay A. A is under a place (see Comment b), it will not ordi- 7. The facts being otherwise as
B after a reasonable narily be supposed that a party has . stated in Illustration 5, e does not
assumed the risk of forfeiture. Where make a proper inspection of the
ng company, hires B, the language is doubtful, an interpre- work and gives no reasons for hi~
to help reopen one of tation is generally preferred that will dissatisfaction. A has a claim .
"$10,000 to be pay- avoid this risk. This standard of pref- against B for $20,000. In using the
as the mine is in erence finds an important application quoted language, A and B assu:mecl .
lration." $10,000 is a in the case of promises to pay for work that e would exercise an honest .
)mpensation for B's done if sorne independent third party, judgment and by failing to make a
,rforms the required such as an architect, surveyor or engi- proper inspection, e did not exer"
;he attempt to reopen neer, is satisfied with it, where the risk cise such a judgment. Since the
unsuccessful and A of forfeiture in the case of a judgment parties have omitted an essential ·
A is under a duty to that is dishonest or based on a gross term to cover this situation, the
) after the passage of mistake as to the facts is substantial. court will supply a term (se~
:ime. The standard does not, however, help a § 204) requiring A to pay B if C
party if the condition is within his ought reasonably to have beeri sat-
ning company, con- control or if the circumstances other- isfied.
B, the owner of an wise indicate that he assumed that
)erimental patented 8. The facts being otherwise as ·
elp reopen one of its
risk. stated in Illustration 5, e makeS a
,OúO .paid in advance gross mistake with refereiice .to
Illustrations: the facts on which his refusal to ·
ional "$15,000 to be
•on as the mine is in 5. A contracts with B to repair give a certificate is based: A has a
~ration."$10,000 is a
B's building for $20,000, paymenf claim against B for $20,000. In
ompensation for B's to be made "on the satisfaction of using the quoted language; A .arid .
erforms the required C, B's architect, and the issuance B assumed that C would · exercise
because the process of his certificate." A makes the his judgment without a gross mis-
unsuccessful, A aban- repairs, but e refuses to issue his take as to the facts. Since th~ par- ·
;empt to reopen the certificate, and explains why he is ties have omitted an essential
Lder no duty to pay B not satisfied. Other experts in the term to cover this situation; the
l.! amount. In all the field consider A's performance-to court will supply a term ·(see ·
s the risk of failure of be satisfactory and disagree with § 204) requiring A to pay B if C ·
was, to that extent, C's explanation. A has no claim ought reasonably to .have been sat-
l. against B. The quoted language is isfied.
sufficiently clear that Subsection d. Condition or duty. When an obli-.
cts to sell and B to (1) does not apply. If e is honestly
'r $100,000. At the gor wants the obligee to do an act, the
not satisfied, B is under no duty to obligar may make his own duty condi-
contracts to pay e, a pay A, and it makes no difference
~oker , as his commis- tional on the obligee doing it and may
if his dissatisfaction was not rea- also have the obligee promise to do it:
"on the closing of ti-
sonable. Or he may merely make his own duty
lS to consummate the
a showing of a con- 6. The facts being otherwise as conditional on the obligee doing it. Or
)n, a court may con- stated in Illustration 5, e refuses he m ay merely have the ·obligee pro m- ·
; assumed this risk, to issue his certificate although he ise to do it. (See Introductory Note to
duty is conditional on admits that he is satisfied. A has a this Topic and Comment d to § 225) .
g consummated. A is claim against B for $20,000. The It may not be clear, however, which he
o duty to pay C. quotecl language will be interpret- has done. The rule in Subs~ction · (2)

105
 § 227 RESTATEMENT OF CONTRACTS-SECOND se
states a preference for an interpreta- obligar generally undertakes duties. It ited." Because t
tion that merely imposes a duty on the therefore does not apply to the typicai . dertaken no o1
obligee to do the act and does not insurance eontract under which only the contract, S
make the doing of the act a condition the insurer generally · undertakes not apply. Beca
of the obligor's duty. The preferred duties, and a term requiring an act to insurance is a t:
interpretation avoids the harsh results be done by the insured is not subject to der which only
that might otherwise result from the this. standard of preference. In view of ally undertake!
non-occurrence of a condition and still the general· understanding that · only sence of other i:
gives adequate protection to the obli- the insurer undertakes duties, the a condition of 1
gar under the rules of ehapter 10 re- term will be interpreted as makil1g not under a dt
lating to performances to be exchanged that event a condition of the insurer's other insurance.
under an exchange of promises. Under duty rather than as imposing a duty on e. Condition or <
those rules, particularly §§ 237-41, the insured. stances may show t:
the obligee's failure to perform his tended to make an e
duty has, if it is material, the effect of Illustrations: an obligor's duty ¡
the non-occurrence of a condition of 9. On August 1, A contracts tó . language appears t
the obligor's duty. Unless the agree- sell and B to buy goods, "selection occurrence of the e
ment makes it clear that the event is to be made by buyer befare · Sep- discharge of his dt
required as a condition, it is fairer to tember l." B merely has a duty to ance has become du
apply these more flexible rules. The make his selection by September to § 224. An exampl
obligar will, in any case, have a remedy 1, and his making it by that date form of bond, whic
for breach. In many instances the rule is not a condition of A's duty. A obligar is under a dl
in Subsection (1) will also apply and failure by B to make a selection by that the duty will
will reinforce the preference stated in September 1 is a breach, and if something happens.
Subsection (2). material it operates as the non- spite of its form, is i
This standard of preference applies occurrence of a condition. of A's · the failure of that tl
only where the event is within the duty. See §§ 237, 241. condition of the obli
obligee's control. Where it is within 10. A, B, and e make a contract that condition occur
\'
the obligor's control (e.g., his honest under which A agrees to buy .the is due. Although th
satisfaction with the obligee's perform- inventory of B's grocery business, · sion persists in legE
ance), within a third party's control e agrees to finance A's clown pay- . rarely do the parties
(e.g., an architect's satisfaction with ment, and B agrees to subordinate them shall be under
performance), or within no one's con- A's obligation to him to pay the which is to cease on
trol (e.g., the accidental destruction of balance to A's obligation to C .to something that is s·
the subject matter), the preferential repay the amount of the clown
rule does not apply since it is not usual payment. The contract provides § 228. Satisfl
for the obligee to undertake a duty that "e shall maintairi the books When it is a e
· that such an event will occur. Al- of account for A, and shall inven-
respect to the obli
though the obligee can, by appropriate tory A's stock of merchaó.dise ev-
language, undertake a duty that an ery two months, rendering state- and it is practica}
event that is not within his control will ments to B." C merely has a duty position of the obl
occur, such an·. undertaking must be to do these acts and doing tliem ·is under which the
derived from .the agreement of the par- not a condition of B's duty. A fail- position of the obli
ties under the general rules of inter- ure by e to do them is a breach,
pretation stated earlier in the present and if material it operates as the § 229. Excus1
ehapter without resort to this stan- non-occurrence of a. condition of
dard of prefe1'ence. B's duty. See §§ 237, 241. To the extent
Furthermore, this standard of pref- 11. A insures B's house against disproportionate f
erence cloes not apply when the con- fire for $50,000 under a policy pro- that condition un]
tract is of a type under which only the viding, "other insurance is prohib- exchange.

106
lND SCOPE OF CONTRACTUAL OBLIGATIONS § 229
mdertakes duties. It ited." Because the insured has un- clearest language is therefore neces-
; apply to the typical dertaken no other duties under sary to justify such an interpretation,
t under which only the contract, Subsection (2) does and if the language is doubtful a con-
nerally undertakes not apply. Because a policy of fire trary interpretation is preferred.
1 requiring an act to insurance is a type of contract un-
ured is not subject to der which only the insurer gener- Illustrations:
reference. In view of ally undertakes duties, the ab-
·rstanding that only sence of other insurance is merely 12. In return for a fee paid by X,
ertakes duties, the a condition of A's duty, and B is A signs and delivers to B a bond
erpreted as making not under a duty not to procure which reads: "1 acknowledge my;
ition of the insurer's other insurance. self to be inclebted to B in the sum
LS imposing a duty on e. Condition or discharge. eircum- of $50,000. The condition of this
stances may show that the parties in- obligation is such that if X shall
tended to make an event a condition of faithfully perform his duties as ex-
an obligor's duty even though their ecutor of the will of Y, this obli-
st 1, A contracts to language appears to make. the non- gation shall be void, but otherwise
buy goods, "selection occurrence of the event a ground for offull effect." X's failure faithfully
>y buyer before Sep- discharge of his duty after perform- to perform his duties is a condi-
merely has a duty to ance has become due. See Comment e tion of A's duty under the bond.
ection by September to § 224. An example is the traditional
13. A promises to pay B $10,000
1king it by that date form of bond, which states that the
for a quantity of oil, and promises
lition of A's duty. A obligor is under a duty to perform, but
that the duty will be discharged if to pay B an additional $5,000 "but
o make a selection by
is a breach, and if something happens. The language, in if a greater quantity of oil arrives
tperates as the non- spite of its form, is interpreted so that . in vessels during the first quarter
f a condition of A's the failure of that thing to happen i.s a of the year than arrived during
237,241. condition of the obligor's duty. Unless the same quarter last year, then
that condition occurs, no performance this obligation to be void." A's
ld e make a contract
is due. Although this form of expres- payment of the additional $5,000
A agrees to huy the
sion persists in legal documents, only' is not due until the end of the first
B's grocery business,
rarely do the parties intend that one of. quarter, and the failure of a great-
inance A's down pay-
them shall be under a duty to perform er quantity of oil to arrive by that
agrees to subordinate
1 to him to pay the
which is to cease on the occurrence ~f time is a condition of A's duty to
's obligation to e to something that is still uncertain. The pay the additional $5,000.
mount of the down
1e contract provides § 228. Satisfaction of the Obligor as a Condition
l maintain the books When it is a condition of an obligor's duty that he be satisfied with
r A, and shall inven- respect t.o the obligee's performance or with respect to something e1se,
k of merchandise ev-
lths, rendering state-
and it is practicable to determine whether a reasonable person in the
e merely has a duty position of the obligar would be satisfied, an interpretation is preferred
cts and doing them is under which the condition occurs if such a reasonable person in the
:m of B's duty. A fail- position of the obligar would be satisfied.
do them is a breach,
ial it operates as the § 229. Excuse of a Condition to Avoid Forfeiture
.ce of a condition of
§§ 237, 241. To the extent that·the non-occurrence of a condition would cause
·es B's house against disproportionate forfeiture, a court may excuse the non-occurrence of
00 uncler a policy pro- that condition unless its occurrence was a material part of the agreed
r insurance is prohib- exchange.

107
§ 230 RESTATEMENT OF CONTRACTS-SECOND PE

§ 230. Event That Terminates a Duty would otherwise h~

Even absent a show
(1) Except as stated in Subsection (2), if under the terms of the intentions, fairness
contract the occurrence of an event is to terminate an obligor's duty of an expectation be a
immediate performance or one to pay damages for breach, that duty is tion therefore statet
discharged if the event occurs. favor of the conclus:
(2) The obligor's duty is not discharged if occurrence of the event case, the performar
changed under the ·
(a) is the result of a breach by the obligor of his duty of good ises. For one of th
faith and fair dealing, or that the expectatic
(b) could not have been prevented because of impracticability the contrary intenti•
and continuance of the duty does not subject the obligor to a manifested. The pr
materially increased burden. regardless of whethe
written or oral or
(3) The obligor's duty is not discharged if, before the event occurs, where a negotiable
the obligor promises to perform the duty even if the event occurs and volved. See Uniform
does not revoke his promise before the obligee materially changes his § 3-408. It also ap
position in reliance on it. the consideration gi'
sists partly of sorne
only partly of a pror
CHAPTER 10. PERFORMANCE AND e to § 231), althougl
NON-PERFORMANCE in such a case the 1
minor and incidentf
TOPIC l. PERFORMANCES TO BE EXCHANGED formance would not
UNDER AN EXCHANGE OF PROMISES ure of performance.
§ 241.
§ 231. Criterion for Determining When Performances Are to
Be Exchanged Under an Exchange of Promises Illustrations:
Performances are to be exchanged under an exchange of promises if l. A, a whole
each pro mise is at least part of th~ ·consideration for the other and the sell and B, a re
performance of each promise ·is to be exchanged at least in part for the buy goods toge
performance of the other. advertising ma1
be made within
§ 232. When it is Presumed That Performances Are to Be ery. A al so pr<
similar advertisi
Exchanged Under an Exchange of Promises
other retailer Í!
Where the consideration given by each party to a contract consi'sts similar advertís:
in whole or in part of promises, all the performances to be rendered by other retailer i
each party taken collectively are treated as performances to be ex- thereupon refw
changed under an exchange of promises, unless a contrary intention is ¡ for the goods. J
¡· together with a•
clearly manifested .
and not selling
Comment: pointment of their expectation of a vertising mate1
a. Reason for presumption. The subsequent exchange of those perform- tively, and B's
rules applicable to performances to be ances. When the parties have ex- exchanged und1
exchanged under an exchange of pro m- · changed promises, there is ordinarily promises. The1
ises are designed to give the parties every reason to suppose that they con- rule stated in §
maximum protection, consistent with · tracted on the basis of such an expec- of performance
freedom of contract, against disap- tation sine~ the exchange of promises no claim agains;

108
OND PERFORMANCE & NON-PERFORMANCE § 232
would otherwise have little purpose. 2. A promises to sell to B a lot in
Even absent a showing of their actual a subdivision for $8,000. B prom-
r the terms of the intentions, fairness dictates that such ises to pay in four annual install-
:m obligor's duty of an · !lxpectation be assumed. This Sec- ments of $2,000 each, beginning
>reach, that duty is tion therefore states a presumption in one year after execution of the
favor .of the conclusion that, in such a contract. A promises to begin to
case, the performances are to be ex- make improvements and pave the
mee of the event
changed under the exchange of prom- streets within 60 days and to com-
of his duty of good ises. For one of the parties to show plete work within a reasonable
that the expectation was otherwise, time and promises to deliver a
. the contrary intention must be clearly deed at the time of the final pay-
of impracticability
manifested. The presumption applies ment. A fails to pave the streets,
¡ject the obligor to a and B thereupon refuses to pay
regardless of whether the promises are
written or oral or both, and even any installments. A's making im-
~e the event occurs, wheni a negotiable instrument is in- provements, paving streets, and
Le event occurs and volved . .See Uniform Commercial Code delivering a deed, taken collective-
terially changes his .§ S-408. It also applies even though
ly, and B's paying installments are
to be exchanged under the ex-
· the consideration given by a party con-
change of promises. Therefore, un-
sists partly of some performance and
der the rule stated in § 237, if A's
only partly of a promise (see Comment
JEAND failure of performance is material,
e to § 231), although it is possible that
A has no claim against B.
in such a case the promise may be so
minor and incidental that its non-per- 3. A employs B under a five-year
KCHANGED formance would not be a material fail- employment contract, which con-
tains a valid covenant under
MISES ure of performance. See Comment b to
which B promises not to engage
§ 241.·.
formances Are to in the same business in a desig-
mge of Promises nated area for two years after the
. Illustrations:
termination of the employment. It
1ange of promises if l. A, a wholesaler, promises to expressly provides that "this cov-
r the other and the sell and B, a retailer, promises to enant is independent of any other
east in part for the huy goods together with related provision in this agreement." M-
advertising material, payment to ter B has begun work, A unjusti-
be inade within 30 days of deliv- fiably discharges him, and B
erY. A also promises not to sell thereupon engages in business in
tances Are to Be
similar advertising material to any violation of the covenant. A's em-
fPromises · other retailer in B's city. A sells ploying B and B's working for A
, a contract consists similar advertising material to an- are to be exchanged under the ex-
•S to be rendered by other retailer in B's city, and B change of promises. The quoted
>rmances to be ex- thereupon refuses to take or pay words indicate an intention that
ontrary intention is for the goods. A's selling B goods A's employing B is not to be ex-
together with advertising material changed for B's refraining from
and not selling others similar ad- engaging in the same business. If
1eir expectation of a wirtising material, taken collec- the court concludes that this in-
smge of those perform- tively, and B's payment are to be tention is clearly manifested, A
·exchanged under the exchange of has a claim against B for damages
he parties have ex-
promises. Therefore, under the for breach of his promise not to
lS, there is ordinarily
rüle 8tatecl in § 237, if A's failure compete.
mppose that they con-
asís of such an expec- of performance is material, A has 4. A contracts to sell and B to
exchange of promises nti elaim against B. buy a machine, to be delivered im-

109
§.232 RESTATEMENT OF CONTRACTS-SECOND Pl

mediately, for $10,000. As part of ways so since a party may make what § 234. Order
the ·::;ame bargain, B gives A his is often caBed an "aleatory" promise,
n egotiable promissory note for (1) Where all
under which his duty to perform is
$10,000 to A's order, payable in 90 conditional on the occurrence of a for- exchange of prom
days, but the note makes no refer" tuitous event. Or it may be understood extent due simul
ence to the transaction out of that the value of one party's perform- indicate the contr;
which it m·ises. A fails to deliver ance will be affected by chance, as (2) Except to
the . machine. A's delivering the where he promises to deliver his out-
machine and B's paying the note put or to pay during another's lifetime.
formance of only •
..an~ to b~ exchanged under the ex- Even when one or both of the parties time, his perform
change of promises. Therefore, un- makes such a promise, however, they party, unless the
der therule stated in § 237, A has contemplate a subsequent exchange of
no claim on the note or the con- Comn
performances, subject of course to the
tract ·against B. See Uniform Com- occurrence of the required conditions. a. Advantages o¡
mercial Code §§ · 3-306, 3-408, and Such cases are therefore subject to the formance. A require
3-307(3). rules stated in this Chapter (see ties perform siml
b. Promises tallen collectively. § 239), along with sorne special rules their performance~
When the ·rule stated in this Section relating to the election of remedies changed under an
applies 1 all of the performances to be which are stated in §§ 378-80. ises is fair for two
rendered by each party taken collec- offers both parties
tively are to be exchanged under the lllustration: against disappointm
exchange of promises. A court need not 5. A, an insurance company, is- t~;~tions of a subse<
determine whether separate perform- sues td B a group health insurance performances by all<
ances ~ either side are the subject of policy covering B's employees for defer his own perfor
a single promise or of separate prom- one year beginning January 1 in been assured that 1
ises. Nor need a court concern itself return for B's promise to pay the form. This advanta
with. the nilationship among separate premium on February l. During by the rule stated
promises viewed as of the time of their the month of January A unjustifi- deals with offers to ·
·ni.akini Instead the court is to focu s ably rejects proper claims filed by avoids placing on ei1
on the relative importance of the fail- B's employees under the policy. B den of financing th
ure of performance in the light of the refuses to pay the premium on latter has perform•
situa'tion of the parties at the time of February l. A's paying proper ther~fore .i mposes a
that failure, See §§ 237, 238, 241. claims of B's employees and B's multaneous perfoi
c. .Perfm:mances need not be treated paying the premium are to be ex- this is feasible und•
as equivalent. When an exchange con- changed under the exchange of the absence of lar
sists exclusively of promises, the val u es promises. Therefore, under the stances indicating a
of the performances to be subsequently rule stated in § 237, if A's breach A notable example
exchanged are usually regarded by the is material, A has no claim against ment is that laid (
parties as equivalent. This is not al- B. for the sale of gooch
mercial Code §§ 2-E
§ 233. Performance at One Time or in Installments requirement is SUQ
· (1) Where performances are to be exchanged under an exchange of ment of the parties
promises, and the whole of one party's performance can be rendered at provision extending
er, or one requiring
one time, it is due at one time, unless the language or the circumstances
documents or to f1
. indicate the contrary.
credit. Even absent
(2) Where only a part of one party's performance is due at one time · sion, a contrary i
under Subsection (1), if the other party's performance can be so appor- shown by circumst~
tioned that there is a comparable part that can also be rendered at that age of trade and
tim'e; it .is due at that time, unless the language or the circumstances (§§ 221, 223; Uni
indicate the contrary. Cocle § 1- 205).

110
OND PERFORMANCE & NON-PERFORMANCE .§ 234·

>arty may make what § 234. Order of Performances

1 "aleatory" promise,
(1) Where all or part of the performances to be exchanged under an
duty to perform is
e occurrence of a for- exchange of promises can be rendered simultaneously, they are to that
it may be understood extent due simultaneously, unless the language or the circumstances ·
· one party's perform- indicate the contrary.
'ected by chance, as (2) Except to the extent stated in Subsection (1), where the per"
es to deliver his out-
f?rman~e of only one party under such ari exchange requires a period of
ing another's lifetime.
)r both of the parties
time, h1s performance is due at an earlier time than that of the other
·omise, however, they party, unless the language or the circumstances indicate the contrary:
bsequent exchange of Comment: b. When simultaneous performance
bject of course to the possible under agreement. In the ab-
~ required conditions.
a. Advantages of simultaneous per-
formance. A requirement that the par- sence of language or circumstances
terefore subject to the
ties perform simultaneously where showing a contrary intention, the re-
this Chapter (see
their performances are to be ex- quirement of simultaneous perform"
th sorne special rules
changed under an exchange of prom- ance stated in Subsection (1) applies
election of remedies
ises is fair for two reasons. First, it whenever such performance is possi-
in §§ 378-80.
offers both parties maximum security ble, consistent with the terms of the
against disappointment of their expec- contract. A major instance where si-
tations of a subsequent exchange of multaneous performance is not possi-
surance company, is-
performances by allowing each party to ble occurs when one party's perform- ·
roup health insurance
defer his own performance until he has ance is continuous over sorne substan-
ng B's employees for
been assured that the other will per- tial period of time, a situation that is .
pnning Jañuary 1 in
form. This advantage is implemented dealt with in Subsection (2). However,
's promise to pay the
by the rule stated in § 238, which as is the case for the requirement of ·
February l. During
deals with offers to perform. Second, it the preceding section that the · whole ·
f January A unjustifi-
proper claims filed by avoids placing on either party the bur- performance be possible at .orw. t;imt;J.,
~s under the policy. B
den of financing the other befare the the requirement of simultaneous per-
)ay the premium on latter has performed. Subsection (1) fm·mance is not to be applied so Iiteral-
A's payirig proper therefore imposes a requirement of si- ly as to exclude instances in which the
's employees and B's multaneous performance whenever objectives of the requirement can ·be
•remium are to be ex- this is feasible under the contract, in fulfilled although performance cannot
cler the exchange of the absence of language or circum- be instantaneous. See Comment a · to
'herefore, under the stances indicating a contrary intention.- § 233. A less important instance
n § 237, if A's breach A notable example of such a require- where simultaneous performance is.
\ has no chiim against ment is that laid down for contracts not possible occurs when distance and
for the sale of goods by Uniform Com- lack of adequate communications
mercial Code §§ 2-507 and 2-511. The make it impossible to assure the par-
llments requirement is subject to the agree- ties that performance is taking place
ment of the parties, as by an express at the same time, so that although the
1der an exchange of
provision extending credit to the buy- performance of each party can ·be in-
can be n:indered at er, or one requiriñg him to pay against stantaneous, the two performances
•r the circumstances documents or · to furnish a letter of cannot be simultaneous within . the
credit. Even absent an express provi- meaning of Subsection (1). Cases in
e is due at one time sion, a contrary intention may be which simultaneous perforin~u1ce 1s ·
· tce can be so appor- shown by circumstances including us- possible under the terms of the con-
be rendered at that age of trade ancl course of dealing tract can be grouped into five catego-
r the circumstances (§§ 221, 223; Uniform Commercial ries: (1) where the same time is fixed
Cacle § 1- 205). for the performance of each ¡:iarty; (2) ·

111
§ 234 RESTATEMENT OF CONTRACTS-SECOND
r
1

where a time is flxed for the perform- and payment of the price are dile ty, performance by
ance of one of the parties and no time simultaneously. perform first may
is fixed for the other; (3) where no 5. A promises to sell lahd to B,
1 layed until the tii
time is fixed for the performance of delivery of the deed to be on or · by the other party
either party; (4) where the same peri- before July l. B promises to pay A latter party is en
od is fixed within which each party is assert that his rem
$50,000, payment to be on or be-
to perform; (5) where different periods formance are disch.
fore August l. Delivery of the deed
are flXed within which each party is to delay, under the r1
and payment of the prices are not ·
perform. The requirement of simulta- no question of thE
due simultaneously. ·
neous performance applies to the first ance remains. Unle
four categories. The requirement does c. When simultaneous performance fled, he will also hf
not apply to the fifth category, even if possible in part. The requirement of ages for total breac
simultaneous performance is possible, simultaneous . performance stated .in remammg rights
because in fixing different periods for Subsection (1) also applies where only (§§ 236(1), 243(1))
performance the parties must have part rather than all of the performance not entitled to asst
contemplated the possibility of per- of one party can be performed simulta- ing duties of pe1
formance at different times under neously with either part or all of the charged, or if he e
their agreement. Therefore in cases in performance of the other party.. It even though he is
the fifth category the circumstances therefore applies to the situations dis~ question of the on
show an intention contrary to the rule cussed in Comment b to § 233 and remains. Unless tl
stated in Subsection (1). exemplified by Illustration 3 to that he will, of course
section. But it is broader than this and . damages for partía
Illustrations: also applies, for example, to. instances the delay. Whether
where sorne part performan.ce of one: justified, he can a
l. A promises to sell land to B, party can be render!Jd simultaneously multaneous perfor:
delivery of the deed to be on July with the entire performance of the oth~ cial supervision of
l. B promises to pay A $50,000, er party. See Comment f and Illustra- . simultaneous perfc
payment to be made on July l. tion 12 .. injured party has
Delivery of the deed and payment before the time wh
of the price are due simultaneous- Illustration!?: ance is due and th:
ly. before he has obta:
6. A promises to sell land to .B,
2. A promises to sell land to B, delivery of the deed to be fóur judgment, see Com
the deed to be delivered on July l. years from the following July l. B tion 5 to § 238.) Tl
B promises to pay A $50,000, no promises to pay A $50,000 in in- stances, however, i
provision being made for the time- stallments of $10,000 on each July priate for him to
of payment. Delivery of the deed 1 for five years. Delivery of the i
J
party to perform
and payment of the price are due
sim ul taneously.
deed and payment of the last in-
stallment are due simultaneously. ¡ par ties to a sale oJ
that the buyer will
ifled between deliv•
~
3. A promises to sell land to B 7. A promises to sell land to B, resell the goods ii
and B promises to pay A $50,000, delivery of the deed to be one year price. In such a e~
1
no provision being made for the from July l. B promises to pay A party in delay to n
time either of delivery of the deed $50,000 in installments of $10,000 be subject to postpc
or of paymimt. Delivery of the on each July 1 for five years. De~ 1
·¡
deed and payment of the price are
due simultaneously.
livery of the deed and payment of
the second installment are due si-
¡ Illustration:
8. The facts
4. A promises to sell land to B, multaneously. 1 stated in Illu:
delivery of the deed to be on or d. When simultaneous performance r( pays the first
before July l. B promises to pay A later becomes possible. Although differ- but unjustifiab
$50,000, payment to be on or be- ent times or periods were . originally 1 fourth until th
fare July l. Delivery of the deed fixed for the performance of each par- failure to pay

112
 '· .1
OND PERFORMAJVCE & NON~PERFORMAJVCE § 234
of the price are due ,~,.).~~:rf<Jmance by the party who is to ment discharges A's remaining
ly. ;iJr'ni first . may sometimes be de- duties of performance under the
' ·-qntil the time for performance rule stated in § 237, A has a claim
:es to sell land to B,
:other party has arrived. If the for damages for total breach
he deed to be on or
arty is entitled to and does (§ 243(1)), and no further per-
. B promises to pay A
· pat his remairiing duties of per- formance is due from either party.
ment to be on or be- h
Lb~ are discharged because of the Otherwise B's failure to pay the
.. Delivery of the deed
dr r the rule stated in § 237, fourth installment gives rise to
of the prices are not
~.?h of the arder of perform- only a claim for damages for par-
eously. . O,ins. Unless the delay is justi- tia} breach because of the delay,
ltaneous performance ·. J also have a claim for dam- and, unless circumstances make it
The requirement of fal breach based on all of his appropriate for A to require B to
rformance stated in r : ~(' rights to performance. pay the fourth installment first,
so applies where only (§§;.:- 3.6i(t~ , 243(1)). If, however, he is delivery of the deed and payment
3.ll of the performance not 1' \{led to assert that his remain- of the fourth and fifth install-
)e performed simulta- ing ~ ties of performance are dis- ments are then due simultaneous-
ler part or all of the charged, or if he does not assert this ly.
the other party. It even though he is entitled to do so, a
to the situations dis- question of the arder of performances e. Where performance requires a pe-
tent b to § 233 and remains. Unless the delay is justified riod of time. Where the performance of
llustration 3 to that he will, of course, have a claim for one party requires a period of time and
broader than this and damages for partial breach because of the performance of the other party
example, t o instances the delay. Whether or not the delay is does not, their performance can not be
; performance of one justified, he can at least insist on si- simultaneous. Since one of the parties
tdered simultaneously multaneous performance. (As to judi- must perform first, he must forego the
~rformance of the oth- cial supervision of the requirement of . security that a requirement of simulta-
nment f and Illustra- simultaneous performance where the neous performance affords against dis-
injured party has brought an action appointment of his expectation of an
befare the time when his own perform- exchange of performances, and he
ance is due and that time then arrives must bear the burden of financing the
ses to sell land to B, befare he has obtained and enforced a other party befare the latter has per-
the deed to be four judgment, see Comment e and Illustra- formed. See Comment a. Of course the
he following July l. B tion 5 to § 238.) There may be circum- parties can by express provision miti-
pay A $50,000 in in- stances, however, in which it is appro- gate the harshness of a rule that re-
' $10,000 on each July priate for him to require the other quires that one completely perform be-
ears. Delivery of the party to perform first, as where the fare the other perform at all. They
yment of the last in- parties to a sale of goods contemplate often do this, for example, in construc-
that the buyer will need the time spec- tion contracts by stating a formula un-
e due simultaneously.
ified between delivery and payment to der which payment is to be made at
ses to sell land to B, resell the goods in arder to pay the stated intervals as work progresses.
1e deed to be one year price. In such a case the right of the But it is · not feasible for courts to
B promises to pay A party in delay to receive payment may devise such formulas for the wide vari-
1s~allments of $10,000 be subject to postponement. ety of such ··cases that come befare
r 1 for five years. De- them in which the parties have made
deed and payment of Illustration: no provision. Centuries ago, the princi-
nstallment are due si- 8. The facts being otherwise as pie became settled that where work is
y. stated in Illustration 6, B cluly to be done by one party ancl payment
1ltaneous p erformance pays the first three instaliments, is to be macle by the other, the per-
:sible. Although differ- but unjustifiably does not pay the fm·mance of the work must precede
)riods were originally fourth until the fifth is clue. If B's payment, in the absence of a showing
formance of each par- failure to pay the fourth install- ofa contrary intention. It is sometimes

113 . .
§ 234 RESTATEMENT OF CONTRACTS-SECOND PE
supposed, that this principie grew out structed by B for $10 a culi>ic yard. (2) When per1
of employment contracts, and reflects In the absence of language or cir- performance is a b:
a conviction that employers as a class cumstances indicating the con-
are more likely to be responsible than trary, payment by B is not due
are workmen paid in advance. Whether until A has finished the concrete
§ 236. Claim~
or not the explanation is correct, most work. (1) A claim fm
parties today contract with reference all of the injured p;
10. The facts being otherwise as
to the principie, and unless they have
stated in Illustration 9, B promises (2) A claim foJ
evidenced a contrary intention it is at
to furnish a bond to secure his on only part of tl
least as fair as the opposite rule would
payment. No provision,is made as
be.
to the time for furnishing the § 237. Effect
f Applicability of rule. The rule bond. No performance by A is due
stated in Subsection (2) usually finds Pe
until B has furnished the bond.
its application to contracts involving Although the doing of the concrete Except as stab
services, such as construction and em- work by A requires a period of duties to render ¡::
ployment contracts. The common prac- time and the furnishing of the promises that ther·
tice of making express provision for bond by B does not, the circum- render any such pe
progress payments has diminished its stance that the bond is required to
importance with regard to the former, · secure payment by B indicates Comm
and the widespread enactment of state that B must furnish the bond first. a. Effect of non-o<
wage statutes giving the employee a
11. A contracts to make altera- tion. Under the rule
right to the frequent periodic payment
tions in B's home for $5,000. $500 tion, a material failu:
of wages has lessened its significance
is to be paid on the signing of the including defective
with regard to the latter. Nevertheless,
contract, $1,500 on the starting of .well as an absence ol
it is a helpful rule for residual cases
work, $2,000 on the completion of erates as the non-oc<
not otherwise provided for. It applies
rough carpentry and rough plumb- dition. Under § 22E
not only to contracts under which the
ing, and $1,000 on the completion rence of a condition
performance of one party is more or
of the job. Payment by B is due as effects on the duty Sl
. less continuous, but also to contracts
the work progresses according to dition. See Commen1
where performance consists of a series
the terms of the contract. first is that of preve1
of acts with an interval of time be-
of the duty from l
tween them. See Comment c. Under a 12. A promises to sell land to B, least temporarily (§
contract of the latter type, simultanei- in return for which B promises to ond is that of discl
ty may be possible in part and, to the payA $10,000 ayear for five years when the co:adition ·
extent that it is possible, the rule stat- on July 1 of each year. No prov¡- cur (§ 225(2)). A m
ed in Subsection (2) is subject 't o that sion is made as to the time for performance has, ur
stated in Subsection (1). See Illustra- delivery of a deed. Delivery of a these effects on the
tions 6 and 12. deed is not due until July 1 of the · maining duties of 1
fifth year, at which time delivery respect to the exch1
Illustrations: of the deed and payment of the performance of thos1
9. A contracts to do the concrete last installment are due simulta- coming due; at least
work on a building being con- neously. See Illustration 6. it discharges those d
been cured during ti
TOPIC 2. EFFECT OF PERFORMANCE AND performance can O<
NON-PERFORMANCE r ence of conditions ·
with in this Section
§ 235. Effect of Performance as Discharge and of Non-Per- a sense of fairness
formance as Breach result of the agreemE
Such conditions are
(1) Full performance of a duty under a contract discharges the duty. times referred to as '

114
'OND t PERFORMANCE & NON-PERFORMANCE § 237
¡,t
1 for $10 a cubic yard. (2} When performance of a duty under a contract is due any non-
.ce of language or cir- r
indicating the con-
i performance is a breach.

mt by B is not due
l
.· § 236. ·· Claims for Damages for Total and for Partial Breach
1

1
finished the concrete
t· (1) A claim for damages for total breach is one for damages based on
r· all of the injured party's remaining rights to performance.
:ts being otherwise as
stration 9, B promises · (2) A claim for damages for partial breach is one for damages based
t bond to secure his on only part of the ·injured party's remaining rights to performance.
, provision is made as
~ for furnishing the § 237. Effect on Other Party's Duties of a Failure to Render
~formance by A is due · Performance
furnished the bond.
l doing of the concrete Except as stated in§ 240, it is a condition of each party's remaining
requires a period of duties to render performances to be exchanged under an exchange of
1e furnishing of the promises that there be no uncured material failure by the other party to
:loes not, the circum- render any such performance due at an earlier time.
.he bond is required to
nent by B indicates Comment: ditions of exchange." Cf. § 204. What
furnish the bond first. a. Effect of non-occurrence of condi- is sometimes referred to as "failure of
tion. Under.the rule stated in this Sec- consideration" by courts and statutes
racts to make altera- (e:g., Uniform Commercial Code § 3-
borne for $5,000. $500 tion, a material failure of performance,
408) is referrecl to in this Restatement
. on the signing of the including defective performance as
as "failure of performance" to avoicl
500 on the starting of .well as an absence of performance, op-
confusion with the absence of consid-
l on the completion of erates as the non-occurrence of a con-
eration. Circumstances significant in
1try and rough plumb- dition. Under § 225, the non-occur-
determining whether a failure is mate-
)00 on the completion rence. of 'a conclition has two possible
t rial are set out in § 241. Circum-
ayment by B is due as effects on.the duty subject to that con- stances significant in determining the
dition. See Comment a to § 225. The
·ogresses according to 1 first is that of preventing performance
period of time after which remaining
the contract. l. of the duty from becoming due, at
duties are discharged, if a material
failure has not been cured, are set out
tises to sell land to B, least tempo.r arily (§ 225(1)). The sec- in § 242. The rules stated in this Sec-
r which B promises to ond is. that: of discharging the duty tion and the one following apply with-
JO a year for five years when · the condition can no longer oc- out regard to whether or not the fail-
f each year. No provi- cur (§ '225(2)). A material failure of ure of performance is a .breach. They
le as to the time for performance has, under this Section, apply, for example, even though the
a deed . . Delivery of a these effects · on the other party's re- failure is justified on the ground of im-
:J.ue until July 1 of the maining duties of performance with practicability of performance (Chapter
tt which time delivery respect · to the exchange. It prevents 11). Illustrations of the operation of
and payment of the performance· of those duties from be- these rules in situations in which the
1ent are due simulta- coming due,· at least temporarily, and failure is justified are given in other
Illustration 6. it discharges · those duties if it ·has not chapters under the sections that deal
been cui·ecl . during the time in which with the particular justification, such
NCEAND performance can occur. The occur- as impracticability. See, e.g., §§ 267,
rence of conditions of the type dealt 268. The illustrations in this Chapter
wíth ·in this Section is required out of concern, for the most part, their oper-
and of Non-Per- . a sense of fairness rather than as a ation in situations where the failure is
result of .the agreement of the parties. a breach. But see, e.g., Illustration 3.
Such conditions are therefore sorne- The rules of this Section and the one
discharges the duty. . tÍines referi:·ecl to as "constructive con- following apply even when the promise

115

~
§ 237 RESTATEMENT OF CONTRACTS-SECOND I

of the party in default is unenforceable 3. A, a theater manager, con- ance is material,

under .the Statute of Frauds, while the tracts with B, an actress, for per- listed in § 241 sh
promise of the other party is enforce- formance by her for a period of six Even if the failun
able. ·See § 140. They are, of course, months in a play that A is about still be possible t•
subject to variation by agreement of to present. B dies during the first quent performancE
the parties. week of the performance. A's re- failure. In the even
maining duties with respect to the party may still h~
Illustrations: exchange of performimces are dis- remaining non-per
l. A contracts to build a house charged by B 's uncured material for any delay. In <
for B for $50,000, progress pay- failure of performance. Because is too late to cure :
. ments to be made monthly in an B's failure is justified on the ance, the circumstl
amount equal to 85% of the price ground of impossibility (§ 262), A should be consider
of the work performed during the has no claim against B's estate. these determinatic
preceding month, the balance to the parties is to 1
b. First material failure of perform- time for performa1
.b e paid on the architect's certifi- ance. In many disputes over failure of
cate of satisfactory completion of the actual failure.
performance, both parties fail to finish der the terms of
the house. Without justification B performance, and the question is
fails to make a $5,000 progress order of performa
whether one of them is justified in so event subsequent
payment. A thereupon stops work doing by the other party's failure .
on the house and a week goes by. making of the cont
(Compare Comment d.) This Section be taken i"nto accou
A's failure to continue the work is states the fundamental rule under
not . a breach and B has no claim which that question is to be answered. Illustrations:
.agaihst A. B's failure to make the (The liability of the other party for
progress payment is an uncured 4. A contract
damages for total breach is governed
. material failure of performance huy at a state
by the mle stated in § 243.) The rule
which operates as the non-occur- of land which
is based on the principie that where
rence of a condition of A's remain- which the par
performances are to be exchanged un-
. irig duties of performance under quire by purch
der an exchange of promises, each par-
the exchange. If B offers to make sale. A bids on
ty is entitled to the assurance that h e
the delayed payment and in all the the foreclosure
will not be called upon to perform his
circumstances it is not too late to B bids agains1
remaining duties of performance with
cure the material breach, A's a u· four for les
respect to the expected exchange if
dutiBs to continue the work are price. A does 1
there has already been an uncured ma-
not discharged. A has a claim parcels to B.
terial failure of performance by the
against B for damages for partial against A B's
other party. The central problem is in
.. breach because of the delay. was· a material
determining which party is chargeable
of good faith
2. The facts being otherwise as with the first uncured material failure
(§ 205), whicl
stated in Illustration 1, . B fails to of performance. In determining the
non-occurrencE
make the progress payment or to relative times when perform.ance is
A's duties anc
give any explanation or assurances due, the terms of the agreement and
for one month. If, in all the cir- the supplementary rules on time for 5. A, a contn
. cumstances, it is now too late for performance should be considered conti·actor, ma
B to cure his material failure of (§§ 233, 234). In determining whether which B promi
pe~formance by making the de- there has been a failure of perform- pipe in a trenc
layed payment, A's duties to con- ance, the terms of the agreement and and maintain
. tinue the work are discharged. Be- the supplementary r ules such as those ,, A unjustifiably
~
. cause B's failure to make the on omitted essential terms (§ 204) and the trench tha
· progress payment was a breach, A the duty of good faith and fair clealing severely hinde
also has a claim against B for total (§ 205) shoulcl b e considered. In cleter- thereupon sto¡:
breach of contract (§ 243). mining whether a failure of perform- to continue UJ

116
 PERFORMANCE & NON-PERFORMANCE § 237
~OND

teater manager, con- ance is material, the circumstances cured. A does not cure his breach.
B, an actress, for per- listed in § 241 should be considered. If A's breach is material (§ 241), it
her for a period of six Even if the failure is material, it may operates as the non-occurrence of
still be possible to cure it by subse- a condition of B's duty to build the
. play that A is about
quent performance without a material sewer, discharging it, and A has
3 dies during the first
failure. In the event of cure the injured no claim against B. If A's breach is
performance. A's. re-
party may still have a claim for any not m¡1terial, B's duties are not
ies with respect to the
remaining non-performance as well as discharged, and B's stopping work
performances are dis-
for any delay. In determining when it and refusing to continue is a
B's uncured material
is too late to cure a failure of perform- breach.
performance. Because
ance, the circumstances listed in § 242 6. A contracts to sell and B to ·
is justified on the
should be considered. In making all of huy on 30 days credit 3,000 tons of
npossibility (§ 262), A
these determinations the situation of iron rails at a stated price. B pur-
m against B's estate.
the parties is to be viewed as of the chases iron rails heavily from vari-
rial failure of perform- time for performance and in terms of ous sources for use in his business,
.isputes over failure of the actual failure . If, for example, un- and in consequences A has diffi-
i;h parties fail to finish der the terms of the agreement the culty in securing 3,000 tons and
nd the question is order of performance depends on an the market price is substantially .
them is justified in so event subsequent to the time of the increased. A fails to deliver the
other party's failure. making of the contract, that event is to rails. B has a claim against A for
nent d.) This Section be taken into account. breach of contract. B's purchase of
damental rule under iron rails from other sources for
tion is to be answered. Illustrations: use in his business is not a failure
f the other party for 4. A contracts to sell and B to of performance because B is unde1·
;al breach is governed huy at a stated price four parcels no duty to refrain from purchasing
ed in § 243.) ·The rule of land which A does not own but for that purpose. A's failure to de-
~ principie that where which the parties expect A to ac- liver the rails is therefore ·a ·
·e to be exchanged un- quire by purchase at a foreclosure breach.
' of promises, each par- sale. A bids on the four parcels at 7. The facts being otherwise as
the assurance that he the foreclosure sale, but each time stated in Illustration 6, B mali~
~d upon to perform his B bids against him and acquires ciously buys iron rails heavily
,s of performance with all four for less than the contract from various smirces in orcier to ·
expected exchimge if price. A does not convey the four prevent A from performing his
.y been an uncured ma- parcels to B. B has no claim contract with B. B has no claim
f performance by the against A. B's bidding at the sale - against A. B's malicious purchase
e central problem is in was a material breach of his duty of iron rails from other sources is
.ich party is chargeable of good faith and fair dealing material breach of his duty of good
ncured material failure (§ 205), which operated as the faith and fair dealing (§ 204),
'· In deterrrüning the rion-occurrence of a condition of which operates as the non-occur-
when performance is A's duties and discharged them . rence of a condition of A's duty to
of the agreement and deliver the rails, discharging it.
;ary rules on time for 5. A, a contractor, and B, a sub-
contractor, make.a contract under c. Ignorance immaterial. The non-· ·
.hould be con sider ed
which B promises· to install sewer occurrence of a condition of a party's
n determining wheth er
a failure of perform- pipe in a trench which A is to dig duty has the effects stated in § 225 ·
and maintain during installation. even though that party does not know
; of the agreement and
A unjustifiably so fails to maintain of its non-occurrence. See Comment e
ary rules such as those
the trench that it fills with water, to § 225 . It follows that one party's
ntial terms (§ 204) and
sever~ly hindering installation. B material failure of performance has the
d faith and fair ·dealing
thereupon stops work and refuses effect of the non-occurrence of a condi-
be considered. In deter-
to continue unless the breach 1s tion of the other party's rema1ning ·
r a failure of ¡::ierform-
117
§ 237 R$STATEMENT OF CONTRACTS-SECOND p

duties, under the rule stated in this ages based on the loss of A' s ser- er, and the rule st;
Section, even though that other party vices after that time, because that also applies to sud
does not know of the failure. If the loss was caused by B's discharge of been substantial al·
other party is discharged as the result A and not by A's failure to give formance, the buil1
of an unjustified material failure of efficient service. a claim for the unp
which he is ignorant, he has a claim 9. A contracts to sell and B to owner has a claim 1
for damages for total breach (§ 245). huy goods on 30 days credit. A there has not beE
But any loss that he has suffered as a delivers defective goods, which B formance, the buil1
result of bis own actions taken in igno- rejects in ignorance of their de- no claim for the
ran ce of the breach cannot be recov- fects. A has no claim against B. B . though he may hav
ered since bis actions were not caused has a claim against A for total tion (§ 374). The e
by the other's breach. See Illustrations breach (§ 243), but can recover termining whethe
8 and 9. nominal damages only since the substantial are tho
unavailability of the goods to B for determining w
A party's ignorance may, however,
was caused by B's rejection and material. See Com1
cause him to lose rights under rules however, the part
other than the one stated in this sec- not by their defects.
event a condition 1
tion. He may, for example, be preclud- 10. The facts being otherwise as there is no mitigat:
ed from relying on a condition where, stated in Illustration 9, when B teriality or substan
through ignorance, he fails to make rejects the goods he states an in- the non-occurrencE
timely objection. So, under Uniform sufficient reason, which induces a therefore, the agr
Commercial Code § 2-608, a buyer of failure by A to cure the defects in performance a co1
goods who accepts them in ignorance the goods. B is precluded from re- performance is no
of their defects loses his right to insist lying on the defects to justify bis relief is to be had
upon strict performance as a condition rejection, not because of his igno- . it must be through
of his duty to pay the price. Other rance itself, but because his giving occurrence of the
rules may preclude a party from rely- of an insufficient reason for rejecc forfeiture. See § 22
ing on a failure of performance as the tion excused the non-occurrence of · to that section.
non-occurrence of a condition where, the condition of his duty to take
because of unreasonable ignorance, he and pay for the goods (§ 248; Uni- Illustration:
has accepted the other party's per- form Commercial Code § 2-605). 11. A contrae
formance or has given no reasons or d. Substantial performance. In an for B, for whicl
the wrong reasons for its rejection. . important category of disputes over $50,000 in mo
See, e.g., §§ 246 and 248; Uniform failure of performance, one party as- . ments equal to
Commercial Code §§ 2-605, 2-607. serts the right to payment on the the work with
ground that he has completed his per- paid on complE
Illustrations: formance, while the other p¡¡.rty . re: pletes construo
. 8. A and B make an employment fuses to pay on the ground that there pay the $7,50
contract. After the service has be- is an uncured material failure of per- that there are ,
gun, A, the employee, commits a formance. (Compare Comment ·b.) A to an uncured
material breach of his duty to give typical example is that of the building the breach is
efficient service. that would justify contractor who claims from the owner formance is no·
B in dischargirrg him. B is not payment of the unpaid balanc~ uri.der
aware of this·but discharges A for a construction contract. In such cases § 238. Effec
an inadequate reason. A has no it is common to state the issue, not in p
claim against B for discharging terms of whether there has . been an
him. B has a claim against A for uncured material failure by the con- Where all or
damages for total breach (§ 243) tractor, but in terms of whethe1' there . exchange of pron
based on B's loss dueto A's failure has been substantial performance by party's duties to
to give efficient service up to the him. This manner of stating the issue render or, with n
time of clischarge, but not for clam- cloes not change its substance, howev- his part of the sir

118

1
¡
f
h
)ND PERFORMANCE & NON-e-PERFORMANCE § 238

1 the loss of A's ser- er, and the rule stated in this Section has no claim under the contract
at time, because that also applies to such cases. If there has against B, although he may have a
~d by B's discharge of been substantial although not full per- claim in restitution (§ 374). If the
y A's failure to give formance, the building contractor has breach is not material, A's per-
ce. a claim for the unpaid balance and the formance is said to be substantial,
owner has a claim only for damages. If he has a claim under the contract
~ts to sell and B to
there has not been substantial per- against B for $7,500, and B has a ·
n 30 days credit. A
formance, the building contractor has claim against A for damages be-
~tive goods, which B
no claim for the unpaid balance, al- cause of the defects.
norance of their de-
though he may have a claim in restitu-
lO claim against B. B e. Duties affected. Under the rule
tion (§ 374). The considerations in de-
against A for total termining whether performance is stated in this Section, only duties with
,3), but can recover respect to the performances to be ex-
substantial are those listed in § 241
1ages only since the for determining whether a failure is changed under the particular exchange
r of the goods to B material. See Comment b to § 241. If, of promises are affected by a failure of
by B's rejection and however, the parties have made an one of those performances. A duty un-
iefects. event a condition of their agreement, der a separate contract is not affected
ts being otherwise as there is no mitigating standard of ma- (see Comment d to § 231 and Illustra-
ustration 9, when B teriality or substantiality applicable to tion 5 to that section), nor is a duty
oods he states an in- the non-occurrence of that event. If, under the same contract affected if it
tson, which induces a therefore, the agreement makes full was not one to render a performance
to cure the defects in performance a condition, substantial to be exchanged under ·an exchange of
is precluded from re- performance is not sufficient and if promises (see Illustrations 3 and 4 to
defects to justify his relief is to be had under the contract, § 232). Furthermore, only duties to
t because of his igno- it must be through excuse of the non- render performance are affected. A
but because his giving occurrence of the condition to avoid claim for damages that has already
cient reason for rejec- forfeiture . See § 229 and Illustration 1 arisen as a result of a claim for partial
the non-occurrence of to that section. breach is not discharged under the
r1 of his duty to take
Illustration: rule stated in this Section.
;he goods (§ 248; Uni-
ercial Code § 2-605). 11. A contracts to build a house Illustration:
l performance. In an for B, for which B promises to pay
ory of disputes over $50,000 in monthly progress pay- 12. A contracts to build a build-
manee, one party as- ments equal to 85% of the value of ing for B. B delays making the site
to payment on the the work with the balance to be available to A, giving A a claim
1as completed his per- paid on completion. When A com- against B for damages for partial
the other party re- pletes construction, B refuses to breach. A then commits a material
the ground that there pay the $7,500 balance claiming breach and B properly cancels the
taterial failure of per- that there are defects that amount contract. B has a claim against A.
pare Comment b.) A to an unc'ured material breach. If for damages for total breach, but
is that of the building the breach is material, A's per- A still has a claim against B for
;laims from the owner formance is not substantial and he damages for partial breach.
unpaid balance under
ontract. In such cases § 238. Effect on Other Party's Duties of a Failure to Offer
state the issue, not in Performance
er there has been an Where all or part of the performances to be exchanged under an
:tl failure by the con-
exchange of promises are due simultaneously, it is a condition of each
erms of whether there
mtial performance by party's duties to render such performance that the other party either
er of stating the issue render or, with manifested present ability to do so, offer performance of
, its substance, howev- his part of the simultaneous exchange. ·

119

L
§ 238 RESTATEMENT OF CONTRACTS-SECOND

Comment: in the other party's offer is immaterial. position and gi

See eomment e to § 237. reasonably nec
a. Effect of offer to perform. Where
take delivery."
the performances are to be exchanged
Illustrations: quirement of
simultaneously under an exchange of
l. A contracts to sell ancl B to
acting than th
promises, each party is entitled to re-
example, § 45
fuse to proceed with that simultaneous huy a machine for $10,000, deliv-
including tendE
exchange until he is reasonably as- ery of the machine and payment of
offer of perfor
sured that the other party will perform the price to be made at a stated
also satisfy th1
at the same time. If a party actually place on July l. On July 1 both
quirement of a
performs, his performance both dis- parties are present at that place,
is to be appliec
charges his own duty (§ 235(1)) and but A neither delivers nor offers to
reasonably to l
amounts to the occurrence of a condi- deliver the machine and B neither
ties in view of
tion of the other party's duty (§ 237). pays nor offers to pay the price. A
of absolute si
But it is not necessary that he actually has no claim against B, and B has
ment b to § 23
perform in arder to produce this latter no claim against A. See Uniform
agreement of
effect. It is enough that he make an eommercial eode §§ 2-507(1) and
mented or qua
appropriate offer to perform, since it is 2-511(1). lf, however, B had com-
222) and cours•
a condition of each party's duties of mitted a material breach by failing
performance with respect to the ex- to go to the stated place, A would Illustration:
change that there be no uncured mate- have had a claim against B for
rial failure by the other party at least clamages for total breach. See 3. A cont
to offer performance. eircumstances §§ 237, 243. huy land f.
significant in determining whether a to be com
2. The facts being otherwise as encumbrar.
failure is material are set out in § 241..
stated in Illustration 1, on July 2, it is subjec
Such an offer of performance by a par-
B, with manifested present ability held by e'
ty amounts to the occurrence of a con-
to do so, offers to pay the price if fy out of
dition of the other party's duty to ren"
A simultaneously delivers the ma- price. A, ir
uer performance, although it does not
chine, but A refuses to deliver the e, makes '
amount to performance by the former.
machine. If the uelay of one day cleed of the
Until a party has at least made such
does not exceed the time after mortgage,
an offer, however, the other party is . ·
which A is discharged (§ 242), A's ent docum•
under no duty to perform, and if both
refusal is a breach. If it exceeds ficient to s:
parties fail to make such an offer, nei-
that time, B has no claim against to be del
ther party's failure is a breach. (lf one
of the parties is already in breach, as
where he has repucliated or has failed
A.
b. What amounts to an offer to per-
!¡ payment t
thereupon
In view o
to go to the place appointed for the fonn. An offer of performance meets
simultaneou·s exchange, the other par- the requirement stated in this Section
¡ the time t
ty's cluty to render performance may even though it is conditional on si- ~ A's offer i!
already have been dischargecl under multaneous performance by the other claim agai
§§ 253(2) or 237, giving him a claim . party. The offer must be accompanied total breac
for damages for total breach under with manifested present ability to 1 c. Judicial
§§ 253(1) or 243(1) .) When it is too . make it good, but the offeror need not tion for specifi,
late for either to malte such an offer, go so far as actually to hold out that ·¡ price, a court
both parties are discharged by the non- which he is to deliver. (On the mean- ¡ party seeking
occurrence of a conclition. A' failure to ing of the term "manifested," see performance t
offer performance can be cured, if an . eomment b to § 2.) Thus the Uniform ments of this E
appropriate offer is made in time Commercial eode § 2-503(1) requires 1
(§ 242). Cf. Comment b to § 237. The · only "that the seller put and hold
fact that a party is ignorant of a defect conforming goods at the buyer's clis-
¡ conditional on
eommercial C
ample, provicle
j
120
OND PERFORMANCE & NON-PERFORMANCE § 238
·'s offer is immaterial. position and give the buyer any notice sues for the price, he must hold for the
) § 237. reasonably necessary to enable him to buyer any goods which have been iden-
take delivery." In this respect the re- tified to the contract and are still in
.quirement of this Section is less ex- his control'' See Illustration 4. See also
. acting than that of tender under, for eomment a to § 358 with respect to
cts to sell and B to
example, § 45 or § 62. Any conduct, specific performance. If performances,
ne for $10,000, deliv-
including tender, that goes beyond an . although not originally due simulta-
.chine and payment of
offer of performance will, of course, neously, have become due . simulta-
be made at a stated also satisfy the requirement. The re- neously after the commencement of
y l. On July 1 both quirement of an offer of performance the action because the earlier perform-
>resent at that place, is to be ·applied in the light of what is ance has been delayed, the granting of
: delivers nor offers to reasonably to be expected by the par- such relief is equally appropriate. Even
tachine and B neither ties in view of the practica! difficulties though the performances do not be-
,rs to pay the price. A of ahsolute simultaneity (see eom- come due simultaneously until after
against B, and B has ment b to § · 234) and is subject to the judgment, the court may exercise its
ünst A. See Uniform agreement of the parties, as supple- power on either the defendant's re-
eode §§ 2-507(1) and mented or. qualified by usage (§§ 221, quest or on its own motion. See Illus-
however, B had com- 222) and course of dealing (§ 223). tration 5 .
.erial breach by failing
stated place, A would Illustra:tion: Illustrations:
claim against B for
3. A contracts to sell and B to 4. The facts being otherwise as
r total breach. See
buy larid for $50,000. The land is stated in Illustration 1, on July 1,
to be conveyed free of liens and A puts the machine at B's disposi-
:s being otherwise as encumbt;ances, but B knows that tion and requests that he pay for
1
tstration 1, on July 2,
ifested present ability ¡ it is subject to a $30,000 mortgage
hel4 by .e which A expects to satis-
it. B refuses to pay and A, after
attempting unsuccessfully to resell
~rs to pay the price if
:msly delivers the ma-
¡
1
fy out of the $50,000 purchase
price. A, in the presence of B and
the machine, brings an action for
the price under Uniform Commer-
refuses Lu ueliver the C, úui.ke·s a condiLional offer of a cial eocle § 2-709. A courL will
the clelay of one day · deed of the property subject to the award judgment. for the full price
weed the time after mortgage, and both A and e pres- only if A holds the machine for the
lischarged (§ 242), A's 1 e:rit documents that are legally suf- buyer during the action. See Uni-
breach. If it exceeds ficient to satisfy the mortgage debt form eommercial Code § 2-
; has no claim against to · be delivered immediately on 709(2).
1' pay.ment of the price by B. B 5. A promises to sell real est.ate
i thereupon refuses to pay the price. to B, clelivery of the deed to be
:mts to an offer to per-
o[ performance meets
~ In yíew .of the circumstances at four years from July l. B promises
the time the contract was made, to pay $50,000 in installments of
stated in this Section
A's offer is sufficient, and A has a $10,000 on each July 1 for five
is conditional on si-
claim against B for damages for years. B duly pays the first three
'ormance by the other
total breach of contract. installments but does not pay the
must be accompanied
:l present ability to c. · Judicial superuision. 'In· an ac- fourth, and A brings an action to
tt the offeror need not tion for specific performance or for the recover it. A has judgment but the
ually to hold out that price, a court may ensure that the judgment is not collected until af-
leliver. (On the mean- party seeking relief makes an offer of ter the July 1 when the payment
m "manifested," see · performance that meets the require- of the fifth installment and the
2.) Thus the Uniform ments ofthis Section by granting relief delivery are due. The court will
le § 2-503(1) requires conditional on such an offer. Uniform restrain collection of the juclgment
seller put and hold eommerCial eode § 2-709(2), for ex- until A m akes an offer to transfer
]s at the buyer's dis- . ample, provides that "where the seller the real estate conclitional on be-

121
§ 238 . RESTATEMENT OF CONTRACTS-SECOND PE
ing paid the amount of the judg- 8 to § 234 and Illustration 2 to condition. See § 226
ment ail.d also the fifth install- § 358. and e thereto and :
inent of the price. See Illustration dard of materiality a
of all types and 'A
§ 239. Effect on Other Party's Duties of a Failure Justified whether the whole 1
By Non-Occurrence of a Condition ther party is to be
(1) A party's failure to render or to offer performance may, except time or part perfon
as stated Ín Subsection (2), affect the other party's duties under the rendered at differen
rules stated in §§ 237 and 238 even though failure is justified by the form Commercial Co1
non-occurrence of a condition. ·! applies to pairs of a

(2) The rule stated in Subsection (1) does not apply if the other
party assumed the risk that he would have to perform in spite of such a
i under § 240. See Illu
be applied in the lig
each case in such a
failure. the purpose of secur:
his expectation of ar.
§ 240. Part Performances as Agreed Equivalents formances. This ~
states circumstances
If the performances to be exchanged under an exchange of promises are to b ~ considere
can be apportioned into corresponding pairs of part performances so that whether a particular
the parts of each pair are properly regarded as agreed equivalents, a al. A determination
party's performance of his part of such a pair has the same effect on the not material means
other's dutiesto render performance of the agreed equivalent as it would not have the effect
have if orily that pair of performances had been promised. rence of a condition ·
238. Even if not·ma
§ 241. . Circumstances Significant in Determining Whether a may be a breach a1
claim for damages f
· Failure Is Material
(§§ 236, 243).
· In determining whether a failure to render or to offer performance
is material, the following circumstances are significant: Illustrations:
. (a) the extent to which the injured party will be deprived of the l. A, a subcpn
benefit which he reasonably expected; to do ~xcav(\tion
on a housing Sl
. (b) the extent to which the injured party can be adequately for B, the owner
compensated for the part of that benefit of which he will be tractor, and to e
deprived; workmanlike · m;
(e) the extent to which the party failing to perform orto offer to make monthly p
. perform will suffer forfeiture; for the work perf
preceding month
(d) the likelihood that the party failing to perform or to offer to ten percent. A
perform will cure his failure, taking account of all the ages a building v
circumstances including any reasonable assurances; causing serious d
any liability fór
(e) the extent to which the behavior of the party failing to refuses to make
perform or to offer to perform comports with standards of payments uritil A
good faith and fair dealing. age or admits lía!
that he cancels ti
.Comment: standard of materiality that is neces-
court determines
a. Natui·e of significant circum- sarily imprecise and f1exible . (Contrast is material, A ha¡
stances .. The .. application of the rules the situation where the parties have, B. B has ..a elai
stated in §§ 237 and 238 turns on a by their agreement, made an event a clamages for brea•
122
':;OND PERFORMANCE & NON-PERFORMANCE § 241
and Illustration 2 to condition. See § 226 and Comments a 2. The facts being otherwise as
and e thereto and § 229.) The stan- stated in Illustration 6 to § 240, A
dard of materiality applies to contracts completes the part concerned with
of all types and without regard to the excavation and grading of lots
L Failure Justified whether the whole performance of ei- and streets but fails in a minor
on ther party is to be rendered at one respect to comply with the specifi-
time or part performances are to be cations. lf a court determines that
1rmance m ay, except
rendered at different times. See Uni- the failure is not material, A has a
r's duties under the claim against B for $75,000 under
form Commercial Code § 2-612. It also
·e is justified by the ¡' the contract for the excavation
applies to pitirs of agreed equivalents
under § 240. See Illustration 2. It is to and grading. B has a claim for
t apply if the other
t be applied in the light of the facts of damages against A for his failure
l fully to perform as to excavation
rm in spite of such a each case in such a way as to further
the purpose of securing for each party and grading and also for his un-
his expectation of an exchange of per- justified refusal to make street im-
formances. This Section therefore provements.
alents 1 states circumstances, not rules, which b. Loss of benefit to injured party.
~xchange of promises
performances so that
greed equivalents, a
! are to be considered in determining
whether a particular failure is materi-
al. A determination that a failure is
Since the purpose of the rules stated in
§§ 237 and 238 is to secure the par-
ties' expectation of an exchange of per-
1e same effect on the not material means only that it does formances, an important circumstance
not have the effect of the non-occur- in determining whether a failure is
quivalent as it would material is the extent to which the
rence of a condition under §§ 237 and
nised. injured party will be deprived of the
238. Even if not material, the failure
may be a breach and give rise to a benefit which he reasonably expected
mining Whether a claim for damages for partial breach from the exchange (Subsection (a)). If
(§§ 236, 243). the consideration given by either party
consists partly of sorne performance
to offer performance and only partly of a promise (see Com- ·
mt: Illustrations:
ment a to § 232), regard must be had
·ill be deprived of the l. A, a subcontractor, contracts to the entire exchange, including that
to do excavation and earth moving performance, in applying this criterion.
on a housing subdivision project Although the relationship between the
y can be adequately for B, the owner and general con- monetary loss to the injured party as a
it of which he will be tractor, and to do all work "in a result _of the failure and the contract
workmanlike manner." B is to price may be significant, no simple rule
make monthly progress payments based on the ratio of the one to the
perform or to offer to for the work performed during the other can be laid down, an<;I here, as .
preceding month less a retainer of elsewhere under this Section, all rele-
perform or to offer to ten percent. A negligently dam- vant circumstances must be consid-
: account of all the ages a building with his bulldozer ered. In construction contracts, for ex-
~ assurances;
causing serious damage and denies ample, defects affecting structural
any liability for B's loss. When B soundness are ordinarily regarded as
the party failing to refuses to make further progress particularly significant. In the sale of
rts with standards of payments until A repairs the dam- goods a particularly exacting standard
age or admits liability, A notifies B has evolved. There it has long been
that he cancels the contract. If the established that, in the absence of a
lteriality that is neces- court determines that A's breach showing of a contrary intention, a buy-
~ and flexible. (Contrast is material, A has no claim against er is entitled to expect strict perform-
vhere the parties have, B. B has a claim against A for a nce of the contract, a nd Uniform
nent, made an event a damages for breach of contract. Commercial Code § 2- 601 cmTies for-

123

~
§ 241 RESTATEMENT OF CONTRACTS-SECOND

ward this expectation by allowing the tion of the exchange, as through prep- ready for shiprr
buyer to reject "if the goods or the
tender of delivery fail in any respect to
aration or performance. Therefore a
third circumstance is the extent to · ·
¡
f.
government re·
him from loadi:
conform to the contract." The Code, which the party failing to perform or ·'1 crates on the on
however, compensates to sorne extent to make an offer to perform will suffer March. B refusE
for the severity of this standard by forfeiture if the failure is treated as for the onions '
extending the seller's right to cure be- material. For· this reason a failure is dered. Under
yond the point when the time for per- less likely to be regarded as material if stated in Subse
formance has ·expired in sorne instanc- it occurs late, after substantial prepa- A's failure is rr
es (§ 2-508(2)), by allowing revocation ration or performance, and more likely no claim against
of acceptance only if a nonconformity to be regarded as material if it occurs unjustified, B h
"substantially impairs" the value of early, befare such reliance. For the 1 A for damages
1·
the goods to the buyer (§ 2-608(1)), same reason the failure is more likely i because of the
to be regarded as material if such

l
and by allowing the injured party to cures his failun
treat a nonconformity or default as to preparation or performance as has tak- against A for '
one installment under an installment en place can be returned to and sal- breach if A doe1
contract as a breach of the whole only vaged by the party failing to perforni ure (§ 243).
or tender, and less likely to be regard- 1
if it "substantially impairs" the value ! 4. The facts b
of the whole (§ 2-612(3)). ed as material if it cannot. These fac- i
tors argue against a finding of material 1 stated in Illustn
c. Adequacy of compensation for 1
failure and in favor ·of one of substan- 1 can have the pa
loss. The second circumstance, the ex- ! front of his 01
tial performance where a builder has
tent to which the injured party can be completed performance under a con-~ $500, but this
adequately compensated for his loss of struction contract and, because .the the expected ac•
benefit (Subsection (b)), is a corollary building is on the owner's land, can cause the rest o
of the first. Difliculty that he may have salvage nothing if he is denied recov- paved. Under 1
in proving with suflicient certainty the ery of the balance of the price. Even in stated in Subse<
amount of that loss will affect the ade- such a case, however, the potential for- (e), the failure
quacy of compensation. If the failure is feiture may be mitigated if the builder material and .
a bread~, the injured party always has has a claim in restitution (§§ 370-77, against B. If A's
a claim for damages, and the question especially § 374) or if he has already fied, B has a el.
becomes one of the adequacy of that received progress payments under a damages for p:
claim to compensate him for the lost provision of the contract. The same cause of the del:
benefit. Where the failure is not a factors argue for a finding of material his failure, and l
breach, the question becomes one of failure- where a seller tenders goods A for damages fe
the adequacy of any claim, such as one and can salvage them by resale to oth- does not cure h
in restitution, to which the injured ers if they are rejected and he is de- . e. Uncertainty. A
party may be entitled. This is a partic- nied recovery of the price. This helps by one party gives ti
ularly important circumstance when to explain the severity of the rule as i
the party in breach seeks specific per-
¡ right to withhold fu;
applied to the sale of goods. See Com- as a means of securi:
formance. Such relief may be granted ment b. Even in such a case, however, l of an exchange of
if damages can adequately compensate the potential forfeiture may be aggra- the extent that that
the injured party for the defect in per-
formance. See Comment e to § 242.
vated if the seller has manufactured
the goods specially for the buyer or has
1·! ready reasonably sec•
1 failure, there is less 1
d. Forfeiture by party who fails. Be- spent substantial sums in shipment. that the failure is m
cause a material failure acts as the
non-occurrence of a condition, the Illustrations:
i
1
hood that the failur·
therefore a significar
1
same risk of forfeiture obtains as in 3. A contracts to sell and B to determining whethE
the case of conditions generally if the huy 300 crates of Australian on- 1 (Subsection (d)). ThE
party who fails to perform or tender ions, shipment to be from Austra- 1 jured party already J
has relied substantially on the expecta- lia in March. A has 300 crates ¡ for the other party'1
.
,
!
l
.

124
>ND PERFORMANCE & NON-PERFORMANCE § 241

ge, as through prep- ready for shipment in March, but gues against a determination that the
mance. Therefore a government requisitions prevent failure is material. So do reasonable
:e is the extent to him from loading more than 240 assurances of performance given by
'ailing to perform or crates on the only ship available in the other party after his failure. So
o perform will suffer March. B refuses to accept or pay does a shift in the market that makes
failure is treated as for the onions when they are ten- performance of the contract more fa-
; reason a failure is dered. Under the circumstances vorable to the other party. On the oth-
,garded as material if stated in Subsections (a) and (e), er hand, defaults by the other party
er substantial prepa- A's failure is material and A has under other contracts or as to other
mce, and more likely no claim against B. If A's failure is installments under the same contract
material if it occurs unjustified, B has a claim against argue for a determination of materiali-
h reliance. For the A for damages for partial breach ty. So does such financia! weakness of
failure is more likely because of the delay even if A the other party as suggests .an inability
as material if such cures his failure, and has a claim to cure. This circumstance differs from
:formance as has tak- against A for damages for total the notion of reasonable grounds for
returned to and sal- breach if A does not cure his fail- insecurity (§ 251), in that the former
ty failing to perform ure (§ 243). cari become relevant only after there
:s likely to be regard- 4. The facts being otherwise as has been an actual failure to perform
it cannot. These fac- stated in Illustration 2 to § 232, B or to tender. On discharge by repudia-
; a finding of material can have the part of the stl·eet in tion, see § 253(2).
ur of one of substan- front of his own lot paved for
where a builder has $500, but this will not give him Illustration:
manee under a con- the expected access to his lot be- 5. A contracts to sell and B to
!t and, because the cause the rest of the street is not buy .land for $25,000. B is to
1e owner's land, can paved. Under the circumstances make a $5,000 down payment and
.f he is denied recov- stated in Subsections (a), (b), and pay the balance in four annual in-
~ of the price. E ven in stallments of $5,000 each. A is to
(e), the failure of performance is
1ver, the potential for- material and A has no claim proceed immediately to have ab-
itigated if the builder against B. If A's failure is unjusti- stracts of title prepared showing a
~stitution (§§ 370-77,
fied, B has a claim against A for marketable title and to deliver
or if he has already them ·prior to the time for pay-
damages for partial breach be-
s payments under a ment of the first annual install-
cause of the delay even if A cures
contract. The same ment. Without explanation, A
his failure, and has a claim against
a finding of material fails to have abstracts prepared
A for damages for total breach if A
seller tenders goods for delivery prior to the time for
does not cure his failure (§ 243).
;hem by resale to oth- payment of the first annual in-
·ejected and he is de- e. Uncertainty. A material failure
by one party gives the other party the stallment. B refuses to pay that
the price. This helps instalhnent. Under the circum-
3verity of the rule as right to withhold furt}_ler performance
as a means of securing his expectation stances stated in Subsections (a)-
.le of goods. See Com- (d), the failure of performance is
such a case, however, of an exchange of performances. To
the extent that that expectation is al- material and A has no claim
feiture may be aggra-
ready reasonably secure, in spite of the against B. B has a claim against A
ler has ·manufactured
failure, there is less reason to conclude for damages for partía! breach
ly for the buyer or has
that the failure is material. The likeli- based on the delay if A cures bis
t! sums in shipment.
hood that the failure will be cured is failure and a claim for damages
therefore a significant circun;1stance in . for total breach if he does not
(§ 243).
9.cts to sell and B to determining whether it is material
ttes of Australian on- (Subsection (d)). The fact that the in- ¡: Absimce of good faith or fair
mt to be from Austra- jured party already has sorne security dealing. A party's adherence to stan-
:h. A has 300 crates for the other party's performance ar- clards · of good faith ancl fair dealing

125

'
l
1
§ 241 RESTATEMENT OF CONTRACTS-SECOND PE.

(§ 205) will not prevent his failure to not discovered until the house is perfon
perform a duty from amounting to a completed, when replacement of party'~
breach (§ 236(2)). Nor will his adher- the pipe will require destruction of the lar
ence to such standards necessarily pre- substantial parts of the house. B an offe
vent his failure from having the effect refuses to pay the unpaid balance
of the non-occurrence of a condition of $10,000. Under the circum- Comm
(§ 237; cf. § 238). The extent to which stances stated in Subsections (a),
the behavior of the party failing to a. Cure. Under §
(e), and (e), the failure of perform- party's uncured matE
perform or to offer to perform com- ance is not material and A has a
ports with stañdards of good faith and form or to offer to
claim against B for the unpaid bal- has the effect of sus
fair dealing is, however, a significant
circumstance in determining whether ance of $10,000, subject to a claim party's duties (§ 221
the failure is material (Subsection (e)). by B against A for damages for A's is too late for the P'
In giving weight to this factor courts breach of his duty to use Read:Íng offer to perform to
have often used such less precise terms pipe. See Illustration 1 to § 229. also has the effect of
as "wilful." Adherence to the stan- duties (§ 225(2)) . O
7. A contracts to build a super-
dards stated in Subsection (e) is not sorne period of timE
market for B. In return B agrees
conclusive, since other circumstances sion and discharge,
to pay $250,000, with provision for
may cause a failure to be material in period a party may
progress payments. A completes
spite of such adherence. Nor is non- Even then , since an~
performance except that, angered
adherence conclusive, and other cir- to a claim, a party
by a dispute over an unrelated
cumstances may cause a failure not to material breach has
transaction, he refuses to build a
be material in spite of such non-adher- breach, by his dela)
cover over a compressor. B can
ence. liabl e in damages.
have the cover built by another
sorne instances timE
Illustrations: builder for $300. B refuses to pay so essential that an)
the unpaid balance of $40,000. In ly results in dischar,
6. A contracts to build a house
for B, using pipe of Reading manu- spite of the circumstances stated period of time duri
facture . In return, B agrees to pay in Subsection (e), under the cir- jured party's dutie!
$75,000, with provision for prog- cumstances stated in Subsections pended and the otb
ress payments. Without B's knowl- (a), (b), and (e), the failure of per- his failure .
edge, a subcontractor mistakenly . formance is not material and A
has a claim against B for the un-
b. Significant ci
uses pipe of Cohoes manufacture Section states circun
which is identical in quality and is paid balance of $40,000, subject to
to be considered in d
distinguishable only by the name a claim by B against A for dam-
er there is still time
of the manufacturer which is ages for A's breach of his duty to
lar failure, or whe1
stamped on it. The substitution is build a cover over the compressor.
time for discharge
§ 242. Circumstances Significant in Determining When Re- are similar to the ci:
in the preceding SE
maining Duties Are Discharged
tance of delay to thE
In determining the time after which a party's uncured material depend on the exte
failure to render or to offer performance discharges the other party's deprive him of the
remaining duties to render performance under the rules stated in§§ 237 reasonably expected
1
and 238, the following circumstances are significant:
(a) those stated in§ 241; ¡. the extent to whic
quately compensatE
extent of the forfe
(b) the extent to which it reasonably appears to the injured
party that delay may prevent or hinder him in making
1i failing to perform
t form (§ 241(c)) is
reasonable substitute arrangements; 1
determining the in
(e) the extent to which the agreement provides for performance The likelihoocl that
without delay, but a mate rial failure to perform orto offer to withholding of perfc

126
 l
COND

red until the house is

i ·• .PERFORMANCE & NON-PERFORMANCE

perform on a stated day does not of itself discharge the other

§ 242

when replacement of party's remaining duties unless the circumstances, including

l requir e destruction of 1 t he l anguage of the agreement, indicate that performance or
parts of the house. B an offer to perform by that day is important.
>ay the unpaid balance
. Under the circum-
ted in Subsections (a),
1 Comment: the other party to cure his failure is
particularly important (§ 241(d)), be-
a. Cure. Under §§ 237 and 238, a
the failure of perform- party's uncured ma.t erial failure to per- cause the very reason for suspending
material and A has a 1
rc
form or to offer to perform nút only rather than immediately discharging
the injured party's duties is that this
st B for the unpaid bal- has the effect of suspending the other
,000, subject to a claim 1' party's duties (§ 225(1)) but, when it will induce cure. The reasonableness of
;t A for damages for A's ~ is too late for the performance or the the injured party's conduct in commu-
tis duty to use Reading offer to perform to · occur, the failure nicating his grievances and in seeking
llustration 1 to § 229. also has the effect of discharging those satisfaction is a factor to be considered
duties (§ 225(2)). Órdinarily there is in this connection. Where performance
racts to build a super- is to extend over a period of time, as
sorne period of time between suspen-
E. In return B agrees
sion ánd disch~rge, and during this where delivery of goods is to be in
1,000, with provision for period a party may cure his failure. installments, so that a continuing rela-
ayments. A completes Even then, since any breach gives rise tionship between the parties is con-
:e except that, angered to a claim, a .party who has cured a templated, the injured party may be
Ite over an unrelated material breach has still committed a expected to give more opportunity for
., he refuses to build a breach, by his delay, for which he is cure than in the case of an isolated
a compressor. B can liable in .damages . . Furthermore, in exchange. On discharge by repudia-
~over built by another sorne instances -tjmely performance is tion, see § 253(2). Finally, the nature
$300. B refuses to pay so essential that any delay immediate- of the behavior of the party failing to
. balance of $40,000. In ly :results in discharge and there is no perform or to offer to perform may be
te circumstances stated period of· time durii-Ig which the in- considered here as under the preceding
ion (e), under the cir- jured party's qutiE)S are merely sus- section (§ 241(e)).
3 stated in Subsections pended and the other party can cure
d (e), the failure of per- his failure. Illustration:
is not material and A l. The facts being otherwise as
b. Significant circumstances. This
n against B for the un- stated in Illustration 1 to § 237, B
Section states circumstances which are
ce of $40,000, subject to to be considered in determining wheth- tenders the progress payment af-
' B against A for dam- er there is stíll time. to cure a particu- ter a two-day delay along with
's breach of his duty t<r lar failure, or ·whether the period of damages for the delay. A refuses
•er over the compressor. time for discharge has expired. They to accept the payment and resume
are símilar tb the circumstances stated work and notifies B that he can-
lrmining When Re- cels the contract. B's tender cured
in the preceding .section. The impor-
tance of delay to the injured party will his breach befare A's remaining
y's uncured material depend on the exterit to which it will duties to render performance were
ges the other party's deprive him of the benefit which he discharged, and B has a claim
rules stated in §§ 237 reasonably expected (§ 241(a)) and on· against A for total breach of con-
t: the extent to which h e can be ade- tract, subject to a claim by A
quately compensated (§ 241(b)). The against B for damages for partial
extent of the forfeiture by the party breach becau se of the delay.
)pears to the injured failing to . p~rfor~ or to offer to per- c. Substitute arrangements. It is of-
nder him in making form (§ 241(c)) . is also significant in ten said that in commercial transac-
determining the importance of delay. tions, notably those for the sale of
1vides for performance The likelihood that the injured party's goods, prompt performance by a party
1perform or to offer to withholdirig ofp erforma nce will induce is essential if he is to be allowed to

127
 1 •

§ 242 . ·RESTATEMENT OF CONTRACTS-SECOND Pl

require the other to perform or, as it is remainder of the six months. B material, it has
sometimes put, . "time is of the es- recovers at the end of ten days a claim against
sence." The importance of prompt de- and offers to perform the remain- total breach of •
livery by a seller of goods generally der of the contract, but A refuses. a claim by B a
derives from the circumstance that Whether B's failure to render per- ages for partial
goods, as contrasted for example with formance due to illness immedi- the delay.
land, are partii::ularly likely to be sub- ately discharges A's remaining
ject to rapid fluctuations in market duties of performance, instead of 5. A agrees to
price. Therefore, even a relatively merely suspending them, depends land, the transf
short delay in a rising market may on the circumstances stated in ary l. A tender
adversely affect the buyer by causing a Subsection (b) and in§ 241(b) and on February 1, 1
sharp increase in the cost of "cover." (d), and in particular on the possi- although he wa1
See U niform Corrimercial Code §§ 2- bility as it reasonably appears to A contract he wo·
712, 2-713. A léss rigid standard ap- when B becomes ill of the illness few weeks m1
plies to contracts for the sale of goods being only temporary and of A's amount of the ¡:
to be delivered in installments or to be obtaining an adequate temporary unless B tender:
spedally manufadured for the buyer. substitute. ately he will no
On the other hand, considerable delay On February 15
3. A contracts to sell and B to ic performance
does not preclude enforcement of a
huy 1,000 shares of stock traded pleading to pa;
contract for the sale of land if damages
are adequate to .c ompensate for the on a national securities exchange, with interest to
delay and there are no special circum- delivery and payment to be on the delay. In
stances indicating that prompt per- February l. B offers to pay the stated in Subs
formance was e.ssential and no express price on February 1, but A unjust- § 241(a), (b), a~
provision requiring such performance. ifiably and without explanation time has not ¡:
But these are·all merely particular ap- fails to offer to deliver the stock A's remainiri.g
plicatioris of a more general principie. until February 2. B then refuses to performance m
Subsection (b) states that principie. accept the stock or pay the price. though B's brea
Under ~~Y ~ontract, the extent to Under the circumstances stated in court may decre
which it reasonably appears to the in- Subsection (b) and in§ 241(a) and ance subject to
jured party .that delay may prevent or (e), the period of time has passed price and paym
hinder him: frorn ·making reasonable after which B's remaining duties ages for partia.l
substitute arrangements is a consider- to render performance are dis- sate A for the d€
ation in determining the effect of de- charged because of A's material
breach and A therefore has no 6. A contracts
lay. Cf. § 241(a), (b). As in the case of buy 5,000 tons
§ 241 (see Cominent e), a party in claim against B. B has a claim
against A for breach. price, delivery ti
breach .who seeks specific performance ly installments
may be granted relief with compensa- 4. A contracts to sell and B to on the first of
tion for the. delay, in circumstances . buy land, the transfer to be on payment for ea
wheré he would ·ha ve no claim for February l. B tenders the price on be made on t
damages. February 1, but A does not tender month. A mak•
a deed until February 2. B then deliveries on thE
IllustraÜons: refuses to accept the deed or pay but, although tl:
2. A, a theater manager, con- the price. Under the circum- iron is falling,
tracts with B, an actress, for her stances stated in Subsections (b) days in making
· perfotmance "for six months in a and (e) and in § 241(a), in the ery, explaining
play that A is about to present. B absence of special circumstances, rary labor trot
becomes ill during the second the period of time has not passed the delay. B n
. month or"the performance, and A after which B's remaining duties refuses to takt
· immediately · engages another ac- to render performance are dis- fourth delivery ¡
tress to fill B's place during the charged. Although A's breach is the con trae t. V'i
128
':;OND PERFORMAJVCE & NON-PERFORMAJVCE § 242
of the six months. B material, it has been cured. A has of time has passed after which B's
the end of ten days a claim against B for damages for remaining duties to render per-
.o perform the remain- total breach of contract, subject to formance are discharged, so that
:ontract, but A refuses. a claim by B against A for dam- B's notification is not a repudia·
s failure to render per- ages for partial breach because of tion, depends on the circum-
lue to illness immedi- the delay. stances stated in Subsection (b)
targes A's remaining 5. A agrees to sell and B to buy and in § 241(a), (b), (d), and (e).
erformance, instead of land, the transfer to be on Febru- See U niform Commercial Code
Jending them, depends ary l. A tenders a sufficient deed § 2-612.
:cumstances stated in on February 1, but B explains that 7. A contracts to sell and B to
(b) and in§ 241(b) and although he wants to carry out the buy 5,000 tons of iron at a stated
particular on the possi- contract he would like to have a price, delivery to be in five month-
:easonably appears to A few weeks more to raise the ly installments of 1,000 tons each
comes ill of the illness amount of the price. A replies that on the first of each month and
temporary and of A's unless B tenders the price immedi- payment for each installment to
m adequate temporm'Y ately he will not deliver the deed. be made on the tenth of that
On February 15, B sues for specif- month. A makes the first four de-
racts to sell and B to ic performance, offering in his liveries on the first of the month,
shares of stock traded pleading to pay the agreed price and B mal{es the first three pay-
nal securities exchange, with interest to compensate A for ments by the tenth but does not .
nd payment to be ori the delay. In the circumstances make the fourth payment. The
l. B offers to pay the stated in Subsection (b) and in market price for iron is falling and
~bruary 1, but A unjust- § 241(a), (b), and (d), the period of B gives no assurances or explana- ·.
d without explanation time has not passed after which tion for the delay. On the twenti-
t'e r to deliver the stock A's remaining duties to render eth of the month A notifies B that
Jary 2. B then refuses to performance are discharged. Al- he will make no further deliveries
stock or pay the price. though B's breach is material, the and that he cancels the contract.
circumstances stated in
\ court may decree specific perform- Whether the period of time has .
~
t (b) and in § 241(a) and

,riod of time has passed

¡ ance subject to B's tender of the
price and payment by B of dam-
passed after which A's remaining
duties to render performance are
:h B's remaining duties
performance · are ·dis-
~ ages for partial breach to compen-
sate A for the delay.
discharged, so that A's notification .
is not a repudiation, depends on
'ecause of A's material 1 6. A contracts to sell and B to the circumstances stated in Sub-
td A therefore has no ~ section (b) and in § 241(a), (b),
l buy 5,000 tons of iron at a stated
inst B. B has a claim price, delivery to be in five month- (d), and (e). See Uniform Commer-
for breach. ly installments of 1,000 tons each cial Code § 2-612.
tracts to sell and B to 1 on the first of each month and d. Effect of agreement. The agree~ · ·
\ payment for each installment to ment of the parties often contains a
the transfer to be on ¡
l. B tenders the price on ¡ be made on the tenth of that provision for the time of performance
1 but A does not tender month. A q¡.akes the first three or tender. It may simply provide for
::ttilFebruary 2. B then 1
¡ deliveries on the first of the month performance on a stated date. In that
, accept the deed or pay ~
but, although the mark~t price for event, a material breach on that date
~. Under the circum- '· iron is falling, he pelays twelve entitles the injured party to withhold
tated in Subsections (b) days in making the fourth deliv- his performance and gives him a claim
md in § 241(a), in the ery, explaining to B that tempo- for damages for delay, but it does not .
.)f special .circumstances, rary labor troubles have caused of itself discharge the other party's
:l of time has not passed the delay. B notifies A that he remaining duties. Only if the circum-
eh B's remaining duties refuses to take or pay for the stances, viewed as of the time of the
r performance are dis- fourth delivery and that he cancels breach, indica te that performance or· .
Although A's breach is the contract. Whether the period tender on th at day is of genuine impor- ·

129

'
\
l
§ 242 RESTATEMENT OF CONTRACTS-SECOND PE

tance are the injured party's remain- § 225(2) by the non-occurrence of money in installm1
ing duties discharged immediately, an event that is made a condition performance as to
with no period of time during which by Lhe agreement of thc parties. B followed by a repw
they are merely suspended. It is, of has no claim against A. A has a total breach.
course, open to the parties to make claim against B for damages for
performance or tender by a stated date total breach. (4) In any casE
a condition by their agreement, in a breach by non-pe
9. The facts being otherwise as
which · event, absent excuse (see Com- it so substantially
stated in Illustration 4, the parties
ment b to § 225 and Comment e to at the time of the 1:
use a printed form contract that
§ 229), delay beyond that date results to recover damage
provides that "time is of the es-
in discharge (§ 225(2)). Such stock sence." Absent other circum- ·
phrases as "time is of the essence" do stances indicating that perform" § 244. Effect
not neqessarily have this effect, al- ance by February 1 is of genuine
though under Subsection (e) they are A party's duty
importance, A has a claim against is discharged if it E
to be considered along with other cir- B for damages for total breach of
cumstances in determining the effect total failure by the
contract.
of delay.
10. The facts being otherwise a·s § 245. Effect
Illustrations: stated in Illustration 4, the con- th•
8. A contracts to charter a vessel tract provides that A's rights are
"conditional on his tendering a Where a part)
belonging to B and to pay stipu-
deed on or befare February l." A to the non-occurr
lated freight "on condition that
has no claim against B.· But éf. occurrence is excw
the vessel arrive in New York
ready for loading by March l." B Illustration 4 to § 229.
Com:n;
promises that the vessel will ar- e. Excuse and reinstatement. Just ·
a. Excuse of non
rive by that date and carry A's as a party may under § 84 promi"se to
dition. Where a du•
cargo. B unjustifiably fails to have perform in spite of the comple~e .non-.
subject to the occu
the vessel in New York to be load- occurrence of a condition, he may u n-
tion, the additional
ed until March 2. A refuses to load der that section promise to perfori:n in
and fair dealing imp
the vessel. Whether or not the pe- spite of a delay in its occurrence. If he
§ 205 may require
riod of time has · passed after places no limit on the delay, his power on his part, either !
which B's uncured material failure to impose a time limit by later notifica- conduct that will pr1
would discharge A's remaining _ tion of the other party is subject to th~ occurrence of that e
duties to render performance, A's rules on reinstatement stated irt ing affirmative step¡
duties are clischarged under § 84(2). rence. Under § 23
ance of that duty w'
§ 243. Effect of a Breach by Non-Performance as Giving Rise due is a breach. SE
to a Claim for Damages for Total Breacl1. . § 235. Under this
(1) With respect to performances to be exchanged under an ex- further effect of ex
currence of the con<
change of promises, a breach by non-performance gives rise to a elaim
performance of the 1
for damages .for total breach only if it discharges the injured party '~
nally subject to its
remaining duties to render such performance, other than a duty to come due in spite
render an agreed equivalent under § 240. rence. See Commen
(2) Except as stated in Subsection (3), a breach by nonperformance · The rule stated in
accompanied or followed by a repudiation gives rise to a claim for applies, however, ·
cooperation constit
damages for total breach .
ther of a duty impo
(3) Where at the time of the breach the only remammg duties of the agreement itse·
performance are those of the party in breach and are for the payment of · posed by a term su:

130
)ND PERFORMANCE & NON-PERFORMANCE § 245

he non-occurrence of money in installments. not related to one another, his breach by non-
. is made a condition performance as to less than the whole, whether or not accompanied or
1ent of the parties. B followed by a repudiation, does not give rise to a claim for damages for
against A. A has a total breach.
B for damages for
(4) In any case other than those stated in the preceding subsections,
a breach by non-performance gives rise toa claim for total breach only if
being otherwise as it so substantially impairs the value of the contract to the injured party
;tration 4, the parties at the time of the breach that it is just in the circumstances to allow him
i form contract that to recover damages based on all his remaining rights to performance.
; "time is of the es-
:ent other circum-
:ating that perform- § 244. Effect of Subsequent Events on Duty to Pay Damages
uary 1 is of genuine A party's duty to pay damages for total breach by non-performance
\ has a claim against is discharged if it appears after the breach that there would have been a
~s for total breach of total failure by the injured party to perform his return promise.

ts being otherwise as § 245. Effect of a Breach by Non-Performance as Excusing

Listration 4, the con- the Non-Occurrence of a Condition
,s that A's rights are
on bis tendering a
Where a party's breach by non-performance contributes materially
.efore February l." A to the non-occurrence of a condition of one of his duties, the non-
n against B. But cf. occurrence is excused.
, to § 229. Comment: There is no ·breach if the risk of such a
i reinstatement. Just a. Excuse of non-occurrence of con- lack of cooperation was assumed by
mder § 84 promise to dition. Where a duty of one party is the other party or if the lack of cooper-
of the complete non- subject to the occurrence of a condi- ation is justifiable.
;ondition, he may un- tion, the additional duty of good faith
promise to perform in and fair dealing imposed on him under Illustrations:
n its occurrence. If he § 205 may require sorne cooperation l. A contracts with B to repair
n the de lay, his power on his part, either by refraining from B's building for $20,000, payment
limit by later notifica- conduct that will prevent or hinder the to be made " on the satisfaction of
party is subject to the occurrence of that condition or by tak- e, B's architect, and the issuance
;tatement stated in ing affirmative steps to cause its occur- of his certificate." .A fully per-
rence. Under § 235(2), non-perform- forms his duty to make the re-
ance of that duty when performance is pairs, but B induces e to refuse to
1ce as Giving Rise due is a breach. See Illustration 3 to
issue his certificate. A has a claim
Breach § 235. Under this Secti9n it has the
against B for $20,000. B's breach
further effect of excusing the non-oc-
mged under an ex- of his duty of good faith and fair
currence of the condition itself, so that
nves rise to a claim dealing contributed materially to
performance of the duty that was origi-
'the injur.ed party's the non-occurrence of the condi-
nally subject to its occurrence can be-
r1.er than a duty to tion, · the issuance of the certifi-
come due in spite of its non-occur-
cate, excusing it. ef. Illustrations
rence. See eomments b ande to § 225.
5, 6, 7, and 8 to § 227.
The rule stated in this Section only
by nonperformance 2. A .contracts to sell and B to
applies, however, where the Jack of
rise to a claim for cooperation constitutes a breach, ei- buy Jand for $100,000. At the
ther of a duty imposed by the terms of same tiine A contracts to pay e, a
remammg duties of the agreement itself or of a duty im- real estate broker, as bis commis-
e for the payment of posed by a term supplied by the court. sion , $5;ooo "on the closing of ti-

131
§ 245 RESTATEMENT OF CONTRACTS-SECOND PE

tle." A unjustifiably refuses to curred but for the lack of cooperation. profits exceed
consummate the sale. C has a It is only required that the breach amount during
claim against A for $5,000, less have contributed materially to the cusing it. The f
any expenses that e saved because non-occurrence. Nevertheless, if it can show that the p
the sale was not consummated. be shown that the condition would not wise have excE
A' s breach of his duty of good faith have occurred regardless of the lack of amount does not
and fair dealing contributed mate- cooperation, the failure of performance recovering. If, l
rially to the non-occurrence of the did not contribute materially to its that they would
conditi<>n, the closing of title, ex- non-occurrence and the rule does not that amount, 1
cusing it. See Illustration 4 to apply. The burden of showing this is Compare the ru
§ 227. properly thrown on the party in § 352.
3. A contracts to sell and B to breach. 7. The facts b
huy a house for $50,000, with the stated in Illustl
provision, "This contract is condi- Illustrations: that even if he l
tional on approval by X Bank of eration·, the Sec
5. A and B, about to become man
B's pending mortgage applica-
and wife, make an ante-nuptial rior would have
tion." B fails to make reasonable
contract under which A is to pay B on other grounc
efforts to obtain approval and,
$100,000 if B survives A. Four against A for b
when the X Bank disapproves the
years after their marriage, A A's breach of hü
application, refuses to perform
shoots both B and himself. B dies and fair dealing
when A tenders a deed. A has a
instantly and A dies the following materially to ti
claim against B for total breach of
contract. B's breach of his duty of day. B's estate has a claim against
good faith and fair dealing contrib- . A's estate for $100,000. A's breach § 246. Effect
uted materially to the non-occur- of his duty of good faith and fair of
rence of the condition, approval of dealing contributed materially to
(1) Except as
the application, excusing it. Cf. Il- the non-occurrence of the condi-
tion, B's surviving A, excusing it. retention for an 1
lustration 8 to § 2?./í .
The fact that B's estate cannot knowledge of or n
4. A contracts to sell and B to ·
huy A's rights as one of three les- show that B would otherwise have the obligor's duty,
sees under a mining lease in Indi- survived A does not prevent it occurrence, under
an lands. The contract states that from recovering the $100,000.
Compare the rule on certainty in (2) If at the
it is "subject only to approval by formance involves
the Secretary of the Interior," § 352.
which is required by statute. B
al would caüse ma
6. A, the owner of a manufactur-
files a request for approval but A ing plant, contracts to transfer the
performance oper
1 occurrence of the
fails to support B's request by giv- plant to B. B is to payA $500,00Q }

ing necessary cooperation. Approv- plus a bonus of $100,000 if the obligor with kno~
al is denied and A cannot convey profits from the plant exceed a
1 assent to the perf<
his rights. B has a claim against A stated amount during the first
i
for total breach of contract. A's year of its operation. Six months § 247. Effec1
breach of his duty of good faith after the transfer B sells the plant
and fair dealing contributed mate- to C, who dismantles it. B refuses
1r· tb
rially to the non-occurrence of the to pay the bonus. Whether A has a An obligor's
condition, approval by the Secre- · claim against B depends on wheth- 1 knowledge or rem
tary of the IÚterior, excusing it. er B's failure to operate the plant obligor's duty, op1
b. Contribute materially. Although for ayear is a breach of his duty of non-occurrence O'
it is implicit in the rule that the condi- good faith and fair dealing which
extent that it jusi
tion has not occurred, it is not neces- contributed materially to the non-
sary to show that it would have oc- occurrence of the condition, the ances will be acce

132
WD PERFORMANCE & NON-PERFORMANCE § 247
lack of cooperation. profits · exceeding the stated of the condition, and its non-oc-
~d that the breach amount duriug the first year, ex- currence is not excused.
materially to the
evertheless, if it can
1 cusing it. The fact that A cannot
. show that the profits would other-
c. Exceptions. Under §§ 237 and
238, it may be required as a condition
condition would not wise have exceeded the stated
rrdless of the lack of 1
r
amount does not prevent him from
recovering. If,. however, B shows
of one party's duty that the other par-
ty perform or offer to perform his
ilure of performance
:e materially to its
.d the rule does not
l' that they would not have exceeded
that amount, A cannot. recover .
duty. A breach by the first party of
his duty of good faith and fair dealing
will, if material and not cured in time,
1 of showing this is 1 Compare the .rule on certainty in
§ 352: . . . . discharge that duty of the other party
oh the party in (§ 237), eliminating the requirement
7. The facts being otherwise as that the other party perform or offer
stated in Ilh.istration 4, A shows to perform it. The discharge of the
that even if he had given his coop- duty has the additional effect of ex-
Lhout to become man eration, the Secretary of the Inte- cusing the non-occurrence of the con-
tke an ante-nuptial rior would have withheld approval dition. But non-occurrence of the con-
r which A is to pay B on other grounds. B has no claim dition is excused only if the duty is
3 survives A. Four against A fo~ breach of contract. discharged. The rule stated in this
their marriage, A A's breach of his duty of good faith Section is, therefore, not applicable to
and himself. B dies and fair dealihg did not con tribute such situations. See Illustrations 4, 5,
A dies the following materially to· the non-occurrence and 7 to § 237.
~ has a claim against
$100,000. A's breach § 246. · Effect of Acceptance as Excusing the Non-Occurrence
' good faith and fair · · of a Condition
ibuted materially to (1) Except as stated in Subsection (2), an obligor's acceptance or his
:rence of the condi-
retention for an unreasonable time of the obligee's performance, with
iving A, excusing it.
t B's estate cannot knowledge of or .reason to know of the non-occurrence of a condition of
vould otherwise have the obligor's duty, operates as a promise to perform in spite of that non-
loes not prevent it occurrence, under the rules stated in § 84.
:ing the $100,000.
(2) If at the time of its acceptance or retenti<;m the obligee's per-
rule on certainty in
formance involvés such attachment to the obligor's property that remov-
al would caq.se materialloss, the obligor's acceptance or retention of that
ner of a manufactÜr- performance operates as a promise to perform in spite of the non-
tracts to transfer the
occurrence of the condition, under the rules stated in § 84, only if the
is to payA $500,000
, of $100,000 if the obligor with knowledge of or reason to know of the defects manifests
the plant exceed a assent to the performance.
nt during the first
)eration. Six months r, § 24 7. Effect of Acceptance of Part Performance as Excusing
sfer B sells the plant · the Subsequent Non-Occurrence of a Condition
mantles it. B refuses 1
ms. Whether A has a An obligor's acceptance of part of the obligee's performance, with
1 knowledge or reason to know of the non-occurrence of a condition of the
B depends on wheth- ¡
to operate the plant obligoes duty, operates as a promise to perform in spite of a subsequent
breach of his duty of ~
r non-occurrence 6f the condition under the rules stated in § 84 to the
.d fair dealing which
1aterially to the non-
¡ extent that it justifies the obligee in believing that subsequent perform-
f the condition, the ¡ ances will be accepted in spite of that non-occurrence.
t¡
133
§ 248 RESTATEMENT OF CONTRACTS-SECOND PE.

§ 248. Effect of Insufficient Reason for Rejection as Excus- fair reading "amoun
ing the Non-Occurrence of a Condition of intention not to J
conditions which go
Where a party rejecting a defective performance or offer of perform- tract" constitutes a :
ance gives an insufficient reason for rejection, the non-occurrence of a ment 2 to Uniform
condition of his duty is excused only if he knew or had reason to know of § 2-610. Language
that non-occurrence and then only to the extent that the giving of an nied by a breach by
insuffident reason substantially contributes to a failure by the other may amount to a
. party to cure. though, standing alm
sufficiently positive.
§ 249. When Payment Other Than by Legal Tender Is Suffi- statement must be n
cient under the contract,
party beneficiary or <
Where the payment or offer of payment of money is made a
condition of an obligor's duty, payment or offer of payment in any Illustrations:
marinet current in the ordinary course of business satisfies the require- l. On April 1, ,
ment unless the obligee demands payment in legal tender and gives any and B to buy la1
extension of time reasonably necessary to procure it. deed and payme
be on July 30. O
that he will not ¡
TOPIC 3. EFFECT OF PROSPECTIVE ment is a repudil
NON-PERFORMANCE 2. A contracts
for B for $50,0·
§ 250. When a Statement or an Act Is a Repudiation ments to ·be ma·
. A repudiation is amount equal to
of the work perf
· (a) a statement by the obligor to the obligee indicating that the
preceding montl
obligor will commit a breach that would of itself give the be paid on· the
obligee a claim for damages for total breach under § 243, or cate of satisfact•
(b) a voluntary affirmative act which renders the obligor unable the house. With1
or apparently unable to perform without such a breach. fails to ni.ake a
payment and te!
Comment: total breach (§ 253(1)), discharge the of financia! diffi
a. Consequences of repudiation. A other party's duties (§ 253(2)), or ex- unable to pay hi
cuse the non-occurrence of a condition least another rr
statement by a party to the other that
he will not or cannot perform without (§ 255). month, it would
to cure h1s mate
a breach,. or a voluntary affirmative act b. Nature of statement. In arder to
formance· by m¡
that renders him unable or apparently constitute a repudiation, a party's lan-
payment, B's sü
unable to perform without a breach guage must be sufficiently positive to
diation. See I
may impair the val u e of the contract to be reasonably interpreted to mean that
§ 237.
thé other party. It may have severa! the party will not or cannot perform.
consequences under this Restatement. Mere expression of doubt as to his 3. The facts b'
If . it accompanies a breach by non- willingness or ability to perform is not stated in Illustra
performance that would otherwise give enough to constitute a repudiation, al- tell B that he wi
. i·ise to oniy a claim for damages for though such an expression may give an says, "I am no1
partial · breach, it may give rise to a obligee reasonable grounds to believe perform, and I d
claim for damages for total breach in- that the obligar will commit a serious so unless I am :
stead (§ 243) . Even if it occurs before breach and may ultimately result in a A's statement is
ariybreiu:h by non-performance, it may repudiation under the rule stated in 4. The .facts b'
give rise to a claim for damages for § 251. However, langu age that under a in Illustration 1,

134
OND . PERFORMANCE & NON-PERFORMANCE § 250
jection as Excus- fair reading "amounts to a statement person having no right under the
dition of intention not to perform except on contract, and not B, that he will
conditions which go beyond the con- not perform. e informs B of this
or offer of perform- tract'' constitutes a repudiation. Com- conversation, although not re-
J.on-occurrence of a ment 2 to Uniform eommercial eode quested by A to do so. A's state-
d reason to know of § 2-610. Language that is accompa- ment is not a repudiation. But see
at the giving of an nied by a breach by non-performance eomments b ande to § 251.
ülure by the other may amount to a repudiation even
though, standing alone, it would not be c. Nature of act. In order to consti-
sufficiently positive. See § 243(2) . The tute a repudiation, a party's act must
statement must be made to an obligee be both voluntary and affirmative, and
LTender Is Suffi- must make it actually or apparently
under the contract, including a third
party beneficiary or an assignee. impossible for him to perform. An act
money is made a that falls short of these requirements
of payment in any Illustrations: may, however, give reasonable grounds
l. On April 1, A contracts to sell to believe that the obligor will commit
atisfies the require-
and B to huy land, delivery of the a serious breach for the purposes .of
:mder and gives any the rule stated in § 251. The effect of
deed and payment of the price to
be on July 30. On May 1, A tells B bankruptcy is governed in large part
that he will not perform. A's state- by federallaw . In liquidation cases, for
CTIVE ment is a repudiation. example, Bankruptcy Reform Act
§ 365(a), (d) and (e) gives the trustee
2. A contracts to build a house
the power to assume or reject an exec-
for B for $50,000, progress pay-
udiation utory contract within a statutory peti-
ments to be made monthly in an
od, and the obligee must give him the
amount equal to 85% of the price
time to exercise this power. A contract
of the work performed during the
~ indicating that the not assumed during this period is
preceding month, the balance to
ld of itself give the deemed to be rejected. Under Bank-
be paid on the architect's certifi-
:ach under § 243; or ruptcy Reform Act § 365(g)(1), not-
cate of satisfactory completion of
withstanding state law, the trustee's
·s the obligar unable the house. Without justification B
r ejection of a contract "constitutes a
fails to make a $5,000 progress
.out such a breach. breach of such contract immediately
payment and tells A that because
of financia! difficulties he will be before the date of the filing of the
253(1)), discharge the petition" The rules stated in this Re-
.ties (§ 253(2)), or ex- unable to pay him anything for at
least another month. If, after a statement apply to the extent that
:urrence of a condition they are consistent with federal bank-
month, it would be too late. for B
to cure his material failure of per- ruptcy law.
statement. In order to forn~ance by making the delayed
1diation, a patty's lan- payment, B's statement is a repu- Illustrations:
sufficiently positive to diation. See Illustration 2 to 5. The facts being otherwise as
terpreted to mean that § 237. stated in Illustration 1, A says
.ot or cannot perform.
3. The facts being. otherwise as nothing to B on May 1, but on
1 of doubt as to his
stated in Illustration 1, A does not that date he contracts to sell the
)ility to perform is not
tell B that h e will ·not perform but land to C. A's making of the con-
itute a repudiation, al-
says, "I am not sure that I can tract with e is a repudiation.
expression may give an
)le grounds to believe perform, and I do not intend to do 6. The facts being otherwise as
will commit a serious so unless I am legally bound to ." stated in Illustration 1, A says
· ultimately result in a A's statement is not a repudiation . nothing to B on May 1, but on
ler the rule stat ed in 4. The facts being otherwise as that date he mortgages the land to
' la nguage tha:t under a in Illustration 1, A tells e, a third e as security for a $40,000 Io.:n1

135
§ 250 RESTATEMENT OF CONTRACTS-SECOND PE

which is not payable until one form at all unless the other party con- § 252. Effect
year later. A's mortgaging the sents to a modification of his contract
land is a repudiation. Compare 11- rights, the statement is a repudiatiori (1) Where th
lustration 4 to § 251. even though the concession that · he grounds to believe
7. A contracts to employ B, and seeks is a minor one, because the stated in § 251, tr
B to work for A, the employment breach that he threatens in order to has not already re<
to last a year beginning in ten exact it is a 'complete refusal of per- in the form of per
days. Three days after making the formance. security.
contraét B embarks on a ship for a
Illustrations: (2) A person i
voyage around the world. B's em-
barking for the voyage is a repudi- the ordinary coun:
8. On April 1, A contracts to sell due or is insolven
ation. and B to huy land for $50,000,
d. Gravity of threatened breach, In delivery of the deed and payment
order for a statement or an act to be a of the price to be on August l. On
§ 253. Effect
repudiation, the threatened breach May 1, the parties make an en-
Pa
must be of sufficient gravity that, if forceable modification under (1) Where an
the breach actually occurred, it would which delivery of the deed and breach by non-per
of itself give the obligee a claim for payment of the price are to be on · exchange for it, hi
damages for total breach under July 30 instead of August l. On for total breach.
§ 243(1). Generally, a party acts at his June 1, A tells B that he will not
peril if, insisting on what he mistaken- deliver a deed until August l. A's (2) Where per
ly believes to be his rights, he refuses statement is not a repudiation un- promises, one paJ
to perform his duty. His statement is a less the one-day delay would, in discharges the otl
repudiation if the threatened breach the absence of a repudiation, have
would, without more, have given the Comm
given B a claim for damages for
injured party a claim for damages for total breach. See Illustration 4 to · a. Breach. An ob
total breach. Modern procedural de- § 242. tract is ordinarily e;
vices, such as the declaratory judg- tection of his expectl
ment, may be used to mitigate the 9. The facts being otherwise as gor will perform. F
harsh results that might otherwise re- stated in Illustration 8, A tells B repudiation by the ol
sult from this rule. Furthermore, if the that he will not deliver a deed at or § 251 generally gi
threatened breach would not itself all unless B agrees to accept it on for damages for t
have given the injured party a claim August l. A's statement is a repu- though it is not. ac<
for damages for total breach, the state- rliation. The result is the same ceded by a breach by
ment or voluntary act that threatens it even though A acts in the errone- Such a repudiation i
is nota repudiation. But where a party ous belief that the modification tically called an "an1
wrongfully states that he will not per- has no legal effect. meaning a breach l:
pudiation, because
§ 251. When a Failure to Give Assurance May Be Treated as a there is any bread:
Repudiation ance. If there is a l:
fm·mance, in additic
(1) Where reasoJJable grounds arise to believe that the obligor :vvill tion under § 250 or
commit a breach by nón-performance that would of itself give the obligee is not one by repudiE
a claim for damages for total breach under § 243, the obligee may rules stated in § 242
demand adequate assurance of due performance and may, if reasonable, stated in Subsection
suspend any performance for which he has not already received · the der § 251, it was ,
agreed exchange until he receives such assurance. performance that
grounds to believe
(2) The obligee may treat as a repudiation the obligor's failure to would commit a mo
provide within a reasonable time such assurance of due performance as . the obligor's failure
is adequate in the circumstances of the particular case. cannot give rise to a
f
136
.¡1
.[
JND PERFORMANCE & NON-PERFORMANCE § 253
the other party con- § 252. Effect of lnsolvency
:ation of his contract
1ent is a repudiation (1) Where the obligor's insolvency gives the obligee reasonable
concession that he grounds to believe that the obligar will commit a breach under the rule
1r one, because the stated in § 251, the obligee may suspend any performance for which he
hreatens in order to has not already received the agreed exchange until he receives assurance
tplete refusal of per- in the form of performance itself, an offer of performance, or adequate
security.
(2) A person is insolvent who either has ceased to pay his debts in
the ordinary éourse of business or cannot pay his debts as they become
1, A contracts to sell due or is insolvent within the meaning of the federal bankruptcy law.
1y land for $50,000,
1e deed and payment § 253. Effect of a Repudiation as a B~each and on Other
o be on August l. On
Party's Duties
parties make an en-
modification under (1) Where an obligar repudiates a duty befare he has committed a
,r y of the deed and breach by non-performance and befare he has received all of the agreed
he price are to be on exchange for it, his repudiation alone gives rise to a claim for damages
ead of August l. On for total breach.
lls B that he will not
d until August l. A's (2) Where performances are to be exchanged under an exchange of
not a repudiation un- promises, one party's repudiation of a duty to render performance
-day delay would, in discharges the other party's remaining duties to render performance.
of a repudiation, have
Comment: ation alone. The measure of damages
laim for damages for
a. Bredch. An obligee under a con- in the case of a claim under this Sec-
See Illustration 4 to
tract is ordinarily entitled to the pro- tion is governed by the rules statecl in
tection of his expectation that the obli- Topic 2. of Chapter 16.
.s being otherwise as gar will perform. For this reason, a
ustration 8, A tells B repudiation by the obligar under § 250 Illustrations:
not deliver a deed at or § 251 generally gives rise to a claim l. · On April 1, A and B make a
agrees to accept it on for clamages for total breach even contract under which B is to work
s statement is a repu- though it is not accompanied or pre- for A for three months beginning
! result is the same ceded by a breach by non-performance. on June l. On May 1, A repudiates
A acts in the errone- Such a repudiation is sometimes ellip- by telling B he will not employ
;hat the modification tically called an "anticipatory breach," him. On May 15, B commences an
effect. ¡1: meaning a breach by anticipatory re- action against A. B's duty to work
pudiation, because it occurs before for A is discharged and he has a
:ty Be Treated as a there is any breach by non-perform- claim against A for damages for
1 ance. If there is a breach by non-per- total breach.
;hat the obligar will ~ formance, in addition to the repudia-
tion under § 250 or § 251 the breach 2. On July 1, A contracts to sell
tself give the obligee is not one by repudiation alone and the and B to huy a quantity of barre!
3, the obligee may t rules stated in § 243 rather than those staves, delivery and payment to be
l may, if reasonable, ¡ stated in Subsection (1) apply. If, un-
der § 251, it was a breach by non-
ón December l. On August 1, A
repudiates by writing B that h e
tlready received the f
performance that gave· the obligee will be unable to cleliver staves at
grouncls to believe that the obligor the contract price. On September
~ obligor's failure to woulcl commit a more serious breach, 1, B commences an action against
due performance as the obligor's failure to give assurances A. B's duty to pay for the staves is
;e. cannot give rise to a breach by repudi- di scharged and he has a claim

137

1 .

1,.
 PE
§ 253 RESTATEMENT OF CONTRACTS-SECOND

against A for damages for total whose performance is not part of the breach of contr
breach. See Uniform Commercial ance is due on :M
expected exchange, and for which
Code § 2-610. there is therefore no agreed exchange, 5. On Februa:r
doe.s not come within the rule stated a contract unde1
b. Discharge. Under Subsection (1)
in Subsection (1). See, e.g., Illustration eration for A's
a breach by repudiation alone can only
3 to § 232.) Another example occurs of land to B, B
give rise to a claim for total breach
when one party repudiates a duty un- annual paymen
although a breach by non-performance',
der an option contract befare the oth- five yeru.·s. B m
even if coupled with a repudiation, can
er party has exercised the option by for the first t
generally give rise to either a claim for
March 1 of the
partial breach or to one for total giving the agreed exchange. See Illus-
ates by telling
breach (§§ 236, 237). Of course, in ap- tration 3. However, it is one of the es-
make any fur1
propriate circumstances, the injured tablished limits on the doctrine of
commences an
party can, after a breach by repudia- "anticipatory breach" that an obli-
Since B has rec
tion alone, pursue alternative relief by gor's repudiation alone, whether un- agreed exchang
seeking, for example, a decree of spe- der § 250 or § 251, gives rise to no pay the remaini
cific performance or an injunction. See claim for damages at all if he has al- has no claim a
Tapie 3 of Chapter 16. Nevertheless, ready received all of the agreed ex- ages for bread
the rule stated in Subsection (1) is one change for it. The rule stated in Sub- performance is
of those rules that are peculiar to section (1) does not, therefore, allow a ing February l.
breach by repudiation alone and differ claim for damages for total breach in
6. On January
from those applicable to a breach by such a case. a contract unde
non-performance. (Another such rule
to convey to B
is that a breach by repudiation alone Illustrations: February 1, an<
can be totally nullified by the party in
3. On February 1, A and B make A $10,000 at
breach (§ 257), while a breach by non-
an option contract under which, in balance of $40,
performance, whether coupled with a
consideration for B's payment of installments. A
repudiation or not, cannot be.) Subsec-
$100, A promises to convey to B a to B and B p:
tion (2) states a corollary of this rule March 1, B rep
that a breach by repudiation always parcel . of land on May 1 for
$50,000, if B tenders that sum by that he will no
gives rise to a claim for damages for payments. A co
total breach: where performances are that date. On March 1, A repudi-
ates by selling the parcel to C. On against B. Sin
to be exchanged under an exchange of the land, the a
promises, one party's repudiation dis- April 1, B commences an action
against A Since A has not re- his duty to m
charges any remaining duties of per-
formance of the other party with re- ceived the $50,000, the agreed ex- í payments,. A h.
spect to the expected exchange. change for his duty to sell the
parcel to B, B has a claim against 1 § 254. Effec
c. Scope. ~f an obligar repudiates
A for damages for total breach.· i (1) A party's
under § 250 or § 251 befare he has
received all of the agreed exchange for 4. On February 1, A and B make 1 discharged if it a
his promise, the repudiation alone a contract under which, as consid- t total failure by tl:
gives rise to a claim for damages for eration for B's immediate payment
(2) A party's
total breach under Subsection (1) . The of $50,000, A promises to convey \
most important example of such a case
occurs when performances are to be
to B a parcel of land on M ay l. On
March 1, A repudiates by selling
!. discharged if it a]
would have been
exchanged under . an exchange of the parcel to C. On April 1, B r breach by non-pe
¡
promises and one party repudiates a commences an action against A 1
Com
duty with respect to the expected ex- Since A has received the $50,000, !
change befare the other party has fully the agreed exchange for his duty a. Non-perform
performed that exchange. See Illu strac · to sell the parcel to B, B has no ty after repudiatio.
tions 1 and 2. (A repudiation of a duty claim against A for damages for to exchange perfor

138

¡
L
 JND <. PERFORMANCE & NON-PERFORMANCE § 254
breach . of contract un ti! perform- B for damages for breach of con-
:e is not part of the
ance is due on May l. tract, until performance is due on
5e, and for which
no agreed exchange, 5. . On Febru'ary 1, A and B make the following February l.
[thin the rule stated .a contract under which, as consid-· d. Avoiding harsh results of limita-
See, e.g., Illustration eration for A's conveying a paree! tion. The limitation described in Com-
ther example occurs of land to B, B promises to make ment e sometimes avoids difficult prob-
epudiates a duty un- annual payments of $10,000 for lems of forecasting damages and is
five years. B makes the payments
ttract befare the oth- supported by the clear weight of au-
for the first two years and on
rcised the option by thority. It has, however, been subject-
March 1 of the third ye~ repudi-
exchange. See Illus- ed to considerable criticism, and in-
ates by telling A that he will not
!r, it is one of the es- stances of its actual application are
make any further payments. A
on the doctrine of commences an action against B. infrequent. Compare, for example, 11-
Jach" that an obli- Since B has received the land the lustration 3 with Illustration 4. A
alone, whether un- agreed exchange for his duty to court can often avoid harsh results by
~51, gives rise to no pay the remaining installments, A making available other types of relief,
's at all if he has al- has no cfail:n against B for dam- such as a declaratory judgment or res-
11 of the agreed ex- ages for breach of contract until titution. See §§ 345, 373 and Com-
e rule stated in Sub- performance .is due on the follow- ment a to § 373. Insurance contracts
LOt, therefore, allow a ing February l. are subject to special considerations
!S for total breach in 6 . . On January 15, A and B make which may make it appropriate to
a contract under which A promises grant equitable relief in, for example, a
to convey to B a paree! of land on suit for reinstatement. The degree to
February .1, and B promises to pay which the limitation might yield on a
A $10,000· at that time and the showing of manifest injustice, as where
lalJ' 1, A and B make
)
balance of $40,000 in four annual the refusal to pay is not in good faith,
1tract under which, in f. installme'n ts. A conveys the paree! is unclear. Compare Comment d to
l for B's payment of
to B and .B pays A $10,000. On § 243. Furthermore, if the repudiation
1ises to convey to B a
md on May 1 for · t March 1; Brepudiates by telling A
that he will not make any further
is coupled with a breach by non-per-
formance that would otherwise give
, tenders that sum by
payments. A commences an action rise to a claim for damages for only
n March 1, A repudi-
.against B. Since B has received partía! breach, it may give rise instead
tg the paree! to C. On
:om1nences an action the lan:d, th~ agreed exchange for to a claim for damages for total breach,
his duty to make the remaining but whether it does so is governed by
3ince A has not re-
payment.s, A has no claim against § 243 and not by this Sectio11.
50,000, the agreed ex-
his duty to sell the
B has a claim against
§ 254. ~ffect of Subsequent Events on Duty to Pay Damages
ges for total breach. (1) A party's duty to pay damages for total breach by repudiation is
uary 1, A and B make discharged if it appears after the breach that there would have been a
nder which, as consid- total failure by the injured party to perform his return promise.
:'s immediate payment (2) A party's duty to pay damages for total breach by repudiation is
·. A promises to convey discharged if it appears after the.breach that the duty that he repudiated
l of land on May l. On
would have been discharged by impracticability or frustration before any
repudiates by selling
to C. On April 1, B breach by non-performance. .
an action against A change of promises, each party's duties
Comment:
received the $50,000,
a. Non-perfoi·mance by injured par- to render performance are generally
exchange for his duty
ty after repudiation. If the parties are regarded as co11ditional 011 the other
)arce! to B, B has no
to exchange performances under an ex- party's performance, or at least 011 his
st A for damages for
139
§ 254 RESTATEMENT OF CONTRACTS-SECOND

readiness to perform (§§ 237, 238, 251, b. Impracticability or frustration af- the repudiation or
253). This . principie applies even ter repudiation. Under the rule stated repudiation to be fi
though one party is already in breach in § 253(1), a party's breach by antici-
by repudlatüm. His duty to pay dam- patory repudiation immediately gives
ages is discharged if it subsequently rise to a claim for damages for total § 257. Effect
appears that there would have been a breach. If it subsequently appears that The injured p;
total failüre of performance by the in- the duty that he repudiated would urging the repudia1
have been discharged by supervening his repudiation.
jured party. A failure is total in this
impracticability (§ 261) or fnistration
context ifit would have been sufficient (§ 265) before any breach by non-per-
to have · discharged any remaining formance, bis duty to pay damages is
duties of the party in breach to render
TOPIC 4.
discharged. lmpracticability or frustra-
his performance. See § 242. The result tion that would have occurred after § 258. Obligo:
follows even if it appears that the fail- breach by non-performance may affect
ure would have been justified and not (1) Except as
the measure of damages but does not
a breach. Cf. § 244. discharge the duty to pay damages; cf. contractual duties 1
§§ 344, 34 7, 352. is applied accordin¡
Illustration: or befare the time <
Illustration:
l. On April 1, A and B make a (2) If the obli
2. On April 1, A and B make a performance to thE
personal service contract under
personal service contract under
which Apromises to employ B for to the obligee and
which A promises to employ B for
six months beginning July 1 and B 6 months beginning July 1 and B obligor's performar
. promises . to work for A during promises to work for A during
that ·period. On May 1, A repudi- that period. On May 1, B repudi- § 259. Creditt
afes the contract. On June 1, B ates the contract. On June 1, B (1) Except as ~
falls· ill and is unable to perform falls ill and is unable to perform
· during the entire period. A's duty directed applicatio
during the entire period. B's duty
. to PaY :S .damages for total breach to pay damages toA for his antici- debts, the paymen1
. by repudiation is discharged. patory repudiation is discharged . made within a reas
(2) A creditor ,
. § 255. Effect of a Repudiation as Excusing the Non-Occur-
(a) the de
rence of a Condition
debt, o
Where ·a party's repudiation contributes materially to the non-
(b) a forfe
occurrence of a condition of one of his duties, the non-occurrence is
debt a
excuse d.
(e) tbe del
§ 256 .. Nullification of Repudiation or Basis for Repudiation policy.
(3) If a creditc
(1) The effect of a statement as constituting a repudiation under
in a fiduciary cap1
§ 250 or the basis for a repudiation under § 251 is nullified by a
beneficiary, effecti
retraction of the statement if notification of the retraction comes to the
proportion of a pa
attentioh of the injured party befare he materially changes his position
that debt to the un
in reliance on the repudiation or indicates to the other party that he
. considers the repudiation to be final. § 260. Applic;
(2) The effect of events other than a statement as constituting a es .
repudiation under § 250 or the basis for a r epudiation under § 251 is (1) If neíther
nullified if, to the lmowledge of the injured party, those events have with respect to th
. ceased to exist befare he materially changes his position in reliance on matured debts, th'

140
~OND PERFORMANCE & NON-PERFORMANCE § 260
~ility or frustration af- the repudiation or indicates to the other party that he considers the
Under the rule stated repudiation to be final.
rty's breach by antici-
on immediately gives
for damages for total
§ 257. Effect of Urging Performance in Spite of Repudiation .
;equently appears that The injured party does not change the effect of a repudiation by
he repudiated would urging the repudiator to perform in spite of his repudiation or to retract
arged by supervening his repudiation. ·
(§ 261) or frustration
ny breach by non-per-
Ity to pay damages is TOPI<; 4. APPLICATION OF PERFORMANCES
·acticability or frustra-
l have occurred after § 258. Obligor's Direction of Application
erformance may affect (1) Except as stated in Subsection (2), as between two or more
damages but does n.ot
contractual duties owed by an obligar to the same obligee, a performance
tty to pay damages; cf.
is applied according to a direction made by the obligar to the obligee at
or befo re the time of performance.
(2) If the obligor is under a duty to a third person to devote a
il 1, A and B make a performance to the discharge of a particular duty that the obligor owes
~rvice contract under
to the obligee and the obligee knows or has reason to know this, the
>mises to employ B fór
obligor's performance is applied to that duty.
eginning July 1 and B
> work for A during
On May 1, B rept~9i­ § 259. Creditor's Application
ntract. On June 1, B (1) Except as stated in Subsections (2) and (3), if the debtor has not
l is unable to perform directed application of a payment as between two or more matured
entire period. B's duty debts, the payment is applied according to a manifestation of intention
:~ges to A for his antici-
Idiation is discharged.
made within a reasonable time by the creditor to the debtor.
(2) A creditor cannot apply such a payment to a debt if
tg the Non-Occ~r-
(a) the debtor could not have directed its application to that
debt, or
terially to the non- (b) a forfeiture would result from a failure to apply it to another
le non-occurrence is debt and the creditor knows o:r- has reason to know this, or
(e) the debt is disputed or is unenforceable on grounds of public
policy.
s for Repudiation
(3) If a creditor is owed one such debt in his own right and another
a repudiation under in a fiduciary capacity, he cannot, unless empowered to do so by the
51 is nullified by a beneficiary, effectively apply to the debt in his own right a greater
;raction comes to the proportion of a payment than that borne by the unsecured portion of
changes his posiÜon that debt to the unsecured portions of both claims.
other party that he
§ 260. Application of Payments Where Neither Party Exercis-
mt as constituting a es His Power
ation under § 25.1 is (1) If neither the debtor nor the creditor has exercised his power ·
y, those events have with respect to the application of a payment as between two or more
)Sitian in reliance on matured debts, the payment is applied to debts to which the creditor

141

t.
§ 260 RESTATEMENT OF CONTRACTS-SECOND

could have applied it with just regard to the interests of third persons,
the debtor and the creditor.
í ter 16. See Comment
IMJ

effect on a claim for ·

patory repudiation is
(2) In applying payments under the rule stated in Subsection (1), a rules on discharge s1
payment is applied to the earliest matured debt and ratably among debts 12. Cases of existine
of the same maturity, except that preference is given supervening, impracti
(a) to a debt that the debtor is under a duty to a third person to erned by § 266 rath~
tion.
pay immediately, and
b. Basic assumptic
(b) if he is not under such a duty, supervening event to
(i) to overdue interest rather than principal, and under this Section, th
of that event must ha
(ii) to an unsecured or precarious debt rather than one that
assumption" on whi
is secured or certain of payment. made the contract (
N ote to this Chapter).
CHAPTER 11. IMPRACTICABILITY OF rion used by Unifc
Code § 2-615(a). Its a
PERFORMANCE AND FRUSTRATION ple enough in the cast
OFPURPOSE a person or destruct
thing necessary for p
§ 261. Discharge by Supervening Impracticability continued existence <
Where, after a contract is made, a party's performance is made . thing (the non-occurro
of destruction) is ordi
impracticable without his fault by the occurrence of an event the non-
sumption on which 1
occurrence of which was a basic assumption on which the contract was made, so that death <
made, his duty to render that performance is discharged, unless the fects a discharge. Its ~
language or the circumstances indicate the contrary. simple enough in the
shifts or the financia:
Comment: practicability and it "deliberately ~e- .
of the parties. The co
a. Scope. Evcn though a party, in frains from any effort at an .e xhaustive
isting market condit
assuming a duty, has not qualified the expression of contingencies" (Com-
financia! situation of
language of bis undertaking, a court ment 2 to Uniform Commercial Code ·
ordinarily not such
may relieve him of that duty if per- § 2-615). The principie, like others in 1 that mere market sl
formance has unexpectedly become im- this Chapter, yields to a contrary
agreement by which a party may as- l. inability do not usuall:
practicable as a result of a supervening under the rule statec
event (see Introductory Note to this
Chapter). This Section states the gen-
eral principie under which a party's
duty may b e so discharged. The follow-
sume a greater as well as a lesser
obligation. By such an agreement, for
example, a party may undertake to
achieve a result irrespective of super-
!! In borderline cases thi
ficiently flexible to tal
tors that bear on a j
vening events that may render · its risk. The fact that th'
ing three sections deal with the three
achievement impossible, and if he does seeable, or even foresÉ
categories · of cases where this general
es~arily compel a cm
principie has traditionally been ap- so his non-performance is a breadJ, 1 non-occurrence was
plied: supervening dea:th or incapacity even if it is caused by such an event.
sumption. See Commt
of a person necessary for performance See Comment c. The rule stated in this 1 tion and Comment a t
(§ 262), supervening destruction of a Section applies only to discharge a ·
specific thing necessary for perform- duty to render a performance and does
1 Illustrations:
ance (§ 263), and supervening prohibi- not affect a claim for breach that has
tion or prevention by Iaw (§ 264). But,
like Uniform Commercial Code § 2-
615(a) , this Section states a principie
already arisen. The effect of events
subsequent to a breach on the amount
of damages recoverable is governed by
' l. On June 1,
and B to huy goo<
in October at a
broadly applicable to all types of im- the rules on remedies stated in Chap- The port is subse,

142

1
L. .
COND IMPRACTICABILITY OF PERFORMANCE § 261

~sts of third persons, ter 16. See Comment e to § 347. Their quarantine regulations during the
effect on a claim for breach by antici- entire month of October, no com-
patory repudiation is governed by the mercially reasonable substitute
l in Subsection (1), a rules on discharge stated in Chapter performance is available (see Uni-
ratably among debts 12. Cases of existing, as opposed to form Commercial Code § 2-
supervening, impracticability are gov- 614(1)), and A fails to deliver the
erned by § 266 rather than this Sec- goods. A's duty to deliver the
:¡ to a third person to
tion. goods is discharged, and A is not
liable to B for breach of contract.
t b. Basic assumption. In order for a
supervening evep.t to discharge a duty 2. A contracts to produce a movie
cipal, and under this Section, the non-occurrence for B. As B knows, A's only source
of that event must have been a "basic of funds is a $100,000 deposit in e
rather than o:n,e that 1 assumption" on which both parties bank. C bank fails, and A does not .
made the contract (see Introductory produce the movie. A's duty to
Note to this Chapter). This is the crite- produce the movie is not dis-
rion used by Uniform Commercial charged, and A is liable to B for
:ILITY OF Code § 2-615(a). Its application is sim- breach of contract.
'RATION ple enough in the cases of the death of 3. A and B make a contract un-
a person or destruction of a specific der which B is to work for A for
thing necessary for performance. The two years at a salary of $50,000 a
cability continued existence of the person or year. At the end of one year, A
thing (the non-occurrence of the death discontinues his business because
>erformance is made
of destruction) is ordinarily a basic as- governmental regulations have
of an event the non- sumption on which the contract was
tich the contract was made it unprofitable and fires B.
made, so that death or destniction ef- A's duty to employ B is not dis-
scharged, unless the fects a discharge. Its application is also charged, and A is liable to B for
simple enough in the cases of market breach of contract.
shifts or the financia! inability of one
nd it "deliberately re- 4. A contracts to sell and B to
of the parties. The continuation of ex-
. effort at an exhaustive huy a specific machine owned by A
isting market conditions and of the
contingencies" (Com- to be delivered on July 30. On July
financia! situation of the parties are
form Commercial Code 2f), ·as a result of a creditor's suit
ordinarily not such assumptions, so
principie, like others in against A, a receiver is appointed
that mere market shifts or financia!
yields to a contrary and takes charge of all of A's as-
inability do not usually effect discharge
which a party may as- sets, and A does not deliver the
under the rule stated in this Section.
~r as well as a lesser goods on July 30. A's duty to deliv-
In borderline cases this criterion is suf-
such an agreement, for er the goods is not discharged, and
ficiently flexible to take account of fac-
rty may undertake to A is liable to B for breach of con-
tors that bear on a just allocation of
,t irrespective of super- . tract.
risk. The fact that the event was fore-
that may render its
seeable, or even foreseen, does not nec- c. Contrary indication. A party
1possible, and if he does
essarily compel a conclusion that its may, by appropriate language, agree to
rformance is a breach
non-occurrence was not a basic as- perform in spite of impracticability
used by such an event.
sumption. See Comment e to this Sec- that would otherwise justify his non-
'· The rule stated in this
tion and Comment a to § 265. performance under the rule stated in
3 only to discharge a
a performance and does this Section. He can then be held lia-
Illustrations: ble for damages although he cannot
tim for breach that has
. The effect of events l. On June 1, A agrees to sell perform. Even absent an express
<:~ breach on the amount and B to huy goods to be delivered agreement, a court may decide, after
:overable is governed by in October at a designated port. considering all the circumstances, that
~medies stated in Chap- The port is subsequently closed by a party impliedly assumed such a

143
 § 261 RESTATEMENT OF CONTRACTS-SECOND JM,

greater obligation. In this respect the Illustration: to describe the requi

rule stated in this Section parallels impediment to perfo
5. A, who has had many years of
that of Uniform Commercial Code ance may be impract
experience in the field of salvage,
§ 2-615, which applies "Except so far treme and unreasom
as a seller may have assumed a greater contracts to raise and float B's pense, injury, or ]o;
obligation . . .. " Circumstances rele- boat, which has run aground. The parties will be im
vant in deciding whether a party has contract, prepared by A, contains shortage of raw ma
assumed a greater obligation include no clause limiting A's duty in the
case of unfavorable weather, un-
plies due to war, . em
his ability to have inserted a provision failure, unforeseen s·
in the ·contract expressly shifting the foreseen circumstances, or other- · sources of supply, o
risk of impracticability to the other wise. The boat then slips into deep either causes a mark•
party. This will depend on the extent water and fills with mud, making or prevents perfor:
to which the agreement was standard- it impracticable for A to raise it. If may bring the case
ized (cf. § 211), the degree to which . the court concludes, on the basis stated in this Sect
the other party supplied the terms (cf. of such circumstances as A's expe- may also be imprac
§ 206), and, in the case of a particular rience and the absence of any limi- will involve a risk o
trade or other group, the frequency tation in the contract that A pre- or to property, of on
with which language so allocating the pared, that A assumed an absolute of others, that is d
risk is used in that trade or group (cf. duty, it will decide that A's duty to the ends to be atü
§ 219). The fact that a supplier has raise and float the boat is not dis- ance. However,
not taken advantage of his opportunity charged and that A is Hable to B means more than "
expressly to shift the risk of a shortage for breach of contract. mere change in the e
in his supply by means of contract or expense due to E
d. Impracticability. Events that
language may be regarded as more sig-.. creased wages, price:
come within the rule stated in this
nificant where he is middleman, with or costs of constru
Section are generally due either to
a variety of sources of supply and an beyond the normal
opportunity to spread the risk among "acts of God" or to acts of third par-
ties. If the event that prevents the amount to impracti·
many customers on many transactions this sort of risk tha1
by slight adjustment of his prices, than . · obligor's performance is caused by the
tract is intended t
where h e is a producer with a limited obligee, it will ordinarily amount to a
more, a party is ex
source of supply, few outlets, and no. breach by the latter and the situation
sonable efforts to s
comparable opportunity. A commercial will be governed by the rules stated in
to performance (see
practice under which a party might be Chapter 10, without regard to this Sec-
formance is impract
expected to insure or otherwise secure tion. See Illustrations 4-7 to § 237. If
so in spite of such ef
himself against a risk also militates the event is due to the fault of the
against shifting it to the other party. obligar himself, this Section does not Illustrations:
If the supervening event was not rea ~ apply. As used h ere "fault" may in-
elude not only "willful" wrongs, but 6. A contracts
sonably foreseeable when the contract
such other types of conduct as that elevator. While
was madB, the party claiming dis~
amounting to breach of contract or to making repairs,
charge can hardly be expected to have
negligence. See Comment 1 to Uniform elevator withou
provided against its occurrence. How-
Commercial Code § 2-613. Although does not finisl
ever, if it was reasonably foreseeable,
the rule stated in this Section is sorne- duty to repair ·
or even foreseen, the opposite conclu-
times phrased in terms of "impossibili- charged, and A
sion does not necessarily follow. Fac-
tors such as the practica! difficulty of ty," it has long been recognized that it for breach of <
may operate to discharge a party's tration 3 to § 2•
reaching agreement on the myriad -of
conceivable terms of a complex agree- duty even though the event has not 7. A contracts
ment may excuse a failure to cleal with made performance absolutely impossi- goods on bis sl
· improbable contingencies. See Com- ble. This Section, therefore, uses "im- foreign port. A
ment b to this Section and Commen t a practicable," the term employed by expectedly brE
to § 265. Uniform Commercial Cocle § 2- 615(a), country and n

144
'OND l IMPRACTICABILITY OF PERFORMANCE

to describe the ·required extent of the

impediment to performance. Perform-
§ 261
that they will try to sink all ves-
seis bound for that port. A refuses
Las had many years of ance may be impraCticable because ex- to perform. Although A did not
1 the field of salvage, treme ·and unreasonable difficulty, ex- contract to sail on the vessel, the
raise and float B's pense, injury, ar· loss to one of the risk of injury to others is sufficient
has run aground. The parties will be involved. A severe to make A's performance impracti-
!pared by A, contains shortage of raw inaterials or of sup- cable. A's duty to carry the goods
niting A's duty in the plies due to war, embargo, local crop to the designated port is dis-
tvorable weather, un- failure, unforeseen shutdown of majar charged, and A is not liable to B
!umstances, or other- sources of supply, or the like, which for breach of contract. Compare
at then slips into deep either causes a marked increase in cost Illustration 5 to § 262.
Jls with mud, mak.ing or prevents performance altogether 8. The facts being otherwise as
.ble for A to raise it. If may bring the case within the rule stated in Illustration 7, the rebels
111cludes, on the basis stated in this Section. Performance announce merely that they will
tmstances as A's expe- may also be impracticable because it confiscate all vessels found in the
le absence of any limi- will involve a risk of injury to person designated port. The goods can be
~ contract that A pre- or to property, .of.one of the parties or bought and sold on markets
\ assumed an absolute of others, that is disproportionate to throughout the world. A refuses to
decide that A's duty to the ends to be a:ttained by perform- perform. Although there is no risk
•at the boat is not dis- ance. However, "impracticability" of injury to persons, the court may
. that A is liable to B means more than · "impracticality." A conclude that the risk of injury to
f contract. mere change in the degree of difficulty property is disproportionate to the
or expense due 't.o such causes as .in- ends to be attained. A's duty to
~bility. Events that
creased wages, prices of raw materials, carry the goods to the designated
e rule stated in this
or costs of. construction, unless well port is then discharged, and A is
1erally due either to
beyond the normal range, does not not liable to B for breach of con-
r to acts of third par-
amount to ·impracticability since it is tract. If, however, B is a health
•nt that prevents the
this sort of risk that a fixed-price con- organization and the goods are
nance is caused by the
tract. is .in tended to cover. Further- scarce medical supplies vital to t.he
•rdinarily amount to a
more, a party is expected to use rea- health of the population of the
ttter and the situation
sonable effm~ts to surmount obstacles designated port, the court may
. by the rules stated in
to performance (see § 205), anda per- conclude that the risk is not dis-
10ut regard to this Sec-
fm·mance is impracticable only if it is proportionate to the ends to be
ations 4-7 to § 237. If
so in spite of such efforts. attained and may reach a contrary
te to the fault of the
this Section does n<Yt decision.
Illustrations·:
here "fault" may in- 9. Several months after the na-
"willful" wrongs, but 6. A contracts to repair B's grain tionalization of the Suez Canal,
~s of conduct as that
· elevator. WhÜe A is engaged in during the international crisis re-
reach of contract or to making repairs, a fire destroys the sulting from its seizure, A con-
Comment 1 to Uniform elevator withbut A's fault, and A tracts to carry a cargo of B's
de § 2-613. Although does not finish the repairs. A's wheat on A's ship from Galveston,
. .n this Section is sorne- duty to repair the elevator is dis- Texas to Bandar Shapur, Iran for
charged, and A is not liable to B a flat rate. The contract does not
\ terms of "impossibili-
for breach of contract. See Illus-
been recognized that it ~ tration 3 to § 263.
specify the route, but the voyage
would normally be through the
J discharge a party's !f
tgh the event has not l\ 7. A contracts with B to carry B's Straits of Gibraltar and the Suez
Canal, a distance of 10,000 miles.
1ce absolutely impossi-
n, therefore, uses "im-
le term employed by
¡ goods on his ship to a designated
fóreign port. · A civil war then un-
expectedly breaks out in that
A month later, and several days
after the ship has left Galveston,
ercial Code § 2-615(a),
!¡ country and the rebels announce the Suez Canal is closed by an

145
!1
1

''
. § 261 RESTATEMENT OF CONTRACTS-SECOND .

outbreak of hostilities, so that the press this. Instead, the rationale is awarded the co
only route to Bandar Shapur is the that a party generally assumes the risk disapproves A' s
longer 13,000 mile voyage around of his own inability to perform his has the excava
the Cape of Good Hope. A refuses duty. Even if a party contracts to ren- another subcon
to complete the voyage unless B der a performance that depends on have e do the
pays additional compensation. A's sorne act by a third party, he is not discharged, and
duty to carry B's cargo is not dis- ordinarily discharged because of a fail- breach of contr;
charged, and A is liable to B for ure by that party because this is also a
breach of contract. f Alternative pe
risk that is commonly understood to be
tract may permit a
10 . . The facts being otherwise as on the obligor. See Comment c. But see
perform in one o:
in Illustration 9, the Suez Canal is Comment a to § 262.
ways, any of which
closed while A's ship is in the Ca-
duty. Where the du:
nal, preventing the completion of Illustrations:
an alternative per:
thévoyage. A's duty to carry B's 12. A, a milkman, and B, a dairy that one or more
cargo is discharged, and A is ·not
farmer, make a contract under has become imprac;
Hable to B for breach of contract.
which B is to sell andA to huy all charge the party's d
11. A contracts to construct and of A's requirements of milk, but least one of them r
lease to B a gasoline service sta- not less than 200 quarts a day, for The form of the pro
tion. A valid zoning ordinance is one year. B may deliver milk from ling, however, and
· subsequently enacted forbidding any source but expects to deliver that is expr'essed i
the construction of such a station milk from his own herd. B's herd gives rise to a duty
but permitting variances in appro- is destroyed because of hoof and native performanct
. priate cases. A, in breach of his mouth disease and he fails to de- surety's undertakb
duty of good faith and fair dealing liver any milk. B's duty to deliver principa¡ will perf•
(§ 205), makes no effort to obtain milk is not discharged, and B is will compensate th
a . vru:iance, although variances liable to A for breach of contract. ordinarily impose s
have been granted in similar See Illustration 1 to § 263; com- statement of Secur:
.cases, and fails to construct the pare Illustration 7 to § 263. a promise eíther te
station. A's performance has not
13. A contracts to sell and B to ance or pay liquida1
been made impracticable. A's duty
huy on credit 1,500,000 gallons of such a duty. Furtht
to construct is not discharged, and
A is ·Hable to B for breach of con- molasses "of the usual run from is originally one to
. tract.: the e sugar refinery." e delivers performances cease
molasses to others but fails to de- if all but one meé
e. . "Subjectiue" and "objective" im- have been foreclose
liver any to A, and A fails to deliv-
practicability. It is sometimes said that time or the occurr
er any to B. A's duty to deliver
the rule stated in this Section applies including election l:
molasses is not discharged, and A
only . whe~ the performance itself is
is liable to B for breach of con-
made impracticable, without regard to
tract. If A has a contract with C, C § 262. · Deatl
the particular party who is to perform. aJ
may be liable to A for breach of
The difference has been described as
contract. If the exister
that between "the thing cannot be
dáne" and "I cannot do if," and the 14. A, a general contractor, is ance of a duty,
former has been characterized as "ob- bidding on a construction contract impracticable is
jective'' and the latter as "subjective." · with B which gives B the right to assumptlon on wl
. This Section recognizes that if the per- disapprove the choice of subcon-
formance remains practicable and it is tractors. A makes a contract with § 263. Destr
mei-ely beyond the party's capacity to e, a subcontractor, under which, if E
rendel' it, he is ordinarily not dis- B awards A the contract, A will
. charged, but it does not use the terms obtain B's approval of C and C will If the existm
"objective" and "subjective" to ex- do the excavation for A. A is of a duty, its faih

146

l
~COND IMPRACTICABILITY OF PERFORMANCE § 263
;tead, the rationale is awarded the contract by B, but B the grounds of public policy (ehapter
.1erally assumes the risk disapproves A's choice of e, andA 8) or unconscionability (§ 208).
abiHty to perform his has the excavation work done by
party contracts to ren- another subcontractor. A's duty to Illustrations:
.ance that depends on have e do the excavation is not 15. On June 1, A contra~ts to sell
third party, he is not discharged, and A is Hable to C for and B to buy whichever of three
targed because of a fail- breach of contract. specified machines A chooses to
ty because this is also a deliver on October l. Two of the
tmonly understood to be f Alternative performances. A con- machines are destroyed by fire on
See eomment c. But see tract may permit a party to choose to July 1, and A fails to deliver the
} 262. perform in one of severa! different third on October l. A's duty to
ways, any of which will discharge his deHver a machine is not dis-
duty. Where the duty is to render such charged, and A is liable to B for ·
an alternative performance, the fact breach of contract. If all three ma-
nilkman, and B, a dairy that one or more of the alternatives chines had been destroyed, A's
.ake a contract under has become impracticable will not dis- duty to deliver a machine would
to sell and A to buy all charge the party's duty to perform if at have been discharged, and A
uirements of milk, but least one of"them remains practicable. would not have been Hable to B
an 200 quarts a day, for The form of the promise is not control- for breach of contract. See Uni-
3 may deHver milk from ling, however, and not every promise form eommercial eode § 2- 613.
1 but expects to deliver that is expressed in alternative form 16. A contracts to repaü~ B's
his own herd. B's herd gives rise to a duty to render an alter- building. The contract contains a
)d because of hoof and native performance. For example, a vaHd provision requiring A to pay
~ase and he fails to de- surety's undertaking that either the liquidated damages if he fails to
nilk. B's duty -to deliver principal will perform or the surety make any of the repairs. S is sure-
•t discharged, and B is will compensate the creditor does not ty for A's performance. Before A is
. for breach of contract. ordinarily impose such a duty. See Re- able to begin, B's building is de- ·
ation 1 to § 263; com- statement of Security § 117. Nor does stroyed by fire. Neither A's nor Ws
ration 7 to § 2()3. a promise either to render a perform- ciuty iR one to render an .alterna-.-
ttracts to selr nnd R to ance or pay liquidated damages impose tive performance. A's duty to re-
1dit 1,500,000 gallons of such a duty. Furthermore, a duty that pair the building is dischargeci,
'of the usual run from is originally one to render alternative and A is not liable to B for liqui-
ar refinery." e delivers performances ceases to be such a duty dated damages or otherwise for
o others but fails to de- if all but one means of performance breach of contract. S's duty as
o A, and A fails to deliv- have been foreclosed, as by the lapse of _ surety for A is also discharged, ·
B. A's duty to deliver time or the occurrence of a condition and S is not liable to B for breach ·
3 not discharged, and A including election by the obligor, or on of contract.
o B for breach of con-
has a conúact with e, e §. 262. Death or Incapacity of Person Necessary for Perform-
1ble to A for breach of ance
If the existence of a particular person is. necessary for the perform-
general contractor, is ance of a duty ~ bis death or such incapacity as makes performance .
. a construction contract impracticable is · an event the non-occurrence of which was a basic
,ich gives B .the right to assumption ori which the contract was made.
, the choice of subcon-
' makes a contract with § 263. Destruction, Deterioration or Failure to Come Into
ritractor, under which, if
Existence of Thing N ecessary for Performance
A the contract, A will
approval of e and e will If the existence of a specific thing is necessary for the performance
x:cavation · for A. A is of a duty, its failure to come into existence, destruction, or such deterio"

147
§ 263 RESTil.TEMENT OF CONTRACTS- SECOND !Mi

ration as makes performance impracticable is an event the non-occur- and B is not liah
rence of which was a basic assumption on which the contract was made. of contract.
2. A contracts '.i
§ 264. Prevention by Governmental Regulation or Order advertisement ir
gram of an in1
If the performance of a duty is made impracticable by having to race, which has 1
comply with a domestic or foreign governmental regulation or order, that a yacht club,
regulation or order is an event the non-occurrence of which was a basic $10,000. The y¡
assumption on which the contract was made. the race becaust
of war. A has al
§ 265. Discharge by Supervening Frustration programs, but B
$10,000. B's dut)
Where, after a contract is made, a party's principal purpose is discharged, and l
substantially frustrated without his fault by the occurrence of an event for breach of con
the non-occurrence of which was a basic assumption on which the a claim under t
contract was made, his remaining duties to render performance are § 272(1).
discharged, unless the language or the circumstances indicate the con- 3. A, who own
trary. who owns a cou
contract under '
Comment: for the affected party or even that he $1,000 a month
a. Rationale. This Section deals will sustain a loss. The frusttation the club's mem
with the problem that arises when a must be so severe that it is not fairly available to the 1
change in circumstances makes one to be regarded as within the risks free of charge te
party's performance virtually worth- that he assumed under the contract. · ing is destroyed ·
less to the other, frustrating his pur- Third, the non-occurrence of the frtis- fault, and A is u:
pose in making the contract. lt is trating event must have been a basic. the hotel busin
distinct from the problem of imprac- assumption on which the coritract make further n
ticability dealt with in the four pre- was made. This involves essentially A's duty to m¡
ccding sections because there is no the samc sorts of dcterminatio~s· tliat" ments is dischaJ
impediment to performance by either are involved under the general · rule liable to B for l
party. Although there has been no on impracticability. See Comments .b
true failure of performance in the and e to § 261. The foreseeability bf 4. A leases nc
sense required for the application of the event is here, as it is there, a tions to B for th:
the rule stated in § 237, the impact factor in that determination, but the tise and illumi:
on the party adversely affected will - mere fact that the event was foresee~ business. After <
be similar. The rule stated in this able does not campe! the conclusion . ment regulatic
Section sets out the requirements for that its non-occurrence was not such ·· lighting of such
the discharge of that party's duty. a basic assumption. make further 1
First, the purpose that is frustrated B's duty to pay
must have been a principal purpose Illustrations: and B is not lial
of that party in making the contract. of contract. See
It is not enough that he had in mind l. A and B make a contract un- 5. A contracts
sorne specific objeet without which he der which B is to pay A $1,000 and buy a machine,
would not have made the contract. is to have the use of A's window B in the Unite
The object must be so completely the on January 10 to view a parade knows, intends
basis of the contract that, as both that has been scheduled for that chine to a part
parties understand, without it the day. Because of the illness of an resale. Befare d
transaction would make little sense. important official, the parade is . ernment regulE
Second, the frustration must be sub- cancelled. B refuses to use the port of the mac
stantial. It is not enough that the window or pay the $1,000 . . B's try. B refuses ·
transaction has become less profitable duty to pay $1,000 is discharged, the machine . IJ

148
'OND IMPRACTICABILITY OF PERFORMANCE § 265
1ent the non-occur- and B is not liable to A for breach make other disposition of the ma-
contract was made. of contract. chine, even though at sorne loss,
1 2. A contracts with B to print an his principal purpose of putting
the machine to commercial use is
;ion or Order advertisement in a souvenir pro-
gram of an international yacht not substantially frustrated. B's
[cable by having to duty to take and pay for the ma-
race, which has been scheduled by
lation or order, that a yacht club, for a price of chine is not discharged, and B is
f which was a basic $10,000. The yacht club cancels liable to A for breach of contract.
the race because of the outbreak 6. A leases a gasoline station to
of war. J:.. has already printed the B. A change in traffic regulations
prog¡.·ams, but B refuses to pay the
so reduces B's business that he is
$10,000. B's duty to pay $10,000 is
rincipal purpose is discharged, and B is not liable to A
unable to operate the station ex-
urrence of an event cept at a substantial loss. B re-
for breach of contract. A may have
•tion on which the fuses to make further payments of
a claim under the rule stated in
~r performance are § 272(1).
rent. If B can still operate the
es indicate the con- station, even though at such a
3. A, who owns a hotel, and B, loss, his principal purpose of oper-
who owns a country club, make a ating a gasoline station is not sub-
contract under which A is to pay stantially frustrated. B's duty to
party or even that he
$1,000 a month and B is to make pay rent is not discharged, and B
loss. The frustration
the club's membership privileges is liable to A for breach of con-
~e that it is not fairly
available to the guests in A's hotel tract. The result would be the
as within the risks
free of charge to them. A's build- same if substantial loss were
l under the contract.
ing is destroyed by fire without his . caused instead by a government
·Ccurrence of the frus- fault, and A is unable to remain in
Jst have been a basic regulation rationing gasoline or a
the hotel business. A refuses to termination of the franchise under
which the contract make further monthly payments.
> involves essentially which B obtained gasoline.
A's duty to make monthly pay-
lf determinations that ments is discharged, and A is not b. · Limitations on scope. The rule
tder the general rule liable to B for breach of contract. stated in this Section is subject to limi-
ity. See Comments b tations similar to those stated in § 261
4. A leases neon sign installa-
The foreseeability of
tions to B for three years to adver~ wi~h· respect to impracticability. It ap-
lre, as it is there, a pÜes only when the frustration is with-
tise and illuminate B's place of
etermination, but the out the fault of the party who seeks to
business. After one year, a govern-
.he event was foresee- take advantage of the rule, and it does
ment regulation prohibits the
:ompel the conclusion not apply if the language or circum-
lighting of such signs. B refuses to
urrence was not such stances indicate the contrary. Frustra-
make further payments of rent.
lOn. B's duty to pay rent is discharged, tion by circumstances existing at the
and B is not liable to A for breach time of the making of the contract
of contract. See Illustration 7. rather than by supervening circum-
\ make a contract un- stances is governed by the similar rule
5. A contracts to sell and B to
is to payA $1,000 and stated in§ 266(2).
buy a machine, to be delivered to
he use of A's window B in the United States. B, as A
10 to view a parade Illustration:
lmows, intends to export the ma-
en scheduled for that chine to a particular country for 7. The facts being otherwise as
.e of the illness of an resale. Before delivery to B, a gov- in Illustration 4, the government
>fficial, the parade is ernment regulation prohibfts ex- regulation provides for a proce-
3 refuses to use the port of the machine to that coun- clure under which B can apply for
pay the $1,000. B's try. B refuses to take or pay for an exemption, but B, in breach of
· $1,000 is discharged, the machine. If B can reasonably · his duty of goocl faith and fair

149

i
i
~.
 RESTATEMENT OF GONTRACTS-SECOND DIS!
§ 265
dealing (§ 205), fails to make such to pay rent is not discharged, and ticability or frustr1
an application. Unless it is found B is liable to A for breach of con- there been no impr
that · such an application would tract. Cf. Illustration 11 to § 261;
have been unsuccessful, B's duty Illustration 3 to § 264. § 270. Partia
Where only p:
§ 266. Existing Impracticability or Frustration duty to render the
(1) Where, at the time a contract is made, a party's performance (a) it is s1
under it is impracticable without his fault because of a fact of which he substa
has no reason to know and the non-existence of which is a basic perfor
assumption on which the contract is made, no duty to render that (b) the ol:
performance arises, unless the language or circumstances indicate the remai1
contrary. retain
(2) Where, at the time a contract is made, a party's principal
purpose is substantially frustrated without his fault by a fact of which he § 271. Impra'
has no reason to know and the non-existence of which is a basic Co
assumption on which the contract is made, no duty of that party to Impracticabili1
render performance arises, unless the language or circumstances indicate occurrence of the '
the contrary. ancl forfeiture wou

§ 267. Effect on Other Party's Duties of a Failure Justified § 2 72. Relief

by Impracticability or Frustration (1) In any caE
(1) A party's failure to render· or to offer performance may, except party may have a
as stated in Subsection (2), affect the other party's duties under the stated in §§ 240 aJ
rules stated in §§ 237 and 238 even though the failure is justified under (2) In any cas
the rules stated in this Chapter. rules together wi
(2) The rule stated in Subsedion (1) does not apply if the other injustice, the com
party assumed the risk that he would have to perform despite such a including protectic
failure.

§ 268. Effect on Other Party's Úuties of a Prospective Fail-

cm
ure Justified by Impracticability or Frustration A
(1) A party's prospective failure of performance may, except as TOPIC J
stated in Subsection (2), discharge the other party's duties or allow him
to suspend performance uncler. the rules stated in §§ 251(1) and 25;3(2) § 273. Requi
even though the failure would be justified under the rules stated in this Except as sta
Chapter. to a discharge is n
(2) The rule stated in Subsection (1) does not apply if the other (a) it is n
party assumed the risk that he ·would have to perform in spite of such a (b) it is 1
failure.

§ 269. Temporary Impracticability or Frustration

¡ enfon
(e) it has
prom1
Impracticability o( performance or frustration of purpose that is
!
1 § 274. CaneE
only temporary suspends the obligor's duty to perform while the imprac- ¡
ticability or frustration exists but does not discharge his duty or prevent ¡ An obligee's e
it from arising unless his performance after the cessation of the imprac- writing of a type

150 11

.t
 ~OND DISCHARGE BY ASSENT OR ALTERATION § 274
.s not discharged, and ticability or frustration would be materially more burdensome than had
> A for breach of con- there been no impracticability or frustration.
Jstration 11 to § 261;
1 to § 264. § 270 . . Partial lmpracticability
Where only part of an obligor's performance is impracticable, his
ion
duty to render the remaining part is unaffected if
)arty's performance (a) it is still practicable for him to render performance that is
f a fact of which he substantial, taking account of any reasonable substitute
f which is a basic performance that he is under a duty to render; or
uty to render that
· (b) · the obligee, within a reasonable time, agrees to render any
;tances indicate the
remaining performance in full and to allow the obligor to
retain any performance that has already been rendered.
a party's principal
>y a fact of which he § 271. linpracticability as Excuse for Non-Occurrence of a
f which is a basic Condition
ty of that party to Impractlcability excuses the non-occurrence of a condition if the
.1 ·cumstances indicate occurtence of the condition is not a material part of the agreed exchange
and forfeiture would otherwise result.

Failure Justified § 272. Relief lncluding Restitution

n (1) In any case governed by the rules stated in this Chapter, either
rmance may, except party iriay have a claim for relief including restitution under the rules
's duties under the stated ins§ 240 and 377.
tre is justified under . (2) In any case governed by the rules stated in this Chapter, if those
rules togéther with the rules stated in Chapter 16 will not avoid
~ apply if the other injustice; the court may grant relief on such terms as justice requires
form despite such a including protection of the parties' reliance interests.

Prospective Fail-
CHAPTER 12. DISCHARGE BY
ty or Frustration ASSENT OR ALTERATION
-
nce may, except as TOPIC l. The Requirement Of Consideration
duties or allow him
·§ 251(1) and 253(2) § 273. Requirement of Consideration ora Substitute
l rules stated in this Except as stated in§§ 274-77, an obligee's manifestation of assent
to a discharge is not effective unless
t apply if the other (a) it is made for consideration,
:m in spite of such a . (b) it is made in cir.cumstances in which a pro mise would be
· enforceable without consideration, or
(e) it has induced such action or forbearance as would make a
;ration promise enforceable.
of purpose that is
·m while the imprac- § 2 7 4. .Cancellation, Destruction or Surrender of a Writing
l his duty or prevent An obligee's cancellation, destruction or surrender to the obligor of a
mtion of the imprac- writing of a type customarily accepted as a symbol or as evidence of bis

151
 1r ·
':.

§ 274· RESTATEMENT OF CONTRACTS-SECOND .. DISC

right discharges without consideration the obligor's duty if it is done § 280. NovaU
with the manifested intention to discharge it. A novation is a
was neither the obl
§ 275. Assent to Discharge Duty ofReturn Performance
If a party, before he has fully performed his duty under a contract, § 281. Accord
manifests to the other party his assent to discharge the other party's (1) An accord
duty to .render part or all of the agreed exchange, the duty is to that accept a stated per:
extent dl.scharged without consideration. . Performance of the
(2) Until perfc
§ . 276. Assent to Discharge Duty to Transfer Property
unless there is suc
A duty of an obligor in possession of identified personal property to the new duty of th
transfer an interest in that property is discharged without consideration there is such a bre
if the oblígee manifests to the obligor his assent to the discharge of that or any duty under ;
duty . .
(3) Breach of
original duty, but
§ 277~ Renunciation
ance of the accor<
(1) A written renunciation signed and delivered by the obligee breach.
discharges without consideration a duty arising out of a breach of
contract . § 282. Accom
.(2) A renunciation by the obligee on his acceptance from the obligor (1) An accoun
of sorne performance under a contract discharges without consideration creditor to• a statel
a duty t<;:> pay damages for a breach that gives rise only to a claim for the creditor. A pm
damages for partial breach of contract: long time of a sta
manifestation of aE
. . TOPIC 2. SUBSTITUTED PERFORMANCE, (2) The accou
SUBSTITUTED CONTRACT, ACCORD admission by eacl
AND ACCOUNT STATED debtor to .pay acc01

§ 278.~ Substituted Performance

TOPIC 3. A·
(1) If an obligee accepts in satisfaction of the obligor's duty a
A
performance offered by the obligor that differs from what is due, the
duty is discharged. § 283. Agrem
(2) If an obligee accepts in satisfaction of the obligor's duty a ( 1) An agreen
· performance offered by a third person, the duty is discharged, but an party agrees to di
obligor who has not previously assented to the performance for his performance unde1
benefit may in a reasonable time after learning of it render the discharge (2) An agreer
ihoperative from the begilining by disclaimer. performance of bo
the parties also a¡
§ 279. Substituted Contract that has been rene
(1) A substituted contract is a contract that is itself accepted by the
obligee in satisfaction of the obligor's existing duty. ·§ 284. Relea!
(2) The substituted contract discharges the original duty and breach (1) A release i
of the substituted contract by the obligor does not give the obligee a the release is disc
ríght to enforce the original duty. tion.

152

.e L.
70ND DISCHARGE BY ASSENT OR ALTERATION § 284

s duty if it is done § 280. Novation

A novation is a substituted contract that includes as a party one who
was neither the obligor nor the obligee of the original duty.
?erformance
ty under a contract, § 281. Accord and Satisfaction
~e the other party's (1) An accord is a contract under which an obligee promises to
the duty is to that accept a stated performance in satisfaction of the obligor's existing duty.
Perfor~ance of the accord discharges the original duty.

r Property
(2) Until performance of the accord, the original duty is suspended
unless there is such a breach of the accord by the obligor as discharges
personal property to the new d.uty of the obligee to accept the performance in satisfaction. If
·ithout consideration there is such a breach, the obligee may enforce either the original duty
;he discharge of that or any duty under the accord.
(3) Breach of the accord by the obligee does not discharge the
original duty, but the obligar may maintain a suit for specific perform- ·
ance of the acco:rd, in addition to any daim for damages for partial
!red by the obligee breach.
out of a breach of
§ 282. Account Stated
.nce from the obligor (1) An account stated is a manifestation of assent by debtor and .
·ithout consi<;l!'lration creditor to a stated sum as an accurate computation of an amount due
' only to a . claim for the creditor. A party's retention without objection for an unreasonably ·
long time of a statement of account rendered by the other party is a
manifestation of assent.
RMANCE, (2) The account stated does not itself discharge any duty but ·is an
!CORD admission by each party of the facts asserted and a prumise by the
debtor to pay according to its terms.

TOPIC 3. AGREEMENT OF RESCISSION, RELEASE

he obligor's duty a
>m what is due, the AND CONTRACT-NOT TO SUE
§ 283. Agreement of Rescission
he obligor's duty a (1) An agreement of rescission is an agreement under which each
3 discharged, but an party agTees to discharge all of the other party's remaining duties of .
performance for his performance under an existing contract.
render the discharge (2) An agreement of rescission discharges all remaining duties of
performance of both parties. It is a question of interpretation whether ·
the parties also. agree to make restitution with respect to performance
that has been rendered.
tself accepted by the
§ 284. Release
;inal duty and breach (1) A release is a writing providing that a duty owed to the maker of
•t give the obligee a the release is discharged immediately or on the occurrence of a eondi-
tion.

153

i
_L.
 § 284 RESTATEMENT OF CONTRACTS-SECOND JOINT ANl

(2) The release takes effect on delivery as stated in §§ 101-03 and, (2) lJnless a co1
. subject to the occurrence of any condition, discharges the duty. more promisors is a

§ 285. Contract Not to Sue § 289. Joint, S.

Sam
(1) A contract not to sue is a contract under which the obligee of a
duty promises never to sue the obligor or a third person to enforce the (1) Where two
duty or not todo so for a limited time. · performance to the ~
(2) Except as stated in Subsection (3), a contract never to sue ance thereof, whetl:
discharges the duty and a contract not to sue for a limited time bars ah (2) Where two
action to enforce the duty during that time. performance to the s
intention is manife
(3) A contract not to sue one co-obligor bars levy of execution on the
property of the promisee during the agreed time but does not bar an duties.
action or the recovery of judgment against any co-obligor. (3) By statute
otherwise create onl:
TOPIC 4. ALTERATION § 290. Compul:
§ 286. Alteration of Writing (1) By statute i
(1) If one to whom a duty is owed under a contract alters a writing duties and joint and
that is an integrated agreement or that satisfies the Statute of Frauds maintained against ·
with respect to that contract, the duty is discharged if the a lteration is even though other ¡
fraudulent and material. with process.
(2) An alteration is material if it would, if effective, vary any party's (2) In the absm
legal relations with the maker of the alteration or adversely affect that . promisors who incu:
party's legal relations with a third person. The unauthorized insertion in the jurisdiction of tl
a blank space in a writing is an alteration. or those against wh

§ 287. Assent to or Forgiveness of Alteration § 291. Judgme

(1) If a party, lmowing of an alteration that discharges his duty, In an action ag
manifests assent to the altered terms, his manifestation is equivalent to their duties are joint
an acceptance of an offer to substitute those terms.
be entered for or a¡
(2) If a party, knowing of an alterahon that discharges his duty, judgment is entered
asserts a right under the original contract or otherwise manifests a one and against ano
willingness to remain subject to the original contract or to forgive the tion on the merits
alteration, the original contract is revived. liability of the other.

CHAPTER 13. JOINT AND SEVERAL § 292. Effect o

PROMJSORS AND PROMISEES · (1) A judgment
other promisors of
TOPIC l. . JOINT AND SEVERAL PROMISORS promisors is requin
§ 288. states judgment ag~
Promises of the Same Performance
(1) Where two or more parties to a contract make a promise or
¡' even where such joir
promises to the same promisee, the manifested intention of the parties (2) The effect e
determines whether they promise that the same performance or separate performance is det
performances shall be given. ·· suretyship or vicario

154
!
1

. i
··"" ·.,..,
'JOND

d in §§ 101-03 and,
1 JOINT AND SEVERAL PROMISORS AND PROMISEES § 292

(2) Unless a contrary intention is manifested, a promise by two or

: the duty. more promisors is a promise that the same performance shall be given.

§ 289. Joint, Severa!, and Joint and Severa! Promisors of the

lich the obligee of a Same Performance
~rson to enforce the (1) Where two or more parties to a contract promise the same
performance to the same promisee, each is bound for the whole perform-
Ltract never to sue ance thereof, whether his duty is joint, several, or joint and several.
imited time bars an (2) Where two or more parties to a contract promise the same
performance to the same promisee, they incur only a joint duty unless an
rof execution on the intention is manifested to create several duties or joint and several
mt does not bar an duties.
igor. (3) By statute in most states sorne or all promises which would
otherwise create only joint duties create joint and several duties.
1
l § 290. Compulsory Joinder of Joint Promisors
(1) By statute in most states where the distinction between joint
ract alters a writing duties and joint and several duties retains significance, an action can be
e Statute of Frauds maintained against one or more promisors who incur only a joint duty,
l if the alteration is even though other promisors subject to the same duty are not served
with process.
ive, vary any party's (2) In the absence of statute, an action can be maintained against
tdversely affect that promisors who incur only a joint duty without joinder of those beyond
thorized insertion in the jurisdiction of the court, the representatives of deceased promisors,
or those against whom the duty is not enforceable at the time of suit.
n § 291. Judgment in an Action Against Co-Promisors
:lischarges his duty,
In an action against promisors of the same performance, whether
tion is equivalent to
their duties are joint, several, or joint and several, judgment can properly
be entered for or against one even though no judgment or a different
:lischarges his duty, judgment is entered with respect to another, except that judgment for
1erwise manifests a one and against another is improper where there has been a determina-
Lct or to forgive the tion on the merits and the liability of one cannot exist without the
liability of the .other.

EVERAL § 292. Effect of Judgment for or Against Co-Promisors

3EES (1) A judgment against one or more promisors does not discharge
other promisors of the same performance unless joinder of the other
lOMISORS promisors is required by the rule stated in § 290. By statute in most
states judgment against one promisor does not discharge co-promisors
make a promise or even where such joinder is required. .
mtion of the parties (2) The effect of judgment for one or more promisors of the same
'ormance or separate performance is determined by the rules of res judicata relating to
suretyship or vicarious liability.

155
§ 293 RESTATEMENT OF CONTRACTS-SECOND

§ 293. Effect of Performance or Satisfaction on Co-Promi-

r
1
JOINT A

TOPIC 2.
sors
§ 297. Oblig«
Full or partial performance or other satisfaction of the contractual
duty of a promisor discharges the duty to the obligee of each other (1) Where a:
promisor of the same performance to the extent of the amount or value promisees or for t:
applied to the discharge of the duty of the promisor who renders it. intention of the
performance to al
§ 294. Effect of Discharge on Co-Promisors tion.
(1) Except as stated in § 295, where the obligee of promises of the (2) Except to
same performan~e discharges one promisor by release, rescission or that the interests
accord and satisfaction, for breach are dü
arejoint.
(a) co-promisors who are bound only by a joint duty are dis-
charged unless the discharged promisor is a surety for the § 298. Comp
co-promisor;
(1) In an act
(b) co-promisors who are bound by joint and several duties or promisor by maki
by several duties are not discharged except to the extent ment against hin
required by the law of suretyship. defendants all the
(2) By statute in many states a discharge of one promisor does not (2) Except in
discharge other promisors of the same performance except to the extent in § 300, any join
required by the law of suretyship. name of all the j<
(3) Any consideration received by the obligee for discharge of one money judgment.
promisor discharges the duty of each other promisor of the same per-
formance to the extent of the amount or value received. An agreement to § 299. Disch
the contrary is not effective unless it is made with a surety and expressly Except where
preserves the duty of his principal. except as stated ir
has power to discl
§ 295. Effect of Contrae~ Not to Sue; Reservation of Rights ance or by relea
(1) Where the obligee of promises of the same performance con- equivalent to a tm
tracts not to sue one promisor, the other promisors are not discharged
except to the extent required by the law of suretyship. § 300. - Effec1
(2) Words which purport to release or discharge a promisor and also (1) If an obli¡
to reserve rights against other promisors of the same performance have violation of his d
the effect of a contract not to sue rather than a release or discharge·. obligee may obtail
(3) Any consideration received by the obligee for a contract not to (2) A dischar¡
sue one promisor discharges the duty of each other promisor of the same to a co-obligee <
1
performance to the extent of the amount or value received. An agree- necessary to prob
ment to the contrary is not effective unless it is made with a surety and ¡.t to the extent that
expressly preserves the duty of his principal. · position in good J
violation.
§ 296. Survivorship of Joint Duties
On the death of one of two or more promisors of the same perform- § 301. Survi
ance in a contract, the estate of the deceased promisor is bound by the 1 On the deatl
contract, whether the duty was joint, several, or joint a nd several. l manifested, the
1
¡
!
 ~COND iOINT AND SEVERAL PROMISORS ANb PROMISEES § 301
tion on Co-Promi- TOPIC 2. JOINT AND SEVERAL PROMISEES

on of the contractual
§ 297 . .. Obligees of the S ame Promised Performance
1bligee of each other (1) Where a party to a contract makes a promise to two or more
· the amount or value promisees or for the benefit of two or more beneficiaries, the manifested
lisor who renders it. intention of the parties determines whether he promises the same
performance to all, a separate performance to each, or sorne combina-
'S tion.
ee of promises of the (2) Except to the extent that a different intention is manifested or
:ele ase, rescission or that the interests of the obligees in the performance or in the remedies
for breach are distinct, the rights of obligees of the same performance
are joint.
a joint duty are dis-
>r is a surety for the § 298. Compulsory Joinder of Joint Obligees
(1) In . an action based on a joint right created by a promise, the
1nd several duties or promisor by making appropriate objection can prevent recovery of judg-
except to the extent ment against him unless there are joined either as plaintiffs or as
defendants all the surviving joint obligees.
ne promisor does not (2) Except in actions on negotiable instruments and except as stated
lexcept to the extent in § 300, any joint obligee unless limited by agreement may sue in the
., for discharge of one
namé of all the joint obligees for the enforcement of the promise by a
money.judgment.
sor of the same per-
ved. An agreement to § 299~ .·Discharge by or Tender to One Joint Obligee
L surety and expressly
Except .where the pro mise is made in a negotiable instrument and
except as stated in§ 300, any joint obligee, unless limited by agreement,
has power to discharge the promisor by receipt of the promised perform-
~vation of Rights ance o:r by .release or otherwise, and tender to one joint obligee is
ne performance con- equivalent to .a tender to all.
rs are not discharged
ip. § 300. Effect of Violation of Duty to a Co-Obligee
e a promisor and also (1) If an obligee attempts or threatens to discharge the promisor in
rne performance have
release or discharge.
1 : violation of his duty to a co-obligee of the same performance, the co-
obligee may obtain an injunction forbidding the discharge.
for a contract not to t (2) A discharge of the promisor by an obligee in violation of his duty
pro mi sor of the same to a co-obligee of the same performance is 'voidable to the extent
:'! received. An agree- necessary to protect the co-obligee's interest in the performance, except
tde with a surety and to the extent that the promisor has given value or otherwise changed his
position in good faith and without knowledge or reason to know of the
violation.

of the same perform- § 301. Sil.rvivorship of Joint Rights

nisor is bound by the On the death of a joint obligee, unless a contrary intention was
>r joint and severa!. manifested, · the surviving obligees are sol ely entitled as against the

157
 § 301 RESTATEMENT OF CONTRACTS-SECOND

promisor to receive performance, to discharge the promisor, orto sue for cases are not cover
the enforcement of the promise by a money judgment. On the death of (1)(a). The beneficia
the last smviving obligee, only his estate is so entitled. discharge a lien o
property, or of a pr
duty of a third pe
CHAPTER 14. CONTRACT BENEFICIARlES excluded from Subs(
beneficiaries may,
§ 302. Intended and Incidental Beneficiaries tended beneficiaries'
(1)(b).
(1) Unless otherwise agreed between promisor and promisee, a
beneficüi.ry of a promise is an intended beneficiary if recognition of a Illustrations:
right to performance in the beneficiary is appropriate to effectuate the
l. A owes e a
intention ofthe parties and either debt is barred
(a) the performance of the promise will satisfy an obligation of limitations . or l
·the promisee to pay money to the beneficiary; or bankruptcy, or
because of the ~
(b) .the circumstances indicate that the promisee intends to give B promises A to
. the beneficiary the benefit of the promised performance. unenforceable d
(2) An incidental beneficiary is a beneficiary who is notan intended tended beneficiE
beneficiary. · tion (1)(a).
2. B promises
· Comment: the promisee, and a direct action by port for A's mir
a.. . Promisee and beneficiary. This beneficiary against promisor is normal- A is bound by la
Section distinguishes an "intended" ly appropriate to carry out the inten- an intended l
beneficiary, who acquires a right by tion of promisor and promisee, even Subsection (1)(a:
virtue ofa· promise, from an "inciden~ though no intention is manifested to 3. B promises 1
tal'; beneficiary, who does not. See give the beneficiary the benefit of the debts A may ir
.§§ 304, 915, Section 2 defines "promis- promised performance. Promise of a undertaking, A
ee" as the person to whom a promise performance other than the payment dertaking debts
is addl'essed, and "beneficiary" as a of money may be governed by the same the promise is
person. other than the promisee who· principie if the promisee's obligation is promise that B ·
will be benefitted by performance of regarded as easily convertible into E, they are inte
the pro;ffiise. :Both terms are neutral money, as in cases of obligations to under Subsectü
with respect to rights and duties: ei- deliver commodities or . securities money is to be 1
ther or 'both or neither may have a which are actively traded in organized that he may l
legal right to performance. Either markets. Less liquid obligations are money to pay e,
promisee· or beneficiary may but need left to Subsection (1)(b). at most ineidentl
not be connected with the transaction A suretyship relation may exist even c. Gift promise.
in · other ways: neither promisee . nor though the duty of the promisee is ised performance is r
beneficiary is necessarily the person to voidable or is unenforceable by reason r ecipient, discharges
whom performance is to be rendered, of the statute of limitations, the Stat- has against anyone,
the person who will receive economic ute of Frauds, or a discharge in bank- designed to beriefit h
benefit, or the person who furnished ruptcy, and Subsection (1)(a) covers often referred to as
the consideration. such cases. The term "creditor benefi- The beneficiai·y of ~
. b, Promise . to pay the promisee's ciary" has also sometimes been used often referred to as a
debt. The type of beneficiary covered with reference to promises to satisfy a ry'!; he is an intend'
by Subsectiori (1)(a) is often referred supposed or asserted duty of the prom- der Subsection (1)(
to as a "creditor beneficiary." In such isee, bu t there is no suretyship if the need not provide th
· cases the promisee is surety for the promisee has never been under any to be rendered. direc
promisor, the promise is an asset of duty to the beneficiary. Hence such ciary: a gift may be n

158
1

J. ".
;QND CONTRACT BENEFICIARlES § 302 .
)misor, or to su e for cases are not covered by Subsection ciary, for example, by payment of his
nt. On the death of (1)(a). The beneficiary of a promise to debt. Nor is any contact or communi-
d. discharge a lien on the promisee's cation with the beneficiary essential.
property, or of a promise to satisfY a
duty of a third person, is similarly Illustrations:
~FICIARIES excluded from Subsection (1)(a). Such
beneficiaries may, however, be "in- 4. A, an insurance company,
lS tended beneficiaries" under Subsection promises·B in a policy of insurance
(1)(b). to pay $10,000 on B's death to C,
>r and promisee, a B's wife. e is an intended benefi-
· if recognition of a Illustrations: ciary under Subsection (1)(b).
tte to effectuate the l. A owes e a debt of $100. The 5. e is a troublesome person who
debt is barred by the statute of is annoying A. A dislikes him but,
.i sfy an obligation of limitations or by a discharge in believing the best way to obtain
ciary; or bankruptcy, or is unenforceable freedom from annoyance is to
because of the Statute of Frauds. make a present, secures from B a
nisee intends to give B promises A to pay the barred or promise to give e a box of cigars.
•mised performance. unenforceable debt. e is an in- e is an intended beneficiary under
.o is not an intended tended beneficiary under Subsec-
Subsection (1)(b).
tion (1)(a).
2. B promises A to furnish sup- 6. A's son e is indebted to D.
nd a direct action by port for A's minor child e, whom With the purpose of assisting e, A
1st promisor is normal- A is bound by law to support. e is secures from B a promise to pay
o carry out the inten- an intended beneficiary under the debt to D. Both e and D are ··
.r and promisee, . even Subsection (1)(a). intended beneficiaries under Sub-
1tion is manifésted to section (1)(b) .
3. B promises Ato pay whatever
iary the benefit of the debts A may incur in a certain . 7. A owes e $100 for money lent. ·
:manee. Promise of a undertaking. A incurs in the un- B promises A to pay e $200, both
10r than the payment
) governecl by the f\ame
Jertaking debts to e, D and E. If as a discharge uf Lhe JeLL and· as .
the promise is intorproted as a an indication of A's gratiLude to e
)romisee's obligation is promise that B will pay e, D and for making the loan. e is an in-
~sily convertible. into E, they are intended beneficiaries tended beneficiary under Subsec-
:ases of obligations to under Subsection (1)(a); if the tion (1)(a) as to the amount of the
>dities or securities money is to be paid to A in order debt and under Subsection (1)(b)
Jly traded in organized that he may be provided with -as to the excess.
liquid obligations are money to pay e, D and E, they are
n (1)(b). at most incidental beneficiaries. 8. A conveys land to B in consid-
relation may exist even c. Gift promise. Where the prom- eration of B's promise to . p~lJ
GY of the promisee is ised performance is not paid for by the $15;ooo as follows: $5,000 to e,
nenforceable by reason recipient, discharges no right that he A's wife, on whom A wishes · to
f limitations, the Stat- has against anyone, and is apparently make a settlement, $5,000 to D to
>r a discharge in bank- designed to benefit him. the promise is whom A is indebted in that
tbsection (1)(a) covers often referred to as a '"gift promise." amount, and $5,000 to E, a life ..
term "creditor benefi- The beneficiary of guch a promise is insurance company, to purchase
sometimes been used often referred to as a "donee beneficia- an annuity payable to A during his
;o promises to satisfy a ry"; he is an intended beneficiary un- life. e is an intended beneficiary
erted auty of the prom- der Subsection (1)(b) . The contract under Subsection (1)(b); D is an
is no suretyship if the need not provide that performance is intended beneficiary undor Sub-
1ever been under any to be rendered directly to the benefi- section (1)(a); E is an incidental
meficiary. Hence such ciary: a gift may be made to the benefi- beneficiary.

159
§ 302 RESTATEMENT OF CONTRACTS-SECOND

9. A owes C $100. Not knowing system, B obtains from A a prom- 318, without re~
of any such debt, B promises A to ise to remove specified types of tion of A or B,
pay $100 to C. C is an intended waste from its deposits into the tends to C.
beneficiary under Subsection system. e, a downstream landown- e. Incidental bene,
(1)(a) if A manifests an intention er, is an intended beneficiary un- ance of a contract w
that the payment is to satisfy the der Subsection (1)(b). third person. But un
debt, an inte~ded beneficiary un- 11. A, a · corporation, contracts son is an intended b
der Subsection (1)(b) if A mani- with B, an insurance company, defined, no duty to h
fests an intention to make á gift of . § 315.
that B shall pay to any future buy-
$100, leaving outstanding the orig- er of a car from A the loss he may
inal debt. ' Illustrations:
suffer by the burning or theft of
d. Other intended beneficiaries. Ei- the car within one year after sale. 16. B contracts
ther a promise to pay the promisee's Later A sells a car to C, telling C an expensive bui
debt to a beneficiary or a gift promise about the insurance. e is an in- C's adjoining la
involves a manifestation of intention tended beneficiary. hanced in value
ance of the cont1
by the promisee and promisor suffi- 12. B contracts to build a house dental beneficiar:
cient, in a contractual setting, to make for A. Pursuant to the contract, B
reliance by the beneficiary both rea- 17. B contracts
and his surety S execute a pay- new car manufa,
sonable and probable. Other cases may ment bond to A by which they
be quite similar in this respect. Exam- an incidental 1
promise A that all of B's debts for though the pror
ples are a promise to perform a sup- labor and materials on the house
posed or asserted duty of the promisee, performed if mo
will be paid. B later employs C as
a promise to discharge a lien on the a carpenter and buys lumber fro~ 18. A, a labor u
promisee's property, or a promise to a trade associati
D. C and D are intended beneficia-
satisfy the duty of a third person. In against any mem
ríes of S's promise to A, whether
such cases, if the beneficiary would be certain period. e
or not they have power to create
reasonable in relying on the promise as bers of B charte
liens on the house.
manifesting an intention to confer a on terms unde1
right on him, he is an intended benefi- 13. C asserts that A owes him strike would cam
ciary. Where there is doubt whether $100. A does not owe this money, C. C is an incide!
such reliance would be reasonable, or think that he owes it, but rath- A' s promise.
considerations of procedural conven- er than engage in litigation and in 19. A contracts
ience and other factors not strictly de- order to obtain peace of mind A r. ing for C. B then
pendent on the manifested intention of secures a promise from B to pay C to supply lumbe
the parties may affect the question $100. e is an intended beneficiary. building. e is an
whether under Subsection (1) recogni- 14. A, a labor union, enters into ciary of B's pron
tion of a right in the beneficiary is a collective bargaining agreement · incidental benefi<
appropriate. In sorne cases an over- with B, an employer, in which B ise to pay A for tl
riding policy, which may be embodied promises not to discriminate f T1'ust and agen
in a statute, requires recognition of against any employee because of or property is tram
such a right without regard to the in- his membership in A. All B's em- person to another wit
tention of the parties. ployees who are members of A al'e benefit a third pers01
in tended beneficiaries of the prom- intention of the ·pa
Illustrations: ise. whether the transfer<
10. A, the operator of a chicken 15. A buys food from B, a grocer, the transferor or the
1
trustee for the third r
processing and fertilizer plant, for household use, relying on B's l.
contracts with B, a municipality, express warranty. C, A's minor ¡ § 303. Conditi
to use B's sewage system . With child, is injured in person by
the purpose of preventing harm to breach of the warranty. Under The statement,
landowners downstream from its Uniform Commercial Code § 2- and unconditional r
,r
160
OND CONTRACT BENEFICIARlES § 303

tains from A a prom- 318, without regarcl to the inten- the third person is the beneficiary of a
ve specified types of tion of A or B, the warranty ex- promise made by the transferee. See
its deposits into the tends to C. Restatement, Second, Agency §§ 14B,
downstream landown- e. Incidental beneficiaries. Perform- 14L; Restatement, Second, Trusts
ended beneficiary un- ance of a contract will often benefit a §§ 8, 14. Similarly, an agreement be-
m (1)(b). thircl person. But unless the thircl per- tween two parties may constitute one
son is an intended beneficiary as here the agent of the other to confer a bene-
:orporation, contracts fit on a third person, or the promise of
defined, no duty to him is created. See
insurance company, § 315. one may be made to the other as trus-
pay to any future buy- tee for a third person, or a third per-
·om A the loss he may Illustrations: son may be the beneficiary of a prom-
e burning or theft of ise of either or both; the 'm anifested
16. B contracts with A to erect
in one year after sale. an expensive building on A's land. intention of the parties determines
:; a car to e, telling e C's adjoining land would be en- which of these possible relations is cre-
lSUrance. C ÍS an Ín- hanced in value by the perform- ated · for the particular purpose in-
ficiary. ance of the contract. C is an inci- volved. There is a fiduciary relation
racts to build a house dental beneficiary. between agent and principal or be-
tant to the contract, B 17. B contracts with A to huy a tween trustee and beneficiary, but not
·ety S execute a pay- new car manufactured by C. C .is between promisor or promisee and
to A by which they an incidental beneficiary, even benefic.i ary of a contract. Agency re-
hat all of B's debts for though the promise can only be quires the consent of the principal and
1aterials on the house performed if money is paid to C . the agent; a trust or a contract for the
. B later employs C as 18. A, a labor union, promises B, benefit of a third person does not re-
and buys lumber from a trade association, not to striko quire the consent of the beneficiary.
are intended beneficia- against any member of B during a Either the promisee or the beneficiary
Jromise to A, whether certain period. One of the mem- of a promise may be made a trustee of
have power to create bers of B charters a ship from C rights arising by virtue of the promise;
house. on terms under which such a although the beneficiary of such a
!rts that A owes him strike would cause financialloss to trust .is a beneficiary of the promise
!S not owe this money, C. C is an incidental beneficiary of under this Section, his rights must be
1t he owes it, but rath- A's promise. enforced in accordance with the law of
age in litigation and in 19. A contracts to erect a build- Trusts. See Restatement, Second,
1tain peace of mind A ing for C. B then contracts with A Trusts §§ 26, 177, 199.
:omise from B to pay C to supply lumber needed for the
.n intended beneficiary. building. e is an incidental benefi- Illustration:
1bor union, enters into ciary of B's promise, and B is an ·20. A, an insurance company,
bargaining agreement incidental beneficiary of C's prom- pro mises B in a policy of insurance
employer, in which B ise to pay A for the building. to pay $10,000 on B's death to C
not to discriminate f Trust and agency. Where money as trustee for B's wife D. C is an
v employee because of or property is transferred from one intended beneficiary and may en-
rship in A. All B's em- person to another with an intention to force his rights as trustee; D's
J are members of A are benefit a third person, the manifested rights as beneficiary of the trust
meficiaries of the prom- intention of the parties determines and the contract are enforceable
whether the transferee is an agent for only in the manner in which
the transferor or the third person or a rights of other trust beneficiaries
s food from B, a grocer, trustee for the third person or whether are enforced.
old use, relying on B's
UTanty. e, A's minor § 303. Conditional Promises; Promises Under Seal
injured in person by
the warranty . Uncler
The statements in this Chapter are applicable to both conditional
::ommercial Cocle § 2- and unconditional promises and to sealed and unsealed promises.

161
§ 304 RESTATEMENT OF CONTRACTS-SECOND

§ 304. Creation of Duty to Beneficiary tled to recover such ·

there is no conflict
A promise in a contract creates a duty in the promisor to any beneficiary or the
intended beneficiary to perform the promise, and the intended beneficia- promisee as surety 1
ry may· enforce the duty. not permitted to 1
beneficiary for the a
§ 305. Overlapping Duties to Beneficiary and Promisee sor, and the promis1
(1) A promise in a contract creates a duty in the promisor to the titled to protection
double liability. See
promisee to perform the promise even though he also has a similar duty
difficulties can be !
to an intended beneficiary. performance of the
(2) Whole or partial satisfaction of the promisor's duty to the exoneration. See Re
beneficiary satisfies to that extent the promisor's duty to the promisee. rity § 112.

Illustration:
§ 306. Disclaimer by a Beneficiary
l. A, a stockh<
A beneficiary who has not previously assented to the promise for his ration, guarant
benefit may in a reasonable time after learning of its existen ce and terms debt owed by }
render any duty to himself inoperative from the beginning by disclaimer. stock to B, whc
and pay A's
§ 307. Remedy of Specific Performance guaranty. B fa
sues A on the
Where specific performance is otherwise an appropriate remedy,
obtain a decree
either the promisee or the beneficiary m.ay maintain a suit for specific the debt to C.
enforcement of a duty owed toan intenQ.ed beneficiary.
d. Giftpromise.
Comment: cannot recover damages suffered by ee intends to make
a. Suit by beneficiary. Whether spe- the beneficiary, but the promisee is a ised performance t
cific performance is an appropriate proper party to sue for specific per- the beneficiary ordi
remedy is determined by the rules form ~mce if that remedy is otherwise
stated in §§ 357-69. Where a contract appropriate under the rules stated in § 308. ldenti
creates a duty to a beneficiary under . §§ 357- 69. Where a statute requires It is not esser
the rule stated in § 304, the beneficia- suÚ; to be prosecuted in the name of ry that he be iden
ry is a proper party plaintiff either in the real party in interest, the promisee
an action for damages or in a suit for is commonly permitted to sue either as § 309. Def~n
specific performance. He is the real the ~ 'trustee of an express trust" or by
party in interest within the meaning of an express provision for "a party with (1) A promisE
any statute requiring suit to be whom or in whose name a contract has formed between 1
brought by such .a party. There is no been made for the benefit of another." voidable or unenf
general requirement that the promisee See Federal Rules of Civil Procedure beneficiary is subj
be made a party, but the promisee is Rule 17. There is no general require- (2) lf a contr;
ordinarily a proper party and the cir- ment that the beneficiary be joined in impracticability, ¡:
cumstances may be such that a final such a suit; whether he should or must or prospective fai
decree should await joinder of the be made a party depends on the cir- that extent discha
promisee. As to grant of an injunction cumstances.
instead of specific performance, see (3) Except as
c. Promise to pay the promisee 's
§ 357(2) . . provided by the
debt. Where the promised performance
will satisfy an obligation of the promis-
promisor is not Sl
b. Suit by prornisee. Even though a
contract creates a duty to a beneficia- ee to pay money to the beneficiary, the promisee or to th<
ry, the promisee has a right to per- promisee may suffer substantial dam- (4) A benefici
formance. See § 305. The promisee ages as a result of breach. He is enti- or defense arising

162
1

l.
 *'

;QND CONTRACT BENEFICIARlES § 309

tled to recoyer such damages so long as nomic irtterest in the performance but
there is no co11flict with rights of the the promisee does not. Thus the prom-
1e promisor to any beneficiary or the promisor. But the isee may suffer no damages as the
) intended beneficia- promísee as surety for the promisor is result of breach by the promisor. In
not permitted · to compete with the such cases the promisee's remedy in
beneficiary for the assets of the promi- damages is not an adequate remedy
td Promisee sor, and the promü¡or is ordinarily en- within the rules stated in §§ 359 and
titled to protection against enforced 360, and specific performance may be
the promisor to the
double liability. See §§ 305, 310. These appropriate. See Illustration 1 to
:o has a similar duty difficulties can be avoided by specific § 305. The court may of course so
performance of the surety's right to fashion its decree as to protect the
nisor's duty to the exoneration. See Restatement of Secu- interests of the promisee and benefi-
uty to the promisee. rity § 112. ciary without unnecessary injury to
the promisor or innocent third per-
Illustration: sons. See § 358.
l. A, a stockholder of X, a corpo-
) the promise for his ration, guararitees payment of a Illustration:
existence and terms debt owed by. X to C. A sells his 2. As part of a separation agree-
[nning by disclaimer. stock to B, who agrees to assume ment B promises his wife A not to
and pay A's obligation on the change the provision in B's will for
guaranty. B fails to pay, and C e, their son. A dies and B changes
sues A on .the guaranty. A may his will to e's detriment, adding
appropriate remedy, obtain a decree directing B to pay
in a suit for specific also a provision that e will forfeit
the debt to C. any bequest if he questions the
ry.
d. Gift prom.ise. Where the promis- change befare any tribunal. A's
damages suffered by ee intends to make a gift of the prom- personal representative may sue
but the promisee is a ised perfo1~mance to the beneficiary, for specific performance of B's
, sue for specific per- the beneficiary ordinarily has an eco- promise.
.t remedy is otherwise
ler the rules stated in § 308. Identification of Beneficiaries
~re a statute requires It is not essential to the creation of a right in an intended beneficia-
~cuted in the name of · ry that he be ideritified when a contract containing the promise is made.
1 interest, the promisee
~mitted to sue either as § 309. ~efe~ses Against the Beneficiary
an express trust" or by
ision for "a party with (1) A promise creates no duty to a beneficiary unless a contract is
•se name a contract has formed between the promisor and the promisee; and if a contract is
;he benefit of another." voidable or unenforceable at the time of its formation the right of any
tles of Civil Procedure beneficiary. is subject to the infirmity.
is no general require- (2) If a contract ceases to be binding in whole or in part because of
)eneficiary be joined in impracticability, public policy, non-occurrence of a condition, or present
)ther he should or must or prospective failure of performance, the right of any beneficiary is to
·ty depends on the cir- that extent discharged or modified.
(3) Except as stated in Subsections (1) and (2) and in § 311 or as
to pay the promisee's provided by the .contract, the right of any beneficiary against the
: promised performance
promüÍor is not subject to the promisor's claims or defenses against the
bligation of the promis-
promisee orto the promisee's claims or defenses against the beneficiary.
v to the beneficiary, the
mffer substantial dam- (4) A berieficiary's right against the promisor is subject to any claim
t of breach. He is enti- or defense arising from his own conduct or agreement.

163
 ~ ',,

§ 310 RESTATEMENT OF CONTRACTS-SECOND

§ 310. Remedies of the Beneficiary of a Promise to Pay the not subject to e<
·Promisee's Debt; Reimbursement ofPromisee consequential darr
· (1) Where an intended beneficiary has an enforceable claim against unless
the promisee, he can obtain a judgment or judgments against either the (a) the te
promisee or the promisor or both based on their respective duties to him. (b) the p
Satisfaction in whole or in part of either of these duties, or of a judgment publi<
thereon, satisfies to that extent the other duty or judgment, subject to pro mi
the promisee's right of subrogation. with
· (2) · To · the · extent that the claim of an intended beneficiary is presc1
satisfied from .assets of the promisee, the promisee has a right of
reimbursement from the promisor, which may be enforced directly and § 314. Suret~
also, if the heneficiary's claim is fully satisfied, by subrogation to the
An intended 1
claim of the beneficiary against the promisor, and to any judgment
promisee is affect1
thereon and to any security therefor.
from the time he 1
§ 311.. Variation of a Duty toa Beneficiary
§ 315. Effect
(1) Discharge or modification of a duty to an intended beneficiary by
An incidental
conduct of the promisee or by a subsequent agreement between promisor
and promisee is ineffective if a term of the promise creating the duty so . against the promii:
provides.
(2) In tbe absence of such a term, the promisor and promisee retain CE
power to discharge or modify the duty by subsequent agreement.
(3) Such a power terminates when the beneficiary, before he re-
ceives notifi~ation of the discharge or modification, materially changes
§ 316. Scope
his positioh in justifiable reliance on the promise or brings suit on it or (1) In this Ch
manifests assent to it at the request of the promisor or promisee. of a duty or condi
delegated duty, o:
( 4) If the promisee receives consideration for an attempted dis- duties, and condi
charge or modífication of the promisor's duty which is ineffective against contract.
the benefteiary,: the beneficiary can assert a right to the consideration so
(2) The stater
received. 'J;'he promisor's duty is discharged to the extent of the amount statutory and oth
received by the beneficiary. ments, relating · t.
contracts.
§ 312. Mistake asto Duty to Beneficiary
The effect of an erroneous belief of the promisor or promisee as to
the existence or extent of a duty owed to an intended beneficiary is
TOP
determined by the rules making contracts voidable for mistake.
§ 317. Assign
§ 313. Government Contracts (1) An assign
(1) The ·rules stated in this Chapter apply to contracts with a intention to tran
government · or governmental agency except to the extent that applica- performance by th
tion would. contravene the policy of the law authorizing the contract or assignee acquires E
prescribing .remedies for its breach. (2) A contract
(2) In particular, a promisor who contracts with a government or (a) the su
governmental agency to do an act for or rencler a service to the public is assign

164
'OND ASSIGNMENT AND DELEGATION § 317

"Omise to Pay the not subject to contractual liabílity to a member of the public for
ofPromisee consequential damages resulting from performance or failure to perform
unless
!eable claim against
;s against either the
1 (a) the terms of the promise provide for such liability; or
~ctive duties to him. 1 (b) the promisee is subject to liability to the member of the
es, or of a judgment public for the damages and a direct action against the
udgment, subject to promisor is consistent with the terms of the contract and
w~th the policy of the law authorizing the contract and
nded beneficiary is prescribing remedies for its breach.
see has a right of
nforced directly and § 314. Suretyship Defenses
subrogation to the An intended beneficiary who has an enforceable claim against the
d to any judgment · promisee is affected by the incidents of the suretyship of the promisee
from the time he has knowledge of it.

§ 315. Effect of a Promise of Incidental Benefit

ended beneficiary by An incidental beneficiary acquires by virtue of the promise no right
nt between promisor against the promisor or the promisee.
creating the duty so

and promisee retain CHAPTER 15. ASSIGNMENT

; agreement. ·· AND DELEGATION
iciary, befare he re- § 316. Scope of This Chapter
' materially changes
(1) In this Chapter, references to assignment of a right or delegation
~ brings suit on it or .
of a duty or condition, to the obligee or obligar of an assigned right or
)misar or promisee. ·
delegated duty, or to an assignor or assignee, are limited to rights,
r an attempted dis-. duties, and conditions arising under a contract or for breach of a
is ineffective ¡;tgainst contract.
the consideration so (2) The statements in this Chapter are qualified in sorne respects by
)Xtent of the amount statutory and other rules governing negotiaQ.le instruments and docu-
ments, relating to interests in land, and affecting other classes of
contracts.

;or or promisee as to TOPIC l. WHAT CAN BE ASSIGNED

;ended beneficiary is OR DELEGATED
'or mistake.
§ 31 7. Assignment ~f a Right
(1) An assignment of" a right is a manifestation of the assignor's
to contracts with · a intention to transfer ít by virtue of which the assignor's right to
, extent that applica- performance by the obligar is extinguished in whole or in part and the
;izing the contract or assignee acquires a right to such performance. ··
(2) A contractual right can be assigned unless
rith a government or (a) the substitution of a right of the assignee for the right of the
3rvice to the public is assignor would materially change the duty of the obligar, or

165
§ 317 RESTATEMENT OF CONTRACTS-SECOND

materially increase the burden or risk imposed on him by § 322. Contr;

his contract, or materially impair his chance of obtaining (1) Unless the
return performance, or materially reduce its value to him, or prohibiting assign1
(b) the assignment is forbidden by statute or is otherwise assignee of the P'
inoperative on grounds of public policy, or (2) A contrae
(e) assignment is validly precluded by contract. contract, unless a<
(a) does n
§ 318. Delegation of Performance of Duty ofthe
(1) An obligar can properly delegate the performance of his duty to due pe
another unless the delegation is contrary to public policy or the terms of (b) gives 1
his promise. forbid-
(2) Unless otherwise agreed, a promise requires performance by a ineffec
particular person only to the extent that the obligee has a substantial (e) is for
interest in having that person perform or control the acts promised. assign·
(3) Unless the obligee agrees otherwise, neither delegation of per- obligm
formance nor a contract to assume the duty made with the obligar by the prohib
person delegated discharges any duty or liability of the delegating
obligar. § 323. Obligo
(1) A term oJ
§ 319. Delegation oí Performance of Condition future assignment
(1) Where a performance by a person is made a condition of a duty, tion of the perfon
performance by a person delegated by his satisfies that requirement subsequent objectil
unless the delegation is contrary to public policy or the terms of the (2) A manifes1
agreement. is similarly effecti
(2) Unless otherwise agreed, an agreement requires performance of which a promise w
a condition by a particular person oply to the extent that the obligar has change of position
a substantial interest in having that person perform or control the acts
required.
TOPIC 2. MC
§ 320. Assignment of Conditional Rights § 324. Mode e
The fact that a right is created by an option contract or is condition- lt is essential
al on the performance of a return promise or is otherwise conditiomtl . · an intention to tr
does not prevent its assignment before the condition occurs. action or manifest
may be made to th
§ 321. Assignment of Future Rights as provided by sta1
(1) Except as other!Vise provided by statute, an assignment of a writing.
right to payment expected to arise out of an existing employment or
other continuing business relationship is effective in the same way as an § 325. Order
assignment of an existing right. (1) A written 4

(2) Except as otherwise provided by statute and as stated in Subsec- . to another person
tion (1), a purported assignment of a right expected to arise under a the existence of a
contract not in existence operates only as a promise to assign the right order and the dra'
when it arises andas a power to enforce it. the drawer is to re1

166
 j ,.,.

JND ASSIGNMENT AND DELEGATION § 325

mposed on him by § 322. Contractual Prohibition of Assignment

hance of obtaining (1) Unless the circumstances indicate the contrary, a contract term
its value to him, or prohibiting assignment of "the contract" bars only the delegation to an
.e or is otherwise assignee of the performance by the assignor of a duty or condition .
(2) A contract term prohibiting assignment of rights under the
::t. contract, unless a different intention is manifested,
(a) does not forbid assignment of a right to damages for breach
of the whole contract or a right arising out of the assignor's
Lance of his duty to due pérformance of his en tire obligation;
licy or the terms of (b) gives the obligar a right to damages for breach of the terms
forbidding assignment but does not render the assignment
' performance by a ineffective;
e has a substantial (e) is for the benefit of the obligar, and does not prevent the
the acts promised. assignee from acquiring rights against the assignor or the
r delegation of per- obligar from discharging his duty as if there were no such
h the obligar by the prohibition.
of the delegating
§ 323. Obligor's Assent to Assignment or Delegation
(1) A term of a contract manifesting an obligor's assent to the
ion future assignment of a right or an obligee's assent to the future delega-
condition of a duty, tion of the performance of a duty or conditiori ·¡s effective despite any
s that requirement subsequent objection. ·
>r the terms of the (2) A manifestation of such assent after the formation of a contract
is similarly effective if made for consideration or in circumstances in
tires performance of which a promise would be binding without consideration, or if a material
that the obligar has change of position takes place in reliance on the manifestation.
1 or control the acts

TOPIC 2. MODE OF ASSIGNMENT OR DELEGATION

§ 324. Mode of Assignment in General
tract or is condition- It is essential to an assignment of a right that the obligee manifest
therwise conditional an intention to transfer the right to another person without further
occurs. action or manifestation of intention by the obligee. The manifestation
may be made to the other or to a third person on his behalf and, except
as provided by statute or by contract, may be made either orally or by a
an assignment of a writing.
:ting employment or
Lthe same way as an § 325. Order as Assignment
(1) A written order drawn upon an obligar and signed and delivered
l as stated in Subsec- to another person by the obligee is an assignment if it is conditional on
ted to arise under a the existence of a duty of the drawee to the drawer to comply with the
:e to assign the right order and the drawer manifests an intention that a person other than
the drawer is to retain the performance.

167

L
§ 325 RESTATEMENT OF CONTRACTS-SECOND

(2) An order which directs the drawee to render a performance § 329. Repuc
without reference to any duty of the drawee is not of itself an assign- (1) The legal .
ment, even though the drawee is under a duty to the drawer to comply obligor of the assi~
with the order and even though the order indicates a particular account a competént perso
to be debited or any other fund or source froÍn which reimbursement is
(2) If the obli.
expected.
performance from
§ 326. Partial Assignment assignor, a novati
charged and a sim
(1) Except as stated in Subsection (2), an assignment of a part of a
right, whether the part is specified as a fraction, as an amount, or Comn
otherwise, is operative as to that part to the same extent and in the same a. Repudiation e
manner as if the part had been a separate right. sorne cases a repudi
to a contract dischar
(2) If the obligor has not contracted to perform separately the
other party; in som
assigned part of a right, no legal proceeding can be maintained by the the other to treat
assignor or assignee against the obligor over his objection, unless all the which might otherw
persons entitled to the promised performance are joined in the proceed- niay itself be a total
ing, or unless joinder is not feasible and it is equitable to proceed Uniform Commerci
without joinder. For these purpose
eludes a positive st:
§ 327. Acceptance or Disclaimer by the Assignee signar that he will 1
stantially perform 1
(1) A manifestation of assent by an assignee to the assignment is
voluntary affirmati
essential to make it effective unless ·. renders substantial
(a) a third person gives consideration for the assignment, or parently impossible.
(b) the assignment is irrevocable by virtue of the delivery of a stances a statemen
whether he will sub
writing toa third person.
or that he takes no
(2) An assignee who has not manifested assent to an assignment performance, or eve
may, within a reasonable time after learning ·of its existence and t erms, adequate assurancE
render it inoperative from the beginning by ·disclaimer. may have a similar 1
51.
§ 328. Interpretation of Words of Assignment; Effect of Ac- b. Scope of obligc
ceptance of Assignment signment of a cont
delegation to the a
(1) Unless the language or the circumstances indicate the contrary,
signor's duty is ol
as in an assignment for security, an assignment of "the contract" or of course. The obligm
"all my rights under the contract" or an assignment in similar general right may then hav
terms is an assignment of the assignor's rights and a delegation of his hold performance ur
unperformed duties under the contract. equate assurance o
(2) Unless the language or the circumstances indicate the contrary, the assignee. Sectio
the acceptance by an assignee of such an assignment operates as a demand such assu:
promise to the assignor to perform the assignor's unperformed duties, tance of performanc
manifest the obligo
and the obligor of the assigned rights is an intended beneficiary of the
assignment and dele
promise. but not to the disch.
Caveat: The lnstitute expresses no opiriion as to whether the rule or's duty. However,
stated in Subsection (2) applies to an assignment by a purchaser of his knows that the dele¡;
rights under a contract for the sale of land: . repudiated his duty

168
 if '"

'JOND ASSIGNMENT AND DELEGATION § 329

:1der a performance § 329. R~¡;mdiation by Assignor and Novation With Assignee

; of itself an assign- (1) The legal effect of a repudiation by an assignor of his duty to the
:le drawer to comply obligor of the assigned right is not limited by the fact that the assignee is
a particular account a competent person and has promised to perform the duty.
::h reimbursement is (2) If the obligor, with knowledge of such a repudiation, accepts any
performance from the assignee without reserving his rights against the
assignor, a novation arises by which the duty of the assignor is dis~
charged and a similar duty of the assignee is substituted.
nment of a part of a
., as an amount, or CommÉmt: know that the performance of the as-
a. Repudiation and its effects. In signee is offered by way of novation,
tent and in the same
sorne cases a repudiation by one party and his silent acceptance of the per-
to a contract discharges the duty of the formance operates as acceptance of the
form separately the other party; in sorne cases it requires offer of novation. Compare§ 69.
·e maintained by the the other to treat as total a breach
ection, unless all the Illustrations:
which might otherwise be partial, or it
)ined in the proceed- may itself be a total breach. See § 253; l. A is under a contract with B
3quitable to proceed Uniform Commercial Code § 2-610. to build a house for $10,000. A
For these purposes repudiation in- assigns his rights under the con-
eludes a positive statement by an as- tract to e, who agrees to assume
signar that he will tiot or cannot sub- A's duty to build the house. B is
>ignee
to the assignment is
1 stantially perform · his duties, or any
volunüiry affirll)ative action which
informed of the assignment and
assumption, and makes no objec-
renders substantial performance ap- tion as C partly performs. A re-
parently impossible .. In sorne circum- mains bound toBas surety for C's
1e assignment, or
stances a -statement- that he doubts performance.
e of the delivery of a whether he will substantially perform, 2. In Illustration 1, A withdraws
or that· he takes no responsibility for from the construction business
,nt to an assignment performance, ar even a failure to give and informs B that he takes no
adequate assurance of performance further responsibility for C's per-
existence and terms,
wr.
1 may have a sirililar effect. See §§ 250- formance. B makes no objection
51. and C proceeds with the work. A is
b. Scope of.óbligor's assent. The as- discharged.
nent; Effect of Ac-
signment of a ·contractual right and c. Reseruation of rights. The obligar
indicate the contrary,
1 delegation to the assignee of the as- of an assigned right cannot be forced
signor's duty is: often a matter of to assent to a repudiation by the as-
f "the contract" or of course. The obligar of the assigned signar or to an offer of a substituted
mt in similar general right may then . háve a right to with- contract with the assignee. To avoid
1d a delegation of his hold pe1-formance until he receives ad- the implication that his silence gives
equate assurance . of performance by assent, he must manifest either to the
the assignee. _Section 251. Failure to . assignor or to the assignee his inten-
indicate the contrary,
demand such assurance and accep- tion to retain unimpaired his rights
nment operates as a tance of performance by the assignee against the assignor, but no particular
. ; unperformed duties, manifest the obligor's assent to the form is required. See Uniform Com-
ded beneficiary of the assignment and delegation (see § 323), mercial Code §§ 1-207, 3-606; § 281.
but not to the discharge of the assign- If the terms of the assignment so pro-
s to whether the rule or's duty . However, when the obligar vide, the delegation or assumption of
by a purchaser of his lmows that the delegating assignor has duty may be defeated in such a case,
repudiated his duty he has reason to and the repudiation may be retracted

169
§ 329 RESTATEMENT OF CONTRACTS-SECOND

before it has been acted on. See Uní- Illustration:

forro Coni.~ercial Code § 2-611. (4) A gratuitc
Where the assignee continues perform- 3. In Illustration 2, on being in- avoid injustice wr
ance, the reservation of rights by the formed of A's repudiation, B noti- ment to induce a1
obligor means that the assignor, if fies A or C that further perform- and the assignme1
compelled to pay for the assignee's de- ance is "without prejudice." A is
fault, will have a right over against the not discharged. (5) An assign
assignee. (a) in exc
be cm
§ . 330..· Contracts to Assign in the Future, or to Transfer
Proceeds to Be Received (b) as se1
existí
(1) A contract to make a future assignment of a right, or to transfer
proceeds to be received in the future by the promisor, is not an § 333. Warra
assignment. ·
(1) Unless a
(2) Except as provided by statute, the effect of such a contract on purports to assig
the rights and duties of the obligor and third persons is determined by warrants to the as
the rules relating to specific performance of contracts.
(a) that l
assigr
TOPIC 3. EFFECT BETWEEN ASSIGNOR do so;
AND ASSIGNEE (b) that t
§ 331.. P~tially Effective Assignments no lir
than 1
An assignment may be conditional, revocable, or voidable by the
assigrior,' or unenforceable by virtue of a Statute of Frauds. (e) that a
the as
§ · 332·~ .·':Revocability Of Gratuitous Assignmcnts assign
(2) An assign
(1) Unless a contrary intention is manifested, a gratuitous assign- obligar is solvent e
ment is irrevocable if
(3) An assigr
. (a) the assignment is in a writing either signed or under seal assignee with refe:
. . that is delivered by the assignor; or same extent that o
(b) · the assignment is accompanied by delivery of a writing of a (4) An assign
type customarily accepted as a symbol or as evidence of the an assignment of
right assigned. unless an intentio:
ti es.
(2) Except as stated in this Section, a gratuitous assignment is
revocable and the right of the assignee is terminated by the assignor's
· death or incapacity, by a subsequent ass.i gnment by the assignor, or by TOPIC 4.
notification: from the assignor received by the assignee or by the obligar.
§ 334. Variat
(3) A gratuitous assignment ceases to be revocable to the extent (1) If the obli¡
· that before the assignee's r ight is t erminated he obtains the original oblige
(a) payment or satisfaction of the obligation, or the same conditior.
(b) judgment against the obligor, or (2) If the obl
obligee could prop
(e) a new contract of the obligor by novation.
there is similar coc
170
OND ASSIGNMENT AND DELEGATION § 334
(4) A gratuitous assignment is irrevocable to the extent necessary to
ration 2, on being in- 'avoid injustice where the assignor should reasonably expect the assign-
s repudiation, B noti- ment to induce action or forbearance by the assignee or a subassignee
that further perform- and the assignment does induce such action or forbearance.
;h out prejudice." A is (5) An assignment is gratuitous unless it is given or taken
ed.
(a) in exchange for a performance or return promise that would
be consideration for a promise; or ·
~. or to Transfer (b) as seéurity for or in total or partial satisfaction of a pre-
existing debt or other obligation.
right, or to transfer
romisor, is not an § 333. Warranties of an Assignor
(1) Unless a contrary intention is manifested, one who assigns or
' such a contract on purports to assign a right by assignment under seal or for value
ms is determined by warrants to the assignee
S. (a) that he will do nothing to defeat or impair the value of the
assignment and has no knowledge of any fact which would
;siGNOR do so;
(b) that the right, as assigned, actually exists and is subject to
no limitations or defenses good against the assignor other
than those stated or apparent at the time of the assignment;
, or voidable by the (e) that any writing evidencing the right which is delivered to
<'rauds. the assignee or exhibited to him to induce him to accept the
assignment is genuine and what it purports to be.
ents
(2) An assignment does not of itself operate as a warranty that the
a gratuitous assign- obligor is solvent or that he will perform his obligation.
(3) An assignor is bound by affirmations and promises to the
signed or under ·seal assignee with reference to the right assigned in the same way and to the
same extent that one who transfers goods is bound in like circumstances.
very of a writing of a (4) An assignment of a right to a sub-assignee does not operate as
or as evidence of the an assignment of the assignee's rights under his assignor's warranties
unless an intention is manifested to assign the rights under the warran-
ties.
uitous assignment is
lted by the assignor's
)y the assignor, or by
TOPIC 4. EFFECT ON THE OBLIGOR'S DUTY
;nee or by the obligor. § 334. Variation of ObÜgor's Duty by Assignment
v-ocable to the extent (1) If the obligor's duty is conditional on the personal cooperation of
tains the original obligee or another person, an assig11ee's right is subject to
the same condition.
(2) If the obligor's duty is conditional on cooperation which the
obligee could properly delegate to an agent, the condition may occur if
on. there is similar cooperation by an assignee.

171
§ 335 RESTATEMENT OF CONTRACTS-SECOND

§ 335. Assignment by a Joint Obligee (3) Notwithst

same power his 1
A joint obligee may effectively assign his right, but the assignee can ·
obligar to the ext
enforce it only in the same manner and to the same extent as the his position in go•
assignor could have enforced it. the defect.
§ 336. Defenses Against an Assignee (4) Where th
symbol or as evidc
(1) By . an assignment the assignee acquires a right against the is not effective
obligar only to the extent that the obligar is under a duty to the
(a) again:
assignor; and if the right of the .assignor would be voidable by the obligar
C!r unenforceable against him if no assignment had been made, the right ance,
of the assignee is subject to the infirmity. writir
assigr
(2) The right of an assignee is subject to any defense or claim of the
(b) again:
obligar which accrues befare the obligar receives notification of the
assignment, but not to defenses or claims which accrue thereafter except writir
as stated in this Section or as provided by statute. or rea

(3) Where the right of an assignor is subject to discharge or modifi- § 339. Prote•
cation in whole or in part by impossibility, illegality, non-occurrence of a
Where a clain
condition, or present or prospective failure of performance by an obligee,
a substantial risll
the right of the assignee is to that extent subject to discharge or
obligar will be gn
modification even after the obligar receives notification of the assign-
ment.
(4) An assignee's right against the obligar is subject to any defense
TOPIC 5.
or claim arising from his conduct or to which he was subject as a party
or a prior assignee because he had notice. · § 340. Effect

§ 33 7. Elirnination of Defenses by Subsequent Events (1) An assignt

insolvent estate t
Where the right of an assignor is limited or voidable or unenforcea- entitled in the abs•
ble or subject to discharge or modification, subsequent events which
would eliminate the limitation or defense- have the same effect on the (2) Where an
right of the assignee. right and does not
assignor is a com
§ 338. Discharge of an Obligor Mter Assignment accordance with t1
ment of Security.
(1) Except as stated in this Section, notwithstanding an assignment,
the assignor retains his power to discharge or modify the duty of the § 341. Credit
obligar to the extent that the obligar performs or otherwise gives value .
until but not after thé obligar receives notification that the right has (1) Except as
been assigned and that performance is to be rendered to the assignee. superior to a judic
the assignor, unlE
(2) So far as an assigned right is conditional on the performance .of a
voidable by the asE
return promise, and notwithstanding notification of the assignment, any of creditors.
modification of or substitution for the contract made by the assignor and
obligar in good faith and in accordance with reasonable commercial (2) N otwithst:
standards is effective against the assignee. The assignee acquires corre- obligor who does n
sponding rights under the modified or substituted contract. has lost bis oppor

172
OND
ASSIGNMENT AND DELEGATION § 341

(3) Notwithstanding a defect in the right of an assignee, he has the

same power his assignor had to discharge or modify the duty of the
.u t the assignee can obligor to the extent that the obligor gives value or otherwise changes
.ame extent as the his position in good faith and without knowledge or reason to know of
the defect.
(4) Where there is a writing of a type customarily accepted as a
symbol or as evidence of the right assigned, a discharge or modification
1 right against the is not effective
Lder a duty to the (a) against the owner or an assignor having a power of avoid-
~dable by the obligor
ance, unless given by him or by a person in possession qf the
1een made, the right writing with his consent and any necessary indorsement or
assignment;
fense or claim of the (b) against a subsequent assignee who takes possession of the
notification of the writing and gives value in good faith and without knowledge
·ue thereafter except or reason to know of the discharge or modification.
,
disc,harge or modifi- § 339. Protection of Obligor in Cases of Adverse Claims
' non-occurrence of a Where a claim adverse to that of an assignée subjects the obligor to
manee by an obligee, a substantial risk beyond that imposed on him by his contract, the
ect to discharge or obligor will be granted such relief as is equitable in the circumstances.
~ation of the assign-

TOPIC 5. PRIORITIES BETWEEN ASSIGNEE

.1bject to any defense AND ADVERSE CLAIMANTS
as subject as a party
§ 340. Effect of Assignment on Priority and Security
(1) An assignee is entitled to priority of payment from the obligor's
tent Events insolvent estate to the extent that the assigrior would have been so
idable or unenforcea- entitled in the absence of assignment. ·
equent events which (2) Where an assignor holds collateral as security for the assigned
.e same effect on the right and does not effectively transfer the collateral to the assignee, the
assignor is a constructive trustee of the collateral for the assignee in
accordance with the rules stated for pledges in: §§ 29-34 of the Restate-
nment ment of Security.
mding an assignment,
odify the duty of the § 341. Creditors of an Assignor
otherwise gives value
(1) Except as provided by statute, the right of an assignee is
Jn that the right has
superior to a judicial lien subsequently obtained against the property of
:lered to the assignee.
the assignor, unless the assignment is ineffective or revocable or is
:1 the performance of a voidable by the assignor or by the person obtaining the líen or is in fraud
>f the assignment, any of creditors.
::le by the assignor and
(2) Notwithstanding the superiority of the right of an assignee, an
easonable commercial
obligor who does not receive notification of the assignment until after he
:;signee acquires corre-
has lost his opportunity to assert the assíg.nment as a defense in the
contract.
173

l..
§ 341 RESTATEMENT OF CONTRA.CTS-SECOND

proceeding in which the judicial líen was obtained is discharged from his per." See §§ 9-102
duty to the assignee to the extent of his satisfaction of the líen. fected security inte
to the rights of "a p
Comment: § 339. If the garnished obligar has not a lien creditor befo
a. Priority of assignee. An effective received notification, the assignee's terest is perfecte1
assignment extinguishes the assignor's right against him is discharged to . the Transfers of wage e·
right without any notification of the same extent as the assignor's right insurance policies o
obligar. Any proceeds of the assigned would have been in the absence of and various other t:
right received by the assignor thereaf- assignment. See §§ 336, 338. cluded from cover;
ter are held 'in constructive trust for Such a discharge of the obligar does With respect to ce:
the assignee. See Restatement of Resti- not necessarily termínate the assign-
tution § 165. A creditor of the assignor ee's rights against the assignor and the § 342. Succe;
who claims the assigned right by gar- garnishing creditor. The assignee is Except as oth
nishment, levy of execution or like pro- entitled to restitution from the assign- superior to that <
cess is not a bona fide purchaser, even or to the extent that the assignor has
though he has no notice of the assign- same assignor, un]
been unjustly enriched by the dis-
ment. Unless protected by statute or charge of his debt. See Restatement of (a) the fil
by estoppel or like doctrine, he is sub- Restitution § 118. The garnishing by thE
ject to the .assignee's right. Compare creditor takes free of the assignee's (b) the st
§ 342; see Restatement of Restitution right to the extent that he becomes a
§ 173. "Judicial líen," as used in this edge <
bona fide purchaser or that the assign-
Section, has the same meaning as it ee is barred by estoppel, laches, r'es and ol
does in the Bankruptcy Reform Act of judicata, or other defemse. See Restate- (i) pa
1978. ment of Restitution §§ 131, 173, 179. (ii) j"C
b. Defective assignment. An assign-
or's trustee in bankruptcy can in gen- Illustration: (iii) a
eral reach all of the assignor's legal or l. A has a right against B and (iv) p
equitable interest in any of his proper- assigns it to C for value. X, a cred- a
ty, including powers that he might 'itor of A, serves garnishment pro-
have exercised for his own benefit and cess on B in an action against A, § 343. Laten1
property transferred by him in fraud of and obtains judgment against B
creditors. See Bankruptcy Reform Act before B receives notification of If an assignor'
of 1978, 11 U.S.C. §§ 541(a), (b), 548 the assignment. A month later, be- tive trust for or :
(1978). In addition, a person against fare any payment or satisfaction another than the o
whom a transfer is voidable can reach · or issue of execution and within and becomes an as
the property transferred. In such the time specified in local proce- the other.
cases, therefore, the assignee's right is dural rules, B and C move to re-
not superior to. that of the líen ob- . open the judgment. The motion
tained by garnishment or like process. should be granted, and e is enti-
A revocable gratuitous ·assignment, for tled to judgment against B to the
example, does not limit the power of exclusion of X.
the assignor's creditors to levy on the d. Filing statutes. Creditors are § 344. Purpm
assigned claim. See § 332. commonly among the beneficiaries of Judicial remed
c. Protection of obligar. An obligar statutes requiring public filing of no- to protect one or m
garnished by a creditor of the assignor tices of .certain types of transactions.
cannot safely pay even'in response toa The U niform Commercial Code makes (a) his "e:
the be1
judgment if he has received notifica-
tion of the assignment, but he is enti-
tled to protection against double liabil-
a general requirement of filing to "per-
fect" a nonpossessory "security inter-
est'' in personal property, including
¡ as he
(b) his ."n
1

ity by interpleader or like remedy. See "any sale of accounts or chattel pa- l bursed

174

1
t,
1.:::::::.:.: ...
'OND REMEDIES § 344

discharged from his per." See §§ 9-102, 9-302. An unper- open accounts receivable, § 9-103(3)(c)
action of the lien. fected security intel,'est is subordinate provides alternatives of the application
to the rights of "a person who becomes of the filing law of the American juris-
nished obligor has not a lien creditor before the security in- diction in which the debtor has its
:ttion the assignee's terest is perfected." See § 9-301. executive offices or perfection "by noti-
n is discharged to the Transfers of wage claims, rights under fication to the account debtor." Wage
the assignor's right insurance policies or deposit accounts, assignment statutes also often provide
m in the absence of and various other transactions are ex- for public filing or for notification of
§§ 336, 338. cluded from covei•age. See § .9-104. the obligor or both. See Statutory Note
With respect to certain international preceding § 316.
rge of the obligor does
termínate the assign-
st the assignor and the
§ 342. S11ccessive Assignees From the Same Assignor
.itor. The assignee is Except as otherwise provided by statute, the right of an assignee is
;ution from the assign- superior to that .of a subsequent assignee of the same right from the
; that the assignor has same assignor, unless
enriched by the dis-
(a) the first assignmerit is ineffective or revocable or is voidable
bt. See Restatement of
118. The garnishing . by the assignor or by the subsequent assignee; or
free of the assignee's (b) the subsequent assignee in good faith and without knowl-
;ent that he becomes a edge or reason to know of the prior assignment gives value
aser or that the assign- and obtains
y estoppel, laches, res
ar defense. See Restate- (i) payment or satisfaction of the obligation,
Jtion §§ 131, 173, 179. (ii) judgment against the obligar,
(~ii) a new contract with the obligar by novation, or
a right against B and . (iv) póssession of a writing of a type customarily accepted
o e for value. X, a cred- .·.as a symbol or as evidence of the right assigned.
;erves garnishment pro-
in an action against A, § · 343. Latent Equities
lS judgment against B If an assignor'$ right against the obligar is held in trust or construc-
receives notification of tive trust for or subject to a right of avoidance or equitable líen of
nent. A month later, be-
another thanthe obligar, an assignee does not so hold it ifhe gives value
payment or satisfaction_
and becomes an assignee in good faith and without notice of the right of
,f execution and within
specified in local proce- the other.
s B and e move to re-
j~dgment. The motion
granted, and e is enti-
igment against B to the
ofX.
¡ CHAPTER 16. REMEDIES
TOPIC l. IN GENERAL
§ 344. ·· Purposes of Remedies
statutes. ereditors are
. ,ong the beneficiaries of Judicial remedies under the rules stated in this Restatement serve
.ring public filing of no-
in types of transactions. 1 to protect one or more of the following interests of a promisee:
(a) his "expectation interest," which is his interest in having
eommercial Code makes \
the benefit of his bargain by being put in as good a position
tirement of filing to "per- as . he would ha ve been in had the contract be en performed,
>ssessory "security inter-
::mal property, including 1¡ (b) his "reliance interest," which is his interest in being reim-
. bursed for loss caused by ·reliance on the contract by being
accounts or chattel pa- ¡
f
175
§ 344 RESTATEMENT OF CONTRACTS-SECOND

put in as good a position as he would have been in had the damages is extinguís]
contract not been made, or tory Note to Chaptt
happens, the right t•
(e) his "restitution interest," which is his interest in having
other means such as
restored to him any benefit that he has conferred on the
ance or an injuncti'
other party. guished. If the duty e
distinguished from
§ 345.
o

Judicial Remedies Available damages, has been E

The judicial remedies available for the protection of the interests charged, as by impra
stated in § 344 include a judgment or order formance or frustra
there is then no bre:
(a) awarding a sum of money due under the contract or as
tion is not applicable.
damages,
The parties can b)
(b) requiring specific performance of a contract or enjoining its
o

the rules stated in thi

non-performance, as the agreement is
(e) requiring restoration of a specific thing to prevent unjust unconscionability (§ :
enrichment,
o grounds. The agreem
for a remedy such as :
(d) awarding a sum of money to prevent unjust enrichment,
ment in substitution
(e) declaring the rights of the parties, and Uniform Commercial'
o (f) enforcing an arbitration award.
o
b. Nominal dama.
breach of contract by
TOPIC 2,. ENFORCEMENT BY AWARD whom it is enforceal
rise to a claim for da:
OFDAMAGES instances in which tl
§ · 346. Availability of Damages no loss. See Illustrati
also instances in owhi<
(H The injured party has a right to damages for any breach by a but recovery for that
party against whom the contract is enforceable unless the claim for because it cannot be o

damages has been suspended or discharged. sonable certainty or b

(2) If the breach caused no loss or if the amount of the loss is not
o
the other limitations
proved under the rules stated in this Chapter, a small sum fixed without Chapter. See §§ 350-
regard to the amount of loss will be awarded as nominal damages. instances the injured 1
theless get judgment f
Comment: including equitable relief in the form ages, a small sum usu~:
of specific performance or an injunc- cial practice in the
a. Right to damages. Every breach
tion, may be also available, depending which the action is l
of contract gives the injured party a
on the circumstances. See Topic 3. In judgment may, in the
right to damages against the party in
the exceptional situation of a contract court, carry with it ar.
bre~ch, \_\nless othe contract is n.ot en-
for transfer of an interest in land that
forceable against that party, as where costs. Costs are genen
is unenforceable under the Statute of
h e is not bound because of the Statute Frauds, action in reliance makes the significant right was
of Fn1uds. The resulting claim may be contract enforceable by specific per- claimant made a gooé
oone ofor damages for total breach of one formance even though it gives rise to prove damages, obut nc
for damages for only partía! breach. no claim for damages for breach. See naneé of the action wa
See § 236. o Although a judgment Comment e to § 129. A duty to pay bad faith. Unless a sig
awarding a sum of money as damages damages may be suspended or dis- involved, a court will
is the most common judicial remedy charged by agreement or otherwise, remand a case for a r
for obreach of contract, other remedies, and if it is discharged the claim for nominal damages could

176
OND

tve been in had the

r tory Note to ehapter 12. When this
REMEDIES

damages is extinguished. See Introduc-

happens, the right to enforcement by

Illustration:
§ 346

l. A contracts to sell to B 1,000

shares of stock in X eorporation
interest in having other means such as specific perform- for $10 a share to be delivered on ·
LS conferred on the ance or an injunction is also extin- June 1, but breaks the contract by
guished. lf the duty of performance, as refusing on that date to deliver
distinguished from the duty to pay the stock. B.·sues A for damages,
damages, has been suspended or dis- but at trial it is proved that B
charged, as by. impracticability of per- could have purchased 1,000 shares
ion of the interests
formance or frustration of purpose, of stock in X eorporation on the
there is then no breach and this Sec- market on June 1 foi· $10 a share
the contract or as tion is not applicable. and therefore has suffered no loss.
In an action by B against A, B will
The parties can by agreement vary be awarded nominal damages.
ract or enjoining its the rules stated in this Section, as long
c. Beneficiaries of gift promises. lf a
as the agreement is not invalid for
promisee makes a contract, intending
g to prevent unjust unconscionability (§ 208) or on other
to give a third party the benefit of the
grounds. The agreement may provide promised performance, the third party
for a remedy such as repair or replace- may be an intended beneficiary who is
just enrichment, ment in substitution for damages. See entitled to enforce the contract. See
Uniform eommercial eode § 2-719. § 302(1)(b). Such a gift promise ere-
b. Nominal damages. Although a ates overlapping duties, one to the
breach of contract by a party against beneficiary and the other to the prom- ·
whom it is enforceable always gives isee. If the performance is not forth-
\.WARD rise to a claim for damages, there are coming, both the beneficiary and the
instances in which the breach causes promisee have claims for damages for
no loss. See Illustration l. There are breach. If the promisee seeks damages,
also instances in which loss is caused however, he will usually be limited to
for any breach by a nominal damages: although the loss to
but recovery for that loss is precluded
the beneficiary may be substantial, the
mless the claim for because it cannot be proved with rea-
promisee cannot recover for that loss
sonable certainty or because of one of
and he will orclinarily have suffered no
the other limitations stated in this
mt of the loss is not loss himself. In such a case the remecly
ehapter. See §§ 350-53. In all these of specific performance will often be an
'lll sum fixed without
instances the injured party will never- appropri~te one for the promisee. See
.s nominal damages. theless get judgment for nominal dam- § 307.
able relief in the form ages, a small sum usually fixed by judi-
·01·mance or an injunc- cial practi<;e in the jurisdiction in Illustration:
so available, depending which the action is brought. Such a 2. As part of a separation agree-
tances. See Tapie 3. In judgment may, in the discretion of the ment B promises his wife A not to
situation of a contract court, carry with it an award of court change the provision in B's will for
an interest in land that costs. eosts are generally awarded if a e, their son. A dies and B changes
.e under the Statute of significant right was involvéd or the his will to e's detriment, adding
in reliance makes the claimant made a good fillth effort to also a provision that e will forfeit
:eable by specific per- prove damages, but not if the mainte- any bequest if he questions the
though it gives rise to
nance of the action was frivolous or in change befare any tribunal. In an
. amages ffn· breach. See
bad faith. Unless a significant right is action by A's personal representa-
§ 129. A duty to :pay
be suspended or dis- involved, a court will not reverse and tive against B, the representative
rreement or otherwise, remand a case for a new trial if only can get a judgment for nominal
'scharged the clahn for nominal damages could result. damages. As to the representa-

l
l
177
l

l
.L
§ 346 RESTATEMENT OF CONTRACTS-SECOND

tive's right to specific p erform- since the fair renta! ·

ance, see Illustration 2 to § 307. depends on what it wc
the market and this t1
§ 34 7. Measure of Damages in General that would be derived
Subject to the limitations stated in§§ 350- 53, the injured party has this reason, uncertai
a right to damages based on his expectation interest as measured by may result in uncerta
value. Another possih
(a) the loss in the value to him of the other party's performance ery, as a last resort, i
-caused by its failure or deficiency, plus ·t he value of the prope
(b) any other loss, including incidental or consequential loss, made unproductive 1:
caused by the breach, less that value can be shc
able certainty. Althou¡
(e) any cost or other loss that he has avoided by not having to er bases will ordinari
perform. recovery than loss in '
open to the party in
§ 348. Alternatives to Loss in Value of Performance that this is not so :
injured party to a :
(1) If a breach delays the use of property and the loss in value to the based on loss in value
injured party is not proved with reasonable certainty, he may recover
damages based on the rental value of the property or on interest on the Illustration:
value of the property. l. A contracts
(2) If a breach results in defective or unfinished construction and struct an outdoor
the loss in value to the injured party is not proved with sufficient to be completed b
certainty, he may r ecover damages based on not complete the
t ember l. If B e
(a) the diminution in the market price of the property caused lost profits with
by the breach, or tainty, he can r
(b) the reasonable cost of completing performance or of remedy-· based on the ren
ing the defects if that cost is not clearly disproportionate to theatre property
interest on the v
the probable loss in value to him.
atre property itsel
(3) If a breach is of a promise conditioned on a fortuitous event and either of these val
it is uncertain whether the event would have occurred had there been no able certainty. See
breach, the injured party may recover damages based on the value of the § 352.
conditional right at the time of breach. c. Incomplete or de
ance. If the contract
Comment: b. Breach that delays the use of .
struction, including re
a. R eason for altemative bases. Al- property. If the breach is one that pre- performance affect.ing
though in principie the injured p arty is vents for a period of time the use of . property, and the wod
entitled to recover based on the loss in property from which profits would the injured party will
value to him caused by the breach, in have been m ade, the loss in value to easier to prove what i
practice h e m ay be precluded from r e- the injured party is based on the prof- have the work compl(
covery on this basis because h e cannot its that he would h ave made during contractor than to pro'
show the loss in value to him with that period. If those profits cannot be between the values to
sufficient certainty. See § 352. In such proved with r easonable certainty ished and the unfinish
a case, if ther e is a reasonable alterna- (§ 352), two other bases for recovery Since the cost to com
tive to loss in value, he m ay claim ar e possible. One is the fair renta! val- · less tha n the loss in va
damages based on that alternative. u e of the pr operty during the period of limited by the rule 01~
This Section states the r ules tha t h ave delay. Damages b ased on fair renta! damages based on co
been developed for three su ch cases. value include an element of profit See § 350(1). If he h

178
';OND REMEDIES § 348
since the fair rental value of property the work completed, damages will be
depends on what it would command on based on his expenditures if he comes
the market and this turns on the profit within the rule stated in § 350(2).
that would be derived from its use. For Sometimes, especially if the perform-
this reason, uncertaínty as to profits ance is defective as distinguished from
;he injured party has
may result in uncertainty in fair renta! incomplete, it may not be possible to
:est as measured by value. Another possible basis for recov- prove the loss in value to the injured
party's performance ery, as a last resort, is the interest on party with reasonable certainty. In
the value of the property that has been that case he can usually recover dam-
made unproductive by the breach, if
r consequential loss,
1 that value can be shown with reason-
able certainty. Although these two oth-
ages based on the cost to remedy the
defects. Even if this gives him a recov-
ery somewhat in excess of the loss in
:led by not having to 1 er bases will ordinarily give a smaller value to him, it is better that he re-
recovery than loss in value, it is always ceive a small windfall than that he be
open to the party in breach to show undercompensated by being limited to
that this is not so and to hold the the resulting diminution in the market
forman ce
injured party to a smaller recovery price of his property.
1e loss in value to the based on loss in value to him.
Sometimes, however, such a large
inty, he may recover
Illustration: part of the cost to remedy the defects
or on interest on the consists of the cost to undo what has
l. A contracts with B to con- been improperly done that the cost to
struct an outdoor drive-in theatre, remedy the defects will be clearly dis-
hed construction and
to be completed by June l. A does proportionate to the probable loss in
~oved with sufficient
not complete the work until Sep- value to· the injured party. Damages
tember l. If B cannot prove bis based · on the cost to remedy the de-
f the property caused lost profits with reasonable · cer- fects would then give the injured party
tainty, he can recover damages a recovery greatly in excess of the loss
based on the rental value of the in value to him and result in a sub-
•rmance or of remedy- theatre property or based on the stantial windfall. Such an award will
ly disproportionate to interest on the value of the the- not be made. It is sometimes said that
atre property itself if he can prove the award would involve "economic
1 fortuitous event and either of these values with reason- waste,'' but this is a misleading ex-
red had there been no able certainty. See Illustration 2 to pression since an injured party will
§ 352 . not, even if awarded an excessive
.ed on the value of the
c. Incomplete or defective perform- amount .of damages, usually pay to
ance. If the contract is one for con- have the defects remedied if to do so
that delays the use of struction, including repair or similar will cost him more than the resulting
9 breach is one that pre- performance affecting the condition of increase in value to him. If an award
lriod of time the use of property, and the work is not finished, based on the cost to remedy the de-
1 which profits would the injured party will usually find it fects would clearly be excessive and
tde the loss in value to easier to prove what it would cost to the injured party does not prove the
rt; is based on the prof- have the work completed by another actual loss in value to him, damages
·ould have made during contractor than to prove the difference will be based ínstead on the difference
f those profits cannot be between the values to him of the fin- between the market price that the
reasonable certainty ished and the unfinished performance. property would have had without the
other bases for recovery Since the cost to complete .is usually. defects and the market price of the
)ne is the fair renta! val- less than the loss in value to him, he is property with the clefects. This dimi-
•erty during the period of limited by the rule on avoidability to nution in market price is the least
'es based on fair renta! damages based on cost to complete. possible loss in value to the injured
; an element of profit See § 350(1). If he has actually had party, si~ce he coulcl always sell the

179
§ 348 RESTATEMENT OF CONTRACTS-SECOND

property on the market even if it had d. Fortuitous event as condition. In tion fee. When t:
no special value to him. the case of a promise conditioned on a wrongfully prev
fortuitous event (see Comment a to from taking part.
Illustrations: § 379), a breach that occurs before the not prove that
happening of the fortuitous event may have won the ra
2. A contracts to build a house that it was consil
make it impossible to determine
for B for $100,000 but repudiates
whether the event would have oc-
the contract after doing part of the § 349. Damag.
curred had there been no breach. It
work and having been paid
would be unfair to the party in breach As an alternat
$40,000. · Other builders will
to award damages on the assumption injured party has
charge B $80,000 to finish the
that the event would have occurred,
house. B's damages include the including expendih
but equally unfair to the injured party
$80,000 cost to complete the work
to deny recovery of damages on the
formance, less any
less the $60,000 cost avoided or able certainty the
ground of uncertainty. The injured
$20,000, together with damages been performed.
party has, in any case, the remedy of
for any loss caused by delay. See
restitution (see § 373). Under the rule
Illustration 12 to § 347. § 350. Avoidal
stated in Subsection (3) he also has the
3. A contracts to build a house alternative remedy of damages based (1) Except as s
for B for $100,000. When it is on the val u e of his conditional contract
for loss that the in
completed, the foundations crack, right at the time of breach, or what
may be described as the value of his
burden or humiliati
leaving part of the building in a
dangerous · condition. To make it "chance of winning." The val u e of that (2) The injurec
safe would require tearing down right must itself be proved with rea- stated in Subsectim
sorne of the walls and strengthen- sonable certainty, as it may be if there unsuccessful efforts
ing the foundation at a cost of is a market for such rights or if there
$30,000 and would increase the is a suitable basis for determining the § 351. Unfore1
market value of the house by probability of the occurrence of the
$20,000. B's damages include the event. (1) Damages a1
$30,000 cost to remedy the de- The rule stated in this Subsection is did not have reasor
fects. limited to aleatory promises and does the contract was m~
4. A contracts to build a house not apply if the promise is conditioned (2) Loss may b1
for B for $100,000 according to on sorne event, such as return per- it follows from the l:
specifications that include the use formance by the injured party, that is
not fortuitous. If, for example, an own- (a) in the e
of Reading pipe. After completion,
B discovers that A has used Co- er ·r epudiates a contract to pay for (b) as a n
hoes pipe, an equally good brand. repairs to be done by a contractor and course
To replace the Cohoes pipe with then maintains that the contractor know.
Reading pipe would require tear- could not or would not have done the
ing down part of the walls at a work had he not repudiated, the con- (3) A court m~
cost of over $20,000 and would not tractor must prove that he could and recovery for loss of :
affect the market price of the would have performed. If he fails to do reliance, or otherwi:
house. In an action by B against this, he h as no remedy in damages. He requires in order to
A, A gives no proof of any special is not entitled to claim damages under
value that Reading pipe would the rule stated in Subsection (3) . Comme
have to him . B's damages do not a. R equirement of
include the $20,000 cost to remedy Illustration: contracting party is g(
the defects because that cost is · 5. A offers a $100,000 prize to to t ake account of thc
clearly disproportionate to the loss the owner whose h orse wins a race foreseeable at the tin
in value to B. B can recover only · at A's track. B accepts by entering contract. He is not, h
nominal damages. his horse and paying the registra- th e event of breach fo:

180
'JND REMEDIES § 351

~uent as condition. In tion fee .· When the race is run, A chance in four of winning because
nise conditioned on a wrongfully · prevents B's horse one fourth of the money bet on the
(see Comment a to from taking part. Although B can- race was bet on his horse. B has a
;hat occurs before the not prove that his horse would right to damages of $25,000 based
fortuitous event may have won the race, he can prove on the value of the conditional
:sible to determine that it was considered to have one right to the prize.
ent would have oc-
~ been no breach. It
§ 349. Damages Based on Reliance lnterest
;o the party in breach As an alternative to the measure of damages stated in § 34 7, the
~s on the assumption injured party has a right to damages based on his reliance interest,
would have occurred, including expenditures made in preparation for performance or in per-
.r to the injured party formance, less any loss that the party in breach can prove with reason-
r of damages on the able certairity the injured party would have suffered had the contract
rtainty. The injured
been performed. ·
y case, the remedy of
· 373). Under the rule
;ion (3) he also has the § 350. ·Avoidability as a Limitation on Damages
~dy of damages based (1) Except as stated in Subsection (2), damages are not recoverable
is conditional contract for loss that the injured party could have avoided without undue risk,
te of breach, or what burden or humiliation.
,d as the value of his
in g." The valu e of that (2) The injured party is not precluded from recovery by the rule
f be proved with rea- stated in Subseetion (1) to the extent that he has made reasonable but
r, as it may be if there unsuccessful efforts to avoid loss.
such rights or if there
.i s for determining the § 351_. . Unforeseeability and Related Limitations on Damages
he occurrence of the
(1) Damages are not recoverable for loss that the party in breach
did riot háve reasOn to foresee as a probable result of the breach when
,d in this Subsection is the conttact was made.
Jry promises and does
promise is conditioned (2) Loss may be foreseeable as a probable result of a breach because
. such as return per- it follows from the breach
l injured party, that is
(a) in the ordinary course of events, or
f, for example, an OWI!-
i contract to pay for (b) as a result of special circumstances beyond the ordinary
ne by a contractor and course of events, that the party in breach had reason to
: that the contractor know.
mld ·not have done the
(3) A court . may limit damages for foreseeable loss by excluding
Jt repudiated, the con-
·ove that he could and · recovery for loss of profits, by allowing recovery only for loss incurred in
[ormed. If he fails to do reliance, or otherwise if it concludes that in the circumstances justice so
· remedy in damages. He requires in order to avoid disproportionate compensation.
.o claim damages under
Coniment: not at the time of contracting have
in Subsection (3).
a. Requirement of foreseeability. A reason to foresee as a probable result
contracting party is generally expected of such a breach. The mere circum-
to take account of those risks that are stance that some loss was foreseeable,
.·s a $100,000 prize to
foreseeable at the time he makes the or even that sorne loss of the same
whose horse wins a race
contract. He is not, however, liable in general kind was foreseeable, will not
.e B accepts by entering
the event ofbreach for loss that he did suffice if the loss that actually oc-
md paying the registra-
181

1
.L
. § 351 RESTATEMENT OF CONTRACTS-SECOND

curred was not foreseeable. It is 2. A contracts to sell land to B able by the party ir
enough, however, that the loss was and to gíve B possession on a stat- special circumstanc1
foreseeable as a probable, as distin- ed date. Because A delays a short son to know when
guished from. a necessary, result of his time in gíving B possession, B in- tract. See Uniform
breach. Furthermore, the party in curs unusual expenses in provid- § 2-715(2)(a). For
breach need not have made a "tacit ing for cattle that he had already who fails to deliver
agreement" to be liable for the loss. purchased to stock the land as a wholesaler is not li;
Nor must he have had the loss in mind ranch. A had no reason to know saler's loss of profit
when making the contract, for the test when they made the contract that it is extraorclinary r
is an objective one based on what he B had planned to purchase cattle to unusual terms
had reason to foresee. There is no re- for this purpose. A is not liable for tracts unless the sE
quirement of . foreseeability with re- B's expenses in providing for the know of these spe1
spect to the injured party. In spite of cattle because that loss was not See Illustration 6.
these qualifications, the requirement foreseeable by A as a probable re- who delays in delivE
of foreseeability is a more severe limi- sult of the breach at the time the a manufacturer is
tation of liability than is the require- contract was made. manufacturer's losE
ment of substantial or "proximate" b. "General" and "special" dam- extent that it result:
cause lri the case of an action in tort or use that was abnorr
ages. Loss that results from a breach
for breach of warranty. Compare Re- er had reason to kr
in the ordinary course of events is
statement, Second, Torts § 431; Uni- circumstance. See 111
foreseeable as the probable result of
form Commercial Code § 2-715(2)(b). case of a written a.
the breach. See Uniform Commercial
Although the recovery that is preclud- ability is sometimes
Code § 2-714(1). Such loss is sorne-
ed by thé limitation of foreseeability is use of recitals in th1
times said to be the "natural" result
usually. based on the expectation inter- The parol evidence
of the breach, in the sense that its
est and takes. the form of lost profits not, however, . preclu
occurrence accords with the common
(see. Illust"nition 1), the limitation may tiations prior to tl
experience of ordinary persons. For ex-
also preclu"de recovery based on the contract to show fm
ample, a seller of a commodity to a
reliance interest (see Illustration 2). cumstances that vyer
wholesaler usually has reason to fore-
party. The damage
see that his failure to deliver the com-
Illustrations: loss that results othe
modity as agreecl will probably cause
nary course of ever
L ·A, a carrier, contracts with B, the wholesaler to lose a reasonable
called "special" or
a miller, · to carry B's broken profit on it. See Illustrations 3 and 4.
damages. These ter1
crankshaft to its manufacturer for Similarly, a seller of a machine to a
leading, however, ar
repair. B tells A when they make manufacturer usually has reason to sary to distinguish l
the contract that the crankshaft is foresee that his delay in delivering the ancl "special" or "co:
. part of B's milling machine and machine as agreed will probably cause ages for the purpose
that it must be sent at once, but the manufacturer to lose a reasonable in this Section.
not that the mili is stopped . be- profit from its use, although courts
cause B has no replacement. Be- have been somewhat more cautious in Illustrations:
cause A delays in carrying the allowing the manufacturer recovery
3. A and B ma
. crankshaft, B loses profit during for loss of such profits than in allowing
tract under -whi<
an additional period while the mili a midclleman recovery for loss of prof-
tion by a stated
is stopped because of the delay. A its on an intended resale. See Illustra-
chine owned by J
is not liable for B's loss of profit. tion 5. The damages recoverable for
suitable for sal·
· That lóss was not foreseeable by A such loss that results in the ordinary
knows whén th1
as a probable result of the breach course of events are sometimes called tract that B has
"general" damages.
at the time the contract was made the machine to e
because A did not know that the If loss results other than in the ordi- ing of the term
· broken crankshaft was necessary nary course of events, there can be no with C. ·BecausE
for the operation of the mili. r ecovery for it unless it was foresee- turning the ma.

182
~OND REMEDIES § 351

tcts to sell land to B able by the party in breach because of unable to sell it to e and loses the
3 possession on a stat- special circumstances that he had rea- profit that he would have made on
ause A delays a short son to know when he made the con- that sale. B's loss of reasonable
1g B possession, B in- tract. See Uniform Commercial Code profit was foreseeable by A as a
ti expenses in provid- § 2-715(2)(a). For example, a seller probable result of the breach at
e that he had already who fails to deliver a commodity to a the time the contract was made.
wholesaler is not liable for the whole-
0 stock the land as a 4. A, a manufacturer of ma-
td no reason to know saler's loss of profit to the extent that
it is extraordinary nor for his loss due chines, contracts to make B his
nade the contract that exclusive selling agent in a speci-
1ed to purchase cattle to unusual terins in his resale con-
tracts unless the seller had reason to fied area for the period of a year.
Jose. A is not liable for Because A fails to deliver .any ma-
know of these special circumstances.
s in providing for the chines, B loses the profit on con-
See Illustration 6. Similarly, a seller
1se that loss was not tracts that he would have made
who delays in delivering a machine to
by A as a probable re- for their resale. B's loss of reason-
a manufacturer . is not liable for the
breach at the time the able profit was foreseeable by A as
manufacturer's loss of profit to the
s made. a probable result of the breach at
extent that it results from an intended
' and "special" dam- use that was abnormal unless the sell- the time the contract was made.
results from a breach er had reason to know of this special 5. A and B make a contract un-
y course of- events is circumstance. See Illustration 7. In the der which A is to recondition by a
the probable result of case of a written agreement, foresee-
3 Uniform Corrimercial
stated date a used machine owned
ability is sometimes established by the by B so that it will be suitable for
L). Such loss is some- use of recitals in the agreement itself. use in B's canning factory. A
•e the "natural" result The paro! evidence rule (§ 213) does
in the sense that its · knows that the machine must be
not, however, preclude the use of nego- reconditioned by that date if B's
Jrds with the common tiations prior to the making of the
:dinary persons. For ex- factory is to operate at full capaci-
contract to show for this purpose cir- ty during the canning season, but
. of a commodity to a cumstances that were then known to a
ally has reason to fore- . nothing is said of this in the writ-
party. The damages recoverable for
ten contract. Because A delays in
lure to deliver the com- loss that results other than in the ordi-
returning the machine to B, B los-
~ed will probably cause nary course of events are sometimes
es its use for the entire canning
· to lose a reasonable called "special" or "consequential"
:e Illustrations 3 and· 4. season and loses the profit that he
damages. These terms are often mis-
would have made had his factory
:ller of a machine to a leading, however, and it is not neces-
operated at full capacity. B's loss
usually has reason to sary to distinguish between "general"
of reasonable profit was foresee-
s delay in delivering the and "special" or "consequential" dam-
reed will probably cause able by A as a probable result of
ages for the purpose of the rule stated
the breach at the time the con- .
rer to lose a reasonable in this Section.
tract was made.
s use, although courts
tewhat more cautious in Illustrations: 6. The facts being otherwise as
manufacturer recovery 3. A and B make a written con- stated in Illustration 3, the profit
t profits than in allowing tract under which A is to recondi- that B would have made under his
:ecovery for loss of prof- tion by a stated date a ·1,1sed ma- contract with A was extraordinari-
lded resale. See lllustra- chine owned by B so tl;tat it will be ly large because e promised to pay
lamages recoverable for suitable for sale by B to C. A an exceptionally high price as a
. results in the ordinary knows when they make the con- result of a special need for the
\tS are so:q:tetimes called tract that B has contracted to sell machine of which A was unaware.
1ages. the machine t\) e but knows noth- A is not liable for B's loss of profit
ts other than in the oreli- ing of the terms of B's contract to the extent that it exceeds what
f events, there can be no with C. Because A delays in re- would ordinarily result from such
it unless it was foresee- turning the machine to B, B is a contract. To that extent the loss

183
§ 351 RESTATEMENT OF CONTRACTS-SECOND

was not foreseeable by A as a Illustrations: fails to do this

probable result of the breach at the right of wa:
8. The facts being otherwise as
the time the contract was made. proceedings. B'!
stated in Illustration 3, B not only
7. The facts being otherwise as ditures in thost
loses the profit that he would have
stated in Illustration 5, the profit foreseeable by
made on sale of the machine to e,
that B would have made from the contract was rr.
but is held liable for damages in
use of the machine was unusually result of the bre
an actioh brought by e for breach
large because of an abnormal use of contract. The damages paid to e 12. A leases i
to which he planned to put it of and B's reasonable expenses in de- covenant for q
which A was unaware. A is not fending the action were also fore- brings an act
liable for B's loss of profit to the seeable by A as a probable result against B and ¡
extent that it exceeds what would of the breach at the time he made reasonable expe
ordinarily result from the use of ing the action v
the contract with B. The result is
such a machine. To that extent A as the prob:
the same even though they were
the loss was not foreseeable by A breach at the
based on a liquidated damage
at the time the contract was made was made.
clause in the contract betweeri B
as a probable result of the breach. d. Unauailabilit:y
and e if A knew of the clause or if
c. Litigation or settlement caused by the use of such a clause in the severa! circumstancE
breach. Sometimes a breach of contract contract between B and e was to cause a loss, the
results in claims by third persons foreseeable by A at the time he · not liable for it unle!
against the injured party. The party in made the contract with B. foresee all of them.
breach is liable for the amount of any would not have occu
judgment against the injured party to- 9. The facts being otherwise as party had been able
gether with his reasonable expendi- stated in Illustration 3, B not only arrangements after
tures in the litigation, if the party in loses the profit that he would have ample, by "cover" tl
breach had reason to foresee such ex- made on sale of the machine to e, . substitute goods in t
penditures as the probable result of his but settles with e by paying e a of goods (see Uni
breach at the time he made the con- reasonable sum of moncy to avoid · eode § 2-712). If ti
tract. See Illustrations 8, 10, 11 and litigation. The amount of the set- injured party to m1
12. This is so even if the judgment in tlement paid to e and B's reason- ments was foreseeal:
the litigation is based on a liquidated able expenses in settling were also breach at the time
damage clause in the injured party's foreseeable by A at the time he tract, the resulting
contract with the third party. See 11- made the contract with B as a able. See Illustratio
lustration 8. A failure to notify the probable result of the breach. pact of this principl
party in breach in advance of the liti- lend money, see eom
10. A contracts to supply B with
gation may prevent the result of the
machinery for unloading cargo: A, Illustration:
litigatiqn from being conclusive as to
in breach of contract, furnishes
him. But to the extent that the injured 13. A contract~
defective machinery, and e, an
party's loss resulting from litigation is to lease B a m:
employee of B, is injured. e sues B
r easonable, the fact that the party in harvesting B's e
and gets a judgment, which B
breach was not notifiec! does not pre- .made on July 3
pays. The amount of the judgment
vent the inclusion of that loss in the he makes the
and B's reasonable expenditures
damages assessed against him. In fur- crop will be read
in defending the action were fore-
therance of the policy favoring prívate that B cannot o
seeable by A at the time the con-
settlement of disputes, the injured par- chine elsewhere.
tract was made as a probabie ·re- ·
ty is also allowed to recover the rea- delivery until A1
sult of the breach.
sonable amount of any settlement is damaged and
made to avoid litigation, together with 11. A contracts to procure a right .loss of profit wa
the costs of settlement. See Illustration of way for B, for a railroad. Be- . at the time the 1
9. cause A, in breach of contract, as a probable re

184
>ND REMEDIES § 351
fails to do this, B has to acquire e. Breach of contract to lend money.
the right of way by condemnation The limitation of foreseeability is often
being otherwise as proceedings. B's reasonable expen- applied in actions for damages for
;tration 3, B not only ditures in those proceedings were breach of contracts to lend money. Be-
it that he would have foreseeable by A at the time the cause credit is so widely available, a
of the machine to e, contract was made as a probable lender often has no reason to foresee
iable for damages in result of the breach. at the time the contract is made that
ught by e for breach 12. A leases land to B with a the borrower will be unable to make
.he damages paid to e covenant for quiet enjoyment. e
o
substitute arrangements in the event
nable expenses in de- brings an . action of ejectment of breach. See eomment d. In most
tction were also fore- against B and gets judgment. B's cases, then, the lender's liability will
as a probable result reasonable expenditures in defend- be limited to the relatively small addi-
. at the time he made ing the action were foreseeable by tional amount that it would ordinarily
with B. The result is A as the probable result of the cost to get a similar loan from another
en though they were breach at the time the contract lender. However, in the less common
, liquidated damage was made. situation in which the lender has rea-
~ contract between B son to foresee that the borrower will
d. Unavailability of substitute. If
1 ew of the clause or if be unable to borrow elsewhere or will
several circumstances have contributed
mch a clause in the be delayed in borrowing elsewhere, the
to cause a loss, the party in breach is
;ween B and e was lender may be liable for much heavier
not hable for it unless he had reason to
by A at the time he damages· based on the borrower's ina-
foresee all of them. Sometimes a loss
ltract with B. bility to take advantage of a specific
would not have occurred if the injured
opportunity (see Illustration 14), his
;s being otherwise as party had been able to make substitute
having .to postpone or abandon a prof-
1stration 3, B not only arrangements after breach, as, for ex-
itable project (see Illustration 15), or
tfit that he would have ample, by "cover" through purchase of
his forfeiture of security for failure to
e of the machine toe, substitute goods in the case of a buyer
make prompt payment (see Illustration
with e by paying e a of goods (see Uniform eommercial
16).
;um of money to avoid eode § 2-712). If the inability of the
'he amount of the set- injured party to make such arrange- Illustrations:
:l to e and B's reason- ments was foreseeable by the party in
breach at the time he made the con- 14. · A contracts to lend B
es in settling were also $100,000 for one year at eight per-
by A at the time he tract, the resulting loss was foresee-
able. See Illustration 13. On the im- cent interest for the stated pur-
contract with B as a pose of buying . a specific lot of
mlt of the breach. pact of this principie on contracts to
lend money, see eomment e. goods for resale. B can resell the
;racts to supply B with goods at a $20,000 profit. A delays
for unloading cargo. A, Illustration: in making the loan, and although
of contract, furnishes ·13. A contract~ with B, a farmer, .B can borrow money on the mar-
nachinery, and e, an to lease B a machine to be used ket at ten percent interest, he is
f B, is injured. e sues B harvesting B's crop, delivery to be unable to do so in time and loses
a judgment, which B made on July 30. A lmows when the opportunity to buy the goods.
tmount of the judgment he makes the contract that B's Unless A had reason to foresee at
::lasonable expenditures crop will be ready on that date and the time that he made the con-
tg the action were fore- that B cannot obtain another ma- tract that such a delay in making
A at the time the con- 1 chine elsewhere. Because A delays the loan would probably cause B
made as a probable re- ¡ delivery until August ~0, B's crop to lose the opportunity, B can only
recover damages based on two per-
breach.
¡ is damaged and he loses profit. B's
loss of profit was foreseeable by A cent of the amount of the loan.
tracts to procure a right
· B, for a railroad. Be-
in breach of contract, i at the time the contract was made
as a probable result of the breach.

185
15. A contracts to lend
$1,000,000 to B for the stated pur-
 1¡. /'"'~r·
' '

§ 351 RESTATEMENT OF CONTRACTS-SECOND

pose of enabling B to build a build- there was no careful attempt to allo- breach of contra
ing and takes property of B as cate all of the risks. The fact that the after taking il
security. After construction is be- parties did not attempt to delineate such factors as
gun, A refuses to make the loan or with precision all of the risks justifies elaborate writte1
release the security. Because B a court in attempting to allocate them extreme disprop<
lacks further security, he is unable fairly. The limitations dealt with in loss of profits du
to complete the building, which this Section are more likely to be im- the price of thE
becomes a total loss. B's loss in- posed in connection with contracts elude recovery f
curred in partial construction of that do not arise in a commercial set- 19. A, a plastic
the building was foreseeable by A ting. Typical examples of limitations contract with B,
at the time of the contract as a imposed on damages under this discre- tertainer, to pe1
probable result of the breach. tionary power involve the denial of re- gery on her fac•
16. A, who holds B's land as se- covery for loss of profits and the re- prove her appea
curity for a loan, contracts to lend striction of damages to loss incurred in of the surgery iE
B a sum of money sufficient to pay reliance on the contract. Sometimes figure her face
off other liens on the land at the these limits are covertly imposed, by
current rate of interest. A repudi- means of an especially demanding re- § 352. Uncert
ates and informs B in time to ob- quirement of foreseeability or of cer- Damages are 1
tain money elsewhere on the mar- tainty. The rule stated in this Section
evidence permits te
ket, but B is unable to do so. The recognizes that what is done in such
liens are foreclosed and the land cases is the imposition of a limitation Comm•
sold at a loss. Unless A knew in the interests of justice.
a. Requirement of
when he made the contract that B cannot recover dama¡
would probably be unable to bor- lllustrations:
contract for loss be'
row the money elsewhere, B's loss 17. A, a private trucker, con- that the evidence pe;
on the foreclosure sale was not tracts with B to deliver to B's fac- lished with reasonal
foreseeable as a probable result of tory a machine that has just been Illustration l. Courts
A's breach. · repaired and without which B's ly required greater
f Other limitations on damages. lt factory, as A knows, cannot re- proof of damages for
is not always in the interest of justice open. Delivery is delayed because tract than in the pro
to require the party in breach to pay A's truck breaks down. In an ac- a tort. The requir
damages for all of the foreseeable loss tion by B against A for breach of mean, however, that
that he has caused. There are unusual contract the court may, after tak- is barred from recov
instances in which it appears from the ing into consideration such factors tablishes the total ar
circumstances either that the parties as the absence of an elaborate It merely excludes t
assumed that one of them would not written contract and the extreme loss that cannot be
bear the risk of a particular loss or disproportion between B's loss of sonable certainty. Th
that, although· there was no such as- profits during the delay and the · the requirement of c•
sumption, it would be unjust to put the price of the trucker's services, ex- connection with reco'
risk on that party. One such circum- elude recovery for loss of profits. its. Although the rec
stance is an extreme disproportion be- 18. A, a retail hardware dealer, tainty is distinct fron
tween the loss and the price charged contracts to sell B an inexpensive ability (§ 351), its im
by the party whose liability for that lighting attachment, which, as A this respect. Althougl
loss is in question . The fact that the knows, B needs in order to use bis applies to damages b
price is relatively small suggests that it tractor at night on his farm. A is ance as well as the E
was not in tended to · cover the· risk of delayed in obtaining the attach- est, there is usually J
such liability. Another such circum- ment and, since no substitute is proving the amount
stance is an informality of dealing, in- available, B is unable to u se the party has actually spE
cluding the absence of a detailed writ- .. tractor at night during the delay. the contract, even if i
ten contract, which indicates that In an action by B again st A for prove the amount o

186

••. (;>'!
'JOND
REMEDIES § 352
breach of contract, the court may, second operation. In an action by
U'eful attempt to allo-
after taking into consideration B against A for breach of contract,
isks. The fact that the such factors . as the absence of an the court may limit damages by
attempt to delineate
elaborate written contract and the allowing recovery only for loss in-
tll of the risks justifies extreme disjn'oportion between B's curred by B in reliance on the
tpting to allocate them loss of profits during the delay and contract, including the fees paid
itations dealt with in the price of the attachment ex- by B and expenses for hospitaliza-
: more likely to be im- elude recovery for loss of pr~fits. tion, nursing care and medicine
ection with contracts
19. A, a plastic surgeon, makes a for bot:h operations, together with
;e in a commercial set-
contract with B, a professional en- any damages for the worsening of
xamples of limitations
tages under this discre- tertainer, to p~rform plastic sur- B's appearance if these can be
gery on her face in order to im- proved with reasonable certainty,
nvolve the denial of re-
prove her appearance. The result but not including any loss result-
of profits and the re-
of the surgery is, however, to dis- ing from the failure to improve
,ages to loss incurred in
figure her face and to require a her appearance.
e contract. Sometimes
e covertly imposed, by
;pecially demanding re-
§ 352. Uncertainty as a Limitation on Damages
oreseeability or of cer- Damages are not recoverable for loss beyond an amount that the
e stated in this Section evidence permits to be established with reasonable certainty.
; what is done in such
.position of a limitati<?n Comment: would have made. In such a case, he
ofjustice. a. Requirement of certainty. A party can recover his loss based on bis reli-
cannot recover dain:?ges for breach of a ance interest instead of on bis expecta-
contract for los:;; beyond the amount tion interest. See § 349 and Illustra-
prívate trucker, con- that the evidence permits to be estab- tions 1, 2 and 3.
l B to deliver to B's fac- lished with reasonable certainty. See Doubts are generally resolved
:hine that ha¡¡ just been Illustraticin l. Courts have traditional- against the party in breach. A party
md without which B's ly required . gr.eater certainty in the who has, by his breach, forced the in-
3 A knows, cannot re- proof of damages for breach of a con-
jured party to seek compensation in
.very is delayed because tract than in· the proof of damages for
damages should not be allowed to prof-
breaks down. In an ac- a tort. The. requirement does not
it from bis breach where it is estab-
against A for breach of mean; however, that the injured party
is barred from recovery unless he es- lished that a significant loss has oc-
he court may, after tak- curred. A court may take into account
msideration such factors tablishes the total amount of his loss.
It merely excludes those elements of all the circumstances of the breach
loss that cannot be proved with rea- including willfulness, in decidin~
bsence of an elaborate
mtract and the extreme
;ion between B's loss of sonable certainty. The main impact of whether to require a lesser degree of
tring the delay and the the requirement of certainty comes in certainty, giving greater discretion 'to
1.e trucker's services, ex- connection with recovery for lost prof- . the trier of the facts . Damages need
wery for loss of profits. its. Although the requirement of cer- not be calculable with mathematical
tainty is distinct from that of foresee- accuracy and are often at best approxi-
retail hardware dealer,
ability (§ 351), its impact is similar in mate. See Comment 1 to Uniform
tp sell B an inexpensive
this respect. Although the requirement Commercial Code § 1- 106. This is es-
tttachment, which, as A applies to damages based on the reli- pecially true for items such as loss of
needs in order to use his ance as well as the expectation inter- good will as to which great precision
; night on his farm. A is
est, ·there is usually ·Iittle difficulty in cannot be expected. See Illustration 4.
n obtaining the attach-
proving the amount that the injured Furthermore, increasing receptiveness
l, since no substitute is
party has actually spent in reliance on on the part of courts to proof by so-
B is unable to use the
the contract, even if it is impossible to phisticated economic and financia!
t night during the delay.
prove the amount · of profit that he data and by expert opinion has made it
tion by B against A for
187
 § 352 RESTATEMENT OF CONTRACTS-SECOND

easier to meet the requirement of cer- can recover the loss of good will if of the sales made th
tainty. his loss can be estimated with rea- pal after the breacl
sonable certainty by such e~dence reasonably accurate
· lllustrations: as his business records before and agent's loss of comm
l. A contracts to publish a novel after the transaction and the testi- if the agency is not a1
that B has written. A repudiates mony of his salespersons and that that the agent's abi
the contract and Bis unable to get of dealers. competition is in <
his novel published elsewhere. If showing will be m
b. Proof of profits. 'I'he difficulty of
the evidence does not permit B's though the agent's
proving lost profits varies greatly with
loss of royalties and of reputation give a sufficient basil
the nature of the transaction. If, for
to be estimated with reasonable See Illustration 7.
example, it is the seller who claims lost
certainty; he cannot recover dam-
profit on the ground that the buyer's Illustrations:
ages for that loss, although he can
breach has caused him to lose a sale,
recovel' nominal damages. See Il- 5. A contracts "
lustratio~ 1 to § 347.
proof of lost profit will ordinarily not
B's existing outc
be difficult. If, however, it is the buyer
2. A contracts to sell B a tract of atre, work to· l
who claims lost profit on the ground
land on which B plans to build an June l. A does
that the seller's breach has caused him
outdoor drive-in theatre. A breaks work until Septe1
loss in other transactions, the task of
the contract by selling the land to records of the th
proof is harder. Furthermore, if the
C, and B is unable to build the subsequent open
transaction is more complex and ex-
theatre ..If, because of the specula- other evidence, 1
tends into the future, as where the
tive nature of the new enterprise profits with rea~:
seller agrees to furnish all of the buy-
the evide_nce does not permit B's er's requirements over a period of 6. A contracts
lo!lS óf profits to be estimated with years, proof of the loss of profits struct a new out<
reasonable certainty, his recovery caused by the seller's breach is more atre, to be compl<
. will · be · Jimited to expenses in- difficult. If the breach prevents the does not complet•
cul:red in reliance or, if none can injured party from carrying on a well- ti! September l.
. be prov:ed with reasonable certain- established business, t.he resnlt.ine; lnRR business is a . nev
. ty, to nominal damages. of profits can often be proved with established one, l
3. A and B make a contract un- sufficient certainty. Evidence of past prove his lost prc
det which A is to construct a performance will form the basis for a able certainty. B
building .of radical new design for reasonable prediction as to the future. of the theatre's s·
B -for $5,000,000. After A has See Illustration 5. However, if the tion and of the o
speJ;lt $3,000,000 in reliance, B re- business is a new one or if it is a lar theatres in tl
pudiates the contract and orders A speculative one that is subject to great along with other
off the site. If the evidence does fluctuations in volume, costs or prices, ing market surve)
riot permit A's lost profits to be proof will be more difficult. Neverthe- timony, in attem
estimated with reasonable certain- less, damages may be established with 7. A contracts w
ty, he can recover the $3,000,000 reasonable certainty with the aid of his exclusive ager
that he has spent in reliance. He expert testimony, economic and finan- machine tools in
must, · however, then prove that cia! data, market surveys and analyses, tory and to supp
·amourit with reasonable cettainty. business records of similar enterprises, chine tools at sta
4. A, a manufacturer, makes a and the like. See Illustration 6. Under B has begun to ac
contnict with B, a wholesaler, to a contract of exclusive agency for the repudiates the ag
sell B a quantity of plastic. B re- sale of goods on commission, the agent places him with (
sells . the plastic to dealers. 'I'he can often prove with sufficient certain-
plastic is discovered to be defective ty the profits that he would have made § 353. Loss Du
and B has many complaints from had he not been discharged. Proof of Recovery for e
dealers, .sorne of which refuse to the sales made by the agent in the breach also caused 1:
place further orders with him. B agreed territory before the breach, or kind that s~rious en

188
70ND REMEDIES § 353

the loss of good will if . of the sales made there by the princi- dence as to sales and profits made
be estimated with rea- pal after the breach, may permit a by him before the repudiation and
.ainty by such evidence reasonably accurate estímate of the made by e after the repudiation in
tess records before and agent's loss of commissions. However, attempting to prove his lost profits ·
msaction and the testi- if the agency is not an exclusive one, so with · reasonable certainty. lt
i salespersons and that
that the agent's ability to withstand would be more difficult, although
competition is in question, such a not necessarily impossible, for B to
showing will be more difficult, al- succeed in this attempt if his agen-
rofits. The difficulty of though the agent's past record may cy were not exclusive.
,fits varíes greatly with give a sufficient basis for judging this. c. Alternatiue remedies. The neces-
;he transaction. If, for See Illustration 7. sity of proving damages can be avoided
te seller who claims lost if another remedy, such as a decree of
round that the buyer' s Illustrations:
specific performance or an injunction,
sed him to lose a sale, 5. A contracts with B to remodel is granted instead of damages. Al-
:ofit will ordinarily not B's existing outdoor drive-in the- though the availability of such a reme-
rrowever it is the buyer atre, work to be completed on dy does not preclude an award of dam-
t pr~fit 'on the ground June l. A does not complete the ages as an alternative, it may justify a
; breach has caused him work until September l. B can use court in requiring greater certainty of
:ansactions, the task of records of the theatre's prior and proof if damages ar e to be awarded.
r . Furthermore, if the subsequent operation, along with See Illustration 8.
more complex and ex- other evidence, to prove his lost
' future, as where the profits with 'reasonable certainty. Illustration:
, furnish all of the buy- 6. A contracts with B to con- 8. A, a steel manufacturer, and
mts over a period of struct a n ew outdoor drive-in the- B, a dealer in scrap steel, contract
of the loss of profits atre, to be completed on June l. A for the sale by A to B of all of A's
seller's breach is more does not complete the theatre un- output of scrap steel for five years
te breach prevents the til September l. Even though the at a price fixed in terms of the
'rom carrying on a well- business is a new rather than an market price. B's pr ofit will de-
siness, the resulting l?ss established one, B may be able to pend largely on the amount of A's·
often be proved w1th prove his lost profits with reason- output and the cost of transport-
ainty. Evidence of past able certainty. B can use records ing the scrap to B's purchasers. A
áll form the basis for a of the theatre's subsequent opera- repudiates the contract at the end
•diction as to the future. tion and of the operation of simi- of one year. Whether B can recov-
~n 5. Ílowever, if the lar theatres in the same locality, er damages based on lost profits
new one or if it is a along with other evidence includ- over the remaining four years will
e that is subject to great ing market surveys and expert tes- depend on whether he can prove
1 volume, costs or prices, timony, in attempting to do this.
more difficult. N everthe- ¡ 7. A contracts with B to make B
A's output and the transportation ..
costs with reasonable certainty. If
may be established .with
his exclusive agent for the sale of he can do so for part of the re-
.rtainty with the aid of maining four years, he can recover
machine tools in a specified terri-
my, economic and finan- damages based on lost profits for
tory and to supply him with ma-
ket surveys and analyses, 1 chine tools at stated prices. Mter that period. The availability of the
:ds of similar enterprises,
t B has begun to act as A's agent, A remedy of specific performance is

¡
See Illustration 6. Under a factor that will influence a court
repudiates the agreement and re-
exclusive agency for the places him with C. B can use evi- in requiring greater certainty.
on commission, the agent
ve with sufficient certain- § 353. Loss Dueto Emotional Disturbance
that he ~ould have made f
leen discharged . Proof of 1 Recovery for emotional disturbance will be excluded .unless the
tde by the agent in the breach also caused bodily harm or the contract or the breach 1s of such a
1 kind that serious emotional disturbance was a particularly likely result.

¡
:¡ry before the bteach, or

189
1
¡
¡
§ 354 RESTATEMENT OF CONTRACTS-SECOND

§ 354. Interest as Damages amou.nt fixed is rel

tent that it appro
(1) If the breach consists of a failure to pay a definite sum in money
loss that has resultE
or to render a performance with fixed or ascertainable monetary value, lar breach, even t
interest is recoverable from the time for performance on the amount due approximate the lo:
less all deductions to which the party in breach is entitled. been anticipated m
(2) In any other case, such interest may . be allowed as justice breaches. See Illus·
requires on the amount that would have been just compensation had it more, the amount
to the extent that i
been paid when performance was due.
loss anticipated at t:
ing of the contract,
§ 355. Punitive Damages not approximate tl
Punitive damages are not recoverable for a breach of contract unless Illustration 3. The :
the conduct constituting the breach is also a tort for which punitive difficulty of proof e
damages are recoverable. the difficulty eithE
loss has occurred m
amount with the
§ 356. Liquidated Damages and Penalties (see § 351), the eE
(1) Damages for breach by either party may be liquidated in the that the amount f
agreement but only at an amount that is reasonable in the light of the To the extent that t
anticipated or actual loss caused by the breach and · the difficulties of as to the harm, tl
proof of loss. A term fixing unreasonably large liquidated damages is court or jury may r
principie of compe
unenforceable on grounds of public policy.
than does the adva1
(2) A term in a bond providing for an amount of money as a penalty parties. A determir.
for non-occurrence of the condition of the bond is unenforceable on amount fixed is a 1
grounds of public policy to the extent that the amount exceeds the loss · combination of theso
caused by such non-occurrence. difficulty of proof o:
siderable latitude is
Comment: forceable on grounds of public policy. proximation of ant
a. Liquidated damages or penalty. See Chapter 8. The rest of the agree- harm. If, on the otl
The parties to a contract may effective- ment remains enforceable, howe'ver, culty of proof of 1
ly provide in advance the damages that under the rule stated in § 184(1), and latitude is allowed .
are to be payable in the event of the remedies for breach are deter- tion. If, to take an
breach as long as the provision does mined by the rules stated in this Chap- clear that no loss at
not disregard the principie of compen- ter. See Illustration l. A term that provision fixing a ~
sation. The enforcement of such provi- fixes an unreasonably small amount as damages is unenforc
sions for liquidated damages saves the damages may be unenforceable as un- tion 4.
time of courts, juries, parties and wit- conscionable. See § 208. As to the liq-
nesses and reduces the expense of liti- Illustrations:
uidation of damages and modification
gation. This is especially important if or limitation of r emedies in contracts l. A and _B si
the amount in controversy is small. of sale, see Uniform Commercial Code . . tract under whi
However, the parties to· a contract are §§ 2- 718,2-719. play produced b
not free to provide ·a penalty for its season for $4,0(
breach. The central objective behind b. Test ol penalty. Under the test that " if either
the system of contract remedies is stated in Subsection (1), two factors perform as agro
compensatory, not punitive. Punish- combine in determining whether an he will pay $H
ment of a promisor for having broken amount of money fixed as damages is damages and m
his promise has no justification on ei- so unreasonably large as to be a penal- leaves the pla:
ther economic or other grounds and a ty. The first factor is the anticipated or week to take an
term providing such a penalty is unen- actual loss caused by the breach. The is sold out for t

190

j .-:~---····
;QND REMEDIES § 356
amount fiXed is reasonable to the ex- replaced by a suitable understudy.
tent that it approximates the actual The amount fixed is unreasonable
finite sum in money loss that has resulted from the particu- in the light of both the anticipated
.ble monetary value, lar breach, even though it may not and the actualloss and, in spite of
:l on the amount due approximate the loss that might have the use of the words "liquidated
titled. been anticipated under other possible damages," the term provides for a
breaches. See Illustration 2. Further- penalty and is unenforceable on
' allowed as justice more, the. amount fixed is reasonable grounds of public policy. The rest
compensation had it to the extent that it approximates the of the agreement is enforceable
loss anticipated at the time of the mak- (§ 184(1)), and B's remedies for
ing of the contract, even though it may A's breach are governed by the
not approximate the actual loss. See rules stated in this Chapter.
Illustration 3. The second factor is the
.eh of contract unless 2. A, B and e form a partnership
difficulty of proof of loss. The greater
t for which punitive to practice veterinary medicine in
the difficulty either of proving that
a town for ten years. In the part-
loss has occurred or of establishing its
nership agreement, each promises
amount with the requisite certainty
that if, on the termination of the
(see § 351), the easier it is to show
partnership, the practice is contin-
be liquidated in the that the amount fiXed is reasonable.
ued by the other two members, he
To the extent that there is uncertainty
'le in the light of the will not practice veterinary medi-
as to the harm, the estímate of the
nd the difficulties of court or jury may not accord with the
cine .in the same town during its
iquidated damages is continuance up to a maximum of
principie of compensation any more
than does the advance estímate of the three years. A term provides that
parties. A determination whether the for breach of this duty "he shall
of money as a penalty forfeít $50,000 to be collected by
is unenforceable on amount fixed is a penalty turns on a
combination of these two factors. If the the others as damages. ''A leaves
.ount exceeds the loss the partnership, and the practice
difficulty of proof of loss is great, con-
siderable latitude is allowed in the ap- is continued by B and C. A imme-
proximation of anticipated or actual diately begins to practice veteri-
rounds of public policy. nary medicine in the same town.
. The rest of the agree- harm. If, on the other hand, the diffi-
culty of proof of loss is slight, less The loss actually caused to B and
' enforceable, however, e is difficult of proof and $50,000
~ stated in § 184(1), and
latitude is allowed in that approxima-
tion. If, to take an extreme case, it is is ·not an unreasonable estima te of
for breach are deter- it. Even though $50,000 may be
clear that no loss at all has occurred a
:ules stated in this Chap- unreasonable in relation to the
provision fixing a substantial sum 'as
tration l. A term that loss that might have resulted in
damages is unenforceable. See lllustra-
sonably small amount as other circumstances, it is not un-
tion 4.
be unenforceable as un- reasonable in relation to the actu-
See § 208. As to the liq- Illustrations: al loss. Therefore, the term does
:tmages and modification not provide for a penalty and its
l. A and B sign a written con-
of remedies in contracts enforcement is not precluded on
tract under which A is to act in a
niform eommercial eode grounds of public policy. See Illus-
play produced by B for a ten week
19. season for $4,000. A term provides tration 14 to § 188.
penalty. Under the test that "if either party shall fail to 3. A contracts to build a grand-
bsection (1), two factors perform as agreed in any respect stand for B's race track for
determining whether an he will pay $10,000 as liquidated $1, 000,000 by a specified date and
oney fixed as damages is damages and notas a·penalty." -A to pay $1,000 a day for every day's
bly large as to be a penal- leaves the play before the last delay in completing it. A delays
'actor is the anticipated or week to take another job. The play completion for ten clays. If $1,000
msed by the breach. The is sold out for that week and A is is not unreasonable in the light of

191

¡
1
¡

L
§ 356 RESTATEMENT OF CONTRACTS-SECOND

the anticipated loss and the actual Illustration: loss caused by the
loss to B is difficult to prove, A's the condition.
5. A contracts to build a house
promise is not a term providing for B for $50,000 by a specified
for a penalty and its enforcement . date or in the alternative to pay B Illustration:
is not precluded on grounds of $1,000 a week during any period 6. A executes
public policy. of delay. A delays completion for himself to pay :
4. The facts being otherwise as ten days. If $1,000 a week is un- dition that the ·
stated in Illustration 3, B is de- reasonable in the light of both the
layed for a month in obtaining anticipated and actual loss, A's TOPIC
permission to operate his race promise to pay $1,000 a week is, in
spite of its form, a term providihg
PEI
track so that it is certain that A's
delay of ten days caused him no for a penalty and is unenforceable § 357. Availa
loss at all. Since the actual loss to on grounds of public policy.
(1) Subject to
B is not difficult to prove, A's d. .Related types of provisions. This a contract duty w
promise is a term providing for a Section does not purport to cover the party who has cm
penalty and is unenforceable on wide variety of provisions used by par- duty.
grounds of public policy. ties to control the remedies available
to them for breach of contract. A term (2) Subject to
c. Disguised penalties. Under the breach of a contra
that fixes as damages an amount that
rule stated in this Section, the validity against a party wh
is unreasonably small does not come
of a term providing for damages de-
within the rule stated in this Section, of the duty if
pends on the effect of that term as
but a court may refuse to enforce it as (a) the du
interpreted according to the rules
unconscionable under the rule stated
stated in Chapter 9. Neither the par- .in § 208. A mere recital of the harm (b) the d1
ties' actual intention as to its validity that may occur as a result of a breach denied
nor their characterization of the term of contract does not come within the tion.
as one for liquidated damages or a rule. stated in this Section,' but may
penalty is significant in determining increase damages by making that § 358. Form <
whether the term is valid. Sometimes harm foreseeable under the rule stated (1) An order
parties attempt to disguise a provision § 351. As to the effect of a contract drawn as best to
for a penalty by using language that provision on the right to equitable re-
purports to make payment of the
made and on such
lief, see Comment a to § 359. As to the
amount an alternative performance form and the perf
effect of a term requiring the occur-
under the contract, that purports to rence of a condition where forfeiture that due under the
offer a discount for prompt perform- w~uld result, see § 229. Although at- (2) If specific :
ance, or that purports to place a valu- torneys' fees are not generally awarded the performance tl
ation on prope~ty to be delivered . Al- to. the winning party, if the parties remainder.
though the parties may in good faith provide for the award of such fees the
(3) In additior
contract for alternative performances court will award a sum that it consid-
ers to be reasonable. If, however, the and other relief ma.
and fix discounts or valuations, a
parties specifY the amount of such ty against fu tu re h1
court will look to the substance of the
agreement to determine whether this fees, the provision is subject to the test
is the case or whether the parties stated in this Section. § 359. Effect •
have attempted to disguise a provision e. Penalties in bonds. Bonds often (1) Specific pe
for a penalty that is unenforceable un- fix a flat sum as a penalty for non- damages would be
der this Section. In determining occurrence of the condition of the injured party.
whether a contract is one for alterna- bond. A term providing for a penalty is (2) The adeqw
tive performances, the relative value not unenforceable in its entirety but part of the perforn
of the alternatives may be decisive. only to the extent that it exceeds the injunction as to the
192
COND REMEDIES § 359
loss caused by the non-occurrence of however, if e, who is B's cashier,
the condition. _ shall properly account for all mon-
racts to build a house
ey entrusted to him. e defaults to
$50,000 by a specified Illustration:. the extent of $500. A's promise is
;he alternative to pay B
reek during any period
6. A executes a bond obligating unenforceable on grounds of pub-
himself to pay B $10,000, on con- líe policy to the extent that it ex-
, delays completion for
dition that the bond shall be void, ceeds the actualloss, $500.
f $1,000 a week is un-
in the light of both the
and actual loss, A's TOPIC 3. ENFORCEMEN'l' BY SPECIFIC
pay $1,000 a week is, in PERFORMANCE AND INJUNCTION
form, a term providing
lty and is unenforceable § 357. Availability of Specific Performance and Injunction
' of public policy. (1) Subject to the rules stated in §§ 359-69, specific performance of
types of provisions. This a contract duty will be granted in the discretion of the court against a
,ot purport to cover the party who has committed or is threatening to commit a breach of the
' provisions used by par- duty.
. the remedies available (2) Subject to the rules stated in §§ 359-69, an injunction against
each of contract. A term breach of a contract duty will be granted in the discretion of the court
lamages an amount that
against a party who has committed or is threatening to commit a breach
ly small does not come
_e stated in this Section,
of the duty if
3.Y refuse to enforce it as (a) the duty is one of forbearance, or
e under the rule stated (b) .the -duty is one to act and specific performance would be
1ere recital of the harm denied only for reasons that are inapplicable to an injunc-
tr as a result of a breach . tion.
)es not come within the
1 this Section, but may
1ages by making that
§ .358. .F 9rm of Order and Other Relief
tble under the rule stated (1) An order of specific performance or an injunction will be so
the effect of a contract drawn as best to effectuate the purposes for which the contract was
the right to equitable re- made and on. such terms as justice requires. It need not be absolute in
nent a to § 359. As to the forro and the performance that it requires need not be identical with
~rm requiring the occur- that due Jinder the contract.
mdition where forfeiture
see § 229. Although at-
(2) If ·specific performance or an injunction is denied as to part of
are not generally awarded the performance that is due, it may nevertheless be granted as to the
ing party, if the paTties remaínder ..-
l1e award of such fees the (3) In addition to specific performance or an injunction, damages
rard a sum that it consid- and other relief may be awarded in the same proceeding and an indemni-
:tsonable. If, however, the ty against future harm may be required.
ify the amount of such
· vision is subject to the test § - 359. --Effect of Adequacy of Damages
; Section.
(1) Specific performance or an injunction will not be ordered if
:es in bonds. Bonds often damages would _be adequate to protect the expectation iriterest of the
LID as a penalty for non-
injured party.
of the condition of the
1 providing for a penalty is (2) The adequacy of the damage remedy for failure to render one
ceable in its entirety but part of the· performance due does not preclude specific performance or
extent that it exceeds the injunction as to the contract as a whole.

193
 § 359 RESTATEMENT OF CONTRACTS-SECOND

(3) Specific performance oran injunction will not be refused merely § 365. Effec1
because there is a remedy for breach other than damages, but such a Specific perfo
. remedy may be considered in exercising discretion under the rule stated or forbearance tl
in§ 357. · contrary to public

§ . 360. Factors Affecting Adequacy of Damages § 366. Effec1

In determining whether the remedy in damages would be adequate, A promise w
the following circumstances are significant: magnitude of the
enforcement or s1
· (a) the difficulty of proving damages with reasonable certainty, to be gained from
· (b) the difficulty of procuring a suitable substitute performance denial.
by means of money awarded as damages, and
(e) the likelihood that an award of damages could not be collect-
§ 367. Contr
ed. (1) A promis1
enforced.
§ 361. Effect of Provision for Liquidated Damages (2) A promise
er will not be enJ
SpeCific performance or an injunction may be granted to enforce a probable result v
duty even though there is a provision for liquidated damages for breach relations the enfol
of that dutY: leave the employe
§ 362 ... Effect of Uncertainty of Terms § 368. Effect
Specific.performance oran injunction will not bé granted unless the (1) Specific pE
terms of the· contract are sufficiently certain to provide a basis for an a party who can s1
appropriate order. a power of termim
(2) Specific pE
§ 363. Effect of Insecurity as to the Agreed Exchange because the party
~. .
Specifie performance or an injunction may be refused if a substantial duty unless the po
part of the agreed exchange for the performance to be compelled is other party of rE
unperformed· and its performance is not secured to the satisfaction of the performance.
court. .
§ 369. Effect
§ .364. Effect of Unfairness Specific perfor
breach by the part:
(1) Specific performance or an injunction will be refused if such
discharge the otheJ
relief would be unfair because
(a) the contract was induced by mistake or by unfair practices,
(b) the relief would ·cause unreasonable hardship or loss to the
·. party in breach or to third persons, or § 370. Requh
A party is en
(e) ·theexchange is grossly inadequate or the terms of the Restatement only
contract are otherwise unfair. oth~r party by way
(2} Specific performance or an injunction will be granted in spite of
a term of the agTeement if denial of such relief would be unfair because § 3 71. MeasUJ
it would cause unreasonable hardship or loss to the party seeking relief If a s1.1.m of
or to third persons. interest, it may as j

194

JlL
~OND REMEDIES § 371

>t be refused merely § 365. Effect of Public Policy

amages, but such a Specific performance or an injunction will not be granted if the act
nder the rule stated or forbearance that would be compelled or the use of compulsion is ·
contrary to public policy.

ges § 366. Effect of Difficulty in Enforcement or Supervision

would be adequate, A promise will not be specifically enforced . if the character and
magnitude of the performance would impose on the court burdens in
enforcement or supervision that are disproportionate to the advantages
:easonable certainty, to be gained from enforcement and to the harm to be suffered from its ·
)Stitute performance denial. ·
:, and
§ 367. Contracts for Personal Service or Supervision
could not be collect- (1) A promise to render personal service will not be specifically
enforced.
(2) A promise to render personal service exclusively for one employ-
amages
er will not be enforced by an injunction against serving another if its
granted to enforce a probable result will be to compel a performance involving personal
l damages for breach relations the enforced continuance of which is undesirable or will be to
leave the employee without other reasonable means of making a living.

§ 368. Effect of Power of Termination

1e granted unless the (1) Specific performance oran injunction will not be granted against
·ovide a basis for an a party who can substantially nullify the effect of the order by exercising
a power of termination or avoidance.
(2) Specific performance or an injunction will not be denied merely .
l Exchange because the party seeking relief has a power to termínate or avoid his
duty unless the power c.ould be used, in spit.e of tl1 e or der , to cleprive thc
lfused if a substantial
other party of reasonable security for the agreed exchange for his
l to be compelled is
performance.
;he satisfaction of the
§ 369. Effect of Breach by Party Seeking Relief
l Specific performance or an injunction may be granted in spite of a
breach by the party seeking relief, unless the breach is serious enough to ·.
ll be refused if such t discharge the other party's remaining duties of performance.

·r by unfair practices, 1 TOPIC 4. RESTITUTION

~rdship or loss to .the ¡,
§ 370. Requireme~t That Benefit Be Conferred
¡ A party is entitled to restitution under the rules stated in this
or the terms of the ¡ Restatement only to the extent that he has conferred a benefit on the
~
other party by way of part performance or reliance.
be grañted in spite of
uld be unfair because § 371. Measure of Restitution lnterest
,e party seeking relief If a sum of money is awarded to protect a party's restitution
interest, it may as justice requires be measured by either

195
 '"í ._,..

§ 371 RESTATEMENT OF CONTRACTS- SECOND

(a) the reasonable value to the other party of what he receíved (2) To the ex
in terms of what it would have cost him to obtain it from a party's performan
person in the claimant's position, or not entitled to re.
(b) the extent to which the other party's property has been damages is reaso
increased in value or his other interests advanced. caused by the bre;

§ 372. Specific Restitution

§ 375. Resti1
FJ
(1) Specific restitution will be granted to a party who is entitled to
A party who
restitution, except that: · ..
contract is not baJ
(a) specific r estitution based on a breach by the other paity unenforceable by
under the rule stated in § 373 may be refused in the. Statute provides <
discretion of the court if it would unduly interfere with the ing restitution.
certainty of title to land or otherwise cause injustice, and
(b) specific restitution in favor of the party in breach under the
§ 376. Restit
rule stated in§ 374 will not be granted. A party who
capacity, mistake,
(2) A decree of specific restitution may be made conditional on
a fiduciary r elatio
r eturn of or compensation for anything that the party claiming restitu-
conferred on the
tion has received.
(3) If specific restitution, with or without a sum of mo:riey, ~ln be Comn
substantially as effective as restitution in money in putting the party a. R ecouery of be
claiming r estitution in the position he was in befare rendering any · A party who exen
performance, the other party can discharge his duty by t endering such avoidance is entitle<
titution for any bf
restitution befare suit is brought and keeping his tender good ..
conferred on the ot
part performance of
§ 373. Restitution When Other Party Is in Breach contract. The bem
(1) Subject to the rule stated in Subsection (2), on a breach by · performance incluc
nonperformance that gives rise to a claim for damages for total breacp or from the use by t
whatever he has r
on a repudiation, the injured party is entitled to restitution for ~my .. time that it is retm
benefit that he has conferred on the other party by way of part Furthermore, under
performance or reliance. § 384, a party seekil
(2) The injured party has no right to restitution if he has performed generally return a r
all of his duties under the contract and no performance by the other has himself received
and must r eturn lar
party r emains due other than payment of a definite sum of money for
may h ave made ÜnJ
that performa nce. land in r elian ce on t
is entitled, on avoid
§ 3 74. · Restitution in Favor of Party in Breach the land, t o recover
(1) Subject to the rule stated in Subsection (2), if a party justifiably ue of those improv·
The rule st a ted in t
refuses to perform on the ground that his remaining duties of pei-form- ·
to avoidan ce on a ny
ance have been discharged by the other party's breach, the party ·in lack of capacity (§
breach is entitled to restitution for any ben efit that he has conferr ed by (§§ 152, 153),
way of par t performance or reliance in excess of the loss tha t h e hm~ . (§ 164), duress (§
caused by his own breach . ence (§ 177) or ab

196
 l' ?·

70ND REMEDIES § 376

of what he received (2) To the extent that, under the manifested assent of the parties, a
1to obtain it from a party's performance is to be retained in the case of breach, that party is
not entitled to restitution if the value of the performance as liquidated
damages is reasonable in t h e light of the anticipated or actual loss
property has been caused by the breach and the difficulties of proof of loss.
advanced.
§ 375. Restitution When Contract Is Within Statute of
Frauds
ty who is entitled to A party who would otherwise have a claim in restitution under a
contract is not barred from restitution for the reason that the contract is
by the other party unenforceable by him because of the Statute of Frauds unless the
be refused in the Statute provides otherwise or its purpose would be frustrated by allow-
ly interfere with the ing restitution.
cause injustice, and
§ 376. Restitution When Contract Is Voidable
· in breach under the
A party who has avoided a contract on the ground of lack of
capacity, mistake, misrepresentation, duress, undue influence or abuse of
nade conditional on a fiduciary relation is entitled to restitution for any benefit that he has
1rty claiming restitu- conferred on the other party by way of part performance or reliance.
Comment: relation (§ 173). Uncertainties m
1m of money, will be measuri!fg the benefit, however, are
a. Recovery of benefit on avoidance.
in putting the party more likely to be resolved in favor of
A party who exercises his power of
1efore rendering any avoidance is entitled to recover in res- the party seeking restitution if the oth-
ty by tendering such titution for any benefit that he has er party engaged in misconduct, as in
nder good. conferred on the other party through cases of fraudulent misrepresentation,
part performance of or reliance on the duress or undue influence. In cases of
contract. The benefit from his part mental incompetency the rule stated in
Breach
performance includes that resulting this Section is supplemented by that
(2), on a breach by from the use by the other party of stated in § 15(2) and in cases of mis-
~es for total breach or whatever he has received up to the take it is supplemented by that stated
o restitution for any time that it is returned on avoidance. in§ 158.
trty by way of part Furthermore, under the rule stated in
Illustrations:
§ 384, a party seeking restitution must
generally return any benefit that he l. A contracts to sell an automci-
•n if he has performed has himself received. If he has received bile to B, an infant, for $2,000.
•rmance by the other and must return land, for example, he Aftei· A has deliverecl the automo-
ite sum of money for may have made improvements on the bile and B has paicl the $2,000, B
land in reliance on the contract and he disaffirms the contract on the
is entitled, on avoidance and return of grouncl of infancy (§ 14), tenders
lt the land, to recover the reasonable val- the automobile back to A, ancl
eaeh
ue of those improvements (§ 37l(b)). sues A for $2,000. B can recover
) , if a party justifiably t
ing duties of perform- ¡ The rule stated in this Section applies
to avoidance on any ground, including
the $2,000 from A in restitution.
2. A contracts to sell and B to
breach, the party in f lack of capacity (§§ 14-16), mistake buy for $100,000 a tract of lancl,
1t he has conferred by ¡
¡
(§§ 152, 153), misrepresentation
(§ 164) , duress (§ 175), undue influ-
the value of which has depended
mainly on the timber on it. Both A
: the loss that he has
\ ence (§ 177) or abuse of a fiduciary and B believe that the timber is
¡ 197
§ 376 RESTATEMENT OF CONTRACTS_;;_SECOND

still there, but in fact it has been bid, that cost is evidence of its otherwise is not :
destroyed by fire. After A has con- reasonable value. See Illustration inconsistent and t
veyed the land to B and B has paid 9 to § 153. reliance on the maz
the $100,000, B discovers the mis- 4. A fraudulently induces B to
take. B disaffirms the contract for
mistake (§ 152), tenders a deed to
make a contract to huy a tract of § 379. Electio
land for $100,000. After A has con-
the land to A, and sues A for tor.
veyed the land and B has paid the
$100,000. B can recover $100,000 If a right or du
price, B makes improvements on
from A in restitution. See Illustra- is fortuitous or is
the land with a reasonable value
tion 1 to § 152.
of .$20,000. B then discovers the treat his remainin!
3. A submits a $150,000 offer in fraud, disaffirms the contract for ground of the othe
response to B's invitation for bids misrepresentation (§ 164), tenders manifest to the otl
on the construction of a building. a deed to the land to A, and sues A
A believes that this is the total of change in the situ:
for $100,000 plus $20,000, the rea- rence of that eve1
a column of figures, but he has sonable value of the improve-
made an error by inadvertently occurrence.
ments, less $5,000, the value to B
omitting $50,000, and in fact the of the use of the land. B can recov-
total is $200,000. Because B had er $115,000 in restitution from A. § 380. Loss of
estimated the expected cost as See Illustration 1 to § 164. (1) The power
$180,000 and the 10 other bids
were all in the range between 5. A fraudulently induces B to undue influence 01
$180,000 and $200,000, B had rea- make a contract to sell a tract of circumstances that
son to know of A's mistake. A land for $100,000. After B has con- manifests to the o
discovers the mistake after he has veyed the land and A has paid the respect to anything
done part of the work, disaffirms price; A farms the land at a net disaffirmance.
the contract on the ground of mis- prófit of $10,000. B then discovers
the fraud, disaffirms the contract (2) The power <
take (§ 153), and sues B in resti-
tution for the benefit conferred on for misrepresentation, tenders sentation is lost if a
B as measured by the reasonable back the $100,000, and sues A for or of the misrepre
value of A's performance. A can specific restitution plus the misrepresentation iJ
recover the reasonable val u e of bis $10,000 profit that A made by intention to affirm
performance in restitution and if farmirig the land. B can recover received in a manne
the cost of the work done can be the limd and $10,000 in restitution
(3) If the other
determined under the next lowest fromA.
to return what he h;
§ 377. Restitution in Cases of Impracticability, Frustration, restitution can, aftE
Non-Occurrence of Condition or Disclaimer by what he has receive
Beneficiary claim in restitution.
A party whose duty of performance does not arise or is discharged as
a result of impracticability of performance, frustration of purpose, non- § 381. Loss of ]
occurrence of a condition or disclaimer by a beneficiary is entitled to (1) The power <
restitution for any benefit that he has conferred on the other party by undue influence or
way of part performance or reliance. · circumstances that ·
· within a reasonable
TOPIC 5. PRECLUSION BY ELECTION avoid it.
AND AFFIRMANCE (2) The power (
or mistake is lost if ;
§ 378. Election Among Remedies knows or has reasor
If a party has more than one remedy u.n der the rules stated in this mistake he does not ·
Chapter, his manifestation of a choice of one of them by bringing suit or his intention to avo

198
COND REMEDIES § 381

:ost is evidence of its otherwise · is not a bar to another remedy unless the remedies are
value. See Illustration inconsistent and the other party materially changes his position in
reliance oh the manifestation.
dulently induces B to
1tract to buy a tract of § 379. Election to Treat Duties of Performance Under Alea-
)0,000. Mter A has con- tory Contract as Discharged
and and B has paid the . If a right or duty of the injured party is conditional on an event that
.akes improvements on ·
is fortuitous or is supposed by the parties to be fortuitous, he cannot
rith a reasonable value
. B then discovers the treat his remaining duties to render performance as discharged on the
ffirms the contract for ground of the other party's breach by non-performance if he does not
ntation (§ 164), tenders manifest to the other party his intention to do so before any adverse
J.e land to A, and sues A change in the situation of the injured party resulting from the occur-
lO plus $20,000, the rea- rence of that event or a material change in the probability of its
alue of the improve- occurrence.
; $5,000, the value to B
of the land. B can recov- · § 380. · Loss ofPower of Avoidance by Mfirmance
a in restitution from A. (1) The power of a party to avoid a contract for incapacity, duress,
:ttion 1 to § 164.
undue influence or abuse of a fiduciary relation is lost if, after the
1dulently induces B to
circumstances that made the contract voidable have ceased to exist, he
ntract to sell a tract of
.00,000. Mter B has con- manifests to the other party his intention to affirm it or acts with
land and A has paid the .. respect to ·anything that he has received in a manner inconsistent with
:trms the land at a net disaffirmance.
10,000. B then discovers (2) The power of a party to avoid a contract for mistake or misrepre-
disaffirms the contract sentation is .lost if after he knows or has reason to lmow of the mistake
epresentation, tenders or of ·the misrepresentation if it is non-fraudulent or knows of the
i100,000, and sues A for
·misrepresentation if it is fraudulent, he manifests to the other party his
restitution plus the
>rofit that A made by intention to affirm it or acts with respect to anything that he has
he land. B can recover received iri a manner inconsistent with disaffirmance.
nd $10,000 in restitution (3) Ifthe other party rejects an offer by the party seeking avoidance
to return what he has received, the party seeking avoidance if entitled to
restitution can, after the lapse of a reasonable time, enforce a lien on
ability, Frustration, what he has received by selling it and crediting the proceeds toward his
L or Disclaimer by
claim in restitution.

rise or is discharged as § . 381. · Loss of Power of Avoidance by Delay

ation of purpose, non-
(1) The power of a party to avoid a contract for incapacity, duress,
leficiary is entitled to
on the other party by undue influence or abuse of a fiduciary relation is lost if, after the
· circumstances that made it voidable have ceased to exist, he does not
within a reasonable time manifest to the other party his intention to
avoid it.
LECTION
(2} The power of a party to avoid a contract for misrepresentation
1 or mistake is lost if after he knows of a fraudulent misrepresentation or
knows or has reason to know of a non-fraudulent misrepresentation or
the rules stated in this
t,, . mistake he does not within a r easonable time manifest to the other party
1em by bringing suit or his intehtión to avoid it. The power of a party to avoid a contract for
1 199
f
l
§ 381 RESTATEMENT OF CONTRACTS-SECOND

non-fraudulent misrepresentation or mistake is also lost if the contract § 384. Requi

has been so far performed or the circumstances have otherwise so Bt
changed that avoidance would be inequitable and if damages will be
adequate compensation. (1) Except as

(3) In determining what is a reasonable time, the following circum- restitution unless
stances are significant: (a) he re1
(a) the extent to wliich the delay enabled or might have enabled any ir
the party with the power of avoidance to speculate at the SUOStE
other party's risk; him, o
(b) the extent to which the delay resulted or might have result- (b) the C(
ed in justifiable reliance by the other party or by third relief ¡
persons;
(2) The requi
(e) the extent to which the ground for avoidance was the result
property
of any fault by either party; and
(d) the extent to which the other party's conduct contributed to (a) that '
the delay. stroye•
defech
(4) If a right or duty of the party who has the power of avoidance
for non-fraudulent misrepresentation or mistake is conditional on an (b) that e
event that is fortuitous or is supposed by the parties to be fortuitous, a return
manifestation of intention under Subsection (1) or (2) is not effective · · of the
unless it is made before any adverse change in his situation resulting pensat
from the occurrence of that event or a material change in the probability compe:
of its occurrence.
(e) as to VI

§ 382. Loss of Power to Mfirm by Prior Avoidance the pri•

(1) If a party has effectively exercised his power of avoidance, a
subsequent manifestation of intent to affirm is inoperative unless the
§ 385. Effect ,
other party manifests his assent to affirmance by refusal to accept a ore
return of his performance or otherwise. (1) Unless an <
(2) A party has not exercised his power of avoidance under the rule · avoidance, a party
stated in Subsection (1) until avoidance exists.
(a) he has regained all or a substantial. part of what he would be (2) If ari offer
entitled to by way of restitution on avoidance, avoidance, a cluty t
(b) he has obtained a final judgment of or based on avoidance, before the power of
or
(e) the other party has materially relied on or manifested his
assent toa statement of disaffirmance. ·

§ 383. Avoidance in Part

A contract cannot be avoided in part except that where one or more
corresponding pairs of part performances have been fully performecl by
one or both parties the rest of the contract can be avoided.

200
'JND REMEDIES § 385
lost if the contract § 384. Requirement That Party Seeking Restitution Return
have otherwise so Benefit
if damages will be
(1) Except as stated in Subsection (2), a party will not be granted
restitution unless
.e following circum-
(a) he returns or offers to return, conditional on restitution,
might have enabled any interest in property that he has received in exchange in
to S:ij>eculate at the substantially as good condition as when it was receiv~d by
him, or
· might have result- (b) the court can assure such return in connection with the
party or by third relief granted.
(2) The requirement stated in Subsection (1) does not apply to
lance was the result property
(a) that was worthless when received or that has been de-
1duct contributed to stroyed or lost by the other party or as a result of its own
defects,
power of avoidance
3 conditional on an (b) that either could not from the time of receipt have been
s to be fortuitous, a returned or has been used or disposed of without knowledge
(2) is not effective of the grounds f?r restitution if justice requires that com-
;; situation resulting pensation be accepted in its place and the payment of such
ge in the probability compensation can be assured, or
(e) as to which the contract apportions the price if that part of
1
the price is not included in the claim for restitution.
•idance
wer of avoidance, a § 385. Effect of Power of Avoidance on Duty of Performance
operative unless the or on Duty Arising Out of Breach
refusal to accept a
(1) Unless an offer to restore performance received is a condition of

:lance under the rule avoidance, a party has no duty of performance while his power of
avoidance exists.
of what he would be (2) If an offer to restare performance received is a con9ition of
dance, avoidance, a duty to pay damages is termi:nated by such an offer made
based on avoidance, before the power of avoidance is lost.

m or manifested his

1t where one or more

!n fully performed by
voided.

201
 RESTATEMENT OF THE LAW, THIRD, .. .
SURETYSHIP AND GUARANTY, § 11
CHAPTER 2. FORMATION, ENFORCEMENT, ·
AND INTERPRETATION OF THE
SECONDARY OBLIGATION
TOPIC 2. ENFORCEMENT OF THE
SECONDARY OBLIGATION
§ 11. Statute of Frauds
(1) Pursuant to the Statute of Frauds, a contract creating a second-
ary obligation is unenforceable as a contract to answer for the duty of
another unless there is a written memorandum satisfying the Statute of
Frauds or an exception applies.
(2) Without limiting the generality of subsection (1) :
(a) When promises of the same performance are made by both
the principal obligor and the secondary obligar for a consi.c,l-
eration that benefits only the principal obligar, the promise
of the secondary obligar is within the Statute of Frauds a¡;; a
contract to answer for the duty of another, whether ornot
the promise is in terms conditional on default by the princi-
pal obligar, unless:
(i) the promises are in terms joint and do not create•several
duties or joint and several duties; or
(ii) the obligee neither lmows nor has reason to know that
the consideration does not inure to the benefit· of the
secondary obligar.
(b) A promise to enter into a written contract as secondary
obligar for the performance of a duty owed to the óbligee is
within the Statute of Frauds.
(e) A contract by a person to purchase a right that the obligee
has or may acquire against an obligar is within the Statute
of Frauds as a contract to answer for the duty of .another if
the circumstances indicate that the purpose of the contract
is to protect the obligee against loss arising from potential
non-performance by the obligar by giving the obligee re-
course against the purchaser as secondary obligar. · ·
(3) Notwithstanding subsection (1):
(a) A contract creating a secondary obligation is not a contract
to answer for the duty of another within the Statute of

203
 ·¡

§11 RESTATEMENT OF SURETYSHIP & GUARANTY REST,

Frauds unless the obligee is a party to the contract and the (h) A sec
obligee knows or has reason to know that the secondary disch:
obligar has suretyship status. is not
(b) A contract to perform or otherwise satisfy all or part of a for th
duty of the principal obligar to the obligee is not within the Comn
Statute of Frauds as a contract to answer for the duty of a. The Statute e
another if, by the terms of the promise when it is made, called "suretyship
performance thereof can involve no mo~e than: Statute of Frauds VI
(i) the application of funds or property held by the second- ferent language in
ary obligar for the purpose; or Statute of Frauds,
The English Statut
(ii) performance of any other duty owing, irrespective of 1954 except for tl
the contract, by the secondary obligar to the obligee; or land contract provis
(iii) performance of a duty that is either owing, irrespective
Alabama
of the contract, by the secondary obligar to the princi- Alaska
pal obligar, or that the obligee reasonably believes to Arizona
be so owing. Arkansas
California
(e) A contract that all or part of the duty of the principal obligar
to the obligee shall be satisfied by the secondary obligar is Colorado
not within the Statute of Frauds as a promise to answer for Connecticut
the duty of another if the consideration for the promise is in Delaware
Dist. of Col.
fact or apparently desired by the secondary obligar mainly Florida
for its own economic benefit, rather than the benefit of the Georgia 1
principal obligar. If, however, the consideration is merely a
fee for incurring the secondary obligation, the contract is Hawaii
within the Statute of Frauds. Id ah o
Illinois
(d) A promise to indemnify against liability or loss made by the Indiana
principal obligar or any other person to induce the second- Iowa
Kansas
ary obligar to enter into the secondary obligation is not Kentucky
within the Statute of Frauds as a contract to answer for the
duty of another. Maine
Massachusetts
(e) A contract not within the Statute of Frauds as a contract to Michigan
answer for the duty of another at the time the contract was Minnesota
made is not brought within the Statute· by a subsequent Mississippi
promise of another person to assume performance of the Missouri
duty as principal obligar. Montana
Nebraska
(D A contract pursuant to which the assignor of a right prom- Nevada
. ises that the obligar of the assigned right will perform its New Hampshire
obligation is not within the Statute of Frauds as a contract New Jersey
New York
to answer for the duty of another. N orth Carolina
(g) A promise by an obligee's agent that a purchaser of the North Dakota
obligee's goods or services through the agent will pay the
Ohio
price of the goods to the obligee is not within the Statute of Oklahoma
Frauds as a contract to answer for the duty of another. Oregon

204
ANTY RESTATEMENT OF SURETYSHIP & GUARANTY §11
l contract and the (h) A secondary obligor's promise to the principal obligar to
tat the secondary discharge a duty owed by the principal obligar to the obligee
is not within the Statute of Frauds as a contract to answer
for the duty of another.
y all or part of a
lis not within the Comment: Section 4 of the English statute was
ar . for the duty of a. The Statute of Frauds. The so- generally copied in the United States,
~hen it is made, called "suretyship provision" of the and the American statutes remain in
;han: · Statute of Frauds was included in dif- force. In Maryland and New Mexico
ferent language in § 4 of the English the English statute is in force by judi-
.eld by the second- cial decision. All the other states but
Statute of Frauds, enacted in 1677.
The English Statute was repealed in Louisiana have statutes similar to the
ng, irrespective of 1954 except for the suretyship and English statute, with sorne provisions
r to the obligee; or land contract provisions. omitted in a few states:

owing, irrespective Alabama Code § 8-9-2 (1993)

Hgor to the princi- Alas ka Stat. § 09.25.010 (3) (1994)
;onably believes to Arizona Rev. Stat. Ann. § 44-101 (1994)
Arkansas Stat. § 4-59-101 (Michie 1987)
California Civ. Code §§ 1624 (West 1985) (Supp.1996), 2793 (West
he principal obligar 1993); but see § 2794 (West 1993)
econdary obligar is Colorado Rev. Stat. § 38-10- 112 (1)(b) (1982) (Supp.1995)
•mise to answer for Connecticut Gen. Stat. § 52-550 (a)(2) (1991) (Supp.1995)
Delaware Code tít. 6, § 2714; but see § 2712 (1993)
)r the promise is in Dist. of Col. Code § 28-3502 (1991)
lary obligor mainly Florida Stat. § 725.01 (West 1988)
1 the benefit of the Georgia Off. Code Ann. § 13- 5-30 (1982) (Supp.1995); but see § 10-
.eration is merely a 7-4 (1994)
Hawaii Rev. Stat. § 656-1 (2) (1993)
.on, the contract is Code § 9-505 (1990) (Supp .1995)
Id ah o
Illinois 740 ILCS 80/1 (1995)
or loss made by the Indiana Code Ann. § 32-2-1- 1 (Burns 1995)
Iowa Code § 622.32 (1950)
induce the second- Kansas Stat. Ann. § 33-106 (1993)
y obligation is not Kentucky Rev. Stat. §§ 371.010 (4), 371.065 (Baldwin 1987) (Supp.
ct to answer for the 1994)
Maine Rev. Stat. tit. 33, § 51 (West 1988)
Massachusetts Gen. Laws ch. 259, § 1 (1992)
uds as a contract to Michigan Comp. Laws § 566.132 (1993)
me the contract was Minnesota Stat. § 513.01 (1990)
te by a subsequent Mississippi Code § 15-3-1 (a) (1995)
Missouri Rev. Stat. § 432.010 (1992)
performance of the
Montana Code § 28- 2-·903 (1)(b), but see § 28-11-105 (1995)
Nebraska Rev. Stat. § 36-202 (1993)
1or of a right prom- Nevada . Rev. Stat. Ann. § 111.220 (Michie 1986)
N ew Hampshire Rev. Stat. § 506:2 (1983)
ght will perform its Rev. Stat. § 25:1-5
New Jersey
<'rauds as a contract NewYork Gen. Oblig. Law § 5-701 (1989) (Supp.1996)
North Carolina Gen. Stat. § 22-1 (1965)
North Dakota Cent. Code § 9- 06- 04 (1987) (Supp.1995), but see § 22-01~
a purchaser of the 05 (1991)
~ agent will pay the Ohio Rev. Code § 1335.05 (Anderson 1993)
within the Statute of Oklahoma Stat. tit. 15, § 136 (1983)
he duty of another. Oregon Rev. Stat. § 41.580 (l)(b) (1993)

205
§ 11 RESTATEMENT OF SURETYSHIP & GUARANTY REST~

Pennsylvania Con. Stat. tit. 33 § 3; but see § 4 (1967) voidable. S's pr•
Rhode Island Gen. Laws § 9-1-4 (4) (1985) Statute of Frauc
South Carolina Code § 32-3-10 (2) (Law. Co~op . 1991) ·
4. D, a mental
South Dakota Laws § 56-1-4; but see §§ 56-1-5 through 56-1-9 (1988)
Tennessee Code § 29-2-101 (2) (1980) under guardian
Texas Bus. & Com. Code § 26.01 (b)(2) (West 1987) on credit from
Utah Code § 25-5-4 (1989) to part with the
Vermont Stat. Ann. tit. 12, § 181 (1973) (Supp.1994) anty that D wil
Virginia Code § 11-2 (1993) to pay the pri•
Washington Rev. Code § 19.36.010 (1989) void. S's promi~
W est Virginia Code § 55- 1-1 (d) (1994) Statute of Frau
Wisconsin Stat. § 241.02 (b) (1994) no underlying o
Wyoming Stat. Ann. § 1-23-105 (ii) (1988)
Comment to Su"
This section addresses the applicabil- sion of credit or forbearance to pursue
c. Rationale. Un
ity of the Statute of Frauds to con- the principal obligór-does not render
tention is manifes1
tracts creating secondary obligations. the requirement inapplicable. It should
promises of the san
Satisfaction of the Statute is the sub- be n:oted that the determination of
made by two persa
ject of Restatement, Contracts, Tapie what constitutes a writing or a signa- ation that inures to
6, §§ 131-137. The consequences of ture in an environment of electronic one of them sufficie1
noncompliance are the subject of Re- data transmission must continue to other is a secondar
statement, Second, Contracts, Tapie 7, evolve. tion, because an ob
§§ 138-147.
son to lmow that th
b. The statutory purpose. In gener- Illustrations:
ures to the benefi1
al, the primary purpose of the Statute l. D commits a tort against C. S reason to know of ·
of Frauds is assumed to be evidentiary. orally promises e to pay e the tus, the exception E
In the case of secondary obligations, damagE;ls that ·C suffered from the tion (3)(a) does not :
however, the Statute also serves the tort "if D fails to do so. S's promise
cautionary function of guarding the d. Joint obligat
is. .within.. the Statute of Frauds
promisor against ill-considered action. joint promisors wer
because D is under a direct duty to
The suretyship provision of the Statute purposes as a unit.
C and S's promise is to perform
is not limited to important or complex one joint promisor t
D's duty if D fails todo so.
contracts, but applies to secondary ob- co-promisor was n•
2. S o~ally p~omises C to guaran- "of another" with
ligations created by promises made to
tee the performance of any duty Frauds, even thougl
an obligee of the underlying obligation.
that D may incur to C within the tion in fact existed
Such promises -serve a useful purpose,
ensuing ·year. Relying on this modern times the
and the requirement of consideration
promise, e enters into a contract erning joint oblig.
is commonly met by the same promise
. with D, by which D undertakes greatly modified by
or performance that is consideration
within the year to select materials in most states. See
for the principal obligation. However,
for ·a holise and to act as supervis- · ond, Contracts, Cha
other considerations militate in favor
ing architect during its construc- the distinction bet
of requiring a writing: the motivation
of the secondary obligar is often essen- tion. D, without excuse, fails to and joint and sev1
tially gratuitous; its obligation depends perform his · contract. S's promise significance, the st
on a contingency that may seem re- is within the Statute of Frauds. of the Statute of Fn
mote at the time of contracting; and 3. D, an infant, obtains goods on to .the suretyship s1
natural formalities that often attend . credit from e, .who is induced to promisors .
an extension of credit are unlikely to part with them by S's oral guaran-
provide reliable evidence of the exis- ty that D will pay the price as Illustrations:
tence and terms of the secondary obli- agreed . The goods are not n eces- 5. D and S
gor's undertaking. Reliance of the saries but Dis. subject to a cluty to promise e to p:
kinds usual in such situations-exten- pay for them, though the cluty is e knows are t
206

., /JtM--- ..
 1RANTY RESTATEMENT OF SURETYSHIP & GUARANTY § 11
') voidable. S's promise is within the the exclusive benefit of D. If S is
Statute of Frauds. under no several duty, his promise
4. D, a mentally impaired person is not within the Statute of
mgh 56-1-9 (1988) Frauds.
under guardianship, obtains goods
; 1987) on credit from e, who is induced 6. The facts being otherwise as
to part with them by S's oral guar- stated in Illustration 5, the prom-
l994) anty that D will keep his promise ise is joint and several. S's promise
to pay the price. D's promise is is within the Statute of Frauds.
void. S's promise is not within the
Statute of Frauds because there is 7. The facts being otherwise as
no underlying obligation. stated in Illustration 6, e has no
reason to know that the goods are
Comment to Subsection (2)(a): not for the benefit of both parties.
r forbearance to pursue c. Rationale. Unless a contrary in- S's promise is not within the Stat-
)ligor-does not render tention is manifested, the fact that ute of Frauds.
.t inapplicable. It should promises of the same performance are
the determination of made by two persons for a consider- Comment to Subsection (2)(b):
~s a writing or a signa- ation that inures to the benefit of only e. Scope. The promises covered by
vironment of electronic one of them sufficiently shows that the this subsection are not in terms prom-
sion must continue to other is a secondary obligor. In addi- ises to answer for a duty of another.
tion, because an obligee who has rea- They are promises to execute written
son to know that the consideration in- instruments by which the promisor
ures to the benefit of only one has will on signing undertake to answer
a
mits tort against C. S reason to know of the suretyship sta- for such a duty. In substance, however,
mises e to pay e the tus, the exception. set forth in subsec- such promises, if binding, subject the
;hat e suffered from the tion (3)(a) does not apply. promisor to an action if the perform-
ails todo so. S's promise d. Joint obligations. Historically, ance due from the principal obligor is
the Statute of Frauds joint promisors were treated for many not rendered. This subsection is appli-
• is under a direct duty to purposes as a unit. ·Hence, as against cable whether the promise relates to
s promise is to perform one joint promisor the obligation of his an existing duty or to one expected to
f D fails to do so. co-promisor was not treated as that arise in the future.
lly promises e to guaran- "of another" within tli.e Statute of
lerformance of any duty Frauds, even though a suretyship rela- Illustrations:
ay incur to e within the tion in fact existed between them. In 8. In consideration of a loan by e
year. Relying on this modern times the historie rules gov- to D, S orally promises e to exe-
e enters into a contract erning joint obligations have been cute a written instrument guaran-
by which D undertakes greatly modified by statute or decision teeing the debt. S's promise is
te year to select materials in most state¡:;. See Restatement, Sec- within the Sta tute of Frauds.
tse and to act as supervis- ond, eontracts, Chapter 13. But where
itect during its construc- the distinction between joint duties 9. D owes e $1,000. In consider-
without excuse, fails to and joint and several duties retains ation of e's forbearance to sue D,
his contract. S's promise significance, the suretyship provision S orally promises e that S will
1 the Statute of Frauds. of the Statute of Fi·auds does not apply sign as acceptor for the accommo-
to the suretyship status between joint dation of D a draft for $1,00'0 to be
n infant, obtains goods on drawn by D. S's promise is within
·om e, who is induced to promisors.
the Statute of Frauds.
h them by S's oral guaran-
Illustrations:
D will pay the price as eomment to Subsection (2)(c):
The goods are not neces- 5. D and S jointly and orally
Jt D is subject to a duty to promise e to pay e for goods that f Secondary obligation in the fonn
them, though the duty is e knows . are to be delivered for of contract to purchase. Ordinarily a

207
 'lT ,',{!' '

§ 11 RESTATEMENT OF SURETYSHIP & GUARANTY RES Ti

promise to buy a right and a promise does not apply to a promise unless the so. The independer.
to pay the debt of another are quite promisee is the obligee. Moreover, the when the secondary
different transactions. Thus, a promise obligee-promisee must know or have ed or may arise sub:;;
to buy does not generally result in the reason to know of the secondary obli-
i. Application of
promisor having ·suretyship status and gor's suretyship status, either from the
(3)(b)(i) deals prin
the promise is not within the surety- terms of its. contract with the principal
ship provision of the Statute of Frauds. obligor or the secondary obligor or where the second~
The promise may nevertheless be with- from extrinsic facts. tee and the obligee ~
in other Statute of Fraud provisions, trust, although the
particularly Uniform Commercial Code Illustrations: is not essential. In s
§§ 1-206, 9- 203 (1995). See Restate- 11. S, for consideration, orally ondary obligation m
ment, Second, Contracts § 110. Where, promises E to pay a debt of E's terms the independ
however, a promise to buy a debt is child b to C, if D fails to pay it at limitation of the se<
conditional on the debtor's actual ór maturity. S's promise is not within To the extent that 1
potential default and the amount to be the Stat.u te of Frauds because it gation goes beyond
paid is essentially the same as if the was made to E, not to the obligee is not within paragn
debt had been guaranteed, the promi- C. ,
sor is a secondary obligor with surety- Illustrations:
12. · In an unsigned writing, D
ship status and the promise is within ·
and S severally and unconditional- 13. D owes C ~
the suretyship provision of the Statute
ly promise e, for consideration sum to S in tn
of Frauds. The distinction between a
inul'lng to the benefit of both D Then or thereal
contract to huy in which the promisor a~«;l, 's, that e shall be paid the
has suretyship status and one in which ises C to pay D'
súm of $100 a month for the next not e knows o
the promisor does not have that status six months. D has induced S to
does not lie in any formal difference in quires an enforc
make this promise by promising to S.
the words used but in the reality of the
hold S harmless, making S a sec-
transaction. For the purposes of the
ondary obligor. If e knows or has 14. D pays $1(
Statute of Frauds, the test is whether reason to know of this contract apply it to wp~
in all the circumstances the essential bstween D and S when S makes may recover aga
purpose of the promise is to protect then pending. S
th~ promise to C, S's promise is
the promisee against the actual or po- to pay the jw;lg
unenforceable. Otherwise S's
tential nonperformance of the debtor
promise is not within the Statute covers judginen
by g1vmg the promisee recourse
ofFrauds. an enforceable :
against the promisor. Compare § 1,
only $100.
Comment h and Illustrations 13- 14. Comment to Subsection (3)(b):
j. Other indepen,
Illustration: h. Rationale. Where the secondary
the secondary oblig<
obligor, if it performs the secondary
10. D corporation owes C $1,000, to perform an inde]
obligation, will be doing no more than
which is due. S orally promises C it is bound to do by reason of a duty to the obligee or to
that if C will grant D an extension other than that imposed by the second- gor, the secondary
of 60 clays, S will purchase the ary obligation, the promise is not with- within the Statute.
debt at thá.t time if it is not then in the Statute of Frauds. In such a terms of the second1
paid. The cü~cumstances indicate case, even though the secondary obli- do not disclose the
that S is really guaranteeing the gor has suretyship status, the second- Where the obligee
account, .a nd the promise is unen- ary obligor promises to answer for its lieves, at the time
. forceable. own obligation as well as that of an- obligation is create<
other and is not within the reason of dent duty is owed
Comment to Subsection (3)(a): the Statute. The terms of the second- obligor to his co-obl
g. Promisee must be obligee; "rea- ary obligation will commonly refer to is applied even tho
son to lmow. " The suretyship provision the independent cluty, but need not do not in fact exist. .

208
tRANTY RESTATEMENT OF SURETYSHIP & GUARANTY §11

l a promise unless the so. The independent duty may exist Illustrations:
:Jbligee. Moreover, the when the secondary obligation is creat- 15. S is a member of a partner-
must know or have . · ed or may arise subsequently. ship. After S retires but before the
of the secondary obli- . i. Application of funds . Paragraph debts of the partnership are paid,
status, either from the (3)(b)(i) deals primarily with cases S orally promises C, a partnership
ract with the principal creditor whose claim relates to a
where the secondary obligar is a trus-
· secondary obligar or transaction predating S's retire-
tee and the obligee a beneficiary of the
cts. ment, to pay the am.ount due C.
trust, although the trust relationship The promise is not within the
·is not ~ssential. In such cases, the sec- Statute of Frauds,
ondary obligation usually shows by its
consideration, orally 16. S, at D's · r equest, orally
terms the independent duty and the
to pay a debt of E's promises e to guarantee the pay-
limitation of the secondary obligation.
:, if D fails to pay it at ment by D to C of the price of any
s promise is not within To the extent that the secondary obli-
goods sold by C to D, to the extent
of Frauds because it gation goes beyond the duty, the case of the indebtedness S ·may owe D
o E, not to the obligee is not within paragraph (3)(b)(i). at the time that C notifies S that
D has defaulted. C thereupon sells
Illustrations: goods to D. S's promise is not
unsigned writing, D
ally and unconditional- 13. D owes C $100 and pays that within the Statute of Frauds.
C, for consideration sum to S in trust to pay it to C. 17. S and D severally pro mise C
the benefit of both D Then or thereafter S orally prom- to pay for goods to be delivered to
.t e shall be paid the ises C to pay D's debt. Whether or D. The goods are actually for S
O a month for the next not e knows of the trust, e ac- and D is the actual secondary obli-
:. D has induced S to quires an enforceable right against gar, but S and D lead C to suppose
Jromise by promising to S. that S is the secondary obligar. S's
mless, making S a sec- promise is not within the Statute
igor. If e knows or has 14. D pays $100 to S in trust to of Frauds; under subsection
know of this contra<;t . apply it to whatever judgment e (2)(a)(ii) neither is D's.
and S when S makes may recover against D in an action
:e to C, S's prom.ise is then pending. S orally promises C Comment to Subsection (3)(c):
ble. Otherwise S's to pay the judgment in full . e re- k. Rationale. This subsection states
not within the Statute covers judgment for $125. e has what is often called the "main pur-
an enforceable right against S for pose" or "leading object" rule. Where
only $100. the secondary obligors's main purpose
[) Subsection (3)(b): is its own pecuniary or business advan-
j. Other independent duties. Where
e. Where the secondary tage, the gratuitous or sentimental ele-
the secondary obligor merely promises
Jerform.s the secondaty ment often present in suretyship is
to perform an independent duty owed
be doing no more than eliminated, the likelihood of dispropor-
to the obligee or to the principal obli- tion in the values exchanged between
do by reason of a duty · gar, the secondary obligation is not
t imposed by the second- secondary obligar and obligee is re-
within the Statute. In such cases the duced, and the commercial context
the prom.ise is not with-
terms.of the secondary obligation often commonly provides evidentiary safe-
) of Frauds. In such a
do not disclose the independent duty. guards. Thus, there is less need for
u gh the secondary obli-
Where the obligee in good faith be- cautionary or evidentiary formality
·ship status, the second-
lieves, at the time that the secondary than in other secondary obligations.
Jmises to answer for its
1 as well as that of .an~
obligation is cr eated, that an indepen- Historically, the rule could be recon-
10t within the reason of dent duty is owed by the secondary ciled with the terms of the Statute on
'he t erms of the second- obligar to his co-obligor, the same rule the ground that a secondary obligar
will com.monly refer to is applied even though the duty does who received a bargained-for benefit
nt duty, but need not do not in fact exist . could be su ed in debt or indebitatus

209
 ·~ .,l.'.~~

§11 RESTATEMENT OF SURETYSHIP & GUARANTY

assumpsit; hence, it promised to pay has no purpose to benefit herself Comment to SU:
its debt rather than the debt "of an- and e has no reason to suppose so. n. Principal obli
other," and the promise was not "spe- S's promise is not enforceable. Where the indemni
cial" in the sense that special assump- obligar, the promiE
19. D owes e $1,000. e is about
.sit was the only appropriate remedy. not within the Sta·
In modern times, however, the rule is to levy an attachment on D's fac-
tory. S, also a creditor of D, fear- cause it is not a prc
applied in terms of its reason rather the debt of another.
than to accord with abandoned proce- ing that the attachment will ruin
dural categories. D's business and thereby destroy
Illustrations:
S's chance of 'collecting S's own
l. · Factors • affecting application of 22. I promises
claim, orally promises e that if e
the rule. The fact that there is consid- will guarantee
will forbear to take legal proceed-
eration for the secondary obligation is I' s pro mise is n
ings against D for three months, S
insufficient to bring the rule of subsec- u te of Frauds. E
tion (3)(c) into play. Slight and indirect will pay D's debt if D fails to do so.
possible advantage to the secondary S's promise is enforceable. 23. I promises
obligar is similarly insufficient. The ex- will sign an ac
20. D contracts with S to build a
pected advantage must be such as to to e for I's ber
house for S. e contracts with D to
justify the conclusion that the main not within the
furnish materials for the purpose.
purpose of the secondary obligar in D fails to pay e for sorne of the o. Third party
making the promise is to advance its materials furnished. e justifiably principal obligar ow
own interests. The following factors refuses to furnish further materi- the secondary oblig
tend to indicate such a main purpose als. S orally promises e that, if e 22. A promise by a
when there is an expected pecuniary or will continue to furnish D with demnify the second
business advantage: prior default; ina- breach of these '
materials that e had previously
bility or repudiation of the principal speaking, a promisE
agreed to furnish, S will pay the
obligar; forbearance of the obligee to default of the princ
price not only for the materials
enforce a lien on property in which the event of the breach
already furnished but also for the
secondary obligar has an interest or secondary obligar.
remaining materials if D fails to appropriate when i
which it intends to use; equivalence
between the value of the benefit and do so. S's promise is enforceable. understanding of
the amount promised; and lack of par- m. Premiums. Excluded from the monly, however, th
ticipation by the principal obligar in main purpose rule are contracts of promise to indemnif
·.. the making of the secondary obligor's prospective debtor
guaranty insurance, whether or not
promise. The benefit may be supplied making such contracts is the secondary promise to a prosp
to the secondary obligar by the obligee, obligor's regular business. Promises of viewed, the promis¡
by the principal obligar, or by sorne commercial surety companies are prac- Statute. See subse'
other person; if it is substantial and tically always in writing. An isolated such cases are also ·
meets the main purpose test it may oral guaranty by an individual is with- pose rule. See subse
come indirectly through benefit to the in the reason of the Statute if a small event, they do not
principal obligar. the need for cautior
fee is paid for guaranty of a much
ry formalities that
Illustrations: larger debt.
signed to meet.
18. D owes e $1,000. e is about Illustration:
to levy an attachment on D's fac- Illustrations:
tory. S, who is a friend of D desir- 21. In consideration of a premi- 24. I requests
. ing to prevent D's financia! ruin, um of $100, S guarantees e in an · made by I's eh
orally promises e that if e will unsigned writing the fidelity of D, enable D to obt:
forbear to t ake legal proceedings e's employee, during D's term of D' s business, a
against D for three months, S will employment. The guaranty is not to indemnify S
pay D's debt if D fails to do so. S enforceable. loss. S indorse:

210

:.·~ . ~i'S.J... ,
~ANTY RESTATEMENT OF SURETYSHIP & .GUARANTY §11
;e to benefit herself Comment to Subsection (3)(d): quested. I's promise is not within
:eason to suppose so. n. Principal obligar as indemnitor. the Statute of Frauds.
not enforceable. Where the indemnitor is the principal 25. To induce ·e; a commercial
:; $1,000. e is about obligor, the promise to indemnify is surety company, to file a bond in
achment on D's fac- not within the Statute of Frauds be- an action against D Corporation, S
t creditor of D, fear- cause it is not a promise to answer for gives e a written guaranty against
:tttachment will ruin the debt of another. loss. After judgrnent against D cor-
and thereby destroy poration, I, a shareholder of D
Illustrations: Corporation, orally promises S to
f collecting S's own
indemnify S against loss. Uriless
promises e that if e 22. I pro mises to indemnify S if S
will guarantee I's obligation to C. I's promise is Within the main pur-
o take legal proceed-
I's promise is not within the Stat- pose rule, it is within the Statute
) for three months, S
ute of Frauds. S's promise is . of Frauds becimse it was not made
.ebt if D fails to do so. to induce e.to en ter into its con-
1 enforceable. 23. I promises to indemnify S if S tract.
will sign an accommodation note
:tcts with S to build a
to e for I's benefit. I's promise is Comment to Subsection (3)(e):
::; contracts with D to
not within the Statute of Frauds.
rials for the purpose. p. Scope. An oblig:or of a duty may
ty e for sorne of the o. Third party indemnitor. The become a secondary obligor by agree-
mished. e justifiably principal obligor owes several duties to ment with another who subsequently
rnish further materi- the secondary obligor. See §§ 18, 21- assumes the duty, thereby becoming
promises e that, if e 22. A promise by a third party to in- the principal obligar, but this will not
e to furnish D with demnify the secondary obligar against make the original promise subject to
breach of these duties is, strictly the Statute of Frauds. The rule stated
.at e had previously
speaking, a promise to answer for the in this subsection applies, for example,
rnish, S will pay the
default of the principal obligar in the where a partner retires from a part-
1ly for the materials
event of the breach of its duties to the nership and the · r~maining partners
ished but also for the
secondary obligor. Such treatment is agree to assume all of the partnership
1aterials if D fails to appropriate when it accords with the obligations. Ifthe· obligation on which
romise is enforceable. understanding of the parties. Com- the retiring partner was originally
:. Excluded from the monly, however, the parties treat the bound was oral, it does not becomes
:ule are contracts of promise to indemnify as a promise to a unenforceable . merely because, as be-
mee, whether or not prospective debtor rather than as a tween the retiring partner and the oth-
.tracts is the secondary promise to a prospective creditor. So ers, the retiring partner beco mes a sec-
· business. Promises of viewed, the promise is not within the ondary obligor.
ty companies are prac- Statute. See subsection (3)(h). Many
1 writing. An isolated such cases are also with the main pur- Comment to Subsections
r an individual is with-
pose rule. See subsection (3)(c). In any <3)(f) a:D.d ün<g):
. the Statute if a small event, they do not ordinarily present q. Rationale. The promisors re-
the need for cautionary and evidentia- ferred to in these subsections become
guaranty of a much
ry formalities that the Statute is de- secondary obligors for the debts of oth-
signed to meet. ers, but the .promises are commonly
made in contexts that provide evidence
Illustrations: of the promises and eliminate the need
tsideration of a premi- 24. I requests S to indorse notes of cautionarYforma:lity. The assignor's
', S guarantees C in an made by I's child D, in order to pro mise that the obligor of an assigned
riting the fidelity of D, enable D to obtain credit for use in right will perform its obligation is ordi-
ee, during D's term of D's business, and orally promises narily :inade to provide recourse
t . The guaranty is not to indemnify S for any resulting against the assignor as part of the sale
loss. S indorses the notes as re- of that right and, thus, is for a consid-

211
§ 11 RESTATEMENT OF SURETYSHIP & GUARANTY

eration wholly for the assignor's own goods for e on credit to D. S's
benefit. See subsection (3)(c). The sell- promise is nót within the Statute.
ing agent who guarantees customers'
accounts is commonly called a "del cre- Comment to Subsection (3)(h): UNI
ciere factor"; an important inducement r. Rationale. In most cases, the
for the promise is the agent's desire to promise described in this subsection
advance his or her own interest. In will give the obligee as beneficiary a
addition, the guaranty is likely to be direct right against the secondary obli-
part of a course of business rather gar without destroying its · right
than an isolated transaction. against the principal obligar. The
promise is ri.ot within the Statute of
Illustrations: Frauds, however, because the Statute The Uniforn
is designed to require written evidence al Conference of
26. S, who is owed $1,000 by D, only in the case where the promise is can Law lnstitu
sells that claim against D to e, made to the obligeé. In contrast to the amended a num·
orally guaranteeing that D will language of the Statute, the contract
considered in subseCtion (3)(h) is one been enacted in
pay the debt. As a result of this
sale, e becomes the obligee and S to answer fqr the default of the prom- were not enacte
becomes a secondary obligar with isee, not for the default "of another." (Article 2), lease
suretyship status. However, S's 3), bank depositE
Illustration: · letters of credit
promise is not within the Statute.
28. D owes e $lOO. S orally prom- securities (Articl
27. S is engaged in selling goods ises D that S will discharge the debt, Article 1 contai
for others on éommission. To in- or promises to .·lend D money with that apply to al
duce e to employ S, S orally guar- which to pay it: In either case, S's Article (Article
antees payment by those to whom promise is not within the Statute of
S sells e's goods. Later, S sells repealed in all bl
Frauds.
For purpos1
Articles of the l
provisions that a
the latter goverr
the 1960s (Articl
in every state e
recently, with tl
revisions to othe
been the subject
promulgated by
State Laws and ·
tions promulgat•
cation of this vo
revised Article 1
however, enacte•
in 2011.
For purpos{
presents both tl
2001 text) and
Because Article
that are · not re
Article 1 in this
212
 .1 C'f"

ffiANTY

! on credit to D. S's
tot within the Statute.
Subsection (3)(h): UNIFORM COMMERCIAL CODE
In most cases, the
ed in this subsection (Articles 1 and 2)
>ligee as beneficiary a
nst the secondary obli-
destroying its right
rincipal obligor. The COMPILERS' NOTE
within the Statute of
r, because the Statute The Uniform Commercial Code (UCC), a joint project of the Nation-
~quire written evidence al Conference of Commissioners on Uniform State Laws and the Ameri-
~ where the promise is can Law Institute, was originally promulgated in 1951 and has been
igee. In contrast to the amended a number of times in succeeding years. By the 1960s, it had
~ Statute, the contract
been enacted in every state (although sorne Articles, including Article 2,
ubsection (3)(h) is one
1e default of the prom- were not enacted in Louisiana). Topics covered include sales of goods
e default "of another." (Article 2), leases of goods (Article 2A), negotiable instruments (Article
3), bank deposits and collections (Article 4), funds transfers, (Article 4A),
letters of credit (Article 5), documents of title (Article 7), investment
C $100. S orally prom- securities (Article 8), and secured transactions (Article 9). In addition,
vill discharge the debt, Article 1 contains general provisions (including extensive definitions)
> lend D money with that apply to all transactions within the scope of the UCC. Another
it. In either case, S's Article (Article · 6) dealt with bulk sales, but this Article has been
within the Statute of repealed in all but a few states.
For purposes of the law of contracts, the two most important
Articles of the UCC are Articles 1 and 2, the former containing general
provisions that apply to all transactions within the scope of the UCC and
the latter governing sales of goods. Both Articles were widely enacted by
the 1960s (Articlé 1 was enacted in every state and Article 2 was enacted
in every state ·except Louisiana), and remained quite stable until very
recently, with the only amendments being minor changes to conform to
revisions to other Articles. In the last decade, though, both Articles have
been the subject of much change. In 2001, a revised text of Article 1 was
promulgated by the National Conference of Commissioners on Uniform
State Laws and the American Law Institute, and in 2003 those organiza-
tions promulgated substantial amendments to Article 2. As of the publi-
cation of this volume, 41 states and the U.S. Virgin Islands had enacted
revised Article 1, and other states seem poised to do so soon. No states,
however, enacted the amendments to Article 2, and they were witpdrawn
in 2011.
For purposes of understanding the UCC as it is today, this volume
presents both the revised version of Article 1 (often referred to as the
200r text) and the former version (often referred to as the 2000 text).
Because Article 1 contains a number of provisions (including definitions)
that are not relevant to Article 2 and contract law, both versions of
Article 1 in this volume are abridged by the omission of those provisions.

213
 UNIFORM COMMERCIAL CODE

Sections of the Uniform Commercial Code are typically accompanied

by "Official Comments" supplied by the drafters. These Comments,
although not enacted by the legislature, have proven to be quite helpful
and are often cited by judges. This volume contains a selection of those UNIF
Comments. .

ARTIC:

Section
1- 101. Short Titles
1-102. Scope of Ar1
1-103. Constructio
cability of
1-106. Use of Sing~
1-107. Section Cap
1- 108. Relation to
merce Ac1

1-201. General Def

1-202. Notice; Kno
1-204. Value
1- 205. Reasonable

PART 3. TER
1-302. Variation B:
1-303. Course of Po
1-304. Obligation e
1-305. Remedies te
1- 306. Waiver or R
1-308. Performanc·

l. The original and

Code are copyrighted t
Institute and the Na1
Commissioners on Uni:
printed with permissic
Editorial Board of the
Code.
* As of May 31, 20:
Article 1 had been ena
40 states: Alabama, Ah
sas, California, Coloraó

214
pically accompanied
These Comments,
1 to be quite h elpful
a selection of Lhu:>e
UNIFORM COMMERCIAL CODE 1

·ARTICLE l. GENERAL PROVISIONS

(2001 Offichil Text)*
(Abridged)
Table of Contents

PART l. GENERAL PROVISIONS

Section
1-101. Short Titles
1-102. Scope of Article
1-103. Construction of [Act] to Promote Its Purposes and Policies; Appli-
cability of Supplemental Principies of Law
1- 106. Use of Singular and Plural; Gender
1-107. Section Captions
1-108. Relation to Electronic Signatures in Global and National Com-
merce Act

PART 2. GENERAL DEFINITIONS AND

PRINCIPLES OF INTERPRETATION
1-201. General Definitions
1-202. Notice; Knowledge
1- 204. Value
1-205. Reasonable Time; Seasonableness

PART 3. TERRITORIAL APPLICABILITY AND GENERAL RULES

1-302. Variation By Agreement
1-303. Course of Performance, Course of Dealing, and Usage of Trade
1-304. Obligation of Good Faith
1-305. Remedies to Be Liberally Administered
1-306. Waiver or Renunciation of Claim or Right After Breach
1-308. Performance or Acceptance Under Reservation of Rights

l. The original and revised texts of the ware, Florida, Hawaii, Idaho, Illinois,
Code are copyrighted by the American Law Indiana, Iowa, Kansas, Kentucky, Louisi-
Institute and the National Conference of ana, Maine, Minnesota, Mississippi, Mon-
Commissioners on Uniform State Laws. Re- tana, Nebraska, Nevada, New Hampshire,
printed with permission of the Permanent New Mexico, North Carolina, North Dako-
Editorial Board of the Uniform Commercial ta, Ohio, Oklahoma, Oregon, Pennsylvania,
Code. Rhode Island, South Dakota, Tennessee,
''' As of May 31, 2011, the 2001 text of Texas, Utah, Vermont, Virginia, West Virgi-
Article 1 had been enacted in the followin g nia, Wisconsin.
40 states: AJabama, AJaska, Arizona, Arkan·
sas, California, Colorado, Connecticut, DeJa-

215
 § 1-101 UNIFORM COMMERCIAL CODE

PART 1 foreseen and new e

practices. The propE
GENERAL PROVISIONS the Uniform Comr
quires, of course, tl
§ 1-101. Short Titles tion and application
(a) This [Act] may be cited as the Uniform Commercial Code. reason.

(b) This article may be cited as Uniform Commercial Code-General Even prior to the
Provisions. Uniform Commerci
were careful to kee]
being hampered in 1
§ 1-102. Scope of Article
ter acts of limited
This article applies to a transaction to the extent that it is governed Wool Growers u. Dra
by another article of [the Uniform Commercial Code]. 1, 73 P.2d 1391 (H
Section 1-104. The
§ 1-103. Construction of [Uniform Commercial Code] to recognized that the
Promote Its Purposes and Policies; Applicabili- in an act are applic
ty of Supplemental Principies of Law. subject-matter that
included in the lan
(a) [The Uniform Commercial Code] must be liberally construed and Commercial Nat. Ba
applied to promote its underlying purposes and policies, which are: u. Canal- Louisiana .
(1) to simplify, clarify, and modernize the law governing com- 239 U.S. 520, 36 S
mercial transactions; 417 (1916) (bona fi.1
of U niform Warehc
(2) to permit the continued expansion of commercial practices
extended to case n
through custom, usage, and agreement of the parties; and equivalent nature),
(3) to make uniform the law among the various jurisdictions. where reason and ]
even where the s
(b) Unless displaced by the particular provisions of [the Uniform
been intentionnlly •
Commercial Code], the principies of law and equity, including the law
act in general. Agar
.. merchant and the law relative to capacity to contract, principal and
agent, estoppel, fraud, misrepresentation, duress, coercion, mistake,
248, 190 N.E. 47E
Sales Act change Íl
bankruptcy, and other validating or invalidating cause supplement its applied to contract f
provisions. action even though
age of that Act was
Official Comments to the Uniform Commercial Code and
ed to goods "other
Source: Former Section 1- 102 (1)-(2); minar stylistic changes, subsection (b)
tion.") They impler
of this section is identical to former
Former Section 1- 103. policy with liberal a
Section 1- 103. The provisions have
Changes from former law: This sec- been combined in this section to reflect not provided in t
tion is derived from subsections (1) the interrelationship between them . They disregarded l
and (2) of former Section 1- 102 and tion of remedy whe1
l. The U niform Commercial Code
from former Section 1-103. Subsection limitation did not aJ
is drawn to provide flexibility so that,
(a) of this section combines subsections since it is intended to be a semi-perma- N . J ohnson & Co.,
(1) and (2) of former Section 1-102. nent and infrequently-amended piece N.W. 399 (1923) (
Except for changing the form of refer- of legislation, it will provide its own turn of the goods
ence to the Uniform Commercial Code machinery fo r expansion of commercial rescission for breacl
and minar stylistic changes, its lan- practices. It is intended to make it partía! rescission al
guage is the same as subsections (1) possible for the law embodied in th e the U niform Comn
and (2) of former Section 1-102. Ex- Uniform Commercial Code to be ap- in the way of the e
cept for changing the form of reference plied by the courts in the light of un- action by the courts

216
 A:':""/·"

ARTICLE 1: GENERAL PROVISIONS (2001} § 1-103

foreseen and new circumstances and The Uniform Commercial Code
practices. The proper construction of should be construed · ii1 accordance
the Uniform Commercial Code re- with its underlying purpo~es and poli-
quires, of co~rse, that its interpreta- cíes. The text of each s.ection should
tion and application be limited to its be read in the · light of the purpose
tercial Code. reason. and policy of the rule or principie in
question, as also of the Uniform Com-
·cial Code-General Even prior to the enactment of the
mercial Code as a whole, and the ap-
Uniform Commercial Code, courts plication of the language should be
were careful to keep broad acts from construed narrowly or btoadly, as the
being hampered in their effects by la- case may be, in conforrhity · with the
ter acts of limited scope. See Pacific purposes and policies involved.
; that it is governed Wool Growers v. Draper & Co., 158 Or.
2. Applicability of supplemen-
1, 73 P.2d 1391 (1937), and compare
tal principies of law. Subsection (b)
Section 1-104. The courts have often
states the basic relationship of the
nercial Code] to recognized that the policies embodied
Uniform Commercial Code to supple-
icies; Applicabili- in an act are applicable in reason to mental bodies of law. The Uniform
ofLaw. subject-matter that was not expressly Commercial Code was drafted against
included in the language of the act, the backdrop of existing bodies of law,
~rally construed and
Commercial Nat. Bank of New Orleans including the common law and equity,
policies, which are: v. Canal-Louisiana Bank & Trust Co., and relies on those bodies · of law to
law governing com- 239 U.S. 520, 36 S.Ct. 194, 60 L.Ed. supplement it provisions in many im-
417 (1916) (bona fide purchase policy portant ways. At the same time, the
of Uniform Warehouse Receipts Act Uniform Cominercial Code is the pri-
ommercial practices extended to case not covered but of mary source of commercfal law rules in
of the parties; and equivalent nature), and did the same areas that it governs, and its rules
ous jurisdictions. where reason and policy so required, represent choices made "by its drafters
even where the subject-matter had and the enacting legisiatures about the
ms of [the U niform
been intentionally excluded from the appropriate policies ·to be·furthered in
y, including the law act in general. Agar v. Orda, 264 N.Y. the transactions it covers. Therefore,
tract, principal and 248, 190 N.E. 479 (1934) (Uniform while principies of common law and
, coercion, mistake, Sales Act change in seller's remedies equity may supplem({nt pr.ovisions of
ause supplement its applied to contract for sale of choses in the Uniform Commerciai Code, they
action even though the general cover- may not be used to supplant its provi-
age of that Act was intea.tionally limit- sions, ot the purpos~s and policies
Commercial Code and
ed to goods "other than things in ac- those provisions reflect, unless a spe-
~hanges, subsection (b)
tion.") They implemented a statutory cific provision of the Uniform Com-
is identical to former
policy with liberal and useful remedies mercial Code provides · otherwise. In
The provisions have
in this section to reflect not provided in the statutory ' text. the absence of su eh . a provision, the
1ship between them. They disregarded a statutory limita- Uniform Commercial Code preempts
tion of remedy where the reason of the principies of common law imd equity
'orm Commercial Code that are inconsistent with either its
liipitation did not apply. Fiterman v. J.
•vide flexibility so that, provisions or its púrposes arid policies.
:led to be a semi-perma- N. ·Johnson & Co., 156 Minn. 201, 194
quently-amended piece ·N.W. 399 (1923) (requirement of re- The language of subsection (b) is
it will provide its own turn of the goods as a condition to intended to reflect both the concept of
,xpansion of commercial rescission for breach of warranty; also, supplementation and · the concept of
; intended to make it partial rescission allowed). Nothing in preemption. Sorne courts, however,
e law embodied in the the Uniform Commercial Code stands had difficulty in applying the identical
nercial Code to be ap- in the way of the continuance of such language of former Section 1- 103 to
urts in the light of un- action by the courts. determine when .other law appropri-

217
§ 1-103 UNIFORM COMMERCIAL CODE Al

ately may be applied to supplement be relevant as well. In s'o me situations, § 1-106. Us

the Uniform Commercial Code, and the principies of subsection (b) still
when that law has been displaced by will be determinative. For example, the
In [the Unif,
the Code. Sorne decisions applied other mere fact that ini equitable principie is otherwise require.
law in situations in which that applica- stated in statutory form rather than in (1) word:
tion, while not inconsistent with the judicial decisions should not change in tht
text of any particular provision of. the the court's analysis of whether the
Uniform Commercial Code, clearly was (2) word:
principie can be used to silpplement
inconsistent with the underlying pur-
the Uniform Commercial Code-under
poses and policies reflected in the rele- § 1-107. Se•
vant provisions of the Code. See, e.g., subsection (b), · equl.table principies
Section capti<
Sheerbonnet, Ltd. v. American Express may supplement provisions of the Uni-
Bank, Ltd., 951 F. Supp. 403 (S.D.N.Y. form Commercial Code only if they are
1995). In part, this difficulty arose consistent with the purposes and poli- § 1-108. Re
from Comment 1 to former Section 1- cíes of the Uniform Commercial Code
103, which stated that "this section as well as its text. In other situations, This article r
indicates the continued applicability to however, other · interpretive· principies Signatures in Gl1
commercial contracts of all supplemen- addressing the interrelationship be-
7001 et seq., exc
tal boclies of law except insofar as they tween statutes may lead . the court to
are explicitly displaced by this Act." conclude that the other .statute is con- supersedes Sectio:
The "explicitly displaced" language of trolling, even though it conflicts with of any of the no tic
that Comment did not accurately re- the Uniform Commercial Code. This,
flect the proper scope of Uniform Com- for example, would .be. the result in a
mercial Code preemption, which ex-
situation where the other .statute was
tends to displacement of other law GENER
specifically intended to provide addi-
that is inconsistent with the purposes
tional protection to a class of individu-
and policies of the Uniform Commer- ·
cial Code, as well as with its text. als engaging in' transactions covered by § 1-201. Ge
the Uniforín .Commercial. Code.
3. Application of subsection (b)
to statutes. The primary focus of Sec- 4. Listing not exclusive. The list (a) Unless th
tion 1-103 is on the relationship be- of sources of suppleme~tal law in sub- in this section, or
tween the Uniform Commercial Code section (b) is intended to be merely of [the Uniform 1
and principies of common law and eq- illustrative of the other law that may parts thereof, hav•
uity as developed by the courts. State supplement the Uniforin CoÍnmercial (b) Subject te
law, however, increasingly-is statutory. Code, and is not exclusive. No listing Commercial Code
Not only are there a growing number could be exhaustive. Further, the fact
of state statutes addressing specific is- that a particular section of the Uni- (1) "Acti
sues that come within the scope of the form Commercial Code makes express recou
Uniform Commercial Code, but in reference to other ·law is not intended other
sorne States many general principies of
to suggest the negation of the general (2) ''Agg~
common law and equity have been co- ·
.fi d
d1 1e . Wh th th ¡ ¡ t '
en e o er aw re a mg o , . t · application of the principies
.. of subsec- dy.
a matter within the scope of the Uni- ' , ;~on (b): N?,te also th~t . the word (3) "Agn
form Commercial Code is a statute the ]:)ankruptcy 111 subsectwn (b), con- barga
principies of subsection (b) remai~ rel- tinuing .the use of that word from for-
o

infen
evant to the com·t's analysis of th'e t,,. \ rner Section 1:-103, should be under- form~
relationship between that statute and' ·.· stood not as a .specific reference to
Secti<
the Uniform Commercial Code, but federal bankruptcy law but, .rather as a
other principies of statutory interpre- reference to general principies of insol- (4) "Ban
tation that specifically address the in- vency, whether . under federal or state and i
terrelationship between statutes will law. · credi1

218

J.~.
 ARTICLE i: .GENERAL PROVISIONS (2001) § 1-201

ll. In sorne situations, § 1-106. Use of Singular and Plural; Gender

· subsection (b) still
In [the Uniform Commercial Code], unless the statutory context
tive. For example, the
otherwise requires:
equitable principie is
y form rather than in (1) words in the singular number include the plural, and those
. should not change in the plural include the singular; and
ysis of whether the (2) words of any gender also refer to any other gender.
used to supplement
tmercial Code-under § 1-107. Section Captions
equitable principies
provisions of the Uni- Section captions are part of [the Uniform Commercial Code].
Code only if they are
he purposes and poli- § 1-108. Relation to Electro ni e Signatures in Global and
·rm Commercial Code National Commerce Act
t . In other situations, This article modifies, limits, and supersedes the federal Electronic
nterpretive principies Signatures in Global and National Commerce Act, 15 U.S.C. Section
interrelationship be- 7001 et seq., except that nothing in this article modifies, limits, or
aay lead the court to supersedes Section 7001(C) of that Act or authorizes electronic delivery
~ other statute is con-
of any of the no tices described in Section 7003(B) of that Act.
ough it conflicts with
mmercial Code. This,
lld be the result in a PART 2
the other statute was
tded to provide addi- GENERAL DEFINITIONS AND PRINCIPLES
to a class of individu- OFINTERPRETATION
ransactions covered by
1mercial Code.
§ 1-201. General Definitions [Selections]
(a) Unless the context otherwise requires, words or phrases defined
ot exclusive. The list
lplemental law in sub-
in this section, or in the additional definitions contained in other articles
ttended to be merely of [the Uniform Commercial Code] that apply to particular articles or
te other law that may parts thereof, have·the nieanings stated.
Uniform Commercial (b) Subject to defiriitions contained in other articles of [the Uniform
t exclusive. No listing Commercial Code] that apply to particular articles or parts thereof:
tive . Further, the fact (1) "Action", in the sense of a judicial proceeding, includes
.r section of the Uni-
recoupment, counterclaim, set-off, suit in equity, and any
u Code makes express other procéeding in which rights are determined.
er law is not intended
,egation of the general (2) "Aggrieved party" means a party entitled to pursue a reme-
te principies of subsec- dy.
also that the word (3) "Agreement", as distinguished from "contract", means the
n subsection (b), con- bargain of the parties in fact, as found in their language or
of that word from for- inferred from other circumstances, including course of per:
103, should be under- forma nce, course of dealing, or usage of trade as provided in
specific reference to
Section 1-303.
tcy law but, rather as a
eral principies of insol- (4) "Bank" means a person engaged in the business of banking
under federal or state and includes a savings bank, savings and loan association,
credit unión; and trust company.

219
§ 1-201 UNIFO"RM COMMERCIAL CODE

(6) "Bill of lading" means a document of title evidencing the

receipt of goods for shipment issued by a person engaged in
the business of directly or ·indirectly transporting or for-
warding goods. The term does not include a warehouse
receipt.
(8) "Burden of establishing" a fact means the burden of per-
suading the trier of fact that the existence of the fact is
more probable than its nonexistence.
(9) "Buyer in ordinary course of business" means a person that
buys goods in good faith, without knowledge that the sale
violates the rights of another person in the goods, and in the
ordinary course from a person, other than a pawnbroker, in
the business of selling goods of that kind. A person buys
goods in the ordinary course if the sale to the person
comports with the usual or customary practices in the kind
of business in which the seller is engaged or with the seller's
own usual or customary practices. A person that sells oil,
gas, or other · minerals at the wellhead or minehead is a
person in the business of selling goods of that kind. A buyer
in ordinary course of business may buy for cash, by ex-
change of other property, or on secured or unsecured credit,
and may acquire goods or documents of title under a preex-
isting contract for sale. Only a buyer that takes possession
of the goods or has a right to recover the goods from the
seller under Article 2 may be a buyer in ordinary course of
business. "Buyer in ordinary course of business" doe~ noL
include a person that acquires goods in a transfer in bulk or
as security for or in total or partial satisfaction of a money
debt.
(10) "Conspicuous", with reference to a term, means so writ-
ten, displayed, or presented that a reasonable person
against which it is to operate ought to have noticed it.
Whether a ter.m is "conspicuous" or not is a. decision for
the court. Conspicuous terms include the following:
(A) a heading in capitals equal to or greater in size than
the surrounding text, or in contrasting type, font, or
color to the surrounding text of the same or lesser size;
and
(B) language in the body of a record or display in larger
type than the surrounding text, or in contrasting type,
font, or color to the surrounding text of the same size,
or set off from surrounding text of the same size by
symbols or other marks that call attention to the lan-
guage.

220
 ·r
ARTICLE 1: GENERAL PROVISIONS (2001) § 1-201

Gle evidencing the (11) "Consumer" means an individual who enters into a trans-
person engaged in action primarily for personal, family, or household pur-
msporting or for- poses.
ude a warehouse (12) "Contract", as distinguished from "agreement", means the
total legal obligation that results from the parties' agree-
he burden of per- ment as determined by [the Uniform Commercial Code] as
nee of the fact is supplemented by any other applicable 1aws.
(13) "Creditor" includes a general creditor, a secured creditor,
eans a person that a lien creditor, and any representative of creditors, includ-
edge that the sale ing an assignee for the benefit of creditors, a trustee in
e goods, and in the bankruptcy, a receiver in equity, andan executor or admin-
:1 a pawnbroker, in
istrator of an insolvent debtor's or assignor's estate.
1.d. A person buys (15) "Delivery", with respect to an electronic document of title
ale to the person means vohintary transfer of control and with respect to an
·actices in the kind instrument, a tangible document of title, or chattel paper,
or with the seller's means voluntary transfer of possession.
rson that sells oil, (16) "Document of title" means a record (i) that in the regular
or minehead is a course of business or financing is treated as adequately
that kind. A buyer evidencing that the person in possession or control of the
y for cash, by ex- record is entitled to receive, control, hold, and dispose of
•r unsecured credit, the record and the goods the record covers and (ii) that
Gitle under a preex- purports to be issued by or addressed to a bailee and to
at takes possession cover goods in the bailee's possession which are either
~he goods from the identified or are fungible portions of an identified mass .
. ordinary course of The term includes a bill of lading, transport document,
business" does not dock warrant, dock receipt, warehouse receipt, and order
L transfer in bulk or
for delivery of goods. An electronic document of title is .
sfaction of a money evidenced by a record consisting of information stored in
an electronic medium. A tangible document of title is
rm, means so writ- evidenced by a record consisting of information that is
-reasonable person inscribed on a tangible medium.
to have noticed it. (17) "Fault" means a default, breach, or wrongful act or omis-
10t is a decision for sion.
1e following:
(18) "Fungible goods" means:
,:rreater in size than (A) goods of which any unit, by nature or usage of trade, is
tsting type, font, or
the equivalent of any other like unit; or
. same or lesser size;
(B) goods that by agreement are treated as equivalent.
or display in larger (20) "Good faith," except as otherwise provided in Article 5,
in contrasting type, means honesty in fact and the observance of reasonable
3xt of the same size, commercial standards of fair dealing. a
of the same size by a. Of the 40 states that had enacted the tained the definition in the 2000 text th at
:tttention to the lan- 2001 test of Article 1 by May 31, 2011, 30 did not refer to the observance of. reason-
· · had enacted this provision, while ten re- able commercial stanclards of fair dealin g.

221
§ 1-201 UNIFORM COMMERCIAL CODE Al

(21) "Holder" means: (35) "Se

(A) the person in possession of a negotiable instrument or 1
that is payable either to bearer or to an identified obli
person that is the person in possession; con:
mer
(B) the person in possession of a negotiable tangible docu- is s1
ment of title if the goods are deliverable either to the
bearer or to the arder of the person in possession; or cati•
(C) a person in control of a negotiable electronic document 401,
of title. com
Sect
(23) "Insolvent" means: Arti
(A) having generally ceased to pay debts in the ordinary lS lli
course of business other than as a result of bona fide acq1
dispute; The
not'<
(B) being unable to pay debts as they become due; or
Sect
(C) being insolvent within the meaning of federal bank- "sec
ruptcy law. leas•
(24) "Money" means a medium of exchange currently author- toS.
ized or adopted by a domestic or foreign government. The (36) "Se1
term includes a monetary unit of account established by an mea
intergovernmental organization or by agreement between (A) t
two or more countries. e
(26) "Party", as distinguished from "third party", means a e
person that has engaged in a transaction or made an e
agreement subject to [the Uniform Commercial Code]. S
r.
(27) "Person" means an individual, corporation, business trust,
S
estate, trust, partnership, limited liability company, associ-
ation, joint venture, government, governmental subdivi- (B) i:
sion, agency, or instrumentality, public corporation, or any r.
other legal or commercial entity. S

(37) "Sig
(29) "Purchase" means taking by sale, lease, discount, negotia-
tion, mortgage, pledge, · lien, security interest, issue or with
reissue, gift, or any other voluntary transaction creating an (40) "Ter
interest in property. parti
(30)' "Purchaser" means a person that takes by purchase. (43) "Wr:
ten ti
(31) "Record" means information that is inscribed on a tangible resp<
medium or that is stored in an electronic or other medium
and is retrievable in perceivable form. § 1-202. No1
(32) "Remedy" means any remedial right to which an aggrieved (a) Subject to
party is entitled with or without resort to a tribunal. person:
(34) "Right" includes remedy. (1) has ac

222
 ,. <") '

ARTICLE 1: GENERAL PROVISIONS (2001) ' § 1-202

(35) "Security interest'' means an interest in personal property

or fixtures which secures payment or performance of an
otiable instrument
obligation. "Security interest" includes any interest of a
1r to an identified
consignar and a buyer of accounts, chattel paper, a pay-
m;
ment intangible, or a promissory note in a transaction that
able tangible docu- is subject to Article 9. "Security interest" does not include
:liverable either to the special property interest of a buyer of goods on identifi-
n in possession; or cation of those goods to a contract for sale under Sectiori 2-
Jlectronic document 401, but a buyer may also acquire a "security interest'' by
complying with Article 9. Except as otherwise provided in
Section 2-505, the right of a seller or lessor of goods under
Article 2 or 2A to retain or acquire possession of the goods
Jts in the ordinary is not a "security interest", but a seller or lessor may also
result of bona fide acquire a "security interest'' by complying with Articlé 9.
The retention or reservation of title by a seller of goods
notwithstanding shipment or delivery to tlie buyer under
come due; or Section 2-401 is limited in effect to a reservation of a
tg of federal bank- "security interest." Whether a transaction in the forin of a
lease creates a "security interest" is determined pursmint
to Section 1- 203.
;e currently author-
;n government. The (36) "Send" in connection with a writing, record, or. notice
nt established by an means:
agreement between (A) to deposit in the mail or deliver for transmission by a,ny
other usual means of communication with. postage or
d party", means a cost of transmission provided for and properly . ad-
action or made an dressed and, in the case of an instrument, to ·ari a:ddress
tmercial Code). specified thereon or otherwise agreed, or if there be
none to any address reasonable under the .circum-
.tion, business trust, stances; or
ity company, associ-
(B) in any other way to cause to be received any record or
rernmental subdivi-
notice within the time it would have arrived if properly
: corporation, or any
sent .
(37) "Signed" includes using any symbol executed or adopted
e, discount, n egotia- with present intention to adopt or accept a writing.
; iriterest, issue or
nsaction creating an (40) "Term" means a portian of an agreement that relates to a
particular matter.
(43) "Writing" includes printing, typewriting, or any other in-
3 by purchase.
tentional reduction to tangible form. "Written" has a cor-
3cribed on a tangible responding meaning.
nic or other medium
§ 1-202. Notice; Knowledge
) which an aggrieved (a) Subject to subsection <D, a person has "notice" of a fact if the
~sort to a tribunal. person:
(1) has actuallmowledge of it;

223
 " - ~·

§ 1-202 UNIFORM COMMERCIAL CODE

(2) has received a notice or notification of it; or (4) in ret1

(3) from all the facts and circumstances known to the person at
ple COl
the time in question, has reason to know that it e'Xists.
§ 1-205. Re~
(b) "Knowledge" means actual knowledge. "Knows" has a corre-
sponding meaning. · (a) Whether a
Commercial Code]
(e) "Discover", "learn", or words of similar import refer to knowl- circumstances of t]
edge rather than to reason to know.
(b) An action
(d) A person "notifies" or "gives" a notice or notification to another agreed or, if no tin
person by taking su eh steps as may be reasonably required to inform the
other person in ordinary course, whether or not the other person
actually comes to know of it.
(e) Subject to subsection (D, a person "receives" a notice or notifica- TERRITORIAl
tion when:
(1) it comes to that person's attention; or
§ 1-302. Var
(2) it is duly delivered in a form reasonable under the .circum- (a) Except as
stances at the place of business through which the contract [the Uniform Com
was made or at another location held out by that person as Commercial Code]
the place for receipt of such communications. (b) The obliga
(D N oti ce, knowledge, or a notice or notification receiveq by an prescribed by [the
organization is effective for a particular transaction from the time it is agreement. The pa
brought to the attention of the individual conducting that trapsaction which the perforn
and, in any event, from the time it would have been brought .to ·the standards are no1
individual's attention if the organization had exercised due diligence. An Commercial Code]
organization exercises due diligence if it maintains reasonable roÜtlnes time, a time tha1
for communicating significant information to the person conducting the agreement.
transaction and there is reasonable compliance with the routines. Due (e) The preser
diligence does not require an individual acting for the orgariization to Code] of the phn
communicate information unless the communication is part of the indi- import, does not i
vidual's regular duties or _the individual has reason to know of the varied by agreemer
transaction and that the transaction would be materially affected by the
information. Official Co
Source: Former Sec
§ 1-204. Value and 1-204(1).
Except as otherwise provided in Articles 3, 4, [and] 5, [and 6], a Changes: This sect
rules from subsectio
person gives value for rights if the person acquires them: former Section 1- 10
. . (1) in return for a binding commitment to extend credit or for (1) of former Sectio:
the extension of immediately available credit, whether or stantive changes are
not drawn upon and whether or not a charge-back is provid- l. Subsection (a)
ed for in the event of difficulties in collection; ly at the outset tha
tract is a principie
(2) as security for , or in total or partial satisfaction . of, a
Commercial Code: "
preexisting claim; provisions may be '
(3) by accepting delivery under a preexisting contract for pur- ment." The meanin
chase; or itself must be found

224
 ARTICLE 1: GENERAL PROVISIONS (2001) § 1-302

or (4) in return for any consideration sufficient to support a sim-

ple contract.
;vn to the person at
1ow that it exists.
§ 1-205. Reasonable Time; Seasonableness
tows'' has a corre-
(a) Whether a time for taking an action required by [the Uniform
Commercial Code) is reasonable depends on the nature, purpose, and
1ort refer to knowl- circumstances of the action.
(b) An action is taken seasonably if it is taken at or within the time
;ification to another agreed or, if no time is agreed, at or within a reasonable time.
uired to inform the
the other person
PART 3
a notice or notifica- TERRITORIAL APPLICABILITY AND GENERAL RULES
§ 1-302. Variation By Agreement
(a) Except as otherwise provided in subsection (b) or elsewhere in
~ under the circum-
[the Uniform Commercial Code) , the effect of provisions of [the Uniform
which the contract
Commercial Code) may be varied by agreement.
tt by that person as
ions. (b) The obligations of good faith, diligence, reasonableness, and care
prescribed by [the Uniform Commercial Code) may not be disclaimed by
.ion received by an
agreement. The parties, by .agreement, may determine· the standards by
from the time it is
which the performance .of those obligations is to be m easured if those
ng that transaction
standards are not manifestly unreasonable. Whenever [the Uniform
een brought to the
Commercial Code] requires an action to be taken within a reasonable
ed due diligence. An
time, a time that is not manifestly unreasonable may be fixed by
r easonable routines
ugreement.
rson cónducting the
h the routines. Due (e) The presence in certain provisions of [the Uniform Commercial
the organization to Code] of the phras~ "unless otherwise agreed", or words of similar
1 is part of the indi- import, does not imply that the effect of other provisions may not be
;on to know of the varied by agreement under this section.
rially affected by the
Official Comments ing its definitions, and in appropriate
Source: Former Sections 1- 102(3)- (4) extrinsic aids; it cannot be varied by
and 1- 204(1). agreement. But the Uniform Commer-
Changes: This section combines the cial Code seeks to avoid. the type of
[and) 5, [and 6), a rules from subsections (3) and (4) of interference with evolutionary growth
aem : former Section 1- 102 and subsection found in pre-Code cases such as Man-
ext end credit or for (1) of former Section 1-204. No sub- hattan Co. v. Margan, 242 N.Y. 38, 150
stantive chan ges are made. N.E. 594 (1926). Thus, prívate parties
~ credit, whether or
l. Subsection (a) states affirmative- cannot make an instrument negotiable ·
harge-back is provid-
ly at the outset that freedom of con- within the meaning of Article 3 except
dion; as provided in Section 3- 104; nor can
tract Í!' a prin cjple of the Uniform
al satisfaction of, a Commercial Code: " the effect" of its they change the m eaning of such terms
provisions m ay be varied by " agr ee- as " bona fid e purch aser," "holder in
ing contract for pur- ment." The meaning of the statute due course," or " due negotiation ," as
itself must be found in its text; includ- used in the Uniform Commercial Code.

225
 § 1-302 UNIFORM COMMERCIAL CODE ART,

But an agreement can change the legal prior course of dealing and usages of (1) the agr·
consequences that would otherwise trade is of particular importance. involve:
flow from the provisions of the Uni- Subsection (b) also recognizes that
form Commercial Code. "Agreement" (2) the oth
nothing is stronger evidence of a rea-
here includes the effect given to course sonable time than the fixing of such forman•
of dealing, usage of trade and course of time by a fair agreement between the perforrr
performance by Sections 1-201 and 1- parties. However, provision is made for
303; the effect of an agreement on the (b) A "course
disregarding a clause which whether
rights of third parties is left to specific previous transactiOJ
by inadvertence or overreaching fixes a
· provisions of the Uniform Commercial time so unreasonable that it amounts that is fairly to be
Code and to supplementary principies to eliminating all remedy under the standing for interpr•
applicable under Section 1-103. The contract. The parties are not required (e) A "usage of
rights of third par ti es under Section 9- to fix the most reasonable time but
317 when a security interest is .unper- such regularity of o
may fix any time which is not obvious-
fected, for example, cannot be de- ly unfair as judged by the time of con- an expectation that
stroyed by a clause in the security tracting. question. The exist1
agreement. 2. An agreement that varíes the ef- facts. If it is establü:
This principie of freedom of contract fect of provisions of the Uniform Com- similar record, the
is subject to specific exceptions found mercial Code may do so by stating the (d) A course of
elsewhere in the Uniform Commercial rules that will govern in lieu of the
Code and to the general exception stat-
or usage of trade in
provisions varied. Alternatively, the
ed here. The specific exceptions vary in parties may vary the effect of such which they are or
explicitness: the statute of frauds provisions by stating that their rela- meaning of the pa
found in Section 2-201, for example, tionship will be governed by recog- specific terms of tl
does not explicitly preclude oral waiver nized bodies of rules or principies ap- terms of the agreem
of the requirement of a writing, but a plicable to commercial transactions. part of the perforn
fair reading denies enforcement to Such bodies of rules or principies may utilized as to that p~
such a waiver as part of the "contract" include, for example, those that are
made unenforceahle; RP.dion 9-(102, on promulgated by intergovernmental au- (e) Except as ot
tho other hand, is a quite explicit limi- thoritiP.¡; ¡;n~h HR lTNClTRAL or Uni- of an agreement ar
tation on freedom of contract .. Under droit (see, e.g., Unidroit Principies of dealing, or usage o:
the exception for "the . obligations of International Commercial Contracts), consistent with ea<
good faith, diligence, reasonableness or non-legal codes such as trade codes.
and care prescribed by [the Uniform 3. Subsection (e) is intended to
(1) express
Commercial Code]," provisions of the make it clear that, as a matter of draft- dealing,
Uniform Commercial Code prescribing ing, phrases such as "unless otherwise (2) course 1
such obligations are not to .be dis- agreed" have been used to avoid con- usage ol
claimed. However, the section also rec- troversy as to whether the subject
ognizes the prevailing practice of hav- matter of a particular sectlon does or (3) course e
ing agreements set forth standards by does not fall within the exceptions to
which due diligence is measured and (D Subject to 81
subsection (b), but absence of such
explicitly provides that, in the absence words contains no negative implication show a waiver or m
of a showing that the standards mani- since under subsection (b) the general of performance.
festly are unreasonable, the agreement and residual rule is that the effect of (g) Evidence of
controls. In this connection, Section 1- all provisions of the Uniform Commer-
admissible unless tl
303 incorporating into the agreement cial Code may be varied by agreement.
court finds sufficie1
§ 1-303. Course of Performance, Course of Dealing, and Us-
Official Con
age ofTrade
(a) A "course of performance" is a sequence of conduct between the Source: Former Sec
parties to a particular transaction that exists if: 208, and Section 2A- 2!

226
 ;•~ ' ·•'

ARTICLE 1: GENERAL PROVISIONS (2001) § 1-303

ealing and usages of (1) the agreement of the parties with respect to the transaction
Jar importance. involves repeated occasions for performance by a party; and
also recognizes that (2) the other party, with knowledge of the nature of the per- ·
rer evidence of a rea- formance and opportunity for objection to it, accepts the
:n the flxing of such
performance or acquiesces in it without objection.
Teement between the
: provision is .made for (b) A "course of dealing" is a sequence of conduct concerning
:lause which whether previous transactions between the parties to a particular transaction
w overreaching flxes a that is fairly to be regarded as establishing a common basis of under-
nable that it amounts standing for interpreting their expressions and other conduct.
tll remedy under the
Lrties are not required (e) A "usage of trade" is any practice or method of dealing having
reasonable time but such regularity of observance in a place, vocation, or trade as to justify
~ which is not obvious- an expectation that it will be observed with respect to the transaction in
;ed by the time of con- question. The existence and scope of such a usage must be proved as
facts. If it is established that sueh a usage is embodied in a trade code or
1ent that varíes the ef- similar record, the interpretation of the record is a question of law.
s of the Uniform Com-
ay do so by. stating the (d) A course of performance or course of dealing between the parties
govern in lieu of the or usage of trade in the vocation or trade in which they are engaged or of
ed. Alternatively, the which they are or should be aware is relevant in ascertaining the
1ry the effect of such . meaning of the parties' agreement, may give particular meaning to
:tating that their rela-
· specific terms of the agreement, and may supplement or qualify the
¡e governed by recog-
rules or principies ap- terms of the agreement. A usage of trade applicable in the place in which
mmercial transactions. part · of the performance under the agreement is to occur may be so
rules or principies may utilized as to that part of the performance.
~ample, those that are
(e) Except as otherwise provided in subsection (f), the express terms
r intergovernmental au-
as UNCITRAL or Uni- . . of an agreement and any applicable course of performance, course of
. Unidroit Principies of . uealing, or usage of trade must be construed whencvcr rcusonublc as
Commercial Contracts), consistent with each other. If such a construction is unreasonable:
des such as trade codes. ( 1) express terms prevail over course of performance, course · of
Jn (e) is intended to dealing, and usage of trade;
· hat -as a matter of draft-
tch 'as "unless otherwise (2) course .of performance prevails over course of dealing and
been used to avoid con- usage of trade; and
o whether the subject
:~rticular section does or
(3) course of dealing prevails over usage of trade.
within the exceptions to (f) Subject to Section 2-209, a course of performance is relevant to'
), but absence of such show a waiver or modification of any term inconsistent with the course
s no negative implication of performance.
1 bsection (b) the general
rule is that the effect of (g) Evidence of a r elevant usage of trade offered by one party is not
of the Uniform Commer- ·. admissible unless that party has given the other party notice that the
. be varied by agreement. . court finds sufficient to prevent unfair surprise to the other party.
: of Dealing, and U s- Official Comments Changes from former law: This sec-
tion integrates the "course of perform-
Source: Former Sections 1- 205, 2- ance" concept from Articles 2 and 2A
of conduct between the . 208, and Section 2A- 207. into the principies of form er Section 1-

227
 § 1-303 UNJFORM COMMERCIAL CODE A

205, whích deals with course of dealing given vocation or trade. By adopting in plicit clauses tha1
and usage of trade. In so doing, the this context the term "usage of trade," trade and carry fm
section slightly modifies the articula- the Uniform Commercial Code ex- derlying the ancie1
·. tion of the course of performance rules presses its intent to reject those cases a custom or usagc
to fit more comfortably with the ap- which see evidence of "custom" as able." However, U
. proach and structure of former Section representing an effort to displace or ed. The very fact e
T-205. There are also slight ·modifica- negate "established rules of law." A tance makes out
tions to be more consistent with the distinction is to be drawn between that the usage is ·
definition of "agreement" in former mandatory rules of law such as the burden is no long
. Section 1-201(3). It should be noted Statute of Frauds provisions of Article establish itself aE
that a course of performance that 2 on Sales whose very office is to con- But the anciently
might otherwise establish a defense to trol and restrict the actions of the par- of usage by the co
the obligation of a party to a negotia- ties, and which cannot be abrogated by the extent necessa
ble instrument is not available as a agreement, or by a usage of trade, and situation arising il
· defense against a holder in due course those rules of law (such as those in or dishonest prac1
who took the instrument without no- Part 3 of Article 2 on Sales) which fill standard .
. tice of that course of performance. in points which the parties have not
6. Subsection (
l. The Uniform Commercial Code considered and in fact agreed upon.
scribed effect to u
rejects both the "lay-dictionary" and The latter rules hold "unless other-
parties "are or sho
the "conveyancer's" reading of a com- wise agreed" but yield to the contrary
forces the provisio
.mercial agreement. Instead the mean- agreement of the parties. Part of the
requiring not univ~
ing of the agreement of the parties is agreement of the parties to which such
described "regulari
to be determined by the language used rules yield is to be sought for in the
the practice or m•
by them and by their action, read and usages of trade which furnish the
tion also reinforces
interpreted in the light of commercial background and give particular mean-
· tion (e) that such u
·practices and other surrounding cir- ing to the language used, and are the
general to trade or
cumstances. The measure and back- framework of common understanding
cial branch of trade
. ground for interpretation are set by controlling any general rules of law
the commercial context, which muy cx- which hold only when there is no such 7: Although t
plaiu ami t;upvlement even the lan- understanding. "agreement" in RP-<
guage of a formal or final writing. 4. A usage of trade under subsec-
2. "Course of dealing," as defined tion (e) must have the . "regularity of § 1-304. Ol
in subsection (b), is restricted, literally, observance" specified. The ancient En- Every contn
to a sequence of conduct between the glish tests for "custom" are abandoned imposes an oblig~
parties previous to the agreement. A in this connection. Therefore, it is not
sequence of conduct after or under the required that a usage of trade be "an- Official (
. agreement, however, is a "course ·of cient or immemorial," "universal," or Sóurce: Former Se
performance." "Course of dealing" the like. Under the requirement of Changes from fo
· may enter the agreement either by ex- subsection (e) full recognition is thus for changing the f<
plicit provisions of the agreement or by available for new usages and for usag- the Uniform Com
tacit recognition. es currently observed by the great ma- section is identical
3. The Uniform Commercial Code jority of decent dealers, even though 1...:203.
deals with "usage of trade" as a factor dissidents ready to cut corners do not
l. This section
in reaching the commercial meaning of agree. There is room also for proper
p'r inciple running t
the agreement that the parties have recognition of usage agreed upon by
form Commercial (
made. The language used is to be in- merchants in trade codes.
is that in comm
terpreted as meaning what it may fair- 5. The policies of the Uniform good faith is requil
ly be expected to mean to parties in- Commercial Code controlling explicit ance and enforcer
. volved in the particular commercial unconscionable contracts and clauses m~nts or duties. ·
transaction in a given locality or in a (Sections 1- 304, 2-302) apply to im- explicitly stated in

228

.'
.u-f. "'~~---:·- '
 "• 1 '
!

ARTICLE 1: GENERAL PROVISIONS (2001)

trade. By adopting in plicit clauses that rest on usage of the elements of course of performance,
Jrm "usage of trade," trade and carry forward the policy un- course of dealing, and usage of trade,
lmmercial Code ex- derlying the ancient requirement that the fact that express reference is made
to reject those cases a custom or usage must be "reason- in sorne sections to those elements is
nce of "custom" as able." However, the emphasis is shift- not to be construed as carrying a con-
effort to displace or ed. The very fact of commercial accep- trary intent or implication elsewhere.
ted rules of law." A tance makes out a prima facie case Compare Section 1-302(c).
be drawn between that the usage is reasonable, and the · 8. In cases of a well established line
of law such as the burden is no longer on the usage to of usage varying from the general rules
3 provisions of Article ·establish itself as being reasonable. of the Uniform Commercial Code
! very office is to con- But the anciently established policing where the precise amount of the varia-
Ghe actions of the par- of usage by the courts is continued to tion has not been worked out into a
<:tnnot be abrogated by the extent necessary to cope with the single standard, the party relying on
a usage of trade, and situation arising if an unconscionable the usage is entitled, in any event, to
:tw (such as those in or dishonest practice should become the mínimum variation demonstrated~
2 on Sales) which fill standard. The whole is not to be disregarded
the parties have not 6. Subsection (d), giving the pre- because no particular lirie of detail has
in fact agreed upon. scribed effect to usages of which the been established. In case a dominant
; hold "unless other- parties "are or should be aware," rein- pattern has been fairly evidenced, the
t yield to the contrary forces the provision of subsection (e) party relying on the usage is entitled
.e parties. Part of the requiring not universality but only the under this section to go to the trier of
l parties to which such described "regularity of observance" of fact on the question of whether such
, be sought for in the the practice or method. This subsec- dominant pattern has been incorporatc
e wh.ich furnish the tion also reinforces the point of subsec- ed into the agreement.
giye particular mean- tion (e) that such usages may be either 9. Subsection (g) is intended to in-
tage used, and are the general to trade or particular to a spe-
ommon understanding sure that this Act's liberal 1:ecogriition
cial branch of trade. of the needs of commerce in regard to
general rules of law
7. Although the definition of usage of trade shall not. be made. into
whenthere is no such
"agreement" in Section 1-201 includes an instrument of abuse.
of trade under subsec- § 1-304. Obligation of Good Faith
. tave · the "regularity of
lCified . The ancient En- Every contract or duty within [the Uniform Commercial Code].
custom" are abandoned imposes an obligation of good faith in its performance and enforceinent.'
ion . Therefore, it is not
Official Comments the Uniform Commercial Code, the ap-
usage of trade be "an-
aorial;" "universal," or Source: Former Section 1-203. plicability of the duty is broader than
~r the requirement of Cha:nges from former law: Except merely these situations and applies
full recognition is thus for changing the form of reference to generally, as stated in this section, · to
~w usages and for usag- the Uniform Commercial Code, this the performance or enforcement of e~­
served by the great ma- section is identical to former Section ery contract or duty within this Act. It
tt dealers, even though 1- 203. is further implemented by .Section 1 - .
ly to cut corners do not l. This section sets forth a basic 303 on course of dealing, course of
.s room also for proper principie ~-unning throughout the Uni- performance, and usage of trade. This
usage agreed upon by form Commercial Code. The principie section does not support an indepen-
rade codes. is that in commercial transactions dent cause of action fot failure to per'- ·
licies of the Uniform good faith is required in the perform- form or enforce in good faith . Rather,
:ocle controlling explicit ance a nd enforcement of all agree- this section means that a failure to
~ contracts and clauses ments or duties. While this duty is perform or enforce, in· good faith, · a
)4, ·2_:_ 302) apply to im- explicitly stated in sorne provisions of specific duty or obligatión Uildin' the

229
§ 1-304 UNIFORM COMMERCIAL CODE AR1
contract, constitutes a breach of that and does not create a separate duty of § 1-306. Wai'
contract or makes unavailable, under fairness and reasonableness which can
the particular circumstances, a remedí- be independently breached.·
al right or power. This distinction A claim or rigl:
makes it clear that the doctrine of 2. "Performance and enforcement" in whole or in part
good faith merely directs a court to- of contracts and duties within the U ni- party in an authent
wards interpreting contracts within forro Commercial Code include the ex-
the commercial context in which they ercise of rights created by the Uniform Official Co:
are created, performed, and enforced, Commercial Code. Source: Former Sect
Changes from forrn
§ 1-305. Remedies to Be Liberally Administered tion changes former
(a) The remedies provided by [the Uniform Commercial Code] must spects. First, former 1
quiring the "delive~
be liberally administered to the end that the aggrieved party may be put
waiver or renunciat:
in as good. a position as if the other party had fully performed but separate concepts of t
neither consequential or special damages nor penal damages may be had ty's agreement to fore
except as specifically provided in [the Uniform Commercial Code] or by manifestation of that
other rule of law. section separates thc
explicitly requires ag1
(b) Any right or obligation declared by [the Uniform Commercial grieved party. Second
Code] is enforceable by action unless the provision declaring it specifies a tion reflects developm
different and limited effect. commerce by providiJ
zation in an authent
Official Comments ble with mathematical ~ccuracy. Com- this context, a party
Source: Former Section 1-106. pensatory damages are often at best cate" a record by (i)
approximate: they have to be pr.oved
Changes from former law: Other
than changes in the forro of reference
with whatever definiteness and accura-· § 1-308. Perf
cy the facts permit, but no morE). (;f. ]
to the Uniform Commercial Code, this
Section 2-204(3).
section is identical to former Section (a) A party th
1-106. 2. Under subsection (b), any right promises performar
l. Subsection (a) is intended to ef- or obligation described in the Uniform or offered by the
fect three propositions. The first is to Commercial Code is enforceable by ac-. reserved. Such wor
negate the possibility of unduly narrow tion, even though no remedy may be· like are sufficient.
or technical interpretation of remedia! expressly provided, unless a particular
provisions by providing that the reme- provision specifies a different and lim- (b) Subsection
dies in the Uniform Commercial Code ited effect. Whether specific perform-
Official Cm
are to be liberally administered to the ance or other equitable relief is avail-
end stated in this section. The second able is determined not by .this section Source: Former Secti
is to make it clear that compensatory but by specific provisions and by sup- Changes from form
damages are limited to compensation. plementary principies. Cf. Sections 1- tion is identical to fe
They do not include consequential or 103, 2- 716. 207.
special damages, or penal damages; l. This section pr•
and the · Uniform Commercial Code 3. "Consequential" or "special" for the continuation
elsewhere makes it clear that damages damages and "penal" damages are hót along the lines cont•
must be minimized. Cf. Sections 1-304, defined in the Uniform Commercial . contract despite a pe1
2-706(1), and 2-712(2). The third pur- Code; rather, these terms are used in adopting the mercanti
pose of subsection (a) is to reject any the sense in which they are used out- ahead with delivery
doctrine that damages must be calcula- side the Uniform Commercial Code. payment "without pr
protest," "under resE
ervation of all our

230
 ARTICLE 1: GENERAL PROVISIONS (2001) § 1-308

ate a separate duty of § 1-306. Waiver or Renunciation of Claim or Right After

;onableness which can Breach
· breached. A claim or right arisÍng out of an alleged breach may be discharged
.n ce and enforcement" in whole or in part without consideration by agreement of the aggrieved
duties within the Uni- party in an authenticated record.
ll Code include the ex-
reated by the Uniform Official Comments that is a writing or (ii) attaching to or
Source: Former Section 1-107. logically associating with a record that
e.
is not a writing an electronic sound,
Ch_anges frorn former law: This sec-
symbol or process with the present in-
;tered tion changes former law in two re-
tent to adopt or accept the record. See
spects. First, former Section 1-107, re-
nmercial Code] must Sections 1-201(b)(37) and 9-102(a)(7).
quiring the "delivery" of a "written
·ed party may be put waiver or renunciation" merges the l. This section makes consider-
fully performed but separate concepts of the aggrieved par- ation unnecessary to the effective re-
damages may be had ty's agreement to forego rights and the nunciation or waiver of rights or
1mercial Code] or by manifestation of that agreement. This claims arising out of an alleged breach
section separates those concepts, and of a commercial contract where the
explicitly requires agreement of the ag- agreement effecting such renunciation
j niform Commercial grieved party. Second, the revised sec- is memorialized in a record authenti-
eclaring it specifies a tion reflects developments in electronic cated by the aggrieved party. Its provi-
commerce by providing for memoriali- sions, however, must be read in con-
zation in an authenticated record. In junction with the section imposing an
matical accuracy. Com- this context, a party may "authenti- obligation of good faith . (Section 1-
ages are often at best cate" a record by (i) signing a record 304).
hey have to be proved
definiteness and accura- § 1-308. Performance or Acceptance Under Reservation of
. :rmit, but no more. Cf. Rights
n. (n) A pnrty thut with explicit reservation of rights performs or
1bsection (b), any right promises performance or assents to performance in a manner demanded
escribed in the Uniform or offered by the other party does not thereby prejudice the rights
>de is enforceable by ac- reserved. Such words as ·"without prejudice," "under protest," or the
ugh no remedy may be like are sufficient.
ided, unless a particular
(b) Subsection (a) does not apply toan accord and satisfaction .
.fies a different and lim-
hether specific perform- Official Comments like. All of these phrases completely
equitable relief is avail- Source: Former Section 1-207 . . reserve al\ rights within the meaning
.ined not by this section of this section. The section therefore
Changes from former law: This sec-
; provisions and by sup- contemplates that limited as well as
tion is identical to f01·mer Section 1-
·inciples. Cf. Sections 1- 207. general reservations and acceptance by
a party may be made "subject to satis-
l. This section provides machinery faction of our purchaser," "subject to
¡uential" or "special" for the continuation of performance acceptance by our customers," br. the
"penal" damages are not along the lines contemplated by the
like.
te U niform Commercial contract despite a pending dispute, by
these terms are used in adopting the mercantile device of going 2. This section does not add any
Nhich they are used out- ahead with · delivery, · acceptance, or new requirement of language of reser-
payment "without prejudice," "under vation where not already required by
•rm Commercial Code.
protest," "under reserve," "with res- law, but merely provides a specific
ervation of all our rights," and the measure on which a party can rely as

231

.,,
-- ~' '·~ib_.· •
 § 1-308 UNIFORM COMMERCIAL CODE AR

that party makes or concurs in any to a method of procedure where one

interim adjustment in the course of party is claiming as of right something
ARTIC:
performance. It does not affect or im- which the other believes to be unwar-
pair the provisions of this Act such as ranted.
those under which the buyer's reme-
dies for defect su.r vive acceptance with- 3. Subsection (b) states that this
out being expressly claimed if notice of section does not apply to an accord and
the defects is given within a reasonable satisfaction. Section 3-311 governs if PART l. E
time. Nor does it disturb the policy of an accord and satisfaction is attempted P.
those cases which restrict the effect of by tender of a negotiable instrumeñt Section
a waiver of a defect to reasonable lim- as stated in that section. If Section 3- 1-101. Short Title
its under the circumstances, even 311 does not apply, the issue of wheth- 1-102. Purposes; R
though no such reservation is ex- er an accord and satisfaction has been 1- 103. Supplement

1
pressed. effected is determined by the law of 1-106. Remedies to
contract. Whether or not Section 3-311 1-107. Waiver or R
The section is not addressed to the
1-109. Section Cap1
creation or loss of remedies in the ordi- applies, this section has no application
nary course of performance but rather to an accord and satisfaction.
PJ
§ 1- 309. Option to Accelerate at Will.
1-201. General Def
A teim providing that one party or that party's successor in interest 1- 203. Obligation o
may accelerate payment or performance or require collateral or addition- 1- 204. Time; Reaso
al collateral "at will" or when the party "deems itself insecure," or 1-205. Course ofDE
words of similar import, means that the party has power to do so only if 1- 206. Statute ofF
Covered
that party in good faith believ.es that the prospect of payment or 1-207. Performanc~
performance is impaired. The burden of establishing lack of good faith is
on the party against which the power has been exercised.
Official Comments be so construed and which further
Source: Former Section 1-208. might be held to make the agreement
void as against public policy or to
Changes from former law: Except
make the contract illusory or too indef- SHORT TI'
for minor stylistic changes, this section
inite for enforcement, the option is to
is identical to former Section 1-208. AND:
be exercised only in the good faith
l. The common use of acceleration
clauses in many transactions governed
belief that the prospect of payment or § 1-101. Sho
performance is impaired.
by the Uniform Commercial Code, in- This Act shall
cluding sales of good on credit notes Obviously this section has no appli- Code.
payable :;¡t a definite time, and secured cation to demand instruments or· obli-
transactions, raises an issue as to the gations whose very nature permits call § 1-102. PurJ
effect to be given to a clause that at any time with or without reason.
seemingly grants the power to acceler- This section applies only to an obli-
(1) This Act sl
ate at the whim and caprice of orí.e gation of payment or performance
party. This section is intended to make which in the first instance is due at a underlying purpose
clear that despite language that might future date. (2) Underlying
(a) to sim]
mercia
(b) to perr
throug:
(e) to mak1

232
 ~ ,1~'

ARTICLE 1: GENERAL PROVISIONS (2000) § 1-102

1rocedure where one ARTICLE l. GENERAL PROVISIONS

ts of right something
,clieves to be unwar-
(2000 Official Text)
(Abridged)
(b) states that this Table of Contents
pply to an accord and
.on 3-311 governs · if PART l. SHORT TITLE, CONSTRUCTION, APPLICATION
isfaction is attempted AND SUBJECT MATTER OF THE ACT
egotiable instrument Section
section. If Section 3- · 1...:.101. · Short Title
y, the issue of wheth- 1- 102. Purposes; Rules ofConstruction; Variation by Agreement
satisfaction has been 1-103. · Supplementary General Principies of Law Applicable
1- 106. Remedies to Be Liberally Administered
nined by the law of 1- 107. Waiver or Renunciation of Claim or Right After Breach
: or not Section 3-311 1:...109. · Section Captions
on has no application
satisfaction. P ART 2. GENERAL DEFINITIONS AND
PRINCIPLES OF INTERPRETATION
1-201. General Definitions
;uccessor in interest 1- 203. Obligation of Good Faith
,nateral or addition- 1- 204 . . Time; Reasonable Time; "Seasonably"
1-205. Course of Dealing and Usage of Trade
itself insecure," or 1-206. · Statute 'of Frauds for Kinds of Personal Property Not Otherwise
1wer to do so only if Covered
ect of payment or 1- 207. Performance or Acceptance Under Reservation ofRights
lack of good faith is
.sed.
1 and which further
> make the agreement PART 1
public policy or to
~t illusory or too indef- .SJIORT TITLE, CONSTRUCTION, APPLICATION
ment, the option is to AND SUBJECT MATTER OF THE ACT
tly in the good faith
,rospect of-payment or § .1-101. Short Title
mpaired. This Act shall be known and may be cited as Uniform Commercial
, section has no appli- Code. ·
td instruments or obli-
ery nature permits call § . 1:._ 102. Purposes; . Rules of Construction; V ariation by
th or without reason. Agreement
1plies only to an obli- (1) This Act shall be liberally construed and applied to promote its
.n ent or performance . uridei:lying purposes ana policies.
·st instance is due at a
(2) Underlying purposes and policies of this Act are
(a) to simplify, clarify and modernize the law governing com-
. mercial transactions;
(b) to permit the continued expansion of commercial practices
through custom, usage and agreement of the parties;
(e) to make uniform the law among the various jurisdictions.

233
 UNIFORM COMMERCIAL CODE ART

(3) The effect of provisions of this Act may be varied by agreement,

except as otherwise provided in this Act and except that the obligations
of good faith, diligence, reasonableness and care prescribed by this Act GENERA
may not be disclaimed by agreement but the parties may by agreement
determine the standards by which the performance of such obligations is
to be measured if such standards are not manifestly unreasonable. § 1-201. Gen•
-(4) The presence in certain provisions of this Act of the words Subject to addi
"unless otherwise agreed" or words of similar import does not imply eles of this Act whic
that the effect of other provisions may not be varied by agreement under and unless the conb
subsection (3). (1) "Action" ir.
(5) In this Act unless the context otherwise requires ment, counterclaim:
which rights are det
(a) words in the singular number include the plural, and in the
plural include the singular; (2) "AggTieved
(b) words of the masculine gender include the feminine and the (3) "Agreemen1
neuter, and when the sense so indicates words of the neuter in their language 01
gender may refer to any gender. course of dea-ling or
in this Act (Sectiom
§ 1-103. Supplementary General Principies of Law Applica- consequences is det
ble otherwise by the 1
tract''.)
Unless displaced by the particular provisions of this Act, the princi- ..
. plés of law and equity, including the law merchant and the law relative (~) "Bank" me¡
to ca-pacity to contract, principal and agent, estoppel, fraud, misrepresen- (5) "Bearer" rr
. tation, duress, coercion, mistake, bankruptcy, or other validating or document of title, o
invalidating cause shall supplement its provisions. in blank. ·

.§ 1-106. _ Remedies to Be Liberally Administered (6) "Bill of lad

goods for shipment
(1) The remedies provided by this Act shall be liberally administered
transporting or for
to the end that the aggrieved party may be put in as good a position as if means a document '
·t he other party had fully performed but neither consequential or special for marine or rail tr
nor penal damages may be had except as specifically provided in this Act or air waybill.
or by other rule oflaw.
(8) "Burden of
(2) Any right or obligation declared by this Act is enfo.rceable by the triers of fact tha
action unless the provision declaring it specifies a different and limited non-existence.
effect.
(9) "Buyer in o
§ 1-107. Waiver or Renunciation of Claim or Right Mter good faith and with(
Breach the ownership right
buys in ordinary cou
Any claim or right arising out of an alleged breach can be discharged
that kind but does
in whole or in part without consideration by a written waiver or
minenils or the like 1
renunciation signed and delivered by the aggrieved party.
be deemed to be pe1
"Buying" may be J
§ 1-109. Section Captions secured ..or unsecure,
Section captions are parts of this Act. of title under a pn

234
 ARTICLE 1: GENERAL PROVISIONS (2000) § 1_;201 ·

1ried by agreement, PART 2

t;hat the obligations
~scribed by this Act GENERAL DEFINITIONS AND PRINCIPLES ·
may by agreement OFINTERPRETATION
f such oblígations is
§ 1-201. General Definitions [Selections]
estly unreasonable.
Subject to additional definitions contained in the subsequent Arti-
: Act of the words
cles of this Act which are applicable to specific Articles or Parts thereof, ·
1ort does not imply
and unless the context otherwise requires, in this Act: ·
by agreement under
(1) "Action" in the sense of a judicial proceeding includes recoup-
ment, counterclaim, set-off, suit in equity and any other proceedings in
ires
which rights are determined.
1e plural, and in the
(2) "AggTieved party" means a party entitled to resort to a remedy.

he feminine and the (3) "Agreement" means the bargain of the partí es in fact as found
words of the neuter in their language or by implication from other circumstances including
course of dealing or usage of trade or course of performance as provided
in this Act (Sections 1-205 and 2-208). Whether an agreement has legal
~s of Law Applica- consequences is determined by the provisions of this Act, if applicable;
otherwise by the law of contracts (Section 1-103). (Compare '.' Con-
tract''.)
· this Act, the princi-
and the law relative (4) "Bank" means any person engaged in the business ofbanking.
, fraud, misrepresen- (5) "Bearer" means the person in possession of an instrument,
other validating or document of title, or certificated security payable to bearer or indorsed ·
in blank.
(6) "Bill of lading" means a document evidencing the receipt of
stered goods for shipment issued by a person engaged in the business of
ib~rally. administered transporting or forwarding goods, and includes an airbill. "AirbiÍl"
; good a position as if means a document serving for air transportation as a bill of lading does
tsequential or special for marine or raíl transportation, and includes an air consignment note
r provided in this Act · or air waybill.
(8) "Burden of establishing" a fact means the burden of persuading
\..ct is enforceable by the triers of fact that the existence of the fact is more probable than its
different and limited non-existence. .
(9) "Buyer in ordinary course of business" means a person who in
good faith and without lmowledge that the sale to him is in violation of ·
im or Right After
the ownership ·rights or seeurity interest of a third party in the goóds
buys in ordinary course from a person in the business of selling goods of
Stch can be discharged that kind but does not include a pawnbroker. All persons who · sell
a written waiver or minerals or the like (including oil and gas) at wellhead or minehead shall ·
party. be deemed to be persons in the business of selling goods of that kind ..
"Buying" may be for . cash or by exchange of other property or on .
secured or unsecured credit and includes receiving goods or documents
of title under a preexisting contract for sale but does not iricludé a

235
§ 1-201 UNIFORM COMMERCIAL CODE Ali

transfer in bulk or as security for or in total or partial satisfaction ·of a person in possessi
money debt. · of the person in P•
(10) "Conspicuous": A term or clause is conspicuous when it is so · (22) "Insolve
written that a reasonable person against whom it is to operate ought to efit of creditors or
have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE the estate of the p
BILL OF LADING) is conspicuous. Language in the body of a form · is (23) A persor
"conspicuous" if it is in larger or other contrasting type or color. But in in the ordinary •
a· telegram any stated term is "conspicuous". Whether a term or clause become due or is i
is "conspicuous" or not is for decision by the court. · law.
(11) "Contract" means the total legal obligation which results from (24) ''Money'
the parties' agreement as affected by this Act and any other applicable · by a domestic or
rules oflaw. (Compare "Agreement".) account establish~
ment between twc
(12) "Creditor" includes a general creditor, a secured creditor, a
líen creditor and any representative of creditors, including an assigneé .· (25) A person
for the benefit of creditors, a trustee in bankruptcy, a receiver in equity (a) he ha
and an executor or administrator of an insolvent debtor's or assignor's (b) he ha
estate.
(e) from
(14) "Delivery" with respect to instruments, documents of title, time
chattel paper, or certificated securities means voluntary transfer of A person "knows
possession. knowledge of it. '
(15) "Document of title" includes bill of lading, dock warrant, dock. import refers to k
receipt, warehouse receipt or order for the delivery of goods, and· al~o ·ai¡y · circumstances uno
other document which in the regular course of business or financing is effective are not d•
treated as adequately evidencing that the person in possessiori. of ít is · (26) A persm
entitled to receive, hold and dispose of the document and the goods it another by taking
covers. To be a document of title a document must purport to be issued the other in ordin;
by or addressed to a bailee and purport to cover goods in the bailee's · know of it. A persc
possession which are either identified or are fungible portions Qf an:
(a) it corr.
identified mass.
(b) it is (
(16) "Fault" means wrongful act, omission or breach.
the ce
(17) "Fungible" with respect to goods or securities mean s goods or · as thE
securities of which any unit is, by nature or usage of trade, the equiva- (27) Notice, 1
lent of any other like unit. Goods which are not fungible shall be deemed organization is eff
fungible for the purposes of this Act to the extent that under a particular it is brought to th
agreement or document unlike units are treated as equivalents. tion, and in any ev
(18) ."Genuine" means free of forgery or counterfeiting. his attention if th·
zation exercises d
(19) "Good faith" means honesty in fact in the conduct or transac- communicating si
tion concerned. transaction and tl
(20) "Holder," with respect to a negotiable instrument; mearis the diligence does not
person in possession if the instrument is payable to bearer or, in the case communicate info
of an instrument payable to an identified person, if the identified person regular duties or
is in possession. "Holder" with respect to a document of title means the that the transacti

236
 ARTICLE 1: GENERAL¡ PROVISIONS (2000) § 1-201

al satisfaction of a person in possession if the goods are deliverable to bearer or to the order
of the person in possession.
(22) "Insolvency proceedings" includes any assignment for the ben-
llOUS when it is so
efit of creditors or other proceedings intended to liquidate or rehabilitate
o operate ought to
the estate of the person involved.
)N-NEGOTIABLE
body of a forro is (23) A person is "insolvent" who either has ceased to pay his debts
rpe or color. But in in the ordinary course of business or cannot pay his debts as they
~r a term or clause become due or is insolvent within the meaning of the federal bankruptcy
law. . .
(24) "Money" means a medium of exchange authorized or adopted
which results from
by a domestic or foreign government and includes a monetary unit of
ny other applicable
account established by an intergovernmental organization or by agree-
ment between two or more nations. ·
secured creditor, a (25) A person has "notice" of a fact when
~luding an assignee
a receiver in equity (a) he has actual knowledge of it; or
~btor's or assignor's (b) he has received a notice or notification of it; or
(e) from all the facts and circumstances known to him at the
documents of title, time in question he has reason to know that it exists.
luntary transfer of A person "knows" or has "knowledge" of a fact when he has actual
knowledge of it. "Discover" or "learn" or a word or phrase of similar
import refers to knowledge rather than to reason to know. The time and
dock warrant, dock
circumstances under which a notice or notification may cease to be
f goods, and also any
effective are not determined by this Act.
iness or financing is
n possession of it is (26) A person "notifies" or "gives" a notice or notification to
mt and the goods it another by takmg such steps as may be reasonably required to inform
purport to be issued the other in ordinary course whether or not such other actually comes to
roods in the bailee's know of it. A person "receives" a :p.oÜce or notification when
~ble portions of an (a) it comes to his attention; or
(b) it is duly delivered at the place of business through which
.reach. the contract was made or at any other place held out by him
as the place for receipt of such communications .
.·ities means goods or
of trade, the equiva- (27) Notice, knowledge or a notice or notification received by .an
gible shall be deemed organizat'ion is effective for a particular transaction from the time when
tat under a particular it is brought to the attention of the individual conducting that transac-
equivalents. tion, and in any event from the time when it would have been brought to
his attention if the organization had exercised due diligence. An organi-
erfeiting. zation exercises due diligence if it maintains reasonable routines for
.e conduct or transac- communicating significant information to the person conducting the
transaction and there is reasonable compliance with the routines. Due
diligence does ·not requiTe an individual acting for the organization to
tstrument, means the
communicate information unless .such communication is part of his
bearer or, in the case
regular duties or unless h e has reason to know of the transaction and
f the identified person
that the transaction would be materially affected by the information.
tent of title means the
237
§ 1-201 UNIFORM COMMERCIAL CODE AR~

(29) "Party", as distinct from "third party", means a person who drawn
has engaged in a transaction or made an agreement within this Act. for in 1
(30) "Person" includes an individual or an organization (See Sec- (b) as sec
tion 1-102). existin
(32) "Purchase" includes taking by sale, discount, negotiation, (e) by accE
mortgage, pledge, lien, issue or re-issue, gift or any other voluntary purcha
transaction creating an interest in property.
(d) genera
(33) "Purchaser" means a person who takes by purchase. porta
(34) "Remedy" means any remedial right to which an aggrieved (46) "Written'
party is entitled with or without resort to a tribunal. other intentional rE
(35) "Representative" includes an agent, an officer of a corporation
or association, and a trustee, executor or administrator of an estate, or § 1-203. Obli
any other person empowered to act for another. Every contract
(36) "Rights" includes remedies. faith in its perform;
(37) "Security interest" means an interest in personal property or § . 1-204. Tim•
fixtures which secures payment or performance of an obligation. The
term also includes any interest of a consignor and a buyer of accounts,
• (1) Whenever
chattel paper, a payment intangible, or a promissory note in a transac- reasonable time, an
tion that is subject to Article 9 . . . . Whether a transaction creates a lease fixed by agreement.
or security interest is determined. by the facts of each case .... a (2) What is a r
(38) "Send" in connection with any writing or notice means to nature, purpose anc
deposit in the ma:il or deliver for transmission by any other usual means (3) An action i
of communication with postage or cost of transmission provided for and the time agreed or
properly addressed and in the case of an instrument to an address
specified thereon or otherwise agreed, or if there be none to any address § 1-205. Com
reasonable under the circumstances. The receipt of any writing or notice (1) A course of
within the time at which it would have arrived if properly sent has the the parties to a par
effect of a proper sending. establish!ng a com
(39) "Signed" includes any symbol executed or adopted by a party expressions and oth1
with present intention to authenticate a writing. (2) A usage of
(41) ."Telegram" includes a message transmitted by radio, teletype, such regularity of ol
cable, any mechanical method of transmission, or the like. expectation that it
question. The exist(
(42) "Term" means that portion of an agreement which relates to a
facts. If it is establis
particular matter.
code or similar writi
(44) "Value". Except as otherwise provided with respect to negotia-
(3) A course of
ble instruments and bank collections (Sections 3-303, 4- 208 and 4-209)
the vocation or trad
a person gives "value" for rights if he acquires them
should be aware giv
(a) in· return for a binding commitment to extend credit or for terms of an agreeme
the extension of immediately available credit whether or not
(4) The express
a. The rema inder of this definition; not distinguishing "true leases" from security dealing or usage of
repri nted here, contains extensive rules for interests. consistent with each
238
 ,, "

ARTICLE 1: GENERAL PROVISIONS (2000) § 1-205

1eans a person who drawn upon and whether or not a charge-back is provided
nt within this Act. for in the event of difficulties in collection; or
(b) as security for or in total or partial satisfaction of a pre-
,•anization (See Sec-
existing claim; or
:;count, negotiation, (e) by accepting delivery pursuant to a pre-existing contract for
my other voluntary purchase; or
(d) generally, in return for any consideration sufficient to sup-
purchase. port a· simple contract.
. (46) "Written" or "writing" includes printing, typewriting or any
which an aggrieved
other intentional reduction to tangible form.

ficer of a corporation § 1_;203. Obligation of Good Faith

:ator of an estate, or
Every contract or duty within this Act imposes an obligation of good
faith in its performance or enforcement.

personal property or § ·. 1-204. Time; Reasonable Time; "Seasonably"

¡f an obligation. The (1) Whenever this Act requires any action to be taken within a
a buyer of accounts, reasonable time, any time which is not manifestly unreasonable .m ay be
¡ry note in a transac- flXed by agreement.
:;action creates a lease
(2) What is a reasonable time for taking any action depends on the
~h case .o a
o o

nature, purpose and circumstances of such action.

, or notice means to
(3) An action is taken "seasonably" when it is taken at or within
:ny other usual means
the time agreed or if no time is agreed at or within a reasonable time.
;sion provided for and
ument to an address
,e none lo any address
· § · 1-205. Course of Dealing and Usage of Trade
f any writing or notice · (1) . A course of dealing is a sequen ce of previous conduct between
properly sent has the the partjes to a particular transaction which is fairly to be regarded as
establishing a common basis of understanding for interpreting their
expressions and other conduct.
or adopted -by a party
(2) ·A usage of trade is any practice or method of dealing having
su eh regi.llarity of observan ce in a place, vocation or trade as to justify an
tted by radio, teletype,
expectation that it will be observed with respect to the transaction in
the like. qÚ.estion. The existence and scope of such a usage are to be proved as
nent which relates to a facts . If it is established that such a usage is embodied in a written trade
code or similar writing t~e interpretation of the writing is for the court.
ll'ith respect to negotia- (3) A course of dealing between parties and any usage of trade in
-303, 4- 208 and 4-209) the vocation or trade in which they are engaged or of which they are or
em should be aware give particular meaning to and supplement or qualify
to extend credit or for terms of an agreement.
le credit whether or not (4) The express terms of an agreement and an applicable course of
dealing or usage of trade shall be construed wherever reasonable as
" true leases", from security
consistent with each other; but when such construction is unreasonable

239
 § 1-205 UNIFORM COMMERCIAL CODE

express terms control both course of dealing and usage of trade and
· course of dealing controls usage of trade.
(5) An applicable usage of trade in the place where any part of
performance is to occur shall be used in interpreting the agreement as to
PART l.
that part of the performance.
(6) Evidence of a relevant usage of trade offered by one party is not Section
admissibie unless and until he has given the other party such notice as 2-101. Short Title
the court finds sufficient to prevent unfair surprise to the latter. 2-102. Scope; Cerb
This Artic
§ 1....:.206. Statute of Frauds for Kinds of Personal Property 2-103. Definitions ~
2-104. Definitions:
Not Otherwise Covered Agency"
(1) Except in the cases described in subsection (2) of this section a 2-105. Definitions:
contract for the sale of personal property is not enforceable by way of "Commen
2-106. Definitions:
action or defense beyond five thousand dollars in amount or value of "Sale"; "
remedy únless there is sorne writing which indicates that a contract for nation" · "
sale has been made between the parties at a defined or stated price, 2-107. Goods to Be

1 . reasonably identifies the subject matter, and is signed by the party

against whom enforcement is sought or by his authorized agent.
. (2) · Subsection (1) of this section does not apply to contracts for the
sale of goods (Section 2-201) nor of securities (Section 8-319) nor to
PART 2 . .FORM,
2-201. Formal Req1
2-202. Final Writte
2-203. Seals lnoper
security agreements (Section 9-203). 2-204. Fotination i1
2-205. Firm Offers
. § ·1....:.207. Performance or Acceptance Under Reservation of 2-206. Offer and A!
Rights 2-207. Additional '1
2-208. Course of PE
(1) A party who with explicit reservation of rights performs or 2-209. Modlfication
pn;>mises performance or assents to performance in a manner demanded 2-210. Delegation e
or · offered by the other party does not thereby prejudice the rights
res~rved:. Such words as "without prejudice", "under protest" or the like PART 3 . . GENERA
are sufficient. 2-301. General Obl
2-302. Unconsciom
(2) Subsection (1) does not apply to an accord and satisfaction. 2-303. Allocation o:
2-304. Price Payah
2-305. Open Price '
2-306. Output, Req
2-307. Delivery in i
2-308. Absence of ~
2-309. Absence of ~
2-310. Open Time
Under Re:
2-311. Options and
2-312. Warranty o
Against Ir
2- 313. Express Wa
'2-314. Implied Wa1
2-315. Implied Wa1
2- 316. Exclusion 01
2- 317. Cumulation
2- 318. Third Party

240
 ARTICLE 2: SALES

Lsage of trade and ARTICLE 2. SALES

Table of Contents
where any part uf
he agreement as to PART l . SHORT TITLE, GENERAL CONSTRUCTION
AND SUBJECT MATTER
by one party is not Section
arty such notice as 2- 101. Short Title
the latter. 2- 102. Scope; Certain Security and Other Transactions Excluded From
· This Article
2-103. Definitions and Index of Definitions
ersonal Property 2- 104. Definitions: " Merchant"; "Between Merchants"; "Financing
Agency"
2- 105. Definitions: Transferability; "Goods" ; "Future" Goods; "Lot";
:2) of this section a "Commercial Unit"
:orceable by way of 2-106. Üefinitions: "Contract"; "Agreement" ; "Contract for Sale";
:tmount or value of "Sale" ; " Present Sale"; "Conforming" to Contract; "Termi-
that a contract for nation"; "Cancellation"
ted or stated price, 2- 107. Goods to Be Severed From Realty: Recording
igned by the party
PART 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT
Ízed agent . .
2- 201. Formal Requirements; Statute of Frauds
to contracts for the 2- 202. Final Written Expression: Parol or Extrinsic Evidence
~tion 8- 319) nor to 2-203. Seals Inoperative
2- 204. Formation in General
2-205. Firm Offers
2-206. Offer and Acceptance in Formation of Contract
er Reservation of 2- 207. Additional T erms in Acceptance or Confirmation
2- 208. Course of P erfor mance or Practica) Construction
rights performs or 2- 209. Modification, Rescission and Waiver
2-210. Delegation of P erformance; Assignment of Rights
a manner demanded
)rejudice the rights PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT
~ pro test'·' or the like
2-301. General Obligations of P arties
2- 302. Unconscionable Contract or Clause
1d satisfaction. 2- 303. Allocation or Division of Risks
2- 304. Price Payable in Money, Goods, Realty, or Otherwise
2- 305. Open Price Term
2- 306. Output, Requirements and Exclusive Dealings
2-307. Delivery in Single Lot or Several Lots
2- 308. Absence of Specified Place for Delivery
2-309. Absen ce of Specific Time Provisions; Notice of Termination
2- 310. Open Time for Payment or Running of Credit; Authority to Ship
Under Reservation
2- 311. Options and Cooperation Respecting P erformance
2- 312. Warranty of Title and Against lnfringement; Buyer's Obligation
Against Infringement
2- 313. Express Warranties by Affirmation, Promise, Description, Sample .
2- 314. Implied Warranty: Merchantability; Usage of Trade
2- 315. Implied Warranty : Fitness for Part icular Purpose
2- 316. Exclusion or Modification of Warranties
2-3 17. Cumulation a nd Conflict ofWarra nties Express or Implied
2-318. Third P arty Beneficiari es ofWarra nties Express or lmplied

241

~I 1,.
•'· •
 ··¡ ·
¡,,

UNIFORM COMMERCIAL CODE

Section
2-319. F.O.B. and F.A.S. Terms
2-320. C.LF. and C. & F . Terms Section
2-321. C.LF. or C. & F.: "Net Landed Weights"; "Payment on Arrival"; 2-701. Remedies:
Warranty of Condition on Arrival 2-702. Seller's Re
2-322. Delivery "Ex-Ship" 2-703. Seller's Re
2-323. Form of Bill of Lading Required in Overseas Shipment; "Over- 2-704. Seller's Ri
seas"
2-324. "N o Arrival, N o Sale" Term Breach e
2-325. "Letter of Credit" Term; "Confirmed Credit" 2-705. Seller's Stc
2-326. Sale on Approval and Sale or Return; Rights of Creditors 2-706. Seller's Re
2-327. Special Incidents of Sale on Approval and Sale or Return 2-707. "Person in
2-328. Sale by Auction 2-708. Seller's Da
2-709. Action for
PART 4. TITLE, CREDITORS AND GOOD FAITH PURCHASERS 2-710. Seller's Inc
2-401. Passing of Title; Reservation for Security; Limited Application of 2-711. Buyer's Re
This Section Goods
2-402. Rights of Seller's Creditors Against Sold Goods 2-712. "Cover"; E
2-403. Power to Transfer; Good Faith Purchase of Goods; "Ehtrusting" 2-713. Buyer's Da
2-714. Buyer's Da
PART 5. PERFORMANCE
2-715. Buyer's Inc
2-501. Insurable Interest in Goods; Manner of Identification of Goods 2-716. Buyer's Ri¡
2-502. Buyer's Right to Goods on Seller's Repudiation, Failure to Deliver,
or Insolvency 2-717. Deduction
2-503. Ma11ner of Seller's Tender of Delivery 2-718. Liquidatim
2-504. Shipment by Seller 2-719. Contractua
2-505. Seller's Shipme11t Under Reservatio11 2-720. Effect of "e
2-506. Rights of Financing Agency Breach
2-507. Effect of Seller's Tender; Delivery 011 Condition 2-721. Remedies f
2-508. Cure by Seller of Improper Tender or Delivery; Replacement 2-722. Who Can S
2-509. Risk of Loss in the Abse11ce of Breach 2-723. Proof of M1
2-510. Effect of Breach on Risk of Loss 2-724. Admissibili
2-511. Tender of Payment by Buyer; Payment by Check 2-725. Statute of J
2-512. Payment by Buyer Befare Inspection
2-513. Buyer's Right to Inspectio11 of Goods
2-514. When Documenta Deliverable 011 Acceptance; When on Payment ·
2-515. Preserving Evidence of Goods in Dispute

PART 6. BREACH, REPUDIATION AND EXCUSE

2-601. Buyer's Rights on Improper Delivery
2-602. Manner and Effect of Rightful Rejection SHORT
2-603. Merchant Buyer's Duties as to Rightfully Rejected Goods
2-604. Buyer's Options asto Salvage of Rightfully Rejected Goods
2-605. Waiver of Buyer's Objections by Failure to Particularize
2-606. What Constitutes Acceptance of Goods
§ 2-101. Shc
2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing This Article s
Breach ~ter Accepta11ce; N atice of Claim or Litigation to Person
Answerable Over cial Code-Sales.
2-608. Revocation of Acceptance in Whole or in Part
2-609. Right to Adequate Assurance of Performance § 2-102. Se(
2-610. Anticipatory Repudiation ·
2-611. Retraction of Anticipatory Repudiation
2-612. "Installment Contract"; Breach U nless the co
2-613. Casualty to Identified Goods
2-614. Substituted Performance actions in goods; i
2-615. Excuse by Failure of Presupposed Conditions the form of an un
2-616. Procedure on N atice Claiming Excuse to operate only a¡:
242
 ARTICLE 2: SALES § 2-102
PART 7. REMEDIES
Section
ent on Arrival"; 2-701. Remedies for Breach ofCollateral Contracts Not Impaired
2-702. Seller's Remedies on Discovery of Buyer's Insolvency
2-703. Seller's Remedies in General
üpment; "Over- 2-704. Seller's Right to Identizy Goods to the Contract Notwithstanding
Breach orto Salvage Unfinished Goods
2-705. Seller's Stoppage of Delivery in Transit or Otherwise
2-706. Seller's Resale Including Contract for Resale
3ditors 2-707. "Person in the Position of a Seller"
{eturn 2-708. Seller's Damages for Non-Acceptance or Repudiation
2-709. Action for the Price
I PURCHASERS 2-710. Seller's Incidental Damages
2-711. Buyer's Remedies in General; Buyer's Security Interest in Rejected
~d Application of
Goods ·
2-712. "Cover"; Buyer's Procurement of Substitute Goods
; "Entrusting" 2-713. Buyer's Damages for Non-Delivery or Repudiation
2-714. Buyer's Damages for Breach in Regard to Accepted Goods
2-715. Buyer's Incidental and Consequential Damages
• tion of Goods 2-716. Buyer's Right to Specific Performance or Replevin
~ailure to Deliver, 2-717. Deduction of Damages From the Price
2-718. Liquidation or Limitation of Damages; Deposits
2-719. Contractual Modification or Limitation of Remedy
2- 720. Effect of "Cancellation" or "Rescission" on Claims for Antecedent
Breach
2-721. Remedies for Fraud
2-722. Who Can Sue Third Parties for Injury to Goods
.eplacement
2-723. Proof of Market Price: Time and Place
2-724. Admissibility of Market Quotations
2- 725. Statute of Limitations in Contracts for Sale

ten on Payment

PART 1
>EXCUSE
SHORT TITLE, GENERAL CONSTRUCTION
~d Goods AND SUBJECT. MATTER
~ted Goods
cularize § 2-1 Ol. Short Title
en of Establishing This Article shall be known and may be cited as Uniform Commer-
Jitigation to Person cial Code-Sales.

§ 2-102. Scope; Certain Security and Other Transactions

Excluded From This Article
Unless the context otherwise requires, this Article applies to trans-
actions in goods; it does not apply to any transaction which although in
the form of an unconditional contract to sell or present sale is intended
to operate only as a security transaction nor does this Article impair or

243
§ 2-102 UNIFORM COMMERCIAL CODE

repeal any statute regulating sales to consumers, farmers or other "Overseas". ::

specified classes of buyers. "Person in po
Definitional Cross References: "Present sale". Section 2-106. "Present sale
"Contract". Section 1-201. "Sale". Section 2-106. "Sale". Sectio
"Contract for sale". Section 2-106. "Sale on appr
"Sale or retur
§ 2-103. Definitions and lndex of Definitions
''Termination
(1) In tbis Article unless the context otherwise requires
(3) The folloVI
(a) "Buyer" means a person who buys or contracts to buy
"Check". Sec1
goods.
(b) "Good faith" in the case of a merchant means honesty in "Consignee".
fact and the observance of reasonable commercial standards ''Consignar''.
of fair dealing in the trade. a "Consumer g1
(e) "Receipt" of goods means taking physical possession of "Control". Se
them. "Dishonor". E
(d) "Seller" means a person who ·sells or contracts to sell goods. "Draft". Sect:
(2) Other definitions applying to this Article or to specified Parts (4) In additio
thereof, and the sections in which they appear are: of construction a
"Acceptance". Section 2-606.
Definitional Crost
"Banker's credit". Section 2-325:
"Person". Section
"Between merchants". Section 2-104.
"Cancellation". Section 2-106(4). § 2-104. De
"Commercial unit". Section 2-105.
(1) "Merchar
"Confirmed credit". Section 2-325.
otherwise by his
"Conforming to contract" . Sectiort2-106. skill peculiar to t:
"Contract for sale" . Section 2-106. whom such know
"Cover". Section 2-712. an agent or brok'
himself out as hm
"Entrusting". Section 2-403.
(2) "Financir
"Financing agency". Section 2-104.
person who in th
"Future goods". Section 2-105. goods or documen
"Goods". Section 2-105. or the buyer inte
"Identification". Section 2-501. due or claimed m
the seller's draft e
"Installment contract". Section 2-612.
collection whethe1
"Letter of Credit". Section 2-325 : with the draft. "I
"Lot". Sectio~ 2- 105. who similarly in1
"Merchant". Section 2-104. seller and buyer i:
(3) "Betweer
a . As of May 31, 2011, this de!inition enactecl the 2001 text of § 1--'201(b)(20).
has been cleletecl in the 30 states that have · which both partí•
chants.

244
 ARTICLE 2: SALES § 2-104
"Overseas". Section 2-323 .
farmers or other
"Person.in position of seller". Section 2-707.
"Present sale". Section 2-106.
Section 2-106.
"Sale;'. Section 2-106.
2-106.
"Sale on approval". Section 2-326.
"Salé or return". Section 2-326.
LS "Teri:nination". Sec.tion 2-106.
quires (3) .The. fQllowing definitions in other Articles apply to this Article:
· contracts to buy "Check". Section 3-104.
"Consignee". Section 7-102.
; means honesty in
"Consignar". Section 7-102.
mmercial standards
"Consumer goods" . Section 9-i02.
sical possession of "Control". Section 7-106.
''Dishorior''. Section 3-502.
1tracts to sell goods. "Draft". Section 3-104.
r to specified Parts · (4) In addition Article 1 contains general definitions and principies
of constructl.on and interpretation applicable throughout this Article.
Definiti(njal Cross Reference:
"Person". Section 1-201.

§ 2~104. · Definitions; "Merchant"; "Between Merchants";

"Financing Agency"
(1) . "Merchant" means a person who deals in goods of the kind or
otherwise by his occupation holds himself out as having knowledge or
skill peculiar to the practices or goods involved in the transaction or to
whom such knowledge or skill may be attributed by his employment of
an agent or broker or other intermediary who by his occupation holds
himself out as having such knowledge or skill.
(2) "Financing agency" means a bank, finance company or other
·person who in the ordinary course of business makes advances against
goods or documents of title or who by arrangement with either the seller
or the buyer intervenes in ordinary course to make or collect payment
due or claimed under the contract for sale, as by purchasing or paying
the seller's draft or making advances against it or by m erely taking it for
collection whether or not documents of title accompany or are associated
with the draft. "Financing agency" includes also a bank or other person
who similarly intervenes between persons who are in the position of
. selier and buyer in respect to the goods (Section 2-707).
(3) ''Between merchants" m eans in any transaction with respect to
n text of § l -20l(b)(20). which both parties are chargeable with the knowledge or skill of mer-
chants.

245
§ 2-104 UNIFORM COMMERCIAL CODE

Definitional Cross References: sale of goods. " (

"Bank". Section 1-201. and a contract t
"Buyer". S.ection 2-103. passing of title fJ
"present sale" rr
§ 2-105 . . Definitions: Transferability; "Goods"; "Future" contract.
Goods; "Lot"; "Commercial Unit" (2) Goods o
(1) "Goods" means all things (including specially manufactured "conforming" or
goods) which are movable at the time of identification to the contract for with the obligati<
salé other than the money in which the price is to be paid, investment (3) "Termin
securities (Article 8) and things in action. "Goods" also includes the created by agree1
unborn young of animals and growing crops and other identified things for its breach. Or
attached to realty as described in the section on goods to be severed from on both sides ar
realty (Section 2-107). performance sun;
(2) Goods .must be both existing and identified befo re any interest in (4) "Cancelh
tliem can pass. Goods which are not both existing and identified are contract for brea
"future" goods. A purported present sale of future goods or of any "termination" ex
interest therein operates as a contract to sell. for breach of the ·
(3) There may be a sale of a part interest in existing identified
goods. Definitional Cros
"Agreement". Seo
(4) An uridivided share in an identified bulk of fungible goods is
sufficie:ntly' -identified to be sold although the quantity of the bulk is not "Buyer". Sectio:n.
determined. AnY agreed proportion of such a bulk or any quantity "Contract". Secü
thereof ag'reed upon by number, weight or other meas·u re may to the "Goods". Section
extent of the seller's interest in the bulk be sold to the buyer who then
becomes ah ·o wner in common. § 2-107. Go.
(5) ''Lot" means a parcel or a single article which is the subject (1) A contrae
matter of a separate sale or delivery, whether or not it is sufficient to gas) or a struct1:1
perform 'the contract. contract for the sE
(6) "·Commercial unit" means such a unit of goods as by commercial by the seller but l
usage is .a single whole for purposes of sale and division of which is not effective as
materially impairs its character or value on the market or in use. A contract to sell.
commercial unit may be a single article (as a machine) or a set of articles (2) A contrac1
(as a suite of furniture or an assortment of sizes) or a quantity (as a bale, other things attacl
gross, or ·cadoad) or any other unit treated in use or in the relevant al harm thereto bt
market as a single whole. is a contract for th
Definitional Cross References: "Contract" . Section 1-201. matter is to be sev.
"Buyer". Section 2-103. "Contract for sale". Section 2- 106. part of the realty
identification effec
§ 2-106~ . Definitions:
"Contract"; "Agreement"; "Contract (3) The provi:
for Sale"; "Sale"; "Present Sale"; "Conform- rights provided by
ing" to Contract; "Termination"; "Cancella-
sale may be exec
tion"
interest in land ar
(1) In this Article unless the context otherwise requires "contract" buyer's rights undE
and ''agre~n1ent" are limited to those relating to the present or future

246
 ARTICLE ~: SALES § 2-107

sale of goods. "Contract for sale" includes both a present sale of goods
and a contract to sell goods at a future time. A "sale" consists in the
passing of title from the seller to the buyer for a price (Section 2-401). A . ·
"present sale" means a sale which is accomplished by the making of the .
contract.
>ods"; "Future"
dt" (2) Goods or conduct including any part of a performance are
"conforming" or conform to the contract when they are in accordance
ially manufactured
with the obligations under the contract.
L to the contract for
)e paid, investment (3) "Termination" occurs when either party pursuant to a power .
' also includes the created by agreement or law puts an end to the contract otherwise than
ter identifíed things for its breach. On "termination" all obligations which are still executory
3 to be severed from
on both sides are discharged but any right based on prior breach or
performance survives.
efore any interest in (4) "Cancellation" occurs when either party puts an end to the
r and identified are contract for breach by the other and its effect is the same as that of
~e goods or of any "termination" except that the cancelling party also retains any remedy
for breach of the whole contract or any unperformed balance.
1 existing identified Definitional Cross References: "Party". Section 1-201.
"Agreement". Section 1- 20 l. "Remedy". Section 1-201.
of fungible goods is "Buyer". Section 2- 103.
ity of the bulk is not "Rights". Section 1-201.
"Contract". Section 1-201.
tlk or any quantity "Goods". Section 2-105. "Seller". Section 2-103.
measure may to the
the buyer who then § 2-107. Goods to Be Severed From Realty: Recording
(1) A contract for the sale of minerals or the like (including oil and
which is the subject
gas) or a structure or its materials to be removed from realty is a
not it is sufficient .to
contract for the sale of goods within this Article if they are to be severed
by the seller but until severance a purported present sale thereof which
1ods as by commercial is not effective as a transfer of an interest in land is effective pnly as a
1¿ division of which contract to sell.
market or in use. A
ne) ora set of articles (2) A contract for the sale apart from the land of growing crops or
. a quantity (as a bale, other things attached to realty and capable of severance without materi- ·
se or in the relevant al harm thereto but not described in subsection (1) or of timber to be cut
is a contract for the sale of goods within this Article whether the subject
matter is to be severed by the buyer or by the seller even though it forms
Section 1-201. part of the realty at tP,e time of contracting, and the parties can by
r sale". Section 2- 106.
1 identification effect a present sale befare severance.
~ement"; "Contract (3) The provisions of this section are subject to· any third party
t Sale"; "Conform- rights provided by the law relating to realty records, and the contract for
. nation"; "Cancella- sale may be executed and recorded as a document transferring an
interest in land and shall then constitute notice to third parties of the ·
se requires " con t-raet" buyer's rights under the contract for sale.
, the present or future
247
§ 2-107 UNIFORM COMMERCIAL CODE

Definitional Cross References: "Party". Section 1-20 l. Official

"Buyer". Section 2-103. "Present sale". Section 2-106. Prior Uniform
"Contract". Section 1-20 l. sion: Section 4,
"Rights". Section 1- 201.
"Contract for sale". Section 2-106. (which was based o
"Goods". Section 2- 105. ''Seller". Section 2-103. Statute of 29 CharlE
Changes: Comple1
PART 2 stricted to sale of g
tions 1- 206, 8-319
FORM, FORMATION AND READJUSTMENT Purposes of Chru
OF CONTRACT phraseology of this
fo make it clear tha
§ 2-201. Formal Requirements; Statute ofFrauds l. The required
(1) Except as otherwise provided in this section a contract for the contain all the ma
sale of goods for the price of $500 or more is not enforceable by way of contract and such
action or defense unless there is sorne writing sufficient to indicate that are stated need not
All that is required
a contract for sale has been made between the parties and signed by the
afford a basis for
party against whom enforcement is sought or by his authorized agent or offered oral eviden
broker. A writing is not insufficient because it omits or incorrectly states transaction. It may
a term agreed upon but the contract is not enforceable under this pencil on a scratcl
paragraph beyond the quantity of goods shown in such writing. indicate which part
which the seller. Tl
(2) Between merchants if within a reasonable time a writing in must appear is t
confirmation of the contract and sufficient against the sender is received which need not bE
and the party receiving it has reason to know its contents, it satisfies the but recovery is limi
requirements of subsection (1) against such party unless written notice stated. The price,
of object.ion to its contents is ·given within ten days after it is received. payment or delivery
ty of the goods, or :
(3) A contract which does not satisfy the requirements of subsection ranties may all be o:
(1) but which is valid in other respects is enforceable
Special emphasis
(a) if the goods are to be specially manufactured for the buyer the permissibility oJ
and are not suitable for sale to -others in the ordinary course term in view of the
of the seller's business and the seller, before notice of courts on the expre
repudiation is received and under circumstances which rea- term even where th
tracted on the ba1
sonably indicate that the goods are for the buyer, has made
price list. In many
either a substantial beginning of their manufacture or com- sale the parties de
mitments for their procurement; or price in express terr
(b) if the part.y against whom enforcement is sought admits in bound to pay and tl:
his pleac;ling, testimony or otherwise in court that a contract reasonable price wh
fact may well be tn
for sale was made, b1,1t the contract is not enforceable under Again, frequently tt
this provision beyond the quantity of goods admitted; or tioned since the ¡:
(e) with respect to goocls for which payment has been made and their agreement on
accepted or which have been received and accepted (Sec. 2~ logue known to bot
list serves as an
606). against pe1jury.
prices and valuatiOJ

248
 ARTICLE 2: SALES ·. § 2-201

:m 1-201. Official Comment in the vicinity constitute a similar

Prior Uniform Statutory Provi- check. Thus if the price is not stated in
'. Section 2-106. the memorandum it can normally be
sion: Section 4, Uniform Sales Act
.ion 1-201. (which was based on Section 17 of the supplied without danger of fraud. Of
Statute of 29 Charles Il) . course if the "price" consists of goods
.on 2-103. rather than money the quantity of
Changes: Completely rephrased; re- goods must be stated.
stricted to sale of goods. See also Sec-
tions 1-206, 8-319 and 9- 203. Only three definite and invariable
requirements as to the memorandum
JSTMENT Purposes of Changes: The changed are made by this subsection. First, it
phraseology of this section is intended must evidence a contract for the sale of
to make it clear that: goods; second, it must be "signed", a
Frauds l. The required writing need not word which includes any authentica-
contain all the material terms of the tion which identifies the party to be
m a contract for the charged; and third, it must specify a
contract and such material terms as
nforceable by way of are stated need not be precisely stated. quantity.
cient to indicate that All that is required is that the writing 2. "Partial performance" as a sub-
ies and signed by the afford a basis for believing that the stitute for the required memorandum
3 authorized agent or offered oral evidence rests on a real can validate the contract only for the
3 or incorrectly states transaction. lt may be written in lead goods which have been accepted or for
forceable under this pencil on a scratch pad. It need not which payment has been made and
· indicate which party is the buyer and accepted.
1ch writing.
which the seller. The only term which
le time a writing in must appear is the quantity term Receipt' · and acceptance either of
the sender is received which need not be accurately stated goods or of the price constitutes an
but recovery is limited to the amount unambiguous overt admission by both
ntents, it satisfies the
stated. The price, time and place of parties that a contract actually exists.
unless written notice
payment or delivery, the general quali- If the court can make a just apportion-
rs after it is received. ment, thel'efore, the agreed price of
ty of the goods, or any particular war-
rements of subsection ranties may all be omitted. any goods actually delivered can be
recovered without a writing or, if the
Le Special emphasis must be placed on price has been paid, the seller can be
'actured for the buyer the permissibility of omitting the price forced to deliver an apportionable part
term in view of the insistence of sorne
in the ordinary course of the goods. The overt actions of the
courts on the express inclusion of this
ller, befo re notice of parties make admissible evidence of
term even where the parties have con-
:umstances which rea- the other terms of the contract neces-
tracted on the basis of a published
r the buyer, has made sary to a just apportionment. This is
price list. In many valid contracts for
true everi though the actions of the
~manufacture or com- sale the parties do not mention the
parties are not in themselves inconsis-
price in express terms, the buyer being
tent with a different transaction such
bound to pay and the seller to accept a
nt is sought admits in as a consignment for resale or a mere
reasonable price which the trier of the
n court that a contract loan of money.
fact may well be trusted to determine.
not enforceable under Again, frequently the price is not men- Part performance by the buyer re-
of goods admitted; or tioned since the parties have based quires the delivery of something by
their agreement on a price list or cata- him that is accepted by the seller as
:mt has been made and logue known to both of theni and this · such performance. Thus, part payment
l and accepted (Sec. 2- list serves as an efficient safeguard may be made by money or check, ac-
against pe1jury. Finally, "market" cepted by the seller. If the agreed price
prices and valuations that are current consists of goods or services, then they

249
§ 2-201 UNIFORM COMMERCIAL CODE

must also have been delivered and ac- memorandum may be necessary but terms as are includ
cepted. from the time of contracting each par-
prior agreement 01
3. Between merchants, failure to ty should be aware that to him it is
explained or supplE
answer a written confirmation of a signing by the other which is impor-
contract within ten days of receipt is tant. (a) by cou
tantamount to a writing under subsec- 7. lf the making of a contract is course
tion (2) and is sufficient against both admitted in court, either in a written (b) by evi<
parties under subsection (1). The only pleading, by stipulation or by oral finds t
effect, however, is to take away from statement before the court, no addi-
the party who fails tó answer the de- and m
tional writing is necessary for protec-
fense of the Statute of Frauds; the tion against fraud. Under this section Definitional Cross :
burden of persuading the trier of fact it is no longer possible to admit the "Agreed" and "agz
that a contract was in fact made orally contract in court and still treat the 1-201.
prior to the written confirmation is Statute as a defense. However, the
unaffected. Compare the effect of a "Course of dealing'
contract is not thus conclusively estab-
failure to reply under Section 2-207. lished. The admission so made by a "Parties". Section :
4. Failure to satisfy the require- party is itself evidential against him of
ments of this section does not render the truth of the facts so admitted and § 2-203. Seal
the contract void for all purposes, but of nothing more; as against the other The afflxing of
merely prevents it from being judicial- party, it is not evidential at all. an offer to huy or
ly enforced in favor of a party to the instrument and th
contract. For example, a buyer who Cross References: apply to such a cont
takes possession of goods as provided
in an oral contract which the seller has See Sectiqr¡.s 1-201, 2- 202, 2- 207, 2-
209 and 2-304. Definitional Cross J
not meanwhile repudiated, is not a
trespasser. Nor would the Statute of "Contract for sale".
Frauds provisions of this section be a Definitional Cross References:
defense to a third person who wrong- "Action". Section 1-201.
§ 2-204. ForiJ
fully induces a party to refuse to per- (1) A contract
"Between · merchants". Section 2-
form an oral contract, even though the sufflcient to show ~
104.
injured party cannot maintain an ac- recognizes the existe
tion for damages against the party so "Buyer".· Section 2-103.
refusing to perform. (2) An agreemE
"Contract". Section 1-201. found even though t
5. The requirement of "signing" is
"Contract for sale". Section 2-106.
discussed in the comment to Section 1- (3) Even thoug:
201. "Goods". Section 2-105. does not fail for inc
6. It is not necessary that the writ- "N otice". Section 1-201. contract and there i:
ing be delivered to anybody. It need remedy.
not be signed or authenticated by both "Party". Section 1-201.
parties but it is, of course, not suffi- "Reasonable time". Section 1-204. Definitional Cross li
cient against one who has not signed "Agreement". Sectic
"Sale". Section 2-106.
it. Prior to a dispute no one can deter- "8ontract". Section
mine which party's signing of the "Seller". Section 2-103.
· "Contract for sale".
§ 2-202. Final Written Expression: Parol or Extrinsic Evi-
§ 2-205. Firm
dence
An offer by a 1
Terms with respect to which the confirmatory memoranda of the which by its terms
parties agree or which are otherwise set forth in a writing intended by revocable, for lack o
the parties as a final expression of th<iir agreenl.ent with respect to such is stated for a reaE
250
 ARTICLE 2: SALES § 2-205

'f be necessary but terms as are included therein may not be contradicted by evidence of any
ontracting each par- prior agreement or of a contemporaneous oral agreement but may be
re that to him it is explained or supplemented
her which is impor-
(a) by course of dealing or usage of trade (Section 1-205) or by
course of performance (Section 2-208); and
ing of a contract is
(b) by evidence of consistent additional terms unless the court
., either in a wrítten
mlatíori or by oral finds the writing to have been intended also as a complete
the court, no addi- and exclusive statement of the terms of the agreement.
necessary for protec- "Term". Section 1-201.
Definitional Cross References:
:l. u nder this sectíon
,ossíble to admit the "Agreed" and . "agreement". Section "Usage of trade" . Section 1-205.
t and still treat the 1...:.201.
"Written" and "writing". Section 1-
{ense. However, the "Course of dealing" . Section 1-205.
201.
,us conclusívely estab- "Parties". Section 1-201.
issíon so made by a
dential against him of § 2-203. Seals Inoperative
facts so admitted and
The afflxing of a seal to a writing evidencing a contract for sale or
; as agaínst the other
an offer to huy or sell goods does not constitute the writing a sealed
·ídentíal at all.
instrument and the law with respect to sealed instruments does not
:es: apply to such a contract or offer.
-201, 2-202, 2-207, 2- Definitional Cross References: "Goods". Section 2-105.
"Contract for sale". Section 2-106. "Writing". Section 1-201.
ross References: § 2-204. · Formation in General
tíon 1-201. (1)- A contraCt for sale of goods may be made in any manner
erchants". Section 2- sufficient to show agreement, including conduct by both parties which
recognizes the existence of such a contract.
tion 2-103. (2) An agree:r'nent sufflcient to constitute a contract for sale may be
)ectíon 1-201. found even though the moment of its making is undetermined.
. sale". Section 2-106. - (3) Even though one or more terms are left open a contract for sale
does not fail for irtdefiniteness if the parties have intended to make a
:tion 2-105.
contract. and there is a reasonably certain basis for giving an appropriate
~tion 1-201. remedy.
tíon 1- 201. Definitional Cross References: "Goods". Section 2-105.
time". Section 1-204. "Agreement". Section 1- 201. "Party". Section 1-201.
ion 2- 106. "Contract". Section 1- 201. "Remedy" . Section 1-201.
. ;tion 2-103. "Contract for sale". Section 2- 106. "Term". Section 1-201.

>l or Extrinsic Evi- § 2-205. Firm Offers

An offer by a merchant to huy or sell goods in a signed writing
,ry memoranda of the which by its terms gives assurance that it will be held open is not
a writing intended by revocable, for lack of consideration, during the time st ated or if no tim e
lt with respect to such is stated for · a · r easonable time, but in no event may su eh period of

251

1
.
. -~· !.~u~ - ·
§ 2-205 UNIFORM COMMERCIAL CODE

irrevocability exceed three months; but any such term of assurance on a (3) Conduct b
form supplied by the offeree must be separately signed by the offeror. contract is suffici
writings of the par1
Definitional Cross References: "Signed". Section 1- 201.
the terms of the p~
"Goods" . Section 2-105. "Writing". Section 1-201. writings of the pa
"Merchant". Section 2-104. incorporated under
§ 2-206. Offer and Acceptance in Formation of Contract Official C<
(1) Unless otherwise unambiguously indicated by the language or Prior Uniform S·
circumstances sion: Sections 1 and
Act.
(a) an offer to make a contract shall be construed as inviting
acceptance in any manner and by any medium reasonable in Changes: CompletE
the circumstances; this and other sectio

(b) an order or other offer to huy goods for prompt or current Purposes of Chang.
shipment shall be construed as inviting acceptance either by l. This section is
a prompt promise to ship or by the prompt or current with two typical situ;
shipment of conforming or non-conforming goods, but such the written confirm
a shipment of non-conforming goods does not constitute an agreement has bee1
acceptance if the seller seasonably notifies the buyer that orally or by inform~
the. shipment is offered only as an accommodation to the between the parties ~
buyer. · · one or both of the p~
mal memoranda emb
(2) Where .the. beginning of a requested performance is a reasonable so far as agreed u
mode of acceptance an offeror who is not notified of acceptance within a terms not discussed.
reasonable
.
time
..
may treat the offer as having lapsed before acceptance. tion is offer and acce¡
wire or letter expres
Definitional Cross References: "Goods". Section 2- 105. as an acceptance or
''Buyer''. Section 2-103. "Notifies". Section 1-201. agreement adds furtl
"Coriforming". Section 2-106. tions or proposals s
"Reasonable time". Section 1-204. Tuesday," "rush/' "¡
"Contract". Sectioii 1-201.
bill of lading inspec1
§ 2-207. ·Additional Terms in Acceptance or Confirmation the like. A frequent
second situation is
(1) A definite and seasonable expression of acceptance or a written
printed purchase ord(
confirmation which is sent within a reasonable time operates as an (sometimes called "a
acceptance even . though it states terms additional to or different from forms. Because the fi
those offered or agreed upon, unless acceptance is expressly made to the thinking of thf
conditional on assent to the additional or different terms. ing parties, the ter:
(2) The . additional terms are t9 be construed as proposals for addi- them often do not e
tion to the contract. Between merchants such terms become part of the the seller's form cont
contract unless: ent from or additio:
(a) the offer expressly limits acceptance to the terms of the forth in the buyer's
. offer; . less, the parties p1
transaction. [Commer
(b) they materially alter it; or in 1966.]
(e) noÜfication of objection to them has already been given or is 2. Under this Ar
given within a reasonable time after notice of them is deal which in comme
received. ing has in fact been
252
 ARTICLE 2: SALES § 2-207

1 of assurance on a (3) Conduct by both parties which recognizes the existence of a

1ed by the offeror. contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In such case
~m 1-201. the terms of the particular contract consist of those terms on which the
ion 1-201. writings of the parties agree, together with any supplementary terms
incorporated under any other provisions of this Act.

t1 of Contract Official Comment nized as a contract. Therefore, any

Prior Uniform Statutory Provi- additional matter contained in the
)y the language or confirmation or in the acceptance falls
sion: Sections 1 and 3, Uniform Sales
Act. within subsection (2) and must be re-
nstrued as inviting garded as a proposal for an added
Changes: Completely rewritten . by term unless the acceptance is made
ldium reasonable in this and other sections of this Article. conditional on the acceptance of the
additional or different terms. [Com-
· prompt or current Purposes of Changes:
ment 2 was amended in 1966.]
tcceptance either by l. This section is intended to deal
with two typical situations. The one is 3. Whether or not additional or dif-
prompt or ·current
the written confirmation, where an ferent terms will become part of the
ing goods, but such agreement depends upon the provi-
~s not constitute an
agreement has been reached either
orally or by informal correspondence sions of subsection (2). If they are such
ifies the buyer that as materially to alter the original bar-
between the parties and is followed by
:ommodation to the gain, they will not be included unless
one or both of the parties sending for-
mal memoranda embodying the terms expressly agreed to by the other party.
ance is a reasonable so far as agreed upon and adding If, however, they are terms which
terms not discussed. The other situa- would not so change the bargain they
acceptance within a
tion is offer and acceptance, in which a will be incorporated . unless notice of
d befare acceptance. objection to them has already been giv-
wire or letter expressed and intended
ion 2-105. as an acceptance or the closing of an en or is given within a reasonable
agreement adds further minor sugges- time.
ction 1-201.
tions or proposals such as "ship by 4. Examples of typical clauses
ime". Section 1-204._ Tuesday," "rush," "ship draft against which would normally "materially al-
bill of lading inspection allowed," or ter" the contract and so result in sur-
the like. A fniquent example of the prise or hardship if incorporated with-
1r Confirmation second situation is the exchange of out express awareness by the other
eptance or a written printed purchase order and acceptance party are: a clause negating such stan-
;ime operates as an (sometimes called "acknowledgment") dard warranties as that of merchanta-
to or different from forms. Because the forms are oriented bility or fitness for a particular pur-
, is expressly made - to the thinking of the respective draft- pose in circumstances in which either
~rms. ing parties, the terms contained in warranty normally attaches; a clause
.s proposals for addi- them often do not correspond. Often requiring a guaranty of 90% or 100%
s become part of the the seller's form contains terms di~fer­ deliveries in a case such as a contract
ent from or additional to those set by cannery, where the usage of the
forth in the buyer's form. Neverthe- trade allows greater quantity leeways;
to the terms of the less, the parties proceed with the a clause reserving to the seller the
transaction. [Comment 1 was amended power to cancel upon the buyer's fail-
in 1966.] ure to meet any invoice when due; a
·eady been given or is 2. Under this Article a proposed clause requiring that complaints be
r notice of them is deal which in commercial understand- made in a time materially shorter than
ing has in fact b een closecl is recog- customary or reasonable.

253
§ 2-207 UNIFORM COMMERCIAL CODE

5. Examples of clauses which in- agree, and terms supplied by his Act, § 2-208. Cm;
volve no element of unreasonable sur- including subsection (2) . The written
prise and which therefore are to be confirmation is also subject to Section (1) Where th1
incorporated in the contract unless no- 2-201. Under that section a failure to performance by E
tice of objection is seasonably given respond permits enforcement of a prior performance and o
are: a clause setting forth and perhaps oral agreement; under this section a of performance ac
enlarging slightly upon the seller's ex- failure to respond· permits additional relevant to determi
emption due to supervening causes be- terms to become part of the agree- . (2) The expre.
yond his control, similar to those cov- ment. [Comment 6 was amended in
performance, as we
ered by the provision of this Article on 1966.]
· merchant's excuse by failure of presup-
construed wheneve
7. In many cases, as where goods such construction i
posed conditions or a clause fixing in
are shipped, accepted and paid for be- performance and e
advance any reasonable formula of
fore any dispute arises, there is no dealing and usage e
proration under such circumstances; a
question whether a contract has been
clause fixing a reasonable time for (3) Subject to 1
made. In such cases, where the writ-
complaints within customary limits, or waiver, such course
ings of the parties do not establish a
in the case of a purchase for sub-sale, modification of any
contract, it is not necessary to deter-
providing for inspection by the sub-
mine which actor document constitut-
purchaser; a clause providing for inter- Prior Uniform St
ed the offer and which the acceptance.
est on overdue invoices or fixing the sion: N o such geneJ
See Section 2-204. The only question
seller's standard credit terms where concept of this sectit
is what terms are included in the con-
they are within the range of trade terms such as "cou
tract, and subsection (3) furnishes the
practice and do not limit any credit
governing rule. [Comment 7 was added
bargained for; a clause limiting the
in 1966.]
§ 2-209. Mod
right of rejection for defects which fall (1) An agreemf
within the customary trade tolerances
Cross References: consideration to be ·
for acceptance "with adjustment" or
otherwise limiting remedy in a reason- See generally Section 2-302. (2) A signed a¡
able manner (see Sections 2-718 aml Point 5: Sections 2- 513, 2-602, 2- except by a sig11et.l.
2-719). 607, 2-609, 2-612, 2-614, 2-615, 2- but except as betwe.
6. If no answer is received within a 616, 2-718 and 2- 719. by the merchant mu
reasonable time after additional terms Point 6: Sections 1-102 and 2-104. (3) The require
are proposed, it is both fair and com- (Section 2-201) mu~
mercially sound to assume that their Definitional Cross References: provisions.
inclusion has been assented to. Where
clauses on confirming forros sent by "Between merchants". Section 2- (4) Although a
both parties conflict each party must 104. satisfy the requirer
be assumed to object to a clause of the "Contract" . Section 1-201. waiver.
other conflicting with one on the con- (5) A party who
firmation sent by himself. As a result "Notification" . Section 1-201.
the contract may re
the requirement that there b~ notice of "Reasonable time". Section 1-204.
objection which is found in subsection
by the other party t
(2) is satisfied and the conflicting "Seasonably". Section 1-204. waived, unless the
terms do not become a part of the "Send". Section 1-201. change of position in
contract. The contract then consists of Definitional Cross R
"Term". Section 1-201.
the terms originally expressly agreed
to, terms on which the confirmations "Written". Section 1- 201. ' 'Agreement". Sectio

b. As of May 31, 20
has been deleted in the 4•

254
 ARTICLE 2: SALES § 2-209

; supplied by his Act, § 2-208. Course of Performance or Practica! Constructionb

tion (2). The written (1) Where the contract for sale involves repeated occasions for
uso subject to Section performance by either party with knowledge of the nature of the
at section a failure to
performance and opportunity for objection to it by the other, any course
enforcement of a prior
of performance accepted or acquiesced in without objection shall be
under this section a
nd permits additional relevant to determine the meaning of the agreement.
,e part of the agree- (2) The express terms 9f the agreement and any such course of
t 6 was amended in performance, as well as any course of dealing and usage of trade, shall be
construed whenever reasonable as consistent with each other; but when.
cases as where goods such construction is unreasonable, express terms shall control course of
· epted and paid for be- performance and course of performance shall control both course of
;e arises, there is no dealing and usage oftrade (Section 1-205) .
. ~r a contract has been (3) Subject to the provisions of the next section on modification and
cases, where the writ-
waiver, such course of performance shall be relevant to show a waiver or
.. · ;ies do not establish a
tot necessary to deter- modification of any term inconsistent with such course of performance.
or document constitut- Prior Uniform Statutory Provi- "the circumstances of the case," "the
, which the acceptance. sion: N o such general provision but conduct of the parties," etc., in Uni-
~04. The only question concept of this section recognized by form Sales Act.
· .re included in the con- terms such as "course of dealing",
~ction (3) furnishes the
·. [Comment 7 was added § 2-209. Modification, Rescission and Waive~.
(1) An agreement modifying a contract within this Article needs no
consideration to be binding.
·tces:
Section 2-302. (2) A signed agreement which excludes modification or rescission
except by a signed writing cannot be otherwise modified or rescinded,
tions 2-513, 2-602, 2- but except as between merchants such a requirement on a form supplied
·612, 2-614, 2-615, 2- by the merchant must be separately signed by the other party.
2-719.
(3) The requirements of the statute of frauds section of this Article
.[ons 1-102 and 2- 104.
(Section 2-201) must be satisfied if the contract as modified is within its
::ross References: provisions.
(4) Although an attempt at modification or rescission does not
1erchants". Section 2-
satisfy the requirements of subsection (2) or (3) it can operate as a
wmver.
Section 1-201.
(5) A party who has made a waiver affecting an executory portian of
· t" . Section 1-201. the contract may retract the waiver by reasonable notification received
time". Section 1- 204. by the other party that strict performance will be required of any term
" . Section 1-204. waived, unless the retraction would be unjust in view of a material
change of position in reliance on the waiver.
tion 1-201.
Definitional Cross References: "Between mer.chants" . Section 2-
:tion 1- 201. 104.
"Agreement". Section 1- 201.
3ection 1-201.
b. As of May 31, 2011, this provision enacted th e 2001 tex t of Article l.
has been deleted in th e 40 states that have

255
§ 2-209 UNIFORM COMMERCIAL CODE

"Contract". Section 1-201. "Term". Section 1-201.

without prejudice t
"Notification". Section 1-20 l. "Writing". Section 1-201. from the assignee (:
"Signed". Section 1-201.
Definitional Cross :
§ 2-210. Delegation ofPerformance; Assignment ofRights "Agreement". Secti
(1) A party may perform his duty through a delegate unless other- "Buyer". Section 2-
wise agreed or unless the other party has a substantial interest in having "Contract" . Sectior
his original promisor perform or control the acts required by the con-
tract. No delegation of performance relieves the party delegating of any
duty to perform or any liabílity for breach.
(2) Except as otherwise províded in Sectíon 9-406, unless otherwise GENERAL
agreed all rights of eíther seller or buyer can be assigned except where
the assignment would materially change the duty of the other party, or
íncrease materíally the burden or risk ímposed on him by his contract, or § 2-301. Gem
impair materially his chance of obtainíng return performance. A right to The obligation
damages for breach of the whole contract or a right arising out of the buyer is to accept m
assignor's due performance of his entire obligation can be assigned
Definitional Cross 1
despite agreement otherwise.
"Buyer". Section 2-
(3) The creatíon, attachment, perfection, or enforcement of a securi-
"Contract". Section
ty interest in the seller's interest under a contract is not a transfer that
materially changes the duty of or increases materially the burden or risk § 2-302. Une<
ímposed on the buyer or impairs materially the buyer's chance of
(1) If the court
obtaining return performance within the purview of subsection (2)
unless, and then only to the extent that, enforcement act.u ally results in the contract to hav
a delegation of material performance of the seller·. Even in that event, court may refuse to
the creation, attachment, perfection, and enforcement of the security der of the contract ,
interest remains effective, but (i) the seller is Hable to the buyer for the application of ar
able result.
damages caused by the delegation to the extent that the damages could
not reasonably be prevented by the buyer, and (ii) a court having (2) When it is <
jurisdiction may grant other appropriate relief, including cancellation of any clause thereof n
the contract for sale or an injunction against enforcement of the security reasonable opportur
interest or consummation of the enforcement. purpose and effect t<
(4) Unless the circumstances indicate the contrary a prohibition of Official Cm
assignment of "the contract" is to be construed as barring only the Prior Uniform Sü
delegation to the assignee of the assignor's performance. sion: None.
(5) An assignment of "the contract" or of "all my rights under the Purposes:
contract" or an assignment in similar general t etms is an assignment of
l. -This section is iJ
rights and unless the language or the círcumstances (as in an assígn-
it ·possible for the cou
ment for security) índicate the contrary, it is a delegation of performance plicitly against the con
of the duties of the assignor and its acceptance by the assignee consti- which they find to be
tutes a promise by him to petform those duties. This promise is enforce-· In the past such polici
able by either the assignor or the other party to the original contract. complished by adverse
language, by manipula
(6) The other party may treat any assignment which delegates
of offer and acceptancc
performance as creating reasonable gTound s for insecurity and may nations that the claus
256
 ARTICLE 2: SALES § 2-302
m 1-201. without prejudice to his rights against the assignor demand assurances
tion 1-201. from the assignee (Section 2-609).
Definitional Cross References: "Party". Section 1-201.
11ment of Rights "Agreement". Section 1-201. "Rights". Section 1-201.
!legate unless other- "Buyer". Section 2-103. "Seller". Section 2-103.
al interest in having "Contract". Section 1-201. "Term". Section 1-201.
equired by the con-
-ty delegating of any PART 3
GENERAL OBLIGATION AND CONSTRUCTION
,06, unless otherwise
;signed except where
OF CONTRACT
,f the other party, or § 2-301. General Obligátions of Parties
[m by his contract, or
The obligation ofthe seller is to transfer and deliver and that of the
:formance. A right to
buyer is to accept and pay in accordance with the contract.
ht arising out of the
ion can be assigned Definitional Cross References: "Party". Section 1-201.
"Buyer". Sectioh 2-103. "Seller". Section 2-103.
forcement of a securi- "Contract". Section l -201.
is not a transfer that
lly the burden or risk § 2-302. · Un~onscionable Contract or Clause
,e buyer's chance of (1) If the court as a matter of law finds the contract or any clause of
~w of subsection (2) the contract to have· b een unconscionable at the time it was made the
:mt actually results in court may refuse to enforce the contract, or it may enforce the remain-
·. Even in that event, der of the contract without the unconscionable clause, or it may so limit
!ment of the security the application 9f any unconscionable clause as to avoid any unconscion-
able to the buyer for able result.
1at the damages could
(2) When it is claimed or appears to the court that the contract or
l (ii) a court having
any clause there9f ma:y be unconscionable the parties shall be afforded a
cluding cancellation of
reasonable opportunity to present evidence as to its commercial setting,
·cement of the security -
purpose and effect to. aid the court in making the determination.

trary a prohibition of · Official Comment public policy or to the dominant pur-

1
:l as barring only the Prior Uniform Statutory Provi- pose of the contract. This section is
sion: None. · intended to allow the court to pass
nance. directly on the unconscionability of the
tll my rights under the Purposes: contract or particular clause therein
ms .¡8 an assignment of l. This section is intended to make and to make a conclusion of law as to
1 mees (as in an assign- it possible for the courts to police ex- its unconscionability. The basic test is
.e.gation of performanc_e plicitly against the contracts or clauses whether, in the light of the general
by the assignee constl- which they find to be unconscionable. commercial background and the com-
~his promise is enforce- In the past sucli. policing has been ac- mercial needs of the particular trade or
complished by adverse construction of case, the clauses involved are so one-
) the original contract.
language, by manipulation of the rules sided as to be unconscionable under
1m ent which delegates of offer and acceptance or by determi- the circumstances existing at the time
)f insecurity and may nations that the clause is contrary to of the making of the contract. Subsec-

257
§ 2-302 . UNIFORM COMMERCIAL CODE

tion (2) makes it clear that it is proper jection of shipments by the buyer was Definitional Cross
for the court to hear evidence upon restricted to apply to shipments where "Contract". Sectio
these questíons. The principie is one of discrepancies represented merely mer-
the prevention of oppression and un- chantile variations; Meyer v. Packard
fair surprise (Cf. Campbell Soup Co. v. Cleveland Motor Co., 106 Ohio St. 328,
§ 2-303. All<
Wentz, 172 F.2d 80, 3d Cir.1948) and 140 N.E. 118 (1922), in which the Where this A
not of disturbance of allócation of risks court held that a "waiver" of all agree- parties "unless otb
because of superior.bargaining power. ments not specified did not preclude allocation but may
The underlying basis of this section is
implied warranty of fitness of a rebuilt
illustrated by the .results in cases such Definitional Cross
dump truck for ordinary use as a dump
as the following: "Agreement". Sect
truck; Austin Co. v. J.H. Tillman Co.,
Kansas City Wholesale Grocery Co. 104 Or. 541, 209 P. 131 (1922), where "Party". Section 1·
v. Weber Packing Corporation, 93 a clause limiting the buyer's remedy to
Utah 414, 73 P .2d 1272 (1937), where § .2-304. Pri<
return was held to be applicable only if
a clause limiÜng time for complaints
the seller had delivered a machine
was held inapplicable to latent defects
needed for a construction job which
in a shipment of catsU'p which could be (1) The price
discovered only by microscopic analy- reasonably met the contract descrip-
payable in whole o
sis; Hardy v. General Motors Accep- tion; Bekkevold v. Potts, 173 Minn. 87, which he is to tran:
tanc.e Corporation, 38 Ga.App. 463, 216 N.W. 790, 59 A.L.R. 1164 (1927),
144 S.E. 327 (1928), holding that a refusing to allow warranty of fitness (2) Even thou¡
disclaimer of warranty clause applied for purpose imposed by law to be ne- realty the transfer
only to express warranties, thus letting gated by clause excluding all warran- ence to them are
in a fair implied warrimty; Andrews ties "made" by the seller; Robert A interest in realty 01
Bros. v. Singer & Co. (1934 CA) 1 K.B. Munroe & Co. v. Meyer (1930) 2 K.B.
17, holding that where· a car with sub- 312, holding that the warranty of de-
stantial mileage ·was delivered instead scription overrides a clause reading
§ 2-305. Ope
of a "new" car, a disclaimer of warran- "with all faults and defects" where (1) The partie:
t.iP.R, indiH:¡i~ g . tli~se . ''implied," left adultoratod meat not up to the con- even though the ¡
unaffected ari "express obligation" on tract description was delivered. reasonable price at
the description, .even though the Sale
of Goods Act called such an implied 2. Under this section the court, in (a) nothin¡
warranty; New Prague Flouring Mill its discretion, may refuse to enforce (b) the pri
Co. v. G.A. Speru:s, 194. Iowa 417, 189 the contract as a whole if it is permeat- agree;.
N.W. 815 (1922), holding that a clause ed by the unconscionability, or it may
permitting the seller, upon the buyer's strike any single clause or group of (e) the pri
failure to. supply shipping instructions, clauses which are so tainted or which other ¡
to cancel, ship, or allow delivery date are contrary to the essential purpose of agency
to be indefinitely postponed 30 days at th~? agreement, or it may simply limit
(2) A price to b
a time by the inaction, do es not indefi- unconscionable clauses so as to avoid
nitely postpone the date of measuring unconscionable results.
him to fix in good f~
damages for the buyer's breach, to the (3) When a pri•
seller's advantage; and Kansas Flour · 3. The present section is addressed parties fails to be f
Milis Co. v. Dirks, 100 Kan. 376, 164 to the court, and the decision is to be option treat the cm
P. 273 (1917), whe1;e under a similar made by it. The commercial evidence
clause ·in a · rising ·market the court referred to in subsection (2) is for the (4) Where, hoVI
permitted the buyer to measure bis com·t's consideration, not the jury's. price be fixed or ag¡
damages for non-delivery at the end of Only the agreement which results In such a case the
only one 30 day postponement; Green from the court's action on these mat- unable so to do mu
v. Arcos, Ltd. (1931 CA) 47 T.L.R. 336, ters is to be submitted to the general and the seller mus
wher e a blanket clause prohibiting re- triers of the facts.

258
 ARTICLE 2: SALES § 2-305

ts by the buyer was Definitional Cross Reference:

to shipments where " Contract". Section 1-201.
~sented merely mer-
;; Meyer v. Packard § 2-303. Allocation or Division of Risks
:0 ., 106 Ohio St. 328,
Where this Article allocates a risk or a burden as between the
922), in which the parties "unless otherwise agreed", the agreement may not only shift the
'waiver" of all agree- allocation but may also divide the risk or burden_ ·
ed did not preclude
of fitness of a rebuilt Definitional Cross References:
dinary use as a dump "Agreement". Section 1- 201.
v. J.H. Tillman Co.,
P. 131 (1922), where "Party". Section 1- 201.
;he buyer's remedy to
) be applicable only if § 2-304. Price Payable in Money, Goods, Realty, or Other-
:lelivered a machine wise
1 struction job which (1) The price ·can be made payable in money or otherwise. If it is
the contract descrip- payable in whole or in part in goods each party is a seller of the goods
. Potts, 173 Minn. 87, which he is to transfer.
::> A.L.R. 1164 (1927),
warranty of fitness (2) Even though all or part of the price is payable in an interest in
1
>sed by law to be ne- realty the transfer of the goods and the seller's obligations with refer-
excluding all warran- ence to them are subject to this Article, but not the transfer of the
the seller; Robert A. interest in realty or the transferor's obligations in connection therewith.
. Meyer (1930) 2 K.B.
.t the warranty of de- § 2-305.. Open Price Term
les a clause reading (1) The parties if they so intend can conclude a contract for sale
. and defects" where
even though the price is not settled. In such a case the price is a
1t not up to the con-
reasonable price at the time for delivery if
was delivP.rP.d.
(a) nothing is said as to price; or
s section the court, in
nay refuse to enforce (b) the price is left to be agreed by the parties and they fail to
1 whole if it is permeat- agree; or
1scionability, or it may (e) the price is to be flXed in terms of sorne agreed market or
le clause or group of
other standard as set or recorded by a third person or
.r e so tainted or which
agency and it is not so set or recorded.
the essential purpose of
. or it may simply limit (2) A price to·be fixed by the seller or by the buyer means a price for
clauses so as to avoid him to fix in good faith.
results. (3) When a price left to be fixed otherwise than by agreement of the
~nt section is addressed parties fails to be fixed through -fault of one party the other may at his
1 ¿ the decision is to be option treat the contract as c~ncelled or himself fix a reasonable price.
1e commercial evidence
(4) Where, however, the parties intend not to be bound unless the
;ubsection (2) is for the
!ration., not the. jury's. price be fixed or agreed and it is not fixed or agreed there is no contract.
·eement which results In such a case the buyer must return any goods already received or if
.'s action on these mat- unable so to do must pay their reasonable value at the time of delivery
_1bmitted to the general and the seller must return any portion of the price paid on account.
~ts.

259
§ 2-305 UNIFORM COMMERCIAL CODE

Definitional Cross References: "Contract for sale". Section 2- 106. sorne e

"Agreement". Section 1-201. "Fault". Section 1-201. and
"Burden of est~blishing". Section 1- "Goods". Section 2- 105. (e) documt
201. "Party". Section 1-201. bankin
"Buyer". Section 2-103. "Receipt of goods". Section 2- 103. Definitional Cross :
"Cancellation". Section 2-106. "Seller". Section 2-103. "Contract for sale"
"Contract". Section 1-201. "Term". Section 1-201. "Delivery". Section
"Document of title'
§ 2-306. Output, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller § 2-309. Absf
or the requirements of the buyer means such actual output or require-
ments as may occur in good faith, except that no quantity unreasonably (1) The time fi
disproportionate to any stated estímate or in the absence of a stated contract if not pr
estímate to any normal or otherwise comparable prior output or require- · · · reasonable time.
ments may be tendered or demanded.
(2) Where the
(2) A lawful agreement by either the seller or the buyer for exclu- indefinite in dura1
sive dealing in the kind of goods concerned imposes unless otherwise otherwise agreed
agreed an obligation by the seller to use best efforts to supply the goods
(3) Terminatio
and by the buyer to use best efforts to promote their sale.
of an agreed event
Definitional Cross References: "Goods". Section 2-105. the other party and
"Agreement". Section 1-201. if its operation wou
"Party". Section 1-201.
"Buyer". Section 2-103. Definitional Cross l
"Term". Section 1- 201.
"Contract for sale". Section 2-106. "Agreement". Secti
"Good faith" . Section 1- 201. "Scllcr". Scction 2- 103.
"Contract". Section
"N otification". Sect
§ 2-307. Delivery in Single Lot or Severa} Lots
Unless otherwise agreed all goods called for by a contract for sale § 2-310. Ope1
must be tendered in a single delivery and payment is due only on such 1
tender but where the circumstances give either party the right to make U nless otherwü
or demand delivery in lots the price if it can be apportioned may be
demanded for each lot. (a) paymer
to rece:
Definitional Cross References: "Lot". Section 2-105.
the pla<
"Contract for sale". Section 2-106 . "Party". Section 1- 20 l.
(b) if the 1
"Goods". Section 2-105. "Rights". Section 1- 201.
th~m u
§ 2-308. Absence of Specified Place for Delivery title, bl
before 1
U nless otherwise agreed with th
(a) the place for delivery of goods is the seller's place of busi-
(e) if delivt
ness or if he has non e his r esiden ce; but
title otl
(b) in a contract for sale of identified goods which to the regardl1
knowledge of the parties at the time of contracting are in time an

260
 ARTICLE 2: SALES § 2-310

;ale". Section 2-106. sorne other place, that place is the place for their delivery;
· m 1-201.
and
,on 2-105. (e) documents of title may be delivered through customary
banking channels.
on 1-201.
ods" . Section 2-103. Definitional Cross References: "Goods". Section 2-105.
.on 2-103. "Contract for sale". Section 2-106 . "Party". Section 1-201.
"Delivecy". Section 1-201.
on 1-201. "Seller". Section 2-103.
"Document of title". Sec~ion 1-201.
;ive Dealings
§ 2-309. Absence of Specific Time Provisions; Notice of Ter-
·l output of the seller mination
· 3.1 output or require-
1antity unreasonably (1) The time for shipment or delivery or any other action under a
absence of a stated contract if not provided in this Article or agreed upon shall be a
or output or require- reasonable time.
(2) Where the contract provides for successive performances but is
the buyer for exclu- indefinite in duration it is valid for a reasonable time but unless
1ses unless otherwise otherwise agreed may be terminated at any time . by either party.
.s to supply the goods (3) Termination of a contract by one party except on the happening
r sale. of an agreed event requires that reasonable notification be received by
the other party and an agreement dispensing with not_ification is invalid
:tion 2-105.
if its operation would be unconscionable.
tion 1-201.
Definitional Cross References: "Party". Section 1-20 l.
tion 1-201. "Agreement". Section 1-201. "Reasonable timen. Section 1-204.
· · :tion 2-103. "Contract". Section 1-201.
"Notification". Section 1-201. "Termination". Section 2- 106.
l Lots
. .·by a contract for sale
§ 2-310. Open Time for Payment or Running of Credit; Au-
thority to Ship Under Reservation
· 1t is due only on such

1rty the right to make Unless otherwise agreed

~ apportioned may be
(a) payment is due at the time and place at which the buyer is
to receive the goods even though the place of shipment is
[on 2-105. the place of delivery; and
ction 1-201. (b) if the seller is authorized to send the goods he may ship
ection 1-201. them under reservation, and may tender the documents of
title, but the buyer may inspect the goods after their arrival
Delivery befare payment is due unless such inspection is inconsistent
with the terms of the contract (Section 2- 513); and
. ~ seller's place of busi- (e) if delivery is authorized and made by way of documents of
mt title otherwise than by subsection (b) then payment is due
:l goods which to the regardless of where the goods are to be received (i) at the
e of contracting are in time and place at which the buyer is to teceive delivery of

261
 . '.,,'<·"

§ 2-310 UNIFORM COMMERCIAL CODE

the tangible documents or (ii) at the time the buyer is to (b) the go<
receive delivery of the electronic documents and at the or othE
seller's place of business or if none, the seller's residence; ofcont
and
(d) where the seller is required or authorized to ship the goods (2) A warrant)
on credit the credit period runs from the time of shipment only by specific la
but post-dating the invoice or delaying its dispatch will reason to know tha
correspondingly delay the starting of the credit period. that he is purporti
person may have.
Definitional Cross References: "Receipt of goods". Section 2-103.
"Buyer". Section 2-103. (3) Unless oth
"Seller". Section 2-103:
"Delivery". Section 1-201. dealing in goods of
"Document of title". Section 1-201. "Send". Section 1-201. free of the rightful
"Goods". Section 2-105. "Term". Section 1-201. the like but a buye1
the seller harmless
§ 2-311. Options and Cooperation Respecting Performance ance with the speci1
(1) An agreement for sale which is otherwise sufficiently definite
(subsection (3) of Section 2-204) to be a contract is not made invalid by Definitional Cross 1
the fact that it leaves particulars of performance to be specified by one of "Buyer". Section 2-
the parties. Any such specification must be made in good faith and "Contract for sale".
within limits set by commercial reasonableness. "Goods" . Section 2-
(2) Unless otherwise agreed specifications relating to assortment of
the goods are at the buyer's option and except as ·otherwise provided in § 2-313. Exp1
subsections (1)(c) and (3) of Section 2-319 specifications or arrange-
ments relating to shipment are at the seller's option.
(1) Express wa
(3) Where such specification would materially affect the other par-
ty's performance but is not seasonably made or where one party's (a) Any af1
cooperation is necessary to the agreed performance of the other but is buyer '
not seasonably forthcoming, the other party in . addition to all other basis o
remedies goods s
(a) is excused for any resulting delay in his own performance;
(b) Any de:
and
of the ·
(b) may also either proceed to perform in any reasonable man-
ner or after the time for a material part of his own perform- shall ca
ance treat the failure to specify or to cooperate as a breach (e) Any sm
by failure t_o deliver or accept the goods. bargain
Definitional Cross References: "Party". Section 1- 201. goods sl
"Agl-eement". Section 1-201. "Remedy" . Section 1- 201. (2) It is not ne
"Buyer". Section 2-103. the seller use forma
"Contract for sale". Section 2- 106. "Seasonably". Section 1-204.
ha ve· a specific intm
"Goods". Section 2-105. "Seller". Section 2- 103. o( the value of the
seller's opinion or e
§ 2-312. Warranty of .Title and Against Infringement; Buy- ty.
er's Obligation Against lnfringement
(1) Subject to subsection (2) there is in a contract for sale a Definitional Cross 1
warranty by the seller that "Buyer". Section 2-
(a) the title conveyed shall be good, and its transfer rightful;
and
262
 ARTICLE 2: SALES § 2-313

ime the buyer is to (b) the goods shall be delivered free from any security interest
uments and at the or other lien or encumbrance of which the buyer at the time
te seller's residence; ofcontrachng has no knowledge.
(2) A warranty u~der subsection (1) will be excluded or modified
ed to ship the goods
he time of shipment only by specific language or by circumstances which give the buyer
1.g its dispatch will reason to know that the person selling does not claim title in himself or
~ credit period. that he is purporting .to sell only such right or title as he or a third
person may have.
ods". Section 2-103.
(3) Unless otherwise agreed a seller who is a merchant regularly
ion 2-103.
dealing in goods of the kind warrants that the goods shall be delivered
on 1-201. free of the rightful claim of any third person by way of infringement or
ion 1-201. the like but a buyer who. furnishes specifications to the seller must hold
the seller harmless against any such claim which arises out of compli-
ting Performance ance with the specifications.
sufficiently definite
Definitional Cross References: "Person". Section 1-201.
not made invalid by
be specified by one of "Buyer". Section 2-103. "Right". Section 1-201.
e in good faith and "Contract for sale". Section 2-106.
"Seller". Section 2..:103.
"Goods". Section 2- 105.
~ing to assortment of
>therwise provided in § 2-313. Expres$ Warranties by Mfirmation, Promise, De-
fications or arrange- scription, Sample
(1) Express yvarra:nties by the seller are created as follows:
affect the other par-
r where one party's (a) Any affirmation of fact or promise made by the seller to the
:e of the other but is buyer wliich .relates to the goods and beco mes part of the
a.ddition to all other basis · of" the bargain creates un express warranty that the
goods shall conform to the affirmation or promise.
üs own performance; (b) Any description of the goods which is made part of the basis
of the bárgairi creates an express warranty that the goods
any reasonable man- shall conformto the description.
~tof his own perform-
cooperate as a breach (e) Any sample or. model which is made part of the b.asis of the
bargain creates an express warranty that the whole of the
goods shall éonform to the sample or model.
tion 1-201.
(2) It is not necessary to the creation of an express warranty that
;ection 1-201.
the seller use formal words such as "warrant" or "guarantee" or that he
''. Section.1-204. have a specific iritention to make a warranty, but an ·affirmation merely
:tion 2=-103. of the value of the goods or a statement purporting to be merely the
seller's opinion or comrriendation of the goods does not create a warran-
Infringement; Buy- ty.
ngement
Definitional Cross References: "Conforming". Section 2- 106.
contract for sale a
"Buyer" . Section 2- 103 .. "Goods". Section 2-105.
its transfer rightful; "Seller". Section 2- 103.

263
§ 2-314 UNIFORM COMMERCIAL CODE

§ 2-314. Implied Warranty: Merchantability; Usage of Trade 202) negation or

(1) Unless excluded or modified (Section 2-316), a warranty that the struction is unre~
goods shall be merchantable is implied in a contract for their sale if the (2) Subject 1
seller is a merchant with respect to goods of that kind. Under this warranty of mere
section the serving for value of food or drink to be consumed either on merchantability l
the premises or elsewhere is a sale. exclude or modif)
(2) Goods to be merchantable must be at least such as by a writing and'
of fitness is sufi
(a) pass .w ithout objection in the trade under the contract warranties whicl
description; and
(3) Notwiths
(b) in the case of fungible goods, are of fair average quality
(a) unle!
within the description; and
warr
(e) are fit for the ordinary purposes for which such goods are all f~:
used; and ing e
(d) nm, within the variations permitted by the agreement, of and
even kind, quality and quantity within each unit and among (b) wher
all unitsinvolved; and ined
(e) are adequately contained, packaged, and labeled as the or h
agreement may require; and warr
ough
(f) conform to the promises or affirmations of fact made on the (e) an ir
container or label if any.
eoun
(3) Unless exchided or modified (Section 2-316) other implied war- (4) Remedie~
ranties may arise from course of dealing or usage of trade. with the provisim
D efinitionalCross References: " Goods" . Section 2-105. and on contractu
"Agreement". Section 1-201. "Merchant". Section 2-104. Definitional Cro~
"Contract". Se.c tion 1~201. "Agreement". Se
"Seller". Section 2-103.
"Contract for sale". Section 2-106. "Buyer". Section
"Contract". Sect:
§ 2-315. Implied Warranty: Fitness for Particular Purpose
"Course of dealir
Where the seller at the time of contracting has reason to know any
particular purpose for which the goods are required and that the buyer is § 2-317. Ct
relying on the seller's skill or judgment to select or furnish suitable
goods, the1~e is l.mless excluded or modified under the next section an Warranties '>'
implied warranty that the goods shall be fit for such purpose. tent with each (
unreasonable the
Definitíomil·Ci·oss References: "Goods". Section 2-105.
ty is dominant. 1
"Buyer". Section 2-'103. "Seller". Section 2- 103. (a) Exac
§ 2-316. Exclusion or Modification of Warranties samr
(b) A sa1
(1) Words br c.onduct relevant to the creation of an express warran- allm
ty and words or conduct tending to negate or limit warranty shall be (e) Expr
construed wherever reasonable as consistent with each other; but subject othe1
to the provisions of this Article on parol or extrinsic eviclence (Section 2- purp'
264

..l.

'·-!\i>M :l'0.t-1.
 ARTICLE 2: SALES § 2-317
;y; Usage of Trade 202) negation or limitation is inoperative to the extent that such con-
a warranty that the struction is unreasonable.
; for their sale if the (2) Subject to subsection (3), to exclude or modify the implied
1t kind. Under this warranty of merchantability or any part of it the language must mention
consumed either on merchantability and in case of a writing must be conspicuous, and to
exclude or modify any implied warranty of fitness the exclusion must be
by a writing and conspicuous. Language to exclude all implied Warranties
uch as of fitness is sufficient if it states, for example, that "There are no
under the contract warranties which extend beyond the description on the face hereof."
(3) Notwithstanding subsection (2)
fair average quality (a) unless the circumstances indicate otherwise, all implied
warranties are excluded by expressions like "as is", "with
·hich such goods are all faults" or other language which in common understand-
ing calls the buyer's attention to the exclusion of warranties
and makes plain that there is no implied warranty; and
)y the agreement, of
each unit and among (b) when the buyer before entering into the ci:mtract has exam-
ined the goods or the sample or model as fully as he desired
or has refused to examine the goods there is no implied
and labeled as the warranty with regard to defects which an examination
ought in the circumstances to have revealed to him; and
s of fact made on the (e) an implied warranty can also be excluded or modified by
course of dealing or course of performance or usage of trade.
6) other implied war- (4) Remedies for breach of warranty can be limited in accordance
. trade. with the provisions of this Article on liquidation or limitation of damages
and on contractual modification of remedy (Sections 2-718 and 2-719).
:tion 2-105.
Soction 2-104.
Definitional Cross References: "Goods". Section 2- 105.
"Agreement". Section 1-201. "Remedy". Section 1-201.
:tion 2-103.
"Buyer". Section 2-103.
"Seller". Section 2-103.
"Contract". Section 1-201.
1rticular Purpose "Course of dealing" . Section 1- 205. "Usage of trade". Section 1- 205.
s reason to know any
l and that the buyer is § 2-317. Cumulation and Conflict of Warranties Express or
:t or furnish suitable Implied
r the next section an Warranties whether express or implied shall be construed as consis-
h purpose. tent with each other and as cumulative, but if such construction is
unreasonable the intention of the parties shall determine which warran-
dion 2- 105. ty is dominant. In ascertaining that intention the following rules apply:
ction 2- 103. (a) Exact or technical .specifications displace an inconsistent
sample or model or generallanguage of description.
trranties (b) A sample from an existing bulk displaces inconsistent gener-
of an express warran- allanguage of description.
mit warranty . shall be (e) Express warranties displace inconsistent implied warranties
each other; but subject other than . an implied warranty of fitness for a particular
.ic evidence (Section 2- purpose.

265
§ 2-317 UNIFORM COMMERCIAL CODE

Definitional Cross Reference: (e) whcn 1

"Party". Section 1-201. car or
expens·
§ 2-318. Third Party Beneficiaries of Warranties Express or F.O.B.
lmplied approp
of this
Note: If this Act is introduced in the Congress of the United States this
section should be omittef]. (States to select one alternative.) (2) Unless oth
"free alongside") a
Alternative A with the stated pri

A seller's warranty whether express or implied extends to any (a) at his <
vessel
natural person who is in the family or household of his buyer or who is a
desigm
guest in his home if it is reasonable to expect that such person may use,
consume or be affected by the goods and who is injured in person by (b) obtain
breach of the warranty. A seller may not exclude or limit the operation which ·
of this section. (3) Unless othc
(1)(a) or (e) or subs1
Alternative B instructions for ma
A seller's warranty whether express or implied extends to any F.O.B. the loading
natural person who may reasonably be expected to use, consume or be name and sailing
affected by the goods and who is injured in person by breach of the instructions as a f~
warranty. A seller may not exclude or limit the operation of this section. 311). He may also
manner preparatory
Alternative e (4) Under the 1
. ..the buyer must ma~
A seller's warranty whether express or implied extends to any
and the seller may
person who may reasonably be expected to use, consume orbe affected
· goods in substitutim
by the goods and who is injured by breach of the warranty.
A seller may not exclude or limit the operation of this section with Definitional Cross li
respect to injury to the person of an individual to whom the warranty · "Agreed". Section 1-
extends. "Bill of lading". Sec1
"Buyer". Section 2-
§ 2-319. F.O.B. and F.A.S. Terms
(1) Unless otherwise agreed the term F.O.B. (which means "free on § 2-320. C.I.F
board") at a named place, even though used only in connection with the (1) The term C~
stated price, is a delivery term under which cost of the goods anc
The term C. & F. ,
(a) when the term is F.O.B. the place of shipment, the seller Jreight to the na~ed
must at that place ship the goods in the manner provided in
(2) Unless othe
this Article (Section 2-504) and bear the expense and risk of
tion with the stated
putting them into the possession of the carrier; or its equivalent requir
(b) when the term is F .O.B. the place of destination, the seller (a) put the
must at his own expense and risk transport the goods to shipmer
that place and there tender delivery of them in the manner coverin§
provided in this Article (Section 2- 503); and
266
 ARTICLE 2: SALES § 2-320
(e) when under either (a) or (b) the term is .also F.O.B. vessel,
car or other vehicle, the seller must in addition at his own
expense and risk load the goods on board. If the term is
· :anties Express or F.O.B. vessel the buyer must name the vessel and in an
appropriate case the seller must comply with the provisions
of this Article on the form of bill of lading (Section 2-323) .
. e United States this (2) Unless otherwise agreed the term F.A.S. vessel (which means
. tive.) "free alongside") at a named port, even though used only in connection
with the stated price, is. a delivery term under which the seller must
(a) at his own expense and risk deliver the goods alongside the
ied extends to any vessel in the manner usual in that port or on a dock
lis buyer or who is a designated and provided by the buyer; and
.uch person may use,
(b) obtain and tender a receipt for the goods in exchange for
njured in person by
which the carrier is under a duty to issue a bill of lading.
. r limit the operation
(3) Unless otherwise agreed in any case falling within subsection
(l)(a) or (e) or subsection (2) the buyer must seasonably give any needed
instructions for making delivery, including when the term is F.A.S. or
F.O.B. the loading berth of the vessel and in an appropriate case its
.·lied extends to any name and sailing date. The seller may treat the failure of needed
use, consume or be instructions as a failure of cooperation under this Article (Section 2-
m by breach of the 311). He may also at his option move the goods jn any reasonable
·ation of this section. manner preparatory to delivery or shipment.
(4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed
the buyer must make payment against tender of the required documents
· . lied extends to any and the seller may not tender nor the buyer demand delivery of the
nsume or be affected goods in substitution for the documents.
rranty.
Definitional Cross References: "Goods". Sectiori 2-1 05.
· i of this section with
"Agreed". Section 1-201. "Seasonably". Section 1-204.
: whom the warranty
"Bill of lading". Section 1- 201. "Seller". Section 2- 103.
"Buyer". Section 2-103. "Term". Section 1-201.

§ 2-320. C.I.F. and C. & F. Terms

'lhich means "free on
(1) The term C.I.F. means that the price includes in a lump sum the
1 connection with the
cost of the goods and the insurance and freight to the named destination.
The term C. & F. or C.F. means that the price so includes cost and
· shipment, the seller freight to the named destination.
e manner provided in (2) Unless otherwise agreed and even though used only in connec-
te expense and risk of tion with the stated price and destination, the term C.I.F. destination or
. , earrier; or its equivalent requires the seller at his own expense and risk to
::lestination, the seller (a) put the goods into the possession of a carrier at the port for
·ansport the goods to shipment and obtain a negotiable bill or bills of lading
f them in the manner covering the entire transportation to the named destination;
and
1 l;
267
§ 2-320 UNIFORM COMMERCIAL CODE

(b) load the ~oods and obtain a receipt from the carrier (which but has no effect or
may be contained in the bill of lading) showing that the sale or delivery or e
freight has been paid or provided for; and
(3) Unless oth
(e) obtain a policy or certificate of insurance, including any war ment on or after ¡
risk insurance, of a kind and on terms then current at the allow such prelimir
port of shipment in the usual amount, in the currency of the delivery of the doc1
contract, shown to cover the same goods covered by the bill have arrived.
of lading and providing for payment of loss to the order of
the buyer or for the account of whom it may concern; but Definitional Cross l
the seller may add to the price the amount of the premium "Agreement". Secti
for any such war risk insurance; and "Contract". Sectior
(d) prepare an invoice of the goods and procure any other "Delivery". Section
documents required to effect shipment or to comply with the
contract; and
§ 2-322. Deli

(e) forward and tender with commercial promptness all the

(1) Unless othE
(which means from
documents in due form and with any indorsement necessary
restricted to a part
to perfect the buyer's rights.
has reached a place
(3) Unless otherwise agreed the term C. & F. or its equivalent has kind are usually dis
the same effect and imposes upon the seller the same obligations and
(2) Under such
risks as a C.I.F. term except the obligation asto insurance.
(4) Under the term .C.I.F. or C. & F. unless otherwise agreed the (a) the sell
buyer must make payment against tender of the required documents and and fu
the seller may not tender nor the buyer demand delivery of the goods in carrier
substitution for the documents. (b) the risl
leave ti
Definitional Cross References: "Goods". Section 2-105.
"Bill of lading". Section 1-201. "Rights". Section 1-201. Definitional Cross 1
"Buyer". Section 1-
"Buyer". Section 2-103. "Seller". Section 2-103.
"Goods". Section 2-
"Contract" . Section 1-201. "Term". Section 1-201.
§ 2-323." Forn
§ 2-321. C.I.F. or C. & F.: "Net Landed Weights"; "Payment r
on Arrival' ~ ; Warranty of Condition on Arrival
(1) Where the
Under a contract containing a term C.I.F. or C. & F. tains a term C.I.F. o
agreed must obtain
(1) Where the price is based on or is to be adjusted according to
been loaded on boar
"net landed weights", "delivered weights", "out turn" quantity or
for shipment.
quality or the like, unless otherwise agreed the seller must reasonably
(2) Where in a
estímate the price. The payment due on tender of the documents called
for by the contract is the amount so estimated, but ·after final adjust- has been issued ir
documents are not t
ment of the price a settlement must be made with commercial prompt-
of the full set; otht
ness.
tendered. Even if th
(2) An agreement described in subsection (1) or any warranty of (a) due ten
quality or condition of the goods on arrival places upon the seller the sions of
risk of ordinary deterioration, shrinkage and the like in transportation (1) of SE

268
 <.ARTICLE 2: SALES § 2-323
L the carrier (which but has no effect on the place or time of identification to the contract for
) showing that the sale or delivery or on the passing of the risk of loss.
l (3) Unless otherwise agreed where the contract provides for pay-
:, including any war ment on or after arrival ·¿f the goods the seller must before payment
then current at the allow such preliminary inspection as is feasible; but if the goods are lost
the currency of the delivery of the documents and payment are due when the goods should
: covered by the bill have arrived.
loss to the order of
Definitional Cross References: '"Goods". Section 2- 105.
.t may concern; but
unt of the premium "Agreement". Se'ction l'-20L "Seller". Section 2-103.
"Contract". Section 1-201.
"Term". Section 1-201.
"Delivery". Section 1-201.
procure any other
r to comply with the § 2-322. Delivery "Ex-Ship"
(1) Unless otherwise agreed a term for delivery of goods "ex-ship"
promptness all the (which means from the carrying vessel) or in equivalent language is not
iorsement necessary restricted to a particular ship and requires delivery from a ship which
has reached a place at the ilamed port of destination where goods of the
)r its equivalent has kind are usually discharged. ·
<:Lme obligations and (2) Under such a term unless otherwise agreed
.rance.
(a) the seller rinJ:st discharge allliens arising out of the carriage
ttherwise agreed the and furnish the buyer with a direction which puts the
..tired documents and carrier unde.r a duty to delivery the goods; and
ivery of the goods in
(b) the risk of loss does not pass to the buyer until the goods
leave the ship's tackle or are otherwise properly unloaded.
;ion 2- 105.
Definitional Cross References: "Seller". Section 2- 103.
tion 1-201.
"Buyer". Section 1-103. "Term". Section 1- 201.
.ion 2-103. "Goods". Section 2-105.
ion 1-201.
§ 2-323. Form óf Bill of Lading Required in Overseas Ship-
eights"; "Payment ment; "Overseas"
ndition on Arrival (1) Where the contract contemplates overseas shipment and con-
&F. tains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise
agreed must obtain a negotiable bill of lading stating that the goods have
tdjusted according to been loaded on board or, in the case of a term C.I.F. or C. & F., received
t turn" quantity or for shipment.
~ller must. reasonably
(2) Where in a case within subsection ("1) a tangible bill of lading
the documents called has been issued in a set of parts, unless otherwise agreed if the
ut after· final adjust- documents are not to be sent from abroad the buyer may demand tender
l commercial prompt-
of the full set; otherwise only one part of the bill of lading need be
tendered. Even if the agreement expressly requires a full set
1 or any warranty of (a) due tender of a single part is acceptable within the provi-
s upon the seller the sions of this Article on cure of improper delivery (subsection
like in transportation (1) of Section 2.:...508); and

269
§ 2-323 UNIFORM COMMERCIAL CODE

(b) even thciugh the full set is demanded, if the documents are good international 1
sent from ~broad the person tendering an incomplete set credit must also car
may nevertheless require payment upon furnishing an in- business in the sellE
demnity which the buyer in good faith deems adequate.
Definitional Cross 1
(3) A shipment by water or by air or a contract contemplating such "Buyer". Section 2-
shipment is "overseas" insofar as by usage of trade or agreement it is
"Contract for sale".
subject to the commercial, financing or shipping practices characteristic
"Draft". Section 3-:
of international deep water commerce.
. "Financing agency"
Definitional Cross References: "Financing agency". Section 2-104. "N otifies". Section
"Bill of lading" . Section 1-201. "Person". Section 1-201.
"Buyer". Section 2-l03. "Seller". Section 2-103.
§ 2-326. Sale
(
"Contract". Section 1-201. "Send". Section 1-201.
(1) Unless othE
"Delivery". Section 1-201. .· "Term". Section 1-201.
the buyer even th01
§ 2-324. "No Arrival, No Sale" Term (a) a "sale
Under a term "no ·arrival, no sale" or terms of like meaning, unless u se, an•
otherwise agreed, (b) a "sale
(a) the seller must properly ship conforming goods and if they resale.
arrive· by any means he must tender them on arrival but he (2) Goods h eld
assumes rio obligation that the goods will arrive unless he buyer 's creditors u
has cause~ the non-arrival; and subject to such clain
(b) where without fault of the seller the goods are in part lost or (3) Any "or ret
h¡::w e so deteriorated as no longer to conform to the contract separate contract f1
or arrive after the contract time, the buyer may proceed as Article (Section 2-
if there · had been casualty to identified goods (Section 2- contract within tho
613) . evidence (Section 2-
Definitional Cross Refererices: "Goods". Section 2-105. Definitional Cross 1
"Buyer". Section 2-1q3. "Sale". Section 2-106. "Between merchan
"Conforming". Section 2-106. 104.
"Seller". Section 2-103.
"Contract". Section 1-,201. . "Buyer". Section 2-
"Fault". Section 1-201. "Term". Section 1-201.
"Conform". Section

§ 2-325. "Letter of Credit" Term; "Confirmed Credit" § 2-32 7. Spec

(1) Failure of the buyer seasonably to furnish an agreed letter of 1
credit is a bréach cif the contract for sale. ·
(1) Under a salo
(2) The delivery to seller of a proper letter of credit suspends the
buyer's obligation · to pay. If the letter of credit is dishonored, the seller (a) althoug
may on seasonable notification to the buyer require payment directly loss an<
from him. and
(3) Unless otherwise agreed the term "letter of credit" or "banker's (b) use of 1
credit" in a eontract . for sale means an irrevocable credit issued by a accepta
financing agency of good repute and, where the shipment is overseas, of election

270

1
um' L;,
 ARTICLE 2: SALES § 2-327

f the documents are good international r epute. The term "confir med credit" means that the
?; an incomplet e set credit must also carry the direct obligation of such an agency which does
m furriishing an in- business in the seller's financia! market.
th deems adequate. Definitional Cross References: "Overseas". Section 2- 323.
; contemplating such "Buyer". Section 2- 103. "Purchaser". Section 1-201.
e or agreement it is "Contract for sale". Section 2- 106.
actices characteristic "Seasonably". Section 1-204.
"Draft". Section 3- 104.
"Financing agency". Section .2-104. "Seller". Section 2-103.
~ency" . Section 2-104. "Notifies". Section 1- 201. "Term". Section 1-201.
:tion 1-201.
§ 2-326. Sale on Approval and Sale or Return; Rights of
:ion 2-103. Creditors
.on 1-201.
(1) Unless otherwise agreed, if delivered goods may be returned by
.ion 1- 201. the buyer even though they conform to the contract, the transaction is
(a) a "sale on approval" if the goods are delivered primarily for
use, and
· like meaning, unless
(b) a "sale or return" if the goods are delivered primarily for
resale.
ing goods and if they
1em on arrival but he (2) Goods held on approval are not subject to the claims of the
will arrive unless he buyer's creditors until acceptance; goods held on sale or return are
subject to such claims while in the buyer's possession.
>ods are in part lost or (3) Any "or return" term of a contract for sale is to be treated as a
mform to the contract separate contract for sale within the statute of frauds section of this
buyer muy proceed as Article (Section 2-201) and as contradicting the sale aspect of the
ieu guods (Section 2 contract within the provisions of this Article on parol or extrinsic
evidence (Section 2-202).

dion 2- 105. Definitional Cross References: "Contract for sale". Section 2- 106.
"Between merchants" . Section 2- "Creditor". Section 1- 201.
.ion 2- 106.
104. " Goods". Section 2-185.
ction 2-103.
"Buyer". Section 2- 103. "Sale". Section 2- 106.
ction 1-201. "Conform". Section 2- 106. " Seller" . Section 2- 103.

irmed Credit" § 2- 327. Special Incidents of Sale on Approval and Sale or

sh an agreed letter of Return
(1) Under a sale on approval unless otherwise agreed
of credit suspends the
(a) although the goods ar e identified to the contract the risk of
; dishonored, the seller
loss and the title do not pass to the buyer until acceptance;
1uire payment directly
and
of credit" or "banker' s (b) use of the goods consistent with the purpose of trial is not
:tble credit issued by a accepta nce but failure seasonably to notify the seller of
.h ipment is overseas, of election to return the goods is acceptance, and if the goods

271
 § 2-327 UNIFORM COMMERCIAL CODE

conform to the contract acceptance of any part is acceptance Definitional Cross

of the whole; and "Buyer". Section ~

(e) after due notification of election to return, the return is at . ''Good faith". Sect
the seller's risk and expense but a merchant buyer must "Goods". Section ~
follow any reasonable instructions.
(2) Under a sale or return unless otherwise agreed
(a) the option to return extends to the whole or any commercial
unit of the go"ods while in substantially their original condi- TITLE, CRED
tion, but must be exercised seasonably; and § 2-401. Pas
(b) the return is at the buyer's risk and expense.
Definitional Cross References: "Merchant" . Section 2-104. Each provisim
and remedies of tl
"Agreed". Section 1- 201. "Notifies". Section 1-201.
. applies irrespectiv(
"Buyer". Section 2- 103. "Notification". Section 1-201. . to such title. lnsof¡
"Commercial unit". Section 2-105. "Sale on approval" . Section 2-326. of this Article and
. ing rules apply:
"Conform". Section 2-106. "Sale or return". Section 2-326.
(1) Title to go
"Contract". Section 1- 20 l. "Seasonably". Section 1-204.
identification to 1
"Goods". Section 2- 105. "Seller". Section 2-103. explicitly agreed 1
. property as limitec
§ 2-328. Sale by Auction of the title (propl
(1) In a sale by auction if goods are put up in lots each lot is the · limited in effect t<
subject of a separate sale. provisions and to ·
(Article 9), title t
(2) A sale by auction is complete when the auctioneer so announces
manner and on 1
by the fall of the hammer or in other customary manner. Where a bid is
made while the hammer is falling in acceptance of a prior bid the (2) Unless oth
,. ' time and place a
auctioneer may in his discretion reopen the bidding or declare the goods
sold under the bid on which the hammer was falling. ref~rence to the pl
a security interest
(3) Such a sale is with reserve unless the goods are iñ explicit terms at a different time
put up without reserve. In an auction with reserve the auctioneer may . of a security interE
withdraw the goods at any time until he announces completion of the
(a) if the
sale. In an auction without reserve, after the auctioneer calls for bids on
goods
an article or lot, that article or lot cannot be withdrawn unless no bid is
at des
made within a reasonable time. In either case a bidder may retract his
of shi]
bid until the auctioneer's announcement of completion of the sale, but a
bidder's retraction does not revive any previous bid. (b) if the
on ter
(4) If the auctioneer knowingly receives a bid on the seller's behalf
or the seller makes or procures such a bid, and notice has not been given (3) Unless otl
that liberty for such bidding is reserved, the buyer may at his option . without moving th
avoid the sale or take the goods at the price of the last good faith bid (a) if the
prior to the completion of the sale. This subsection shall not apply to any pass e¡
bid at a forced sale. such 1

272
 'V¡ J''

ARTICLE 2: SALES § 2-401

y part is acceptance Definitional Cross References: "Lot". Section 2-105.

"Buyer". Section 2...:.103. "Notice" . Section 1-201.
rn, the return is at "Good faith". Section 1-201. "Sale". Section 2- 106.
rch~mt buyer must "Goods". Section 2-105. "Seller". Section 2-103.

~d PART 4
~ or any commercial
TITLE, CREDITORS AND GOOD F AITH PURCHASERS
th~ir original con di-
hd § 2-40 l. Passing of TitÍe; Reservation for Security; Limited
mse. Application of This Section

ection 2-104. Each provision of this Article with regard to the rights, obligations
and remedies of the seller, the buyer, purchasers or other third parties
:tion 1-201. applies irrespective of title to the goods except where the provision refers
. Section 1-201. to such title. Insofar as situations are not covered by the other provisions
•val" : Section 2-326. of this Article and matters concerning title become material the follow-
ing rules apply:
:1''. Section 2-326.
(1) Title to goods cannot pass under a contract for sale prior to their
Section 1- 204.
identification to the contract (Section 2-501), and unless otherwise
on 2-103. explicitly agreed the buyer acquires by their identification a special
property as limited by this Act. Any retention or reservation by the seller
of the title (property) in goods shipped or delivered to the buyer is
lots· .each lot is the limited in effect to a reservation of a security interest. Subject to these
provisions and to the provisions of the Article on Secured Transactions
(Article 9), title to goods passes from the seller to the buyer in any
;ioneer so announces manner and on any conditions explicitly agreed on by the parties.
· nner. Where a bid is
. of a prior bid the (2) Unless otherwise explicitly agreed title passes to the buyer at the
time and place at which the seller completes his . performance with
or ·declare the goods
reference to the physical delivery of the goods, despite any reservation of
a security interest and even though a document of title is to be delivered
are in explicit terms at a different time or place; and in particular and despite any reservation
! the auctioneer may of a security interest by the bill of lading
es coinpletion of the (a) if the contract requires or authorizes the seller to send the
neer calls for bids on goods to the buyer but does not require him to deliver them
. ~awnunless no bid is at destination, title passes to the buyer at the time and place
dder may retract his of shipment; but
;ion of the sale, but a .
(b) if the contract requires delivery at destination; title passes
on tender there.
on the seller's behalf
(3) Unless otherwise explicitly agreed where delivery is to be made
~e has not been given
without moving the goods,
.or may at his option
te last good faith bid (a) if the seller is to deliver a tangible document of title, title
;hall not apply to any passes at the time when and the place where he delivers
such documents and if the seller is to deliver an electronic

273
§ 2-401 UNJFORM COMMERCIAL CODE

docment of title, title passes when the . seller delivers the Definitional Cross
document; or "Contract for sale'
(b) if the goods are at the time of contracting already identified "Credítor". SectiOJ
and no documents are to be delivered, title passes at the "Good faith" . Sect
time and place of contracting. "Goods". Section ~
(4) A rejection or other refusal by the buyer to receive or retain the "Merchant". Secti.
goods, whether or not justified, or a justified revocation of acceptance
revests title to the goods in the seller. Such revesting occurs by operation § 2-403. Pov
of law and is nota "sale".·
Definitional Cross References: "Party". Section 1-201. (1) A purchas•
"Agreement". Section 1-201. "Purchaser". Sectíon 1- 201. or had power to t
"Bill of ladíng". Section 1-201. acquires rights on
"Receipt" of goods. Sectíon 2-103.
with voidable titlE
"Buyer". Section 2-103.
"Remedy". Sectíon 1-201. purchaser for valu
"Contract". Sectíon 1-201.
"Rights" . Sectíon 1-201. tion of purchase th
"Contract for sale" . Section 2-106.
"Sale". Sectíon 2-106. (a) the tr
"Delivery". Sectíon 1-201.
"Security interest". Section 1-201. chaser
"Document of títle". Section 1-20 l.
"Good faith". Sectíon 2-103. "Seller". Sectíon 2-103. (b) the d1
dishor
"Goods". Sectíon 2-105. "Send." . Sectíon 1-201.
(e) it was
§ 2-402. Rights of Seller's Creditors Against Sold Goods or
(1) Except as provided in subsections (2) and (3), rights of unse- (d) the d'
cured creditors of the seller with respect to goods which have been larcen
identified to a contract for sale are subject to the buyer's rights to
r ecover the goods under this Article (Sections 2- 502 and 2- 716). (2) Any entru;
in goods of that
(2) A creditor of the seller may treat a sale or an · identification of entruster to a buyE
goods to a contraCt for sale as void if as against him a retention of
possession by the seller is fraudulent under any rule of law of the state (3) "Entrustir
where the goods are situated, except that retention of possession in good retention of posse;
faith and current course of trade by a merchant-seller for a commercially the parties to the e
reasonable time after a sale or identification is not fraudulent. procurement of th{
have been such as ·
(3) Nothing in this Article shall be deemed to impair the rights of
creditors of the seller (4) The rights
governed by the
(a) under the provisions of the Article on Secured Transactions
Transfers (Article (
(Article 9); or
(b) where identification to the contract or delivery is made not Definitional Cross
in current course of trade but in satÍsfaction of or as "Buyer in ordínar
security for a pre-existing claim for money, security or the ness". Section 1- 201.
like and is made under circumstances which under any rule "Good fai th". Sect
of law of the state where the goods are situated would apart 103.
from this Article constitute the transaction a fraudulent "Goods" . Section 2
transfer or voidable preference.

274
 , ./f\"'

AR,1"JCLE 2: SALES § 2-403

~ seller delivers the Definitional Cross References: "Money". Section 1-201.
"Contract for sale". Section 2-106. "Reasonable time". Section 1-204.
ng already identified "Creditor". Section 1.:.201.
"Rights". Section 1- 201.
, title passes at the "Good faith". Section 2-103.
"Goods". Section 2-105. "Sale". Section 2-106.
receive or retain the "Merchant". Section 2-104. "Seller". Section 2-103.
cation of acceptance
~ o«curs by operation § 2-403. Power to Transfer; Good Faith Purchase of Goods;
"Entrusting"
ion 1-201. (1) A purchaser of goods acquires all title which his transferor had
or had power to transfer except that a purchaser of a limited interest
Section 1-201.
acquires rights only to the extent of the interest purchased. A person
~oods . Section 2-103. with voidable title has power to transfer a good title to a good faith
~ction 1-201. purchaser for value. When goods have been delivered under a transac-
tion 1-201. tion of purchase the purchasei' has su eh power even though
m 2-106. (a) the transferor was deceived as to the identity of the pur-
chaser, or
~rest". Section 1-201.
;ion 2-103.
(b) the delivery was in exchange for a check which is later
dishonored, or
.on 1-201.
(e) it was agreed that the transaction was to be a "cash sale",
1st Sold Goods or
l (3), rights of unse- (d) the delivery . wa,s
procured through fraud punishable as
>ds which have been larcenous under the criminallaw.
he buyer's rights to
(2) Any entrusting of possession of goods to a merchant who deals
: and 2-716).
in goods of that kind gives ·him power to transfer all rights of the
•r an identification of entruster to a buyer in o:rdinary eourse of business.
t him a retention of
tle of law of the state (3) "Entrusting" includes : any delivery and any acquiescence in
of possession in good retention of possession regardless of any condition expressed between
ler for a commercially the parties to the delivery 6r acquiescence and regardless of whether the
fraudulent. procurement of the entrusting or the possessor's disposition of the goods
have been such asto be larcenous under the criminallaw.
·) impair the rights of
(4) The rights of other purchasers of goods and of lien creditors are
governed by the Articles on Secured Transactions (Article 9), Bulk
Secured Transactions Transfers (Article 6) and Documents of Title (Article 7).

~ delivery is.made not Definitional Cross References: "Person". Section 1-20 l.

satisfaction of or as "Buyer in ordinary course of busi- "Purchaser". Section 1-201.
noney, security or the ness". Section 1-201..
"Signed". Section 1-201.
which under any rule "Good faith". Sections 1- 201 and 2-
~ situated would apart 103. "Term". Section 1-201.
nsaction a fraudulent "Goods". Section 2-105. "Value". Section 1-201.

275

.. ·..:-H..•
§ 2-501 . UNIFORM COMMERCIAL CODE

PART 5 (a) in the

hold p
PERFORMANCE r equirE
§ 2-50 l. Insurable lnterest in Goods; Manner of ldentifica- (b) in all
tion of Goods after r •
(1) The buyer obtains a special property andan insurable interest in (2) The buyer'
goods by identification of existing goods as goods to which the contract vests upon acquisi1
refers even though the goods so identified are non-conforming and he then repudiated or
has an option to rettirn or reject them. Such identification can be made
(3) If the iden1
at any time and in any manner explicitly agreed to by the parties. In the
by the buyer he a
absence of explicit agreement identification occurs
conform to the con1
(a) when the contract is made if it is for the sale of goods
already existing and identified; Definitional Cross •
(b) if the. co.n tract is for the sale of future goods other than "Buyer" . Section 2·
those described in paragraph (e), when goods are shipped, "Conform". Sectior
marked or · otherwise designated by the seller as goods to
"Contract for sale"
which the contract refers;
(e) when the crops are planted or otherwise become growing § 2-503. Man
crops or the young are conceived if the contract is for the (1) Tender of e
.sale of unborn young to be born within twelve months after ing goods at the bl
contracÜng or for the sale of crops to be harvested within
reasonably necessa
twelve· months or the next normal harvest season after
and place for tend!
contracting whichever is longer.
and in particular
(2) The seller retains an insurable interest in goods so long as title
.(a) tender
to or any security interest in the goods remains in him and where the
they m
identification is by the seller alone he may until default or insolvency or
sary to
notification to the buyer that the identification is final substitute other
goods for those ideritified. (b) unless
(3) Nothing in this section impairs any insurable interest recognized reason
under any other statute or rule of law. (2) Where the
tender requires tha
Definitional Cross References: "Notification". Section 1- 201.
(3) Where the
"Agreement' ~. Section 1-201. "Party". Section 1-201. tender requires th
"Contract" . Section 1-201.
"Sale" . Section 2-106. appropriate case tE
"Contract for sale". Section 2- 106. (5) of this section.
"Future goods". Section 2-105. "Security interest". Section 1- 201.
(4) Where goo
" Goods" . Section 2- 105. "S.eller". Section 2- 103.
delivered without b
§ 2-502. Buyer's Right to Goods on Seller's Repudiation, (a) tender
· Faihire to Deliver, or Insolvency docum
(1) SU:bjeet tci subsections (2) and (3) and even though the goods edgme
h ave not been shipped a buyer who has paid a part or all of the price of the· go•
goods in which he has a special property under the provisions of the (b) tender
immediately preceding section may on making and keeping good a tender of a re
of any unpaid p(n;tlon .of their price recover them from the seller if: unless

276
 ARTICLE 2: SALES § 2-503
(a) in the case of goods bought for personal, family, or house-
hold purposes, the seller repudiates or fails to deliver as
required by the contract; or
mer of Identifica- (b) in all cases, the seller becomes insolvent within ten days
after receipt of the first installment on their price.
insurable interest in (2) The buyer's right to recover the goods under subsection (1)(a)
o which the contract vests upon acquisition of a special property, even if the seller had not
1-conforming and he then repudiated or failed to deliver.
fication can be made (3) If the identification creating his special property has been made
by the parties. In the
by the buyer he acquires the right to recover the goods only if they
conform to the contract for sale.
>r the sale of goods
Definitional Cross References: "Goods". Section 2-105.
re goods other than "Buyer" . Section 2-103. "lnsolvent". Section 1- 201.
n goods are shipped, "Conform". Section 2-106. "Right". Section 1-201.
1e seller as goods to "Contract for sale" . Section 2-106. "Seller". Section 2-103.

!Vise become growing § 2-503. Manner of Seller's Tender ofDelivery

te contract is for the (1) Tender of delivery requires that the seller put and hold conform-
t twelve months after
ing goods at the buyer's disposition and give the buyer any notification
be harvested within reasonably necessary to enable him to take delivery. The manner, time
harvest season after and place for tender are determined by the agreement and this Article,
and in particular
goods so long as title
(a) tender must be at a reasonable. hour, and if it is of goods
n him and where the
thcy must be kcpt available for the period reasonably neces-
:fault or insolvency or
sary to enable the buyer to take possession; but
final substitute other
(b) unless otherwise agreed the buyer must furnish facilities
reasonably suited to the receipt of the goods.
>le interest recognized
(2) Where the case is within the next section respecting shipment
tender requires that the seller comply with its provisions.
1" . Section 1- 201.
(3) Where the seller is required to deliver at a particular destination
:tion 1- 201. tender requires that he comply with subsection (1) and also in any
ion 2-10&. appropriate case tender documents as described in subsections (4) and
(5) of this section.
terest" . Section 1-20 l.
(4) Where goods are in the possession of a bailee and are to be
~tion 2- 103. delivered without being moved
~ller's Repudiation, (a) tender requires that th~ séller either tender a negotiable
ene y document of title covering such goods or procure acknowl-
edgment by the bailee of the buyer's right to possession of
ven though the goods
:t or all of the price of · the goods; but
the provisions of the (b) tender to the buyer of a non-negotiable document of title or
keeping good a tender of a record directing the bailee to deliver is sufficient tender
~m from the seller if: unless the buyer seasonably objects, and except as otherwise

277
§ 2-503 UNIFORM COMMERCIAL CODE

provided in Article 9 receipt by the bailee of notification of Definitional Cross

the buyer's rights fixes those rights as against the bailee "Agreement". Sect
and all third persons; but risk of loss of the gGods and of any "Buyer". Section 2
failure by the bailee to honor the non-negotiable document
"Contract". Sectio:
of title or to obey the direction remains on the seller until
the buyer has had a reasonable time to present the docu- . "Delivery". Sectim
ment or direction, and a refusal by the bailee to .honor the
document or to obey the direction defeats the tender. § 2-505. SelJ
(1) Where the
(5) Where the contract requires the seller to deliver documents
shipment:
(a) he must tender all such documents in correct form, except (a) his pr'
as provided in this Article with respect to bilis of lading in a order <
set (subsection (2) of Section 2-323); and goods.
(b) tender thro11gh customary banking channels is sufficient agency
and dishonor of a draft accompanying or associated with the expect:
documents constitutes non-acceptance or rejection. named
(b) a non-
Definitional Cross References: "Draft". Section 3-104.
reservl
"Agreement". Section 1-201. "Goods". Section 2-105. case of
"Bill of lading". Section 1-201. "Notification". Section 1-201. a non-:
"Buyer". Section 2-103. "Reasonable time". Section 1-204.
ee res
retaim
"Conforming". Section 2-106. "Receipt of goods". Section 2-103.
(2) When ship
"Contract". Section 1- 201. "Rights". Section 1-201. · ¡·nterest is in violat
"Delivery". Section 1- 201. "Seasonably". Section 1-204. contract for trans]
"Dishonor". Section 3-508. "Seller". Section 2-103. .neither the rights l
the goods to the
" Document of title" . Section 1-201. "Written". Section 1- 201. negotiable documer
§ 2-504. Shipment by Seller · Definitional Cross l
Where the seller is required or authorized tó send the goods to the ."Bill of lading". Se<
buyer and the contract does not require him to dsliver them at a · "Buyer". Section 2-
particular destination, then unless otherwise agreed he must "Consignee". Sectic
(a) put the goods in the possession of such a carrier and make "Contract". Section
such a Gontract for their transportation as may be reason- "Contract for sale".
able having regard to the nature of the goods and other · . "Delivery". Section
circumstances of the case; and
(b) obtain and promptly .deliver or tender in due form any
. § . 2-506. Ril;{h
document necessary to énable the buyer to obtain possession (1) A financin~
of the goods or otherwise required by .the agreement or by which relates to a
usage of trade; and · payment or purcha:
and any document
(e) promptly notify the buyer of the shipment. goods including the
Failure to notify the buyer under paragraph (e) or to make a proper the draft honored b:
contract under paragraph (a) is a ground for rejection only if material (2) The right t1
delay or loss ensues. good faith honored

278
 ARTICLE 2: SALES § 2-506

.ee of notification of Definitional Cross References: "Goods"o Section 2- 105 .

> against the bailee "Agreement". Section 1-201. "Notifies". Section 1-201.
;he goods and of any "Buyer"o Section 2-1030 "Seller"o Section 2-103.
·. ·1egotiable document
"Contract" oSection 1-201. "Send"o Section 1-201.
s on the seller until
· o present the docu- "Delivery" oSection 1-201. "Usage oftrade". Section 1- 2050
. bailee to honor the
·. ;s the tender.
§ 2-505. Seller's Shipment Under Reservation
(1) Where the seller has identified goods to the contract by or before
. [ver documents shipment:
correct form, except (a) his procurement of a negotiable bill of lading to his own
;o bills of lading in a order or otherwise reserves in him a security interest in the
i goodso His procurement of the bill to the order of a financing
1annels is sufficient agency or of the buyer indicates in additiori only the seller's
r associated with the expectation of transferring that interest to the person
.r rejection. namedo
(b) a non-negotiable bill of lading to himself or his nominee
on 3-104. reserves possession of the goods as security but except in a
;ion 2- 105. case of conditional delivery (subsection (2) of Section 2-507)
'o Section 1-201. a non-negotiable bill of lading naming the buyer as consign-
ee reserves no security interest even though the seller
;jme" oSection 1-2040
retains possession or control of the bill of lading.
1ods"o Section 2- 1030 (2) When shipment by the seller with reservatíón of a security
otion 1-201. interest is in violation of the contract for sale it constitutes an improper
oSection 1-2040 contract for transportation within the preceding section but impairs
neither the rights given to the buyer by shipment and identification of
· .ion 2- 1030
the goods to the COI!tract nor the seller's powers as a holder of a
!Ction 1- 201. negotiable document of titleo
Definitional Cross References: "Financing agei).cy". Section 2- 1040
:imd the goods to the "Bill oflading" o Section 1- 201. "Goods"o Section 2- 105.
. ) deliver them at a "Buyer". Section 2-103 0
"Holder". Section 1-.:201.
·. he must "Consignee". Section 7-1020
"Person". Section 1-201.
· 1.a carrier and make "Contract" o Section 1-201.
"Contract for sale" oSection 2- 1060 "Security interest" o Section 1- 201.
m as may be reason-
. the goods and other "Delivery" oSection 1- 201. "Seller"o Section 2- 103.

§ 2-506. Rights of Financing Agency

.er in due form. any
(1) A financing agency by paying or purchasing · for value a draft
· r to obtain possession
which relates to a shipment of goods acquires to the extent of the
the agreement or by
payment or purchase and in addition to its own rights under the draft
and any document of title securing it any rights of .the shipper in the
:m t. goods including the right to stop delivery and the shipper's right to have
or to make a proper the draft honored by the buyer o
ction only if material (2) The right to reimbursement of a financing agency which has in
good faith honored or purchased th e draft under commitment to or

279
§ 2-506 UNIFORM COMMERCIAL CODE

authority from the buyer is not impaired by subsequent discovery of (a) if it d

defects with reference to any relevant document which was apparently destin:
regular. goods
shipmc
Definitional Cross References: "Goods". Section 2-105.
(b) ifit do
"Buyer". Section 2-103. "Honor". Section 1-201. tion a
"Document of title" . Section 1- 201.
"Purchase". Section 1-201. posses;
"Draft". Section 3-104. when 1
"Financing agency" . Section 2-104. "Rights". Section 1-201.
buyer ·
"Good faith" . Section 2-103. "Value". Section 1-201.
(2) Where the
§ 2-507. Effect of Seller's Tender; Delivery on Condition being moved, the ri
(1) Tender of delivery is a condition to the buyer's duty to accept (a) on his
the goods and, unless otherwise agreed, to his duty to pay for them. mento
Tender .entitles the seller to acceptance of the goods and to payment (b) on ack
according to the contract. posses¡
(2) Where payment is due and demanded on the delivery to the (e) after h
buyer of goods or documents of title, his right as against the seller to documc
retain or dispose of them is conditional upon his making the payment providE
due. (3) In any cas
Definitional Cross References: "Document of title~'.. Section 1-201. passes to the buyer
"Buyer". Section 2-103. "Goods". Section 2-105. otherwise the risk ¡:
"Contract". Section 1- 201. "Rights". Section 1-201. (4) The provisi
"Delivery". Section 1- 201. "Seller". Section 2-103. of the parties and
(Section 2-327) an<
§ 2-508. Cure by Seller of Improper Ténder or Delivery;
Definitional Cross 1
Replacement
(1) Where any tender or delivery by the sell-er is· rejected because "Agreement". Secti
non-conforming and the time for performance has not yet expired, the "Buyer". Section 2-
seller may seasonably notify the buyer of his intention to cure and may "Contract". Section
then within the contract time make a conforming delivery.
"Delivery". Section
(2) Where the buyer rejects a non-conforming tender which the
seller had reasonable grounds to believe would be acceptable with or "Document of title"
without money allowance the . seller may if he seasomibly notifies the
buyer have a further reasonable time to substitute a conforming tender.
§ 2-510. Effec
(1) Where a te
Definitional Cross References: "Notifies" . Section 1- 201.
contract as to give
"Buyer". Section 2-103. "Reasonable time" . Section 1- 204. the seller tintil cure
"Conforming". Section 2- 106.
"Contract" . Section 1- 201. "Seasonably". Section 1-204. (2) Where the
"Money". Section 1- 201. "Seller". Section 2-103.
extent of any deficiE
of loss as having res
§ 2-509. Risk of Loss in the Absence of Breach (3) Where the l
(1) Where the contract r equires or authorizes the seller to ship the contract for sale re¡:
goods by carrier · loss has passed to h

280
 . ARTICLE 2: SALES § 2-510
sequent discovery of (a) if it does .not require him to deliver them at a particular
vhich was apparently destination, the risk of loss passes to the buyer when the
goods are duly · delivered to the carrier even though the
shipment is un.der reservation (Section 2-505); but
:tion 2- 105.
(b) if it does require him to deliver them ata particular destina-
;tion 1-201. tion and the goods are there duly tendered while in the
Section 1-201. possession of the carrier, the risk of loss passes to the buyer
when the goods are there duly so tendered as to enable the
ction 1- 201.
buyer to take delivery. ·
:tion 1- 201.
(2) Where the goods are
held by a bailee to be delivered without
being moved, the risk of loss passes to the buyer
ry on Condition
lliyer's duty to accept (a) on bis receipt of possession or control of a negotiable docu-
luty to pay for them. ment of title covering the goods; or
;oods and to payment (b) on acknowledgment by the bailee of the buyer's right to
possession of the goods; or
n the delivery to the (e) after his receipt of possession or control of a non-negotiable
s against the seller to document of title or other direction to deliver in a record, as
, making the payment provided in subsection (4)(b) of Section 2-503.
(3) In any case not ·within subsection (1) or (2), the risk of loss
of title". Section 1-20 l. passes to the buyer on his receipt of the goods if the seller is a mercharit;
~ction 2-105.
otherwise the risk passes to the buyer on tender of delivery.
ection 1- 201. (4) The provisions of this section are subject to contrary agTeement
dion 2-103. of the parties and ·to the provisions of this Article on sale on approval
(Section 2-327). qn~l ()n effect of breach on risk of loss (Section 2-510).
render or Delivery;
Definitional Cross References: "Goods". Section 2- 105.
"Agreement". Section.1- 201. "Merchant". Section 2- 104.
ler is rejected because
:ts not yet expired, the "Buyer". Section 2-103. " Party". Section 1-201.
mtion to cure and may "Contract". Section 1~201. · "Receipt" of goods. Section 2- 103.
delivery. "Delivery". Section 1-201. "Sale on approval". Section 2-326.
üng tender which the
"Document of title". S ection 1- 201. "Seller". Section 2- 103.
be acceptable with or
seasonably notifies the § 2-510. EffectofBreach on Risk ofLoss
te a conforming tender.
Section 1-201.
(1) Where a tender or .delivery of goods so fails to conform to the
contract as to give a right of rejection the risk of their loss remains on
le time". SecÜon 1-204. the seller until cure or acceptance.
ly" . Section 1-204. (2) Where the buyer rightfully revokes acceptance he may to the
extent of any deficiency in his effective insurance coverage treat the risk
:ection 2-103.
of loss as having rested on the seller from the beginning.
Breach (3) Where the huye~ as to conforming goods already identified to the
es the seller to ship the contract for sale repudiates or is otherwise in breach before risk of their
loss has passed to ·him, the seller may to the extent of any deficiency in

281
§ 2-510 UNIFORM COMMERCIAL CODE

his effective insurance coverage treat the risk of loss as resting on the buyer has a right 1
buyer for a commercially reasonable time. reasonable place a
seller is required
Definitional Cross References: "Contract for sale". Section 2-106.
inspection may be ¡
"Buyer". Section 2-103. "Goods". Section 2--105.
(2) Expenses e
"Conform". Section 2-106. "Seller". Section 2-103. recovered from the
§ 2-511. TenderofPayment }:>y Buyer; Payment by Check (3) Unless oth
. Article on C.I.F. co:
(1) Unless otherwise agreed tender of payment is a condition to the
not entitled to ins¡
seller's duty to tender and complete any delivery.
contract provides
(2) Tender of payment is sufficient when made by any means or in
(a) for deli
any manner current in the ordinary course of business unless the seller
demands payment in legal tender and gives any extension of time (b) for pa)
reasonably necessary to procure it. payme1
for ins¡
(3) Subject to the p~ovisions of this Act on the effect of an instru-
ment on an obligation (S~ction 3-802), payment by check is conditional (4) A place or 1
and is defeated as between the parties by dishonor of the check on due to be exclusive but
presentment. pone identification
of loss. If complianc
Definitional Cross References: "Party". Section 1-201. in this section unle;
"Buyer". Section 2~103 : "Reasonable time". Section 1-204. an indispensable co1
"Check". Section 3-104. ·
"Seller". Section 2-103. Definitional Cross 1
"Dishonor". Section 3-508:
"Buyer" . Section 2-
§ 2-512. Paynt.ell.t llY Buyer Before Inspection "Conform". Section
(1) Where the contract requires payment before inspection non- "Con tract" . Section
conformity of the goods does not excuse the buyer from so making "Contract for sale".
payment unless
"Document of title"
(a) the non-c~:mfor~ity appears without inspection; or "Goods". Section 2-
(b) despite tender of the required documents the circumstances
would justify injunction against honor under the provisions § 2-514. Whei
ofthis Act .(Section 5- 114). o
(2) Payment pursuant to subsection (1) does not constitute an Unless otherwis
acceptance of goods br impair the buyer's right to inspect or any of his are' to be delivered
payable more than
remedies.
payment.
Definitional Cross References: "Financing agency" . Section 2-104.
Definitional Cross R
"Buyer". Section 2- 103: "Goods". Section 2-105. "Delivery". Section l
"Conform". Sectiori 2-106. · "Remedy". Section 1-201. "Draft". Section 3-1
"Contract" . "Séction t _:201. · "Rights". Section 1-20 1.
§ 2-515. Prést:
§ 2-513. Buyer'sRight to lnspection of Goods In furtherance o
(1) Unless otherwise agreed and subject to subsection (3), where (a) either p;
goods are tende~ed oi· deli~ered or identified to the contract for sale, the the purJ
282
 ARTICLE 2: SALES § 2-515

:s as resting on the buyer has a right before payment or acceptance to inspect them at any
reasonable place and time and in any reasonable manner. When the
seller is required or authorized to send the goods to the buyer, the
:ale" . Section 2-106. inspection may be after their arrival.
on 2-105. (2) Expenses of inspection must be borne by the buyer but may be
m 2-103. recovered from the seller if the goods do not conform and are rejected.
tnent by Check (3) Unless otherwise agreed and subject to the provisions of this
Article on C.I.F. contracts (subsection (3) of Section 2-321), the buyer is
is a condition to the not entitled to inspect the goods before payment of the price when the
contract provides
by any means or in (a) for delivery "C.O.D." or on other like terms; or
ess unless the seller
extension of time (b) for payment against documents of title, except where such
payment is due only after the goods are to become available
for inspection.
effect of an instru-
check is conditional (4) A place or method of inspection fixed by the parties is presumed
of the check on due to be exclusive but unless otherwise expressly agreed it does not post-
pone identification or shift the place for delivery or for passing the risk
of loss. If compliance becomes impossible, inspection shall be as provided
on 1-201. in this section unless the place or method fixed was clearly intended as
ime" . Section 1-204. an indispensable condition failure of which avoids the contract.
on 2-103. Definitional Cross References: "Party". Section 1-201.
"Buyer". Section 2- 103. "Presumed". Section 1-201.
.ion "Conform". Section 2-106. "Reasonable time". Section 1-204 .
ore inspection non- "Contract". Section 1-201. "Rights". Section 1-201.
rer from so making "Contract for sale". Section 2-106. "Seller". Section 2-103.
"Document of title". Section 1-201. . "Send". Section 1-201.
pection; or "Goods". Section 2-105. "Term". Section 1-201.
.ts the circumstances
under the provisions § 2-514. When Documents Deliverable on Acceptance; When
on Payment
Unless otherwise agreed documents against which a draft is drawn
s not constitute an are to be delivered to the drawee on acceptance of the draft if it is
inspect ór any of his payable more than three days after presentment; otherwise, only on
payment.
;ency". Section 2-104. Definitional Cross References:
tion 2-105. "Delivery". Section 1- 201.
~ction 1-201. "Draft". Section 3- 104.
:tion 1- 201.
§ 2-515. Preserving Evidence of Goods in Dispute
,ods In furtherance of the adjustment of any claim or dispute
ubsection (3), where (a) either party on reasonable notification to the other and for
contract for sale, the the purpose of ascertaining the facts and preserving evi-

283
 § 2-515 UNIFORM COMMERCIAL CODE

dence has the right to inspect, test and sample the goods 711), l
including such of them as may be in the possession or reason
control of the other; and cient t
(b) the parties may agree to a third party inspection or survey (e) the bu
to determine the conformity or condition of the goods and rightfu
may agree that the findings shall be binding upon them in (3) The seller'
any subsequent litigation or adjustment. · .. governed by the pr
Definitional Cross References: "Notification". Section 1-201. (Section 2-703).
"Conform". Section 2-106. "Party". Section 1-201. Definitional Cross
"Goods". Section 2- 105. ·"Buyer". Section 2
·"Commercial unit'
PART 6 ·"Goods". Section ~
"Merchant". Sectit
BREACH, REPUDIATION AND EXCUSE
· · "Notifies". Section
§ 2-60 l. · Buyer's Rights on lmproper Delivery
§ 2-603. Me1
Subject to the provisions of this Article on breach in installment
contracts (Section 2-612) and unless otherwise agreed under the sections
on contractual limitations of remedy (Sections 2-718 and 2- 719), if the (1) Subject to
· Section 2-711), wl
goods or the tender of delivery fail in any respect to conform to the
market of rejectim
contract, the buyer may
· · goods in his posse
(a) reject the whole; or r.eceived from the
(b) accept the whole; or · such instructions 1
account if they ar
(e) accept any commercial unit or units and reject the rest. .·Instructions· are n
Definitional Cross Referenccs: "Goods". Section 2- 105. not forthcoming.
"Buyer". Section 2-103. (2) When the
· i "Installment contract". Section 2-
"Commercial unit". Section 2-105. · to reimbursement
612.
e~penses of caring
"Conform". Section 2-106. "Rights". Section 1-::201. selling commissior.
"Contract". Section 1-201. there is none to ;
gross proceeds.
§ 2-602. Manner and Effect of Rightful Rejection
(3) In comply
(1) Rejection of góods must be within a reasonable time after their · faith and good fait
delivery or tender. It is ineffective unless the buyer seasonably notifies sion nor the basis
the seller.
Definitional Cros~
(2) Subject to the provisions of the two following sections on reject-
''Buyer'' . Section ·
ed goods (Sections 2-603 and 2-60~),
"Good faith". Sec
(a) after rejection any exercise of ownership by the buyer with
"Goods". Section
respect to any commercial unit is wrongful as against the
seller; and § 2-604. Bu
(b) if the buyer has before rejection taken physical possession of
goods in which he does not have a security interest under Subject to th
the provisions of this Article (subsection (3) of Section 2- perishables if the

284
 ARTICLE 2: SALES § 2-604
i sample the goods 711), he is under a duty after rejection to hold them with
the possession or reasonable care at the seller's disposition for a time suffi-
cient to permit the seller to remove them; but
nspection or survey (e) the buyer has no further obligations with regard to goods
1n of the goods and rightfully rejected.
1ding upon them in (3) The seller's rights with respect to goods wrongfully rejected are
governed by the provisions of this Article on Seller's remedies in general
. Section 1-2()1, (Section 2-703) .
)ll 1-201. Definitional Cross References: "Reasonable time". Section 1- 204.
"Buyer". Section 2-103. "Remedy". Section 1-201.
"Commercial unit" . Section 2-105. "Rights". Section 1-201.
"Goods". Section 2-105. "Seasonably". Section 1-204.
"Merchant". Section 2-104. " Security interest''. Section 1-201.
XCUSE
"Notifies". Section 1-201. "Seller". Section 2-103.
ery
§ 2-603. Merchant Buyer's Duties as to Rightfully Rejected
each in installment Goods
,¿ under the sections
(1) Subject to any security interest in the buyer (subsection (3) of
8 and 2-719), if the
Section 2-711), when the seller has no agent or place of business at the
t to conform to the
market of rejection a merchant buyer is under a duty after rejection of
goods in his possession or control to follow any reasonable instructions
received from the seller with respect to the goods and in the absence of
such instructions to make reasonable efforts to sell them for the seller's
account if they are perishable or threaten to decline in value speedily .
. . reject the rest. Instructions are not reasonable if on demand indemnity for expenses is
:ion 2-105. not forthcoming.
(2) When the buyer sells goods under subsection (1), he ·is entitled
c<;mtract". Section 2-
to reimbursement from the seller or out of the _proceeds for reasonable
expenses of caring for and selling them, and if the expenses include no
tiÓn 1-201. selling commission then to such commission as is usual in the trade or if
there is none to a reasonable sum not exceeding ten per cent on the
gross proceeds.
dection
(3) In complying with this section the buyer is held only to good
. able time after their faith and good faith conduct .hereunder is neither acceptance nor conver-
·r seasonably notifies sion nor the basis of an action for damages.
Definitional Cross References: "Merchant". Section 2-104.
ng sections on reject- "Buyer". Section 2-103 . "Security interest". Section 1- 201.
"Good faith". Section 1- 201.
· ip by the buyer with "Seller" . Section 2-102.
"Goods". Section 2-105.
mgful as against the
§ 2-604. Buyer's Options asto Salvage of Rightfully Reject-
physical possession of ed Goods
curity interest u:ri.der Subject to the provisions of the immediately preceding section on
íon (3) of Section 2- perishables if the seller gives no instructions within a reasonable time

285

:.-'. ·... )· ..
§ 2-604 UNIFORM COMMERCIAL CODE

after notification of rejection the buyer may store the rejected goods for § 2-607. Efi
the seller's account or reship them to him or resell them for the seller's
accoun t with reimbursement as provided in the preceding section. Such
action is not acceptance or conversion.
Definitional Cross References: "Reasonable time" . Section 1-204. (1) The huye:
"Buyer". Section 2-103. "Seller". Section 2-103.
"N otification". Section 1-20 l. (2) Acceptan<
goods accepted ar
§ 2-605. Waiver of Buyer's Objections by Failure to Particu- be revoked becau
larize assumption that
(1) The buyer's failure to state in connection with rejection a acceptance does r
particular defect which is ascertainable by reasonable inspection pre- Article for non-cm
cludes him from relying on the unstated defect to justify rejection or to (3) Where a t
establish breach
(a) where the seller could have cured it if stated seasonably; or (a) the b
or sh
(b) between merchants when the seller has after rejection made
breac
a request in writing for a full and final written statement of
all defects on which the buyer propases to nily. (b) if thE
(2) Payment against documents made without reservation of rights (3) oJ
precludes recovery of the payment for defects apparent in the docu- sueh
ments. able
barre
Definitional Cross References: "Seasonably". Section 1-204.
litiga
"Between merchants". Section 2- "Seller". Section 2-103.
104. (4) The burd·
"Writing" and "w1:itten". Section 1-
"Buyer". Section 2- 103. 201. to thc goods accer
(5) Where tl::
§ 2-606. What Constitutes Acceptance of Goods
obligation for whi
(1) Acceptance of goods occurs when the buyer
(a) he m
(a) after a reasonable opportunity to inspect the goods signifies
notic1
to the seller that the goods are conforming or that he will
that
take or retain them in spite of their nonconformity; or
actim
(b) fails to make an .effective rejection (subsection (1) of Section comn
2-602), but such acceptance does not occur until the buyer
seaso
has had a reasonable opportunity to inspect them; or
is so .
(e) does any act inconsistent with the seller's ownership; but if
such act is wrongful as against the seller it is an acceptance .. (b) if thf
only if ratified by him. (3) o

(2) Acceptance of a part of any commercial unit is acceptance of that writil

entire unit. litiga
reme
Definitional Cross References: "Goods". Section 2-1 05. satisf
"Buyer". Section 2- 103. "Seller". Section 2-103. seaso
"Commercial unit". Section 2-105. buyeJ

286
 ARTICLE 2: SALES § 2-607
rejected goods for § 2-607. Effect of Acceptance; Notice of Breach; Burden of
lm for the seller's Establishing Breach After Acceptance; Notice
ling section. Such of Claim or Litigation to Person Answerable
· Over
~" . Section 1- 204. (1) The buyer must pay a,t the contract rate for any goods accepted.
2-103. (2) Acceptance of goods by the buyer precludes rejection of the
goods accepted and if made with knowledge of a non-conformity cannot
Hure to Particu- be revoked because of it unless the acceptance was on the reasonable
assumption that the rton~coriformity would be seasonably 'cured but
with rejection a acceptance does not of itself impair any other remedy provided by this
1le inspection pre- Article for non-conformity.
tify rejection or to (3) Where a tender has been accepted.

lted seasonably; or (a) the buyer must within a reasonable time after he discovers
or should have discovered any breach notify the seller of
fter rejection made
breach or be barred from any remedy; and
ritten statement of
, rely. (b) if the claim is one for infringement or the like (subsection
Jservation of rights (3) of Section 2-312) and the buyer is sued as a result of
u-ent in the docu- such . a breach he must so notifY the seller within a reason-
able time aftEli' he r eceives notice of the litigation or be
barred frorrt any remedy over for liability established by the
3ection 1-204.
litigation. .
'n 2-103.
(4) The burden is on the buyer to establish any breach with respect
"writtcn". Section 1-
to the goodo at:cepted. ·
(5) Where the buyer is sued for breach of a warranty or other
oods obligation for which his selleris answerable over
(a) he may give .his s$ller written notice of the litigation. If the
t the goods signifies notice states. that the seller may come in and defend and
ning or that he will
that if the seller does not do so he will be bound in any
nonconformity; or
action a,gainst hün by his buyer by any determination of fact
;ection (1) of Section common to the two litigations, then unless the seller after
ccur until the buyer seasonable receipt of the notice does come in and defend he
)ect them; or is so bound.
r's ownership; but if
~r it is an acceptance
(b) if the claim is one for infringement or the like (subsection
(3) of Section 2-312) the origiu"al seller may demand in
writing that his buyer turn over to him control of the
is acceptance of that
litigation including settlement or else be barred from any
re~edy o~er and if he ~lso agrees to bear all expense and to
;ion 2-105. satisfy any · adverse judgment, then unless the buyer after
;ion 2-103. seasonable receipt of the demand does turn over control the
buyer is so barred.

287
§ 2-607 UNIFORM COMMERCIAL CODE

(6) The provisions of subsection (3), (4) and (5) apply to any (3) Acceptance
obligation of a buyer to hold the seller harmless against infringement or dice the aggrieved 1
the like (subsection (3) .of Section 2-312). performance.

Defini tional Cross References: "Goods". Section 2-105. (4) Mter receÍJ
reasonable time nc
"Burden of establishing". Section 1- "Notifies". Section 1-201.
201.
formance as is adeq
"Reasonable time". Section 1- 204. a repudiation of thE
"Buyer". Section 2-103:
"Conform". Section 2-106. "Remedy". Section 1-201. Official C()
"Contract". Section 1-201. "Seasonably". Section 1-204. Prior Uniform Si
sion: See Sections 52
§ 2-608. Revocation of Acceptance in Whole or in Part 63(2), Uniform Sales .
(1) The buyer may revoke his acceptance of a lot or commercial unit
whose non-conformity substantially impairs its value to him if he has Purposes:
accepted it . l. The section res
tion of the fact that ·
(a) on the reasonable assumption that its non-conformity would
pose of a contract be1
be cured and it has not been seasonably cured; or
men is actual perforn
(b) without discovery of such non-conformity if his acceptance not bargain merely
was reasonably induced either by the difficulty of discovery for a promise plus ti
before acceptance or by the seller's assurances. lawsuit and that a ce
(2) Revocation: of acceptance must occur within a reasonable time reliance and security
after the buyer discovers or should have discovered the ground for it and performance will be J
befo re any substanti1;1l. change in condition of the goods which is not due, is an importar.
caused by their own.defects. It is not effective until the buyer notifies bargain. If either the
the seller of it. ability of a party to
materially between
(3) A bt~y~~ who so revokes has the same rights and duties with tracting and the timE
regard to the goods in volved as if he had rejected them. the other party is th1
Definitional Cross References: "Notifies". Section 1-201. loss of a substantial
has bargained for. A
"Buyer". Section 2-103. · "Reasonable time". Section 1- 204. tection not merely ~
"Commercial unit". Section 2- 105. deliver on credit to a
"Rights" . Section 1-201.
"Conform". Section 2-106. also against having
"Goods". Section 2-105.. . "Seasonably". Section 1-204. manufacture the goo
"Seller". Section 2-103. ing clown other cus
"Lot" . Section 2-105.
has been given reas<
§ 2-609. Right to Adequate Assurance of Performance · the buyer's perform
uncertain, it is an u
(1) A contract for sale imposes an obligation on each party that the force him to continue
other's expectation of receiving due performance will not be impaired. ance. Similarly, a b1
When reasonable grounds for insecurity arise with respect to the per- that the seller's deliv
formance of either party the other may in writing demand adequate uncertain cannot sa
assurance of due performance and until he receives such assurance may due date of perform1
if comme~CiaÜy reasonable suspend any performance for which he has been buying to assur·
not already received.the agreed return. rials 'for his cuáent
(2) Between mérchants the reasonableness of grounds fo1; insecurity to replenish his stoc
and the adequacy ofany assurance offered shall be determined according 2. Three measu
to commercial standards. adopted to meet the

288
 l.f ~_.,

ARTICLE 2: SALES § 2-609

l (5) apply to any (3) Acceptance of any improper delivery or payment does not preju-
tnst infringement or dice the aggrieved party's right to demand adequate assurance of future
performance.
(4) Mter receipt of a justified demand failure to provide within a
ion 2-105.
reasonable time not exceeding thirty days such assurance of due per-
~tion 1-201. formance as is adequate under the circumstances of the particular case is
ime". Section 1-204. a repudiation of the contract.
ction 1-201. Official Comment cial men in such situations. First, the
Prior Uniform Statutory Provi- aggrieved party is permitted to sus-
Section 1-204.
sion: See Sections 53, 54(1)(b), 55 and pend his own performance and any
Le or in Part 63(2), Uniform Sales Act. preparation therefor, with excuse for
any resulting necessary delay, until the
t or commercial unit situation has been clarified. "Suspend
Purposes:
ue to him if he has performance" under this section
l. The section rests on the recogni-
means to hold up performance pending
tion of the fact that the essential pur-
on-conformity would the outcome of the demand, and in-
pose of a contract between commercial
cured; or eludes also the holding up of any pre-
men is actual performance and they do
paratory action. This is the same prin-
ity if his acceptance not bargain merely for a promise, or
ciple which governs the ancient law of
lifficulty of discovery for a promise plus the right to win a
stoppage and seller's lien, and also of
.rances. lawsuit and that a continuing sense of
excuse of a buyer from prepayment if
.n a reasonable time reliance and security that the promised
the seller's actions manifest that he
the ground for it and performance will be forthcoming when
cannot or will not perform. (Original
due, is an important feature of the
goods which is not Act, Section 63(2).)
bargain. If either the willingness or the
;il the buyer notifies Secondly, the aggrieved party is giv-
ability of a party to perform declines
materially between the time of con- en the right to require adequate assur-
;hts and duties with tracting and the time for performance, ance that the other party's perform-
~m . the other party is threatened with the ance will be duly forthcoming. This
loss of a substantial part of what he · principle is reflected in the familiar
~ction 1-201. has bargained for . A seller needs pro- clauses permitting the seller to curtail
time" . Section 1-204. tection not merely against having to deliveries if the buyer's credit becomes
deliver on credit to a shaky buyer, but impaired, which when held within the
:tion 1- 201. also against having to procure and limits of reasonableness and good faith
'. Section 1-204. manufacture the goods, perhaps turn- actually express no more than the fair
ing down other customers. Once he business meaning of any commercial
tion 2-103. has been given reason to believe that contract.
the buyer's performance has become Third, and finally, this section pro-
Performance uncertain, it is an undue hardship to vides the means by which the ag-
n each party that the force him to continue his own perform- grieved party may treat the contract as
will not be impaired. ance. Similarly, a buyer who believes broken if his reasonable grounds for
h respect tb the per- that the seller's deliveries have become inseCurity are not cleared up within a
ng demand adequate uncertain cannot safely wait for the réasonable time. This is the principle
3 such assurance may due date of performance when he has underlying the law of anticipatory
nce for which he has been buying to assure himself of mate- breach, whether by way of defective
rials for his current manufacturing or part performance or by repudiation.
to replenish his stock of merchandise. The present section merges these three
2'rounds for insecurity
determined according 2. Three measures have been principles of law and commercial prac-
adopted to meet the n eeds of commer- tice into a single theory of general

289
§ 2-609 UNIFORM COMMERCIAL CODE

application to all sales agreements exclusive franchise into the contract ance. In that case 1
looking to future performance. for the sale of goods since the situation sale of oils on 30 d1
3. Subsection (2) of the present sec- itself ties the agr eements together. for paymcnt within-
tion requires that "reasonable" that credit was to b
The nature of the sales contract en- buyer only if his fin1
grounds and "adequate" assurance as ters also into the question of reason- ty was satisfactory ·
used in subsection (1) be defined by ableness. For example, .a report from buyer had been in t:
commercial rather than legal stan- an apparently trustworthy source that advantage of the di:
dards. The express reference to com- the seller had shipped defectiva goods same time that he l
mercial standards carries no connota- or was planning to ship them would customary 10 day p:
tion that the obligation of good faith is normally give the buyer reasonable heard rumors, in fa
not equally applicable here. grounds for insecurity. But when the buyer' s financia! cor
Under commercial standards and in buyer has assumed the risk of payment Thereupon, the sellE
accord with commercial practice, a before inspection of the goods, as in a before shipment or ~
ground for insecurity need not arise sales contract on C.I.F. or similar cash ry to him. The buyer
from or be directly related to the con- against documents terms, that risk is report from his bank
tract in question. The law as to "de- not to be evaded by a demand for ingness to make pa:
pendence" or "independence" of prom- assurance. Therefore no ground for on the 30 day term
ises within a single contract does not insecurity would exist under this sec- further deliveries ur
control the application of the present tion unless the report went to a U nder this Article
section. ground which would excuse payment though false, were er
Thus a buyer who falls behind in by the buyer. buyer's financia! conc
"his account" with the seller, even tory" to the seller u
4. What constitutes "adequate" as- clause. Moreover, th
though the items involved have to do
surance of due performance is subject of taking the cash di:
with separate and legally distinct con-
to the same test of factual conditions. apart from the contn
tracts, impairs the seller's expectation
For example, where the buyer can commercial foundati
of due performance. Again, under the
make use of a defective delivery, a when the practica is
same test, a buyer who requires preci-
mere promise by a seller of good re- These matters, howe·
sion parts which he intends to use
pute that he is giving the matter his justification of the SE
immediately upon delivery, may have
attention and that the defect will not security, or his "re
reasonable grounds for insecurity if he
be repeated, is normally sufficient. Un- for insecurity".
discovers that his seller is making de-
der the same circumstances, however,
fective deliveries of such parts to other The adequacy of th
a similar statement by a known cor-
buyers with similar needs. Thus, too, is not measured as ir
ner-cutter might well be considered in-
in a situation such as arose in Jay isfaction" situation
sufficient without the posting of a
Dreher Corporation v. Delco Appliance tangibles, such as ir
guaranty or, if so demanded by the
Corporation, 93 F.2d 275 (C.C.A. 2, cases, cases involvin
buyer, a speedy replacement of the de-
1937), where a manufacturer gave a judgment as final, o
livery involved. By the same token
dealer an exclusive franchise for the the whole contract is
where a delivery· has defects, even
sale of his product but on two or three party's satisfactíon,
though easily curable, which interfere
occasions breached the exclusive cleal- approval. Here, the
with easy use by the buyer, no verbal
ing clause, although there was no de- cise good faith.and ol
assurance can be deemed adequate
fault in orders, cleliveries or payments standards. This Al-tic
which is not accompanied by replace-
under the separate sales contract be- the statement of the
ment, repair, money-allowance, or oth- Berry's Sons Co. of]
tween the parties, the aggrieved dealer
er commercially reasonable cure. Gasoline & Oil Co.,
would be entitled to suspend his per-
formance of the contract for sale under A fact situation such as arose in (C.C.A.S, 1929), that
the present section and to demand as- Corn Products Refining Co. v. Fasola, faction under such 1
surance that the exclusive dealing con- 94 N.J.L. 181, 109 A. 505 (1920) offers based upon reason 1
tract would be livecl up to. There is no illustration both of reasonable grounds arbitrary or capriciou
need for an explicit clause tying the for insecurity and "adequate" assur- purely personal "goc

290
 ARTICLE 2: SALES § 2-609

iise into the contract ance. In that case a contract for the the Corn Products Refining Co. case,
lods since the situation sale of oils on 30 days' credit, 2% off which held that in the seller's sole
reements together. for payment within-10 days, provided judgment, if for any reason he was
that credit was to be extended to the dissatisfied, he was entitled to revoke
; the sales contract en- buyer only if his financia! responsibili- the credit. In the absence of the buy-
J.e question of reason- ty was satisfactory to the seller. The er's failure to take the 2% discount as
xample, a report from buyer had been in the habit of taking was his custom, the banker's report
rustworthy source that advantage of the discount but at the given in that case would have been
hipped defective goods same time that he failed to make his "adequate" assurance under this Act,
g to ship thei:n would customary 10 day payment, the seller regardless of the language of the "sat-
the buyer reasonable heard rumors, in fact false, · that the isfaction" clause. However, the seller
ecurity. But when the buyer's financia! condition was shaky. is reasonably entitled to feel insecure
1ed the risk of payment Thereupon, the seller demanded cash at a sudden expansion of the buyer's
n of the goods, as in a before shipment or security satisfacto- use of a credit term, and should be
n C.I.F. or similar cash ry to him. The buyer sent a good credit entitled either to security or to a satis-
nts terms, that risk is report from his banker, expressed will- factory explanation.
.:led by a demand for ingness to make payments when due
,refore no ground for on the 30 day terms and insisted on The entire foregoing discussion as to
d exist under this sec- further deliveries under the contract. adequacy of assurance by way of expla-
Under this ATticle the rumors, al- nation is subject to qualification when
le report went to a
though false, were enough to make the repeated occasions for the application
would excuse payment
buyer's financia! condition "unsatisfac- of this section arise. This Act recog-
tory" to the seller under the contract nizes that repeated delinquencies must
stitutes "adequate" as- clause. Moreover, the buyer's practice be viewed as cumulative. On the other
pérformance is subject of taking the eash discounts is enough, hand, commercial s.e.nse also requires
· ;t of factual conditions. apart from the contract clause, to lay a that if repeated daims for assurance
. where the buyer can commercial foundation for suspicion are made under this section, the basis
. 'l ·defective delivery, a when the practice is suddenly stopped. for these claims must be increasingly
by a seller of good re- These matters, however, go only to the obvious.
. i · giving the matter his justification of the seller's demand for 5. A failure to provide adequate as-
;hat the defect will not security, or his "reasonable grounds surance of performance and thereby to
normally sufficient. Un- for insecurity". re-establish the secutity of expectation,
·:ireumstances, however, The adequacy of the assurance given results in a breach only "by repudia-
,m ent by a known cor- is not measured as in the type of "sat- tion" under subsection (4) . Therefore,
lt ·well be considered in- isfaction" situation affected with in- the possibility is continued of retrac-
tout the posting of a tangibles, such as in personal service tion of the repudiation under the sec-
f so demanded by the cases, cases involving a third party's tion dealing with that problem, unless
¡ replacement of the de-
judgment as final, or cases in which the aggrieved party has acted on the
l. By the same token the whole contract is dependent on one breach in sorne manner.
·rery has defects, even party's satisfaction, as in a sale on
~urable, which interfere The thirty day limit on the time to
approval. Here, the seller must exer-
. by the buyer, no verbal provide assurance is laid down to free
cise good faith and observe commercial
be deemed adeqvate the question of reasonable time from
standards. This Article thus approves
tccompanied by replace- uncertainty in later litigation.
the statement of the court in James B.
tioney-allowance, or oth- Berry's Sons Co. of Illinois v. Monark 6. Clauses seeking to give the pro-
y reasonable cure. Gasoline & Oil Co., Inc., 32 F.2d 74 tected party exceedingly wide powers
üion such as arose in (C.C.A.8, 1929), that the seller's satis- to cancel or readjust the contract when
. Refining Co. v. Fasola, faction under such a clause must be · ground · for insecurity arises must be
109 A. 505 (1920) offers based upon reason and must not be read against the fact that good faith is
th of reasonable grounds arbitrary or capricious; and rejects the a part of the obligation of the contract
and "adequate" assur- purely personal "good faith" test of and not subject to modification by

291
§ 2-609 UNIFORM COMMERCIAL CODE

agreement and includes, in the case of Point 5: Section 2-611. (3) Retractim
a merchant, the reasonable observance contract with dUE
Point 6: Sections 1-203 and 1-208
of commercial standards of fair dealing
and Articles 3 and 9. delay occasioned l
in the trade. Such clauses can thus be
effective to enlarge the protection giv- Definitional Cros1
en by the present section to a certain Definitional Cross References:
extent, to fix the reasonable time with- "Aggrieved party'
"Aggrieved party". Section 1-201.
in which requested assurance must be "Cancellation". S•
givim, or to define adequacy of the "Between merchants". Section 2-
assurance in any commercially reason- 104. § 2-612. "In
able fashion. But any clause seeking to "Contract". Section 1-20 l.
set up arbitrary standards for action is (1) An "insta
ineffective under this Article. Accelera- "Contract for sale". Section 2-106. the delivery of gc
tion clauses are treated similarly in the though the contr
"Party". $ection 1-201.
Articles on Commercial Paper and Se- contract" or its eq
cured Transactions. "Reasonable time". Section 1-204.
(2) The buyer ·
Cross References: "Rights". Section 1-201. the non-conformit
Point 3: Section 1-203. "Writing". Section 1-20 l. and cannot be cur
documents; but if
§ 2-610. Anticipatory Repudiation and the seller give:
When either party repudiates the contract with respect to a perform- that installment.
ance not yet due the loss of which will substantially impair the value of (3) Whenever
the contract to the other, the aggrieved party ID?Y installments subst.
(a) for a commercially reasonable time await performance by is a breach of the '
the repudiating party; or if he accepts a non
(b) resort to any remedy for breach (Section 2- 703 or Section 2- of cancellation or
711), even though he has notified the repudiating party that installments or der
he would await the latter's performance and has urged Definitional Cross
retraction; and "Action". Section J
(e) in either case suspend his own p-erformance or proceed in "Aggrieved party".
accordance with the provisions of this Article on the seller's "Buyer" . Section 2
right to identify goods to the contract notwithstanding
"Cancellation". Se1
breach orto salvage unfinished goods (Section 2-704).
"Conform" . Sectim
Definitional Cross References: "Party". Section 1-201.
"Aggrieved party". Se~tion 1-201. "Rerriedy". Section 1-201.
§ 2-613. Cas1
"Contract". Section 1- 20 l. Where the cor
when the contract i
§ 2-611. Retraction of Anticipatory Repudiation either party before
(1) Until the repudiating party's next performance is due he can case under a "no ar
retract his repudiation unless the aggrieved party has since the repudia- (a) if the ¡,
tion cancelled or materially changed his position or otherwise indicated (b) if the l
that he considers the repudiation final. longer
(2) Retraction may be by any méthod which clearly indicates to the less de
aggrieved party that the repudiating party intertds to perform, but must contrae
include any assurance justifiably demanded under the provisions of this from tl
Article (Section 2- 609) . · cy in q
292
 " . . i!f....
\

·. ARTICLE 2: SALES § 2-613

n 2-611. (3) Retraction reinstates the repudiating party's rights under the
ons 1-203 and 1-208 contract with due excuse and allowance to the aggrieved party for any
,d 9. delay occasioned by the repudiation.
Definitional Cross References: "Contract". Section 1-201.
~oss References:
"Aggrieved party". Section 1-201. "Party". Section 1-201.
rty". Section 1-201.
"Cancellation". Section 2-106. "Rights". Section 1-201.
'rchants". Section 2-
§ 2-612. "lnstallment Contract''; Breach
~ction 1-201. (1) An "installmerit cohtract" is one which requires or authorizes
sale". Section 2-106. the delivery of goods .in separate lots to be separately accepted, even
though the contract contains a clause "each delivery is a separate
.on 1-201. contract" or its equivalent.
ime" . Section 1-204. (2) The buyer may reject any installment which is non-conforming if
;ion 1-201. the non-conformity substantially impairs the value of that installment
and cannot be cured or if the non-conformity is a defect in the required
ction 1-201.
documents; but if the nori-conformity does not fall within subsection (3)
and the seller gives adequate assurance of its cure the buyer must accept
that installment.
respect toa perform-
' impair the value of (3) Whenever non-conformity or default with respect to one or more
installments substantially l.mpairs the value of the whole contract there
;vait performance by is a breach of the whole: But the aggrieved party reinstates the contract
if he accepts a non-conforming installment without seasonably notifying
of cancellation or if h~ brings an action with respect only to past
2-703 or Section 2-
.1
installments or demands performance as to future installments.
~pudiatingparty that
mee and has urged Definitional Cross R~ferences: "Contract". Section 1- 201.
"Action". Section 1- 201. "Lot". Section 2-105.
manee or proceed in "Aggrieved party". Section ·1- 20 l.
"Notifies". Section 1-201.
\rticle on the seller's "Buyer". Section 2-10.3.
-act notwithstanding "Cancellation". Sectiür;t 2-106. "Seasonably". Section 1-204.
)ection 2-704). "Conform". Section 2-106. "Seller". Section 2- 103.
;ion 1-201.
§ 2-613. Casualty to ldentified Goods
ection 1-201.
Where the contract · requires for its performance goods identified
when the contract is made, and the goods suffer casualty without fault of
:liation either party before the risk of loss passes to the buyer, or in a proper
nance is due he can case under a "no arrival, no sale" term (Section 2-324) then
1as since the repudia- (a) if the loss is total the contract is avoided; and
r otherwise indicated (b) if the Toss is partial or the goods have so deteriorated as no
longer to · conform to the contract the buyer m ay neverthe-
early indicates to the less demand inspection and at his option either treat the
to perform, but must contract as avoided or accept the goods with due allowance
the provisions of this fr.om the cbntract price for the deterioration or the deficien-
cy in quantity but without further right against the seller.

293
§ 2- 613 . UNIFORM COMMERCIAL CODE

Definitional Cross References: "Goods". Section 2- 105. un de

"Buyer". Sectión 2-103. "Party". Section 1-201. avail:
"Conform". Section 2-106.
"Rights". Section 1-201. Official 4
"Contract". Sectíon 1-201.
"Seller". Section 2-103. Prior Uniform
"Fault". Section 1-201.
sion: None.
§ 2-614. Substituted Performance Purposes:
(1) Where without fault óf either party the agreed berthing, loading, l. This section
or unloading facilities fail or an agreed type of carrier becomes unavail- from timely delivt
able or the agreed manner of delivery otherwise becomes commercially tracted for, when
impracticable but a commercially reasonable substitute is available, such has become commt
substitute performance must be tendered and accepted. ble because of unfo
circumstances not '
(2) If the agreed means or manner of payment fails because of
plation of the part
domestic or foreign governmental regulation, the seller may withhold or contracting. The de
stop delivery unless the buyer provides a means or manner of payment ic goods and the pn
which is co:mmercially a substantial equivalent. If delivery has already substituted perforJ
been taken, payment by the means or in the manner provided by the other than delay OJ
regulation discharges the buyer's obligation unless the regulation is elsewhere in this AJ
discriminatory, oppressive or predatory. tinguished from the
this section.
Definitional Cross ,References: "Party". Section 1-201.
2. The present ~
"Buyer". Section 2-103. "Seller". Section 2-103. refrains from any eJ
"Fault". Sectipn 1-201. tive expression of ce
to be interpreted in
§ 2-615 . . Excuse by Failure of Presupposed Conditions be brought within it
Except so far ~s a seller may have assumed a greater obligation and its underlying reasor
subject to the preceding section on substituted performance: 3. The first test
(a) Delay in delivery or non-delivery in whole or in part by a this Article in term:
seller :who complies with paragraphs (b) and (e) is not a tion is a familiar oi
breach of his duty under a contract for sale if performance test of commercial i:
contrasted with "imj
as agreed has been made impracticable by the occurrence of
tration of performa
a contingency the non-occurrence of which was a basic tion of the venture")
.assumption on which the contract was made or by compli- in order to call atte
ance in good faith with any applicable foreign or domestic mercial character of
governmental regulation or order whether or not it later sen by this Article.
proves to be invalid.
4. Increased cost
(b) Where the causes mentioned in paragraph (a) affect only a cuse performance u
párt of the seller's cai:mcity to perform, he must allocate cost is due to sorne t
production and deliveries among his customers but may at gency which alters th
his Option include regular customers not then under con- of the performance. l'
.tract as well as his own requirements for further manufac- a collapse in the rr
ture. He may so allocate in any manner which is fair and justificaban, for th¡
reasonable. type of business ris
contracts made at fi:
(e) The seller must notify the buyer seasonably that there will tended to cover. But
· be delay' or non-delivery and, when allocation is required of raw ma terials or oJ

294
 ARTICLE 2: SALES § 2-615
m 2-105. under paragraph (b), of the estimated quota thus made
n 1-201. available for the buyer.
on 1-201. Official Comment contingency such as war, embargo, lo-
Prior Uniform Statutory Provi- cal crop failure unforeseen shutdown
m 2-103.
sion: None. of majar sources of supply or the like,
which either causes a marked increase
Purposes: in cost or altogether prevents the seller
from securing supplies necessary to his
,d berthing, loading, l. This section excuses a seller performance, is within the contempla-
;)r becomes unavail- from timely delivery of goods con- tion of this section. (See Ford & Sons,
~omes commercially tracted for, where his performance Ltd. v. Henry Leetham & Sons, Ltd.,
.te is available, such has become commercially impractica- 21 Com.Cas. 55 (1915, K.B.D.).)
ld. ble because of unforeseen supervening
circumstances not within the contem- 5. Where a particular source of
nt fails because of plation of the parties at the time of supply is exclusive under the agree-
ler may withhold or contracting. The destruction of specif- ment and fails through casualty, the
manner of payment ic goods and the problem of the use of present section applies rather than the
lelivery has already substituted performance on points provision on destruction or deteriora-
J.er provided by the other than delay or quantity, treated tion of specific goods. The same holds
elsewhere in this Article, must be dis- true where a particular source of sup-
:s the regulation is
tinguished from the matter covered by ply is shown by the circumstances to
this section. have been contemplated or assumed by
on 1-201. the parties at the time of contracting.
2. The present section deliberately (See Davis Co. v. Hoffmann-LaRoche
on 2-103. refrains from any effort at an exhaus- Chemical Works, 178 App.Div. 855,
tive expression of contingencies and is 166 N.Y.S. 179 (1917) and Internation-
to be interpreted in all cases sought to al Paper Co. v. Rockefeller, 161 App.
l Conditions be brought within its scope in terms of Div. 180, 146 N.Y.S. 371 (1914).) There
its underlying reason and purpose. is no excuse under this section, howev-
:eater obligation and
rmance: 3. The first test for excuse under er, unless the seller has employed all
this Article in terms of basic assump- due measures to assure himself that
h.ole or in part by a
tion is a familiar one. The additional his source will not fail. (See Canadian
~b) and (e) is not a·
test of commercial impracticability (as Industrial Alcohol Co., Ltd. v. Dunbar
· sale if performance contrasted with "impossibility," "frus- Molasses Co., 258 NY 194, 179 N.E.
by the occurrence of tration of performance" or "frustra- 383, 80 A.L.R. H 73 (1932) and Wash-
which was a basic tion of the venture") has been adopted ington Mfg. Co. v. Midland Lumber
made or by compli- in arder to call attention to the com- Co., 113 Wash. 593, 194 P. 777 (1921).)
foreign or domestic mercial character of the criterion cho- In the case of failure of production
)ther or not it later sen by this Article. · by an agreed source for causes beyond
4. Increased cost alone does not ex- the seller's control, the seller should, if
·aph (a) affect only a cuse performance unless the rise in possible, be excused since production
m, he must allocate cost is due to sorne unforeseen contin- by an agreed source is without more a
ustomers but may at gency which alters the essential natüre basic assumption of the contract. Such
not then under con- of the performance. Neither is a 1;ise or excuse should not result in relieving
a collapse in the market in itself a the defaulting supplier from liability
for further manufac-
justification, for that is exactly the nor in dropping into the seller's lap an
ter which is fair and type of business risk which business unearned bonus of damages over. The
contracts made at fixed prices are in- flexible adjustment machinery of this
mably that there will tended to cover. But a severe shortage Article provides the solution under the
tllocation is required of raw materials or of supplies dueto a provision on the obligation of good

295
§ 2-615 UNIFORM COMMERCIAL CODE

faith. A condition to his making good 1945).) The exemption otherwise pres- ance of the buyer's ft
the claim of excuse is the turning over ent through usage of trade under the outlet. On the other
to the buyer of his rights against the present section may also be expressly buyer's contract is Íl
defaulting source of supply to the ex- negated by the language of the agree- mercial understandil
tent of the buyer's contract in relation ment. Generally, express agreements a definite and specil
to which excuse is being claimed. as to exemptions designed to enlarge sumption as, for ins
6. In situations in which neither upon or supplant the provisions of this curement subcontra
sense nor justice is served by either section are to be .read in the light of based on a prime e
answer when the issue is posed in flat mercantile sense and reason, for this subject to terminatim
terms of "excuse" or "no excuse," ad- section itself sets up the commercial tract for a particular
justment under the various provisions standard for normal and reasonable in- ture, the reason of tl
of this Article is necessary, especially terpretation and provides a mínimum may well apply and e:
the sections on good faith, on insecuri- beyond which agreement may not go. the exemption.
ty and assurance and on the reading of 10. Following its ·
Agreement cán also be made in re-
all provisions in the light of their pur- ing commercial pract
gard to the consequences of exemption
poses, and the general policy of this for excuse, this sectio
as laid down in paragraphs (b) and (e)
Act to use equitable principies in fur- equal significance ei
and the next section on procedure on
therance of commercial standards and domestic regulation a
notice claiming excuse.
good faith. technical distinctiom
7. The failure of conditions which 9. The case of a farmer who has "regulation," "orde1
go to convenience or collateral values contracted to sell crops to be grown on Nor does it make the
rather than to the commercial practi- designated land may be regarded as the seller depend UJ
cability of the main performance does falling either within the section on ca- judicial determinatio1
not amount to a complete excuse. sualty to identified goods or this sec- the particular gove
However, good faith and the reason of tion, and he may be excused, when The seller's good fa
the present section and of the preced- there is a failure of the specific crop, validity of the regul
ing one may properly be held to justify either on the basis of the destruction under this Article a
and even to require any needed delay of identified goods or because of the dence of his good fai
involved in a good faith inquiry seek- failure of a basic assumption of the commercial acceptan
ing a readjustment of the contract contract. tion. However, gover
terms to meet the new conditions. Exemption of the buyer in the case ence cannot excuse u:
8. The provisions of this section of a "requirements" contract is cov- pervenes" in such a
are made subject to assumption of ered by the "Output and Require- beyond the seller's m
greater liability by agreement and ments" section both as to assumption And any action by ti
such agreement is to be found not only and allocation of the relevant risks. excuse which causes
in the expressed terms of the contract But when a contract by a manufactur- ducing the governmo
but in the circumstances surrounding er to buy fue! or raw material makes venting his performE
the contracting, in trade usage and the no specific reference to a particular breach of good faith a
like. Thus the exemptions of this sec- venture and no such reference may be his exemption.
tion do not apply when the contingen- drawn from the circumstances, com- 11. An excused s
cy in question is sufficiently foreshad- mercial understanding views it as a his contract to the 1
owed at the time of contracfing to be general deal in the general market and superveriing continge
included among the business risks not conditioned on any assumption of if the situation is su el
which are fairly to be regarded as part · the continuing operation of the buyer's ers are generally affe<
. of the dickered terms, either con- plant. Even when notice is given by . account of al! in supp
sciously or as a matter of reasonable, the buyer that the supplies are needed tions (a) and (b), th
commercial interpretation from the to fill a specific contract of a normal permit in any prorati>
circumstances. (See Madeirense Do commercial kind, commercial under- sonable attention to t
Brasil, S.A. v. Stulman-Emrick Lum- standing does not see such a supply lar customers who ar1
ber Co. , 147 F.2d 399 (C.C.A., 2 Cir., contract as conditioned on the continu- on spot orders for sw

296
 ARTICLE 2: SALES § 2-615

nption otherwise pres- ance of the buyer's further contract for at different stages of the manufactur-
tge of trade under the outlet. On the other hand, where the ing process may be fairly treated by
may also be expressly buyer's contract is in reasonable com- including the seller's manufi:1eturing
language of the agree- mercial understanding conditioned on requirements. A fortiori, the seller may
'1, express agreements a definite and specific venture or as- also take account of contracts later in
1s designed to enlarge sumption as, for instance, a war pro- date than the one in question. The fact
tt the provisions of this curement subcontract known to be · that such spot orders may be closed at
)e read in the light of based on a prime contract which is an advanced price causes no difficulty,
:e and- reason, for this subject to termination, or a supply con- since any allocation which exceeds nor-
~ts up the commercial
tract for a particular construction ven- mal past requirements will not be rea-
rmal and reasonable in- ture, the reason of th.e present section sonable. However, good faith requires,
d provides a mínimum may well apply and entitle the buyer to when prices have advanced, that the
:tgreement may not go. the exemption. ·seller exercise real care in making his
10. Following its basic policy of us- allocations, and in case of doubt his
m also be made in re- ing commercial practicability as a test contract customers should be favored
sequences of exemption for excuse, this section recognizes as of and supplies prorated evenly among
paragraphs (b) and (e) equal significance either a foreign or them regardless of price. Save for the
ection on procedure on domestic regulation and disregards any extra care thus required by changes in
excuse. technical distinctions between "law," the market, this section seeks to leave
' of a farmer who has "regulation," "order" and the like. every reasonable business leeway to
~11 crops to be grown on Nor does it make the present action of the seller.
d may be regarded as the seller depend upon the eventual
rithin the section on ca- judicial determination of the legality of Cross References:
;ified goods or this sec- the particular governmental action. Point l: S~ptions 2-613 and 2-614.
may be excused, when The seller's good faith belief in the Point 2, Section 1- 102.
1re of the specific crop, validity of the regulation is the test
basis of the destruction under this Article and the best evi- Point 5: Sections 1-203 and 2-613.
nods or because of the dence of his good faith is the general Point 6: Sections 1-102, 1-203 and
asic assumption of the commercial acceptance of the regula- 2-609.
tion. However, governmental iriterfer-
Point 7: Section 2-614.
ence cannot excuse unless it truly "su-
>f the buyer in the .case pervenes" in such a manner as to be Point 8: Sections 1-201, 2-302 and
nents" contract is cov- beyond the seller's assumption of risk. 2-616.
"Output and Require- And any action by the party claiming
1 both as to assumption
Point 9: Sections 1-102, 2-306 and
excuse which causes or colludes in in- 2-613.
, of the relevant risks. ducing the governmental action pre-
mtract by a manufactur-
venting his performance would be in Definitional Cross References:
ar raw material makes breach of good faith and would destroy
{erence to a particular "Between merchants". Section 2-
his exemption .
.o such reference may be 104.
;he circumstances, com- 11. An excused seller must fulfill
"Buyer". Section 2-103.
~ standing views it as a
his contract to the extent which the
supervening contingency permits, and "Contract". Section 1- 201.
.1 the general· market and
~d on any assumption of if the situation is such that his custom- "Contract for sale". Section 2-106.
~ operation of the buyer's ers are generally affected he must take
"Good faith': . Section 1-201.
Nhen notice is given by account of all in supplying one. Subsec-
t the supplies are needed tions (a) and (b), therefore, explicitly "Merchant". Section 2-104.
fíe contract of a normal permit in any proration a fair and rea- "Notifies". Section 1-201.
jnd, commercial under- sonable attention to the needs of regu-
lar customers who are probably relying "Seasonably". Section 1- 204.
l not see such a supply
nditioned on the continu- on spot orders for supplies. Customers "Seller''. Section 2-103.

297
§ 2-616 UNIFORM COMMERCIAL CODE

§ 2-616. Procedure on Notice Claiming Excuse (2) Where the

(1) Where the buyer receives notification of a material or indefinite credit while insob
delay or an allocation justified under the preceding section he may ·by within ten days a:
written notification to the seller as to any delivery concerned, and where has been made to
the prospective deficiency substantially impairs the value of the whole before delivery the
contract under the provisions of this Article relating to breach of in this subsection 1
installment contracts (Section 2-612), then also asto the whole, buyer's fraudulent
to pay.
(a) terll!inate and thereby discharge any unexecuted portian of
the contract; or (3) The seller'
the rights of a bu:
(b) modify the contract by agreeing to take his available quota
under this Artich
in substitution.
excludes all other r
(2) If after receipt of such notification from the seller the buyer fails
so to modify the contract within a reasonable time not exceeding thirty Definitional Cross
days the contract lapses with respect to any deliveries affected. "Buyer". Section 2
(3) The provisions of this section may not be negated by agreement "Buyer in m·dinar
except in so far as the seller has assumed a greater obligation under the ness". Section 1-201.
preceding section. "Contract". SectiOJ
"Good faith". Secti
Definitional Cross References: "Notification". Section 1-201.
"Goods". Section 2
"Buyer". Section 2-103. "Reasonable
..
time". Section 1- 204.
"Insolvent". Sectio
"Contract". Section 1-201. "Seller". Section 2-103.
"Installment contract". Section 2- "Termination". Section 2-106. § 2-703. Sell
612. "Written". Section 1-201. Where the bu.;
or fails to make a ¡
PART 7 respect to a part o
affected and, if the
REMEDIES.· also with respect ti
m ay
§ 2-701. Remedies for Breach of Collateral Contracts Not
Impaired (a) withho
Remedies for breach of any obligation or promise collateral or (b) stop dE
ancillary to a contract for sale are not impaired by the provisions of this 705);
Article. (e) proceec

Definitional Cross References:

tified te
"Contract for sale". Section 2-106. (d) resell 2
706);
"Remedy". Section 1- 201.
(e) recover
§ 2-702. Seller's Remedies on Discovery of Buyer's Insolven- proper
cy CD cancel.
(1) Where the seller discovers the buyer to be insolvent he may Definitional Cross J
refuse delivery except for cash including payment for all goods thereto-
fore delivered under the contract, and stop delivery under this Article "Aggrieved party".
(Section 2- 705). "Buyer". Section 2-
298
 ARTICLE 2: SALES § 2-703

cuse (2) Where the seller discovers that the buyer has received goods on
wterial or indefinite credit while insolvent he may reclaim the goods upon demand made
~ section he may by within . ten days after the receipt, but if misrepresentation of solvency
)ncerned, and where has been made to the particular seller in writing within three months
l value of the whole
before delivery the ten day limitation does not apply. Except as provided
lating to breach of in this subsectiori the seller may not base a right to reclaim goods on the
>the whole, buyer's fraudulent or innocent misrepresentation of solvency or of intent
to pay.
nexecuted portion of
(3) The seller's right to reclaim under subsection (2) is subject to

e his available quota

a
the rights of b~yer in ordinary course or other good faith purchaser
under this Article (Section 2-403). Successful reclamation of goods
excludes all other remedies with respect to them.
seller the buyer fails
Definitional Cross References: "Person". Section 1-201.
not exceeding thirty
3S affected.
"Buyer". Sect~oi}2-103. "Purchaser" . Section 1-20 l.
"Buyer in ordina,ry course of busi- "Receipt" of goods. Section 2-103.
Legated by agreement
ness". Sectiori 1-201.
. obligation under the "Remedy". Section 1-201.
"Contract". Section 1- 201.
"Good faith". Section 1-201. "Rights". Section 1-201.
". Section 1-201. "Goods". Secticin 2-105. "Seller". Section 2-103.
time" . Section 1-204. "Insolverit''. Section 1-201. "Writing". Section 1-20L
tion 2-103.
1". Section 2-106. § 2-703. Sel.ler's Remedies in General
ection 1-201. Where the buyer wrongfully rejects or revokes acceptance of goods
or fails to :rnalm ~ 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
m ay
eral Contracts Not
(a) withhóld delivery of such goods;

promise collateral or (b) stop delivery by any bailee as hereafter provided (Section 2-
· the provisions of this 705); .
(e) proceed under the next section respecting goods still uniden-
tified to the contract;
(d) resell imd recover damages as hereafter provided (Section 2-
706);
(e) recover damages for non-acceptance (Section 2-708) or in a
of Buyer's Insolven- proper case the price (Section 2-709);
(f) . cancel. .
be insolvent he may Definitional Ctoss References: "Cancellation" . Section 2- 106.
; for all goods thereto-
"AggTieved paity". Section 1- 201. "Contract". Section 1- 201.
ery under this Article
"Buyer'.' . Sediori 2- 103. " Goods". Section 2- 105.

299
 1• · •
\-~··

§ 2-703 . UNIFORM COMMERCIAL CODE

"Remedy;'. Section 1-201. (b) After

"Seller" . Section 2-103. goods
is lial
§ 2-704 . . Seller's Right to Identify Goods to the Contract (e) If a . n
Notwithstanding Breach or to Salvage Unfin- the b~
ished Goods surrer
(1) An aggrieved seller under the preceding section may (d) A car
(a) identify to the contract conforming goods not already identi- not o·
fied if at the time he learned of the breach they are in his pers01
possession or control;
Definitional Cross
·(b) treat as the subject of resale goods which have demonstrably "Buyer". Section !
been intended for the particular contract even though those
"Contract for sale
goods are unfinished.
"Document of titl1
(2) Where the goods are unfinished an aggrieved seller may in the
exercise of reasonable commercial judgment for the purposes of avoiding "Goods". Section :
loss and of effective realization either complete the manufacture and
wholly identify the goods to the contract or cease manufacture and resell
§ 2-706. Sel
for scrap or salvage value or proceed in any other reasonable manner. (1) Under thE
dies, the seller ma:
Definitional Cross References: "Goods". Section 2-105. thereof. Where th
"Aggrieved party". Section 1-201. "Rights". Section 1-201. reasonable manne
"Confon~üng". Section 2-106. resale price and tl
"Seller". Section 2-103. allowed under th1
"Conü·acf'. Section 1-201.
expenses saved in
§· 2;.....;705~· · ·Seller's Stoppage of Delivery in Transit or Other- (2) Except as
wise wise agreed resale
(1) ·The seller may stop delivery of goods in the possession of a of one or more con
carrier .or other bailee when he discovers the buyer to be insolvent of the seller. Sale
(Section .2-702) and may stop delivery of carload, truckload, planeload or place and on an.)
larger shjpments of express or freight when the buyer repudiates or fails method, manner,
to make a payment due before delivery or if for any other reason the able. The resale m
sell~r bas .a right to withhold or reclaim the goods. contract, but it is
(2) As against such buyer the seller may stop delivery until any or all of them
(3) Where the
(a) receipt of the goods by the buyer; or
reasonable notificc
(b) acknowledgment to the buyer by any bailee of the goods
( 4) Where the
. except a carrier .that the bailee holds the goods for the
buyer; or (a) only i
recog:I
(e} such acknowledgment to the buyer by a carrier by reship-
kind;
ment or as a warehouse; or
(b) it mu:
· (d) negotiation to the buyer of any negotiable document of title one iE
· covering the goods. which
{3)(a) . To stop delivery the seller must so notify as to enable the the SE
bailee by reasonable diligence to prevent delivery of the goods. and p

300
 ARTICLE 2: SALES § 2-706

(b) Mter such notification the bailee must hold and deliver the
goods according to the directions of the seller but the seller
is liable to the bailee for any ensuing charges or damages.
to the Contract (e) If a negotiable document of title has been issued for goods
.o Salvage Unfin- the bailee is not obliged to obey a notification to stop until
surrender of possession or control of the document.
onmay (d) A carrier who has issued a non-negotiable bill of lading is
s not already identi- not nbliged to obey a notification to stop received from a
~ach they are in his person other than the consignor.
Definitional Cross References: "Insolvent". Section 1-201.
1 have demonstrably "Buyer". Section 2-103. "Notification". Section 1-201.
:t even though those "Contract for sale". Section 2-106. "Receipt" of goods. Section 2-103.
"Document of title". Section 1- 201. "Rights". Section 1-201.
ed seller may in the
"Goods". Section 2-105. "Seller". Section 2-103.
purposes of avoiding
1e manufacture and § 2-706. Seller's Resale Including Contract for Resale
mufacture and resell
(1) Under the conditions stated in Section 2-703 on seller's reme-
reasonable manner.
dies, the seller may resell the goods concerned or the undelivered balance
;ion 2-105. thereof. Where the resale is made in good faith and in a commercially
reasonable manner the seller may recover the difference between the
tion 1-201.
resale price and the contract price together with any incidental damages
ion 2-103. allowed under the provisions of this Article (Section 2-710), but less
expenses saved in consequence of the buyer's breach.
Transit or Other- (2) Except as otherwise provided in subsection (3) or unless other-
wise agreed resale may be at public or prívate sale including sale by way
the possession of a of one or more contracts to sell or ofidentificatión toan existing contract
.1yer to be insolvent. of the seller. Sale may be as a unit or in parcels and at any time and
uckload, planeload or place and on any terms but every aspect of the sale including the
rer repudiates or fails method, manner, time, place and terms must be commercially reason-
9.ny other reason the able. The resale must be reasonably identified as-referring to the broken
contract, but it is not necessary that the goods be in existence or that
any or all of them have been identified to the contract before the breach.
elivery until
(3) Where the resale is at prívate sale the seller must give the buyer
reasonable notification of his intention to resell.
r bailee of the goods (4) Where the resale is at public sale
ls the goods for the . (a) only identified goods can be sold except where there is a
recognized ma,rkét for a public sale of futures in goods of the
r a carrier by reship- kind; and
(b) it must be made at a u sual place or market for public sale if
able document of title one is reasonably available and except in the case of goods
which are perishable or threaten to decline in value speedily
)tify as to enable the the seller must give the buyer reasonable notice of the time
f the goods. and place of the resale; and

301
§ 2-706 UNIFORM COMMERCIAL CODE

(e) if the goods are not to be within the view of those attending (2) If the m
the sale the notification of sale must state the place where quate to put the
the goods are located and provide for their reasonable in- done then the n
spection by prospective bidders; and overhead) which
(d) the seller may huy. the buyer, togeth
(Section 2-710),
(5) A purchaser who buys in good faith at a resale takes the goods
free of any rights of the original buyer even though the seller fails to credit for paymer
comply with One or more of the requirements of this section. · Definitional Crm
(6) The seller is not accountable to the buyer for any profit made on "Buyer". Section
any resale. A person in the position of a seller (Section 2-707) or a buyer
who has rightfully rejected or justifiably revoked acceptance must ac- § 2-709. A<
count for any excess over the amount of his security interest, as (1) When th
hereinafter defined (subsection (3) of Section 2-711). seller may recove
Definitional Cross References: "Person in position of seller". Sec- · section, the price
"Buyer". Section 2-103. tion 2-707. (a) of gc
"Contract". Section 1-201. "Purchase". Section 1-201. withi
"Contract for sale". Section 2-106. loss l
"Rights". Section 1-201.
"Good faith". Section 2-103. (b) of go
"Sale". Section 2-106. re ase
"Goods". Section 2-105.
"Merchant". Section 2- 104. "Security interest''. Section 1-201. circu
unav
"Notification". Section 1-201. "Seller". Section 2-103.
(2) Where th
§ 2-707. "Person in the Position of a Seller" any goods which
(1) A "person in the position of a seller" includes as against a control except th1
principal an agent who has paid or become responsible for the price of time prior to thE
goods on behalf of his principal or anyone who otherwise holds a security such resale must
i:i:lterest or other right in goods similar to that of a seller. . entitles him to an
(2) A person in the position of a seller may as provided in this (3) After the
Article withhold or stop delivery (Section 2-705) and resell (Section 2- the goods or ha:
706) and recover incidental damages (Section 2-710). (Section 2-610), ~
section shall neve
Definitional Cross References: "Goods". Section 2-105. the preceding sed
"Consignee" . Section 7-102. "Security interest". Section 1-201.
Definitional Cros.
"Consignar". Section 7- 102. "Seller". Section 2- 103.
"Action". Section
§ 2-708. Seller's .Damages for Non-Acceptance or Repudia- ''Buyer''. Section
tion · "Conforming". S¡
(1) Subject to subsection (2) and to the provisions of this Article
with respect to proof of market price (Section 2-723), the measure of § 2-710. Sel
damages for non-acceptance or repudiation by the buyer is the difference Incidental da
between the market price at the time and place for tender and the reasonable charge
unpaid contract price together with any incidental damages provided in ery, in the trans¡
this Article (Section 2- 710), but less expenses saved in consequence of breach, in connec
the buyer' s breach. · resulting from thE

302
 ARTICLE 2: SALES § 2-710

' of those attending (2) If the measure of damages provided in subsection (1) is inade-
lte the place where quate to put the seller in as good a position as performance would have
heir reasonable in- done then the measure of damages is the profit (including reasonable
overhead) which the seller would have made from full performance by
the buyer, together with any incidental damages provided in this Article
(Section 2-710), due allowance for costs reasonably incurred and due
.ale takes the goods credit for payments or proceeds of resale.
1 the seller fails to
;ectión. Definitional Cross References: "Contract". Section 1-20 l.
any profit made on "Buyer". Section 2-103. "Seller". Section 2-103.
,n 2-707) or a buyer
tcceptance must ac- § 2-709. Action for the Price
Jcurity interest, as (1) When the buyer fails to pay the price as it becomes due the
seller may recover, together with any incidental damages under the next
section, the price
·Sitian of seller". Sec-
(a) of goods accepted or of conforming goods lost or damaged
within a commercially reasonable time after risk of their
ection 1-201. loss has passed to the buyer; and
ion 1-201. (b) of goods identified to the contract if the seller is unable after
l 2-106. reasonable effort to resell them at a reasonable price or the
circumstances reasonably indicate that such effort will be
rest". Section 1-20 l.
unavailing .
.on 2-103.
(2) Where the seller sues for the price he must hold for the buyer
r" any goods which have been identified to the contract and are still in his
control except that if resale becomes possible he .may resell them at any
eludes as against a time prior to the collection of the judgment. The net proceeds of any
!ible for the price of such resale must be credited to the buyer and payment of the judgment
wise holds a security entitles him to any goods not resold. ·
Jller.
(3) Mter the buyer has wrongfully rejected or revoked acceptance of
as provided in this the goods or has failed to make a payment due or has repudiated
nd resell (Section 2- (Section 2-610), a seller who is held not entitled to the price under this
section shall nevertheless be awarded damages for non-acceptance under
;ion 2-105. the preceding section.
~rest". Section 1- 20 l. Definitional Cross Refer€mces: "Contract". Section 1-201.
ion 2- 103. "Action". Section 1-201. "Goods". Section 2-105.
"Buyer". Section 2-103.
,tance or. Repudia- "Seller" . Section 2-103.
"Conforming". Section 2-106.
isions of this Article § 2-710. Seller's Incidental Damages ·
723), the measure of
uyer is the difference Incidental damages to an aggrieved seller include any commercially
for tender and the reasonable charges, expenses or commissions incurred in stopping deliv-
damages provided in ery, in the transportation, care and custody of goods after the buyer's
ed in consequence of breach, in connection with return or resale of the goods or otherwise
resulting from the breach.

303
§ 2-710 UNIFORM COMMERCIAL CODE

Definitional Cross References: "Goods". Section 2-105. incidental or cm

"Aggrieved party". Section 1-201. "Seller". Section 2-103. 715), but less e
"Buyer". Section 2-103. (3) Failure <
bar him from an~
§ 2-711. Buyer's Remedies in General; Buyer's Security In-
terest in Rejected Goods Definitional Cro1
(1) Where the seller fails to make delivery or repudiates or the "Buyer". Sectior
buyer rightfully rejects or justifiably revokes acceptance then with re- "Contract". Sect
spect to any gobds involved, and with respect to the whole if the breach
"Good faith". Se.
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 § 2-713. Bt
the price as has been paid
(1) Subject t
(a) "cover" and have damages under the next section as to all market price (Se1
the goods affected whether or not they have been identified or repudiation by
to the contract; or the time when tl
(b) recover damages for non-delivery as provided in this Article together with any
(Section 2-713) . Article (Section ~
. (2) Where the seller fails to deliver or repudiates the buyer may also seller's breach.
(a) if the goods have been identified recover them as provided in (2) Market p1
this Article (Section 2-502); or .. cases of rejection .
of arrival.
(b) in a proper case obtain specific performance or replevy the
goods as provided in this Article (Section 2-716). Definitional Cros1
(3) On rightful rejection or justifiable revocation of acceptance a "Buyer". Section
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 § 2-714. Bu;
their inspection, receipt, transportation, care and custody and may hold
such goods and resell them in like manner a:s an aggrieved seller (Section (1) Where th
2-706). (subsection (3) of 1
conformity of ten!
Definitional Cross References: "Goods" . Section 2- 105.
from the seller's l
"Aggrieved party" . Section 1-201. "Notifies". Section 1-201. able.
"Buyer". Section 2-103. "Receipt" of goods. Section 2- 103.
(2) The meast
"Cancellation". Section 2-106. "Remedy". Section 1- 201. at the time and ¡
"Contract". Section 1-201. "Security interest". Section 1- 201. accepted and the
"Cover" . Section 2- 712. "Seller". Section 2-103. warranted, unless
different amount.
§ 2-712. "Cover"; Buyer's Procurement of Substitute Goods (3) In a prop
(1) After a breach within the preceding section the buyer may under the next sec1
"cover" by making in good faith and without unreasonable delay any
reasonable purchase of or contract to purchase goods in substitution for Definitional Cross
those due from the seller. "Buyer". Section 2
(2) The buyer may recover from the seller as damages the difference "Conform". Sectim
between the cost of cover and the contract price together with any

304
 ARTICLE 2: SALES § 2-714

m 2-105. incidental or consequential damages as hereinafter defined (Section 2-

715), but less expenses saved in consequence of the seller's breach.
m 2-103.
(3) Failure of the buyer to effect cover within this section does not
bar him from an)rother remedy.
yer's Security In-
Definitional Cross References: "Goods". Section 2-105.

: repudiates or the "Buyer". Section 2- 103. "Purclíase". Section 1- 20 l.

tance then with re- "Contract". Section 1-201. "Remedy". Section 1-201.
whole if the breach "Good faith". Section 2-103. "Seller". Section 2-103.
yer may cancel and
covering so much of § 2-713. Buyer's Damages for Non-Delivery or Repudiation
(1) Subject to the provisions of this Article with respect to proof of
.ext section as to all market price (Section 2- 723), the measure of damages for non-delivery
have been identified 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
lvided in this Article together with any íncidental and consequential damages provided in this
Article (Section 2-715), but less expenses saved in consequence of the
seller's breach.
s the buyer may also
(2) Market price is to be determined as of the place for tender or, in
· them as provided in cases of rejection after arrival or revocation of acceptance, as of the place
of arrival. · · ·
nance or replevy the
Definitional Cross .References: "Contract". Section 1-201.
n 2-716).
"Buyer"; Section 2..:.103. "Seller". Section 2-103.
tion of acceptance a
.on or control for any § 2-714. Buyer's Damugcs for Brcuch in Regard to Accepted
,asonably incurred in Goods
ustody and may hold
;rieved ·seller (Section (1) Where the . buyer has accepted goods and given notification
(subsection (3) of Section 2-607) he may recover as damages for any non-
conformity of tender the loss resulting in the ordinary course of events
tion 2-105. from the seller.'s breach as determined in any manner which is reason-
ection 1- 201. able.
goods. Section 2- 103. (2) The meastire of damages for breach of warranty is the difference
ection 1- 201. at the time and · place of acceptance between the val u e of the goods
accepted · and the value they would have had if they had been as
.erest" . Section 1-20 l.
warranted, unless special circumstances show proximate damages of a
tion 2- 103. different arnount.
)f ·Substitute Goods (3) In a proper case any incidental and consequential damages
~tion the buyer may
under the next section may also be recovered.
lreasonable delay any Defiiútiónal Cross References: "Goods". Section 1- 201.
lds in substitution for
"Buyer" . Section 2-103. "Notification". Section 1- 201.
lamages the difference " Conform" . Section 2-106. "Seller". Section 2- 103.
ce together with any
305
§ 2-715 UNIFORM COMMERCIAL CODE

§ 2-715. · Buyer's Incidental and Consequential Damages § 2-718. Liq

(1) Incidental damages resulting from the seller's breach include (1) Damages
expenses reasonably incurred in inspection, receipt, transportation and agreement but onl
care and custody of goods rightfully rejected, any commercially reason- anticipated or actt
able charges, expenses or commissions in connection with effecting cover of loss, and the ir
and any other reasonable expense incident to the delay or other breach. an adequate reme
(2) Consequential damages resulting from the seller's breach in- ages is void as a pE
elude (2) Where the
(a) any .loss resulting from general or particular requirements of the buyer's bre~
and needs of which the seller at the time of contracting had by which the sum (
· reason to know and which could not reasonably be prevent- (a) the an
ed by cover or otherwise; and liquidf
(b) injury to person or property proximately resulting from any tion (1
breach of warranty. (b) in the
Definitiorial Cross References: "Person". Section 1-20 l. the to1
the cm
"Cover". Section 2-712. "Receipt" of goods. Section 2-103.
(3) The buyer'
"Goocis". Section 1-201. "Seller" . Section 2-103.
offset to the extent
§ 2-716. Bri.yer's Right to Specific Performance or Replevin (a) a righ
(1) Specific performance may be decreed where the goods are unique Article
or in other pr:oper circumstances. (b) the im
(2) ·The decree for specific performance may include such terms and directl:
conditions as to . payment of the price, damages, or other relief as the (4) Where a S{
court may deem just. value or the procee
(3) Th~ buyer has a right of replevin for goods identified to the purposes of subsec
contract if after reasonable effort he is unable to effect cover for su eh breach before resel
goods or the circumstances reasonably indicate that such effort will be subject to the coy;
unavailing dr if the goods have been shipped under reservation and aggrieved seller (Se
satisfaction óf the security interest in them has been made or tendered. Definitional Cross J
In the case of goods bought for personal, family, or household purposes,
"Aggrieved party".
the buyer's right of replevin vests upon acquisition of a special property,
even if the seller had not then repudiated or failed to deliver. "Agreement". Secti
"Buyer". Section 2-
Definitional Cross References: "Goods". Section 1-20 l.
"Buyer". Section 2- 103. "Rights" . Section 1- 201. § 2-719. Con1
(1) Subject to t
§ 2-717. . Deduction of Damages From the Price and of the precedir
The buyer on notifying the seller of his intention to do so may (a) the agr
deduct all or ~ny part of the damages r esulting from any breach of the substit1
contract frórri any part of the price still due under the same contract. or alte
Article,
Definitional Cross References: " Notifies" . Section 1- 201.
goods a
"Buyer". Section 2- 103. ment oJ
306
 'o/( ·':IP

ARTICLE 2: SALES § 2-719

ial Damages § 2-718. Liquidation or Limitation of Damages; Deposits

r's breach incJude (1) Damages for breach by either party may be liquidated in the
~ransportation and agreement but only at an amount which is reasonable in the light of the
nmercially reason- anticipated or actual harm caused by the breach, the difficulties of proof
l'ith effecting cover of loss, and the inconvenience or non-feasibility of otherwise obtaining
:1y or other breach. an adequate remedy. A term fixing unreasonably large liquidated dam-
ages is void as a penalty.
seller's breach in-
(2) Where the seller justifiably withholds delivery of goods because
of the buyer's breach, the buyer is entitled to restitution of any amount
cular requirements
by which the sum of his payments exceeds
: of contracting had
:;onably be prevent- (a) the amount to which the seller is entitled by virtue of terms
liquidating the seller's damages in accordance with subsec-
tion (1), or
resulting from any
(b) in the absence of such terms, twenty per cent of the value of
the total performance for which the buyer is obligated under
ion 1-201. the contract or $500, whichever is smaller.
)ods. Section 2- 103. (3) The buyer's right to restitution under subsection (2) is subject to
on 2- 103. offset to the extent that the seller establishes

1 ance or Replevin / (a) a right to recover damages under the provisions of this
Article other than subsection (1), and
;he goods are unique
(b) the amount or value of any benefits received by the buyer
directly or indirectly by reason of the contract. ·
lude such terms and
(4) Where a seller has received payment in goods their reasonable
r other relief as the
value or the proceeds of their resale shall be treated as payments for the
purposes of subsection (2); but if the seller has notice of the buyer's
¡ds identified to the breach before reselling goods received in part performance, his resale is
effect cover for .such .. subject to the conditions laid down in this Article on resale by an
tt such effort will be aggrieved seller (Section 2- 706).
tder reservation and
m made or tendered . Definitional Cross References: "Goods" . Section 2-105.
. household purposes; · "Aggrieved party:'. Section 1-201. "Action" . 1-201.
of a special property, "Agreement" . Section 1- 201. "Seller". Section 2-103.
o deliver.
"Buyer". Section 2-103. "Term". Section 1-201.
:tion 1-201.
§ 2-719. Contractual Modification or Limitation of Remed.y
ction 1-201.
(1) Subject to the provisiqns of subsections (2) and (3) of this section
Price and of the preceding secti<;m on liquidation and limitation of damages,
;ention to do so may (a) the agreement may provide for remedies in addition to or in
om any br~ach of the substitution for those provided in this Article and may limit
er the same contract. or alter the measure of damages recoverable under this
Article, as by limiting the buyer's remedies to return of the
3ection 1-201. goods and repayment of the price or to repair and replace-
ment of non-conforming goods or parts; and

307
 ·~. ,1

§ 2-719 UNIFORM COMMERCIAL CODE

(b) resort toa remedy as provided is optional unless the remedy actim
is expressly agreed to be exclusive, in which case it is the undeJ
sole remedy. that 1
(2) Where circumstances cause an exclusive or limited remedy to fail (b) if at
of its essential purpose, remedy may be had as provided in this Act. the ri
(3) Consequential damages may be limited or excluded unless the sale E
limitation or ~xclusion is unconscionable. Limitation of consequential tion e
damages for injury to the person in the case of consumer goods is prima own
facie unconscionable but limitation of damages where the loss is com- contr
mercial is not. (e) eithei
benef
Definitional Cross References: "Contract". Sectio"n 1- 201.
"Agreement". Section 1-201. "Goods" . Section 2- 105. Definitional Cros!
"Buyer". Section 2-103. "Remedy". Section 1-20 l. "Action". Section
"Conforming". Section 2-106. "Seller". Section 2- 103. "Buyer". Section
"Contract for sale
§ 2-720. Effect of "Cancellation" or "Rescission" on Claims
\ for Antecedent Breach § 2-723. Prc
Unless the contrary intention clearly appears, expressions of "can- (1) If an acti
cellation" or "rescission" of the contract or the like shall not be before the time fo
construed as a renunciation or discharge of any claim in damages for an any damages bas1
antecedent breach. shall be determinE
time when the agg
Definitional Cross References:
(2) If evidenc·
"Cancellation". Section 2- 106.
in this Article is
"Contract" . Section 1- 201. reasonable time bt
which in commerc
§ 2-721. Remedies for Fraud reasonable substi1
Remedies for material misrepresentation or fraud include all reme- proper allowance ¡
dies available under this Article for non-fr-audulent breach. Neither other place.
rescission or a claim for rescission of the contract for sale nor rejection (3) Evidence '
or return of the goods shall bar orbe deemed inconsistent with a claim . than the one de:
for damages or other remedy. admissible unless
Definitional Cross References: "Goods" . Section 1- 201. the court finds suf
"Contract for sale" . Section 2- 106. "Remedy". Section 1- 201. Definitional Cross
"Action". Section
§ 2-722. Who Can Sue Third Parties for Injury to Goods
"Aggrieved party"
Where a third party so deals with goods which have been identified
to a contract for sale as to cause actionable injury to a party to that . "Goods". Section:
contract
(a)' a right of action against the third party is in either party to
§ 2-724. Ad1
the contract for sale who has title to or a security interest or . Whenever th1
a special property or an insurable interest in the goods; and . bought and sold in
if the goods have been destroyed or converted a right of in official publicat

308
 ···~.

ARTICLE 2: SALES . § 2-724

unless the remedy action is also in the party who either bore the risk of loss
hich case it is the under the contract for sale or has since the injury assumed
that risk as against the other;
lited remedy to fail (b) if at the time of the injury the party plaintiff did not bear
tvided in this Act. the risk of loss as against the other party to the contract for
sale and there is no arrangement between them for disposi-
Kcluded unless the tion of the recovery, his suit or settlement is, subject to his
n of consequential own interest, as a fiduciary for the other party to the
mer ·goods is prima contra.ct;
re the loss is com-
(e) either party may with the consent of the other sue for the
benefit of whom it may concern.
;tiün 1- 201.
Definitional Cross References: "Goods". Section 2- 105.
m 2- 105.
"Action". Section 1-201. "Party". Section 1- 201.
tion 1-201.
"Buyer". Section 2- 103. "Rights". Section 1-201.
m 2- 103.
"Contract for sale". Section 2- 106. "Security interest''. Section 1-201.
ission" on Claims
§ 2- 723. Proof of Market Price: Time and Place
(1) If an action based on anticipatory repudiation comes to trial
~xpressions of "can-
like shall not be befare the time for performance with respect to sorne or all of the goods,
ahy damages based on market price (Section 2-708 or Section 2-713)
n in damages for an
shall be determined according to the price of sucli goods prevailing at the
time when the aggrieved party learned of the repudiation.
(2) If evidence of a price prevailing at the times or places described
in this Article is not readily available the price prevailing within any
reasonable time befare or after the time described or at any other place
which in commercial judgment or under usage of trade would serve as a
reasonable substitute for the one descri~ed lllay be used, making any
ud include all reme- proper allowance for the cost of transporting the goods to or from such
ent breach. N either other place.
"or sale nor rejection (3) Evidence of a relevant price prevailing at a time or place other
1sistent with a claim · than the one described in this Article offered by one party is not
admissible unless and until h e h as given the other party such notice as
the court finds sufficient to prevent unfair stirprise.
tion 1- 201.
3ction 1- 20 l. Definitional Cross References : "N otifies". Section 1- 20 l.
"Action". Section 1-201. "Party". Section 1- 201.
1jury to Goods "Aggrieved party". Section 1- 201. "Reasonable time". Section 1- 204.
have been identified "Usage of trade" . Section 1- 205.
"Goods". Section 2- 105.
~y to a party to that
~ 2-724. Admissibility of Ma:rket Quotations
y is in either party to
Whenever the prevailing price or value . of any goods regularly
· a security inter est or
bought and sold in any established commodity market is in issue, reports
rest in the' goods; and
in official publications or trade journals or in newspapers or periodicals
converted a right of
309
 § 2-724 UNIFORM COMMERCIAL CODE Al

of general circulation published as the reports of such market shall be

admissible in evidence. 'T'he circumstances of the preparation of such a ARTICLE
report may be shown to affec;t it s weight but not its admissibility.
§ 3-311. Ac,
Definitional Cross Reference:
(a) If a persa
"Goods". Section 2-105. person in good f:
satisfaction of the
§ 2-725. Statute ofLimitations in Contracts for Sale
subject to a bona :
(1) An action f<'>r breach of any contract for sale must be commenced the instrument, n
within four years after the cause of action has accrued. By the original
agreement the parties may reduce the period of limitation to not less (b) Unless st
than one year but may not extend it. person against wh
(2) A cause of action accrues whim the breach occurs, regardless of an accompanying
the aggrieved party's lack of knowledge of the breach. A breach of ment to the effect
warranty occurs when tender of delivery is made, except that where a of the claim.
warranty explicitly extends to future performance of the goods and (e) Subject to
discovery of the breach must await the time of such performance the tion (b) if either of
cause of action accrues when the breach is or should have been discover-
ed. (1) The e
(3) Where an action commenced within the time limited by subsec- reasor
tion (1) is so terminated asto leave available a r~:¡nedy by another action conspi

1 for the same breach such other action may. be commenced after the claim
expiration of the time limited and within six months after the termi- debts,
nation of the first action unless the termination resulted from voluntary of a d
discontinuance or from dismissal for failure or. neglect to prosecute. place,
(4) This section does not alter the law on tolling ofthe statute of tion w
limitations nor does it apply to causes of action which have accrued place.
before this Act becomes effective. (2) The el
Definitional Cross References: "Goods". Section 2-105. within
"Action". Section 1- 201. "Party". Section 1- 201. ant tm
the pe
"Aggrieved party". Section 1-201. "Remedy". Section 1-20 l.
graph
"Agreement". Section 1- 201. "Term". Section 1- 201. sent a
"Contract for sale". Section 2-106. "Termination". Section 2- 106.
(d) A claim is
asserted proves th:
iqstrument was in
háving direct respo:
·that the instrume

310
 ART.ICLE 3: NEGOTIABLE INSTRUMENTS § 3-311

tch market shall be ARTICLE · 3. NEGOTIABLE INSTRUMENTS

eparation of such a
)t its admissibility. § 3-311. Ac~m·d and Satisfaction by Use of Instrument
(a) If a person against whom a claim is asserted proves that (i) that
person in good faith tendered an instrument to the claimant as full
satisfaction of the chiiin, (ii) the amount of the claim was unliquidated or
ts for Sale subject to a bona fide dispute, and (iii) the claimant obtained payment of
must be commenced the instrument, the following subsections apply.
ued. By the original
(b) Unless subsection (e) applies, the claim is discharged if the
mitation to not less
person against whom the claim is asserted proves that the instrument or
an accompanying written communication contained a conspicuous state-
occurs, regardless of ment to the effect that the instrument was tendered as full satisfaction
>reach. A breach of of the claim.
except that where a
e of the goods and (e) Subject to subsection (d), a claim is not discharged under subsec-
tch performance the tion (b) if either of the following applies:
l have been discover-
(1) The claünant, if an organization, proves that (i) within a
reasonable time before the tender, the claimant sent a
1e limited by subsec- conspicuous statement to the person against whom the
~dy by another action
Claim .is a'sserted that communications concerning disputed
ommenced after the
debts, including an instrument tendered as full satisfaction
tths after the termi-
of a débt, are to be sent to a designated person, office, or
ulted from voluntary
1eglect to prosecute. place, imd (ii) the instrument or accompanying communica-
. t ion W a R not. rP.P-Aived by that designated person, office, Or
ing of the statute of
place.
which have accrued
(2) Th~ claill1ant, whether or not an organization, proves that
within 90. days after payment of the instrument, the claim-
tion 2-105.
ant .tendered repayment of the amount of the instrument to
;ion 1-201. the person against whom the claim is asserted. This para-
ection 1-201. graph .do es not apply if the claimant is an organization that
tion 1-201. sent a statement complying with paragraph (l)(i).
1 ". Section 2- 106. (d) A claim is discharged if the person against whom the claim is
asserted proves that within a reasonable time before collection of the
instrument was inítiated, the claimant, or an agent of the claimant
having direct responsibility with respect to the disputed obligation, knew
that the instrum~nt was tendered in full satisfaction of the claim.

311
 UNIFORN

Section
l. Short Title
2. Definitions
3. Scope
4. Prospective A
5. Use of Electr
Agreement
6. Construction :
7. Legal Recogni
Electronic C
8. Provision of Ir
9. Attribution an
10. Effect of Chan
11. Notarization a
12. Retention of E
13. Admissibility i
14. Automated Tr:
15. Time and Plac
16. Transferable li
[17. Creation and
Written Rec!
[18. Acceptance an1
Agencies]
[19. lnteroperabilit:

1
20. Severability
21. Effective Date

§ l. Short Titlc
This [Act] may

§ 2. Definition:
In this [Act]:
(1) "Agreemen
in their language o
regulations; and pr'
otherwise applicablE
(2) "Automatec
performed, in whole
in which the acts or
individual in the o
> '

UNIFORM ELECTRONIC TRANSACTIONS

ACT (UETA)
Table of Contents
Section
l. Short Title
2. Definitions
3. Scope
4. Prospective Application
5. Use of Electronic Records and Electronic Signatures; Variation By
Agreement
6. Construction and Application
7. Legal Recognition of Electronic Records, Electronic Signatures, and
Electronic Contracts
8. Provision of Information in Writing; Presentation of Records
9. Attribution and Effect of Electronic Record and Electronic Signature
10. Effect of Change or Error
11. Notarization and Acknowledgment
12. Retention of Electronic Records; Originals
13. Admissibility in Evidence
14. Automated Transaction
15. Time and Place of Sending and Receipt
16. Transferable Records
[17. Creation and Retention of Electronic Records and Conversion of
Written Records By Governmental Agencies]
[18. Acceptance and Distribution of Electronic Records By Governmental
Agencies]
[19. Interoperability]
20. Severability
21. Effective Date

§ l. Short Title
This [Act] may be cited as the Uniform Electronic Transactions Act.

§ 2. Definiti~ns
In this [Act]:
(1) "Agreement" means the bargain of the parties in fact, as found
in their language or inferred fróm other circumstances and from rules,
regulations, and procedures !Pven the effect of agreements under laws
otherwise applicable to a particular transaction.
(2) "Automated transaction" means a transaction conducted or
performed, in whole or in part, by electronic means or electrónic records,
in which the acts or records of one or both parties are not reviewed by an
individual in the ordinary course m forming a contract, performing

313
§2 UETA

under an existing contract, or fulfilling an obligation required by the (15) "State"

transaction. Columbia, Puert<
(3) "Computer program" means a set of statements or instructions or insular posses:
to be used directly or indirectly in an information processing system in term includes an
order to bring about a certain result. recognized by fed
(4) "Contract" means the total legal obligation resulting from the (16) "Trans~
parties' agreemen~ as affected by this [Act] and other applicable law. between two or
commercial, or gc
(5) "Electronic" means relating to technology having electrical,
digital, magnetic, wireless, optical, electromagnetic, or similar capabili- § 3. Scope
ties.
(a) Except m
(6) "Electronic agent" means a computer program or an electronic to electronic reco
or other automated means used independently to initiate an action or
respond to electronic records or performances in whole or in part, (b) This [Ac1
without review or action by an individual. governed by:
(1) a la"'
(7) "Electronic record" means a record created, generated, sent,
or te:
communicated, received, or stored by electronic means.
(2) [The
(8) "Electronic signature" means an electronic sound, symbol, or
and J
process attached to or logically associated with a record and executed or
adopted by a person with the intent to sign the record. (3) [the ·
(9) "Governmental agency" means an executive, legislative, or judi- (4) [othe
cial agency, department, board, commission, authority, institution, or (e) This [Act:
instrumentality of the federal government or of a State or of a county, otherwise exclud~
municipality, or other political subdivision of a State. (b) to the extent
(10) "Information" means data, text, images, sounds, codes, com-
subsection (b).
puter programs, software, databases, or the like. (d) A transa•
applicable substar
(11) "Information processing system" means an electronic system
for creating, generating, sending, receiving, storing, displaying, or pro-
cessing information.
§ 4. Prospect
This [Act] a¡:
(12) "Person" means an individual, corporation, business trust,
created, generatec
estate, trust, partnership, limited liability company, association, joint
the effective date ,
venture, governmental agency, public corporation, or any other legal or
commercial entity.
§ 5. Use of 1
(13) "Record" means information that is inscribed on a tangible Varia
medium or that is stored in an electronic or other medium and is (a) This [Act~
retrievable in perceivable form. generated, sent, c-
(14) "Security procedure" means a procedure employed for the or used by electr01
purpose of verifying that an electronic signature, record, or performance (b) This [Act:
is that of a specific person or for detecting · changes or errors in the which has agreed
information in an electronic record. The term includes a procedure that the parties agree
requires the use of algorithms or other codes, identifying words or mined from the e
numbers, encryption, or callback or other acknowledg1nent procedures. parties' conduct.
314

,,.!
.~rl ..\ '~-
 UETA §5
·,n required by the (15) "State" means a State of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any territory
or insular possession subject to the jurisdiction of the United States. The
:nts or instructions
term includes an Indian tribe or band, or Alaskan native village, which is
·ocessing system in
recognized by federallaw or formally acknowledged by a State.
(16) "Transaction" means an action or set of actions occurring
· resulting from the
between two or more persons relating to the conduct of business,
her applicable law. commercial, or governmental affairs ,
having electrical,
. or similar capabili- § 3. Scope
(a) Except as otherwise provided in subsection (b), this [Act] applies
am or an electronic to electronic records and electronic signatures relating to a transaction.
J.itiate an action or (b) This [Act] does not apply to a transaction to the extent it is
whole or in part, governed by:
(1) a law governing the creation and execution of wills, codicils,
Jd, generated, sent, or testamentary trusts;
LS.
(2) [The Uniform Commercial Code other than Sections 1- 107
~ sound, symbol, or and 1-206, Article 2, and Article 2A];
ord and executed or (3) [the Uniform Computer Information Transactions Act]; and
·. d.
(4) [other laws, if any, identified by State]. . .
!,legislative, or judi-
)rity, institution, or (e) This [Act] applies to an electronic record cir electronic signature
)tate or of a county, otherwise excluded from the application of this [Act] under subsection
(b) to the extent it is governed by a law other than those specified in
subsection (b).
sounds, codes, com-
(d) A transaction subject to this [Act] is also subject to other
applicable substantive law .
. · an electronic system
·. ~' displaying, or pro- § 4. Prospective Application
This [Act] applies to any electronic record or electronic signature
!;ion, business trust, created, generated, sent, communicated, received, or stored on or after
ny, association, joint the effective date of this [Act].
or any other legal or
§ 5. Use of Electronic Records and Electronic Signatures;
cribed on a tangible Variation By Agreement
ther medium and · is (a) This [Act] does not require a record or signature to be created,
generated, sent, communicated, received, stored, or otherwise processed
or used by electronic means or in electronic forro.
re employed for the
·~cord, or performance (b) This [Act] applies only to transactions between parties each of
1ges or errors in the which has agreed to conduct transactions ·by electronic means. Whether
1 des a procedure that the parties agree to conduct a transaction by electronic means is deter-
identifying words or mined from the context and surrounding circumstances, including the ·
rledgment procedures. parties' conduct.

315
§5 UETA

(e) A party that agrees to conducta transaction by electronic means mitted by a spec
may refuse to conduct other transactions by electronic means. The right formatted in a cer
·granted by this subsection may not be waived by agreement.
(1) The :
(d) Except as otherwise provided in this [Act], the effect of any of its specif
provisions may be varied by agreement. The presence in certain provi-
(2) Exce¡:
sions of this [Act] of the words "unless otherwise agreed", or words of
must
similar import, does not imply that the effect of other provisions may not
specif
be varied by agreement.
(3) The r
(e) Whether an electronic record or electronic signature has legal
mann
consequences is determined by this [Act] and other applicable law.
(e) If a sende1
§ 6. Construction and Application electronic record,
recipient.
This [Act] must be construed and applied:
(1) to facilitate electronic transactions consistent with other applica-
(d) The requi
ble law; ment, but:
(2) to be consistent with reasonable practices concerning electronic (1) to the
transactions and with the continued expansion of those practices; and tion te
that r
(3) to effectuate its general purpose to make uniform the law with ment
respect to the subject of this [Act] among States enacting it. formo
varied
§ 7. Legal Recognition of Electronic Records, Electronic Sig-
natures, and Electronic Contracts (2) a requ
comm1
(a) A record or signature may not be denied legal effect or enforce- age pr,
ability solely because it is in electronic form.
ap·een
(b) A contract may not be denied legal effect or enforceability solely
because an electronic record was used in its formation. § 9. Attributio
(e) If a law requires a record to be in writing, an electronic record tronic
satisfies the law. (a) An electrOJ
(d) If a law requires a signature, an electronic signature satisfies the person if it was tl
law . . shown in any manr
procedure applied t
§ 8. Provision of Information in Writing; Presentation of Rec- or electronic signat;
ords · (b) The effect ,
(a) If parties have agreed to conduct a transaction by electronic uted to a person un
means and a law requires a person to provide, send, or deliver informa- surrounding circun
tion in writing to another person, the requirement is satisfied if the adop.tion, including
information is provided, sent, or delivered, as the case may be, in an provided by law.
electronic record capable of retention by the recipient at the time of
receipt. An electronic record is not capable of retention by the recipient § 10. Effect of
if the sender or its informaticin processing system inhibits the ability of If a change or E
the recipient to print or store the electronic record. between parties to ~
(b) If a law other than this [Act] requires a record (i) to be posted or (1) If the
displayed in a certain manner, (ii) to be sent, communicated, or trans- detect <

316
 UETA § 10

lY electronic means mitted by a specified inethod, or (iii) to contain information that is

e means. The right formatted in a certain manner, the following rules apply:
~ment. (1) The r ecord must be posted or displayed in the manner
~ effect of any of its specified in the other law.
~e in certain provi- (2) Except as otherwise provided in subsection (d)(2), the record
rreed" or words of must be sent, ·communicated, or transmitted by the method
'provi;ions may not specified in the other law.
(3) The record must contaín the information formatted in the
signature has legal rriamier specified in the other law.
1er applicable law. (e) If a sender inhibits the ability of a recipient to store or print an
electronic record, the electronic record is not enforceable against the
recipient.
(d) The requirements of this section may not be varied by agree-
; with other applica- ment, but:
(1) to the extent a law other than this [Act] requires informa-
mcerning electronic tion to be provided, sent, or delivered in writing but permits
;hose practices; and that requirement to be varied by agreement, the require-
1iform the law with ment under subsection (a) that the information be in the
ting it. form of an electronic record capable of retention may also be
varied by .agreement; and
ls, Electronic Sig- (2) a requírement under a law other than this [Act] to send,
communicate,. or transmit a record by [first-class mail, post-
~al effect or enforce- age prepaid] [regular United States mail], may be varied by
agreement to the extent permitted by the other law.
enforceability solely
n. § 9. Attributio:ri. and Effect of Electronic Record and Elec-
tronic Signature
an electronic record
(a) An electronic record or electronic signature is attributable to a
person if it was the act 6f the person. The act of the person may be
ignature satisfies the shown in any mannet, including a showing of the efficacy of any security
procedure applied to determine the person to which the electronic record
or electronic signature was attributable.
·esentation of Rec-
(b) The effect of an electronic record or electronic signature attrib-
uted to a person under subsection (a) is determined from the context and
;action by electronic
surrounding circumstances at the time of its creation, execution, or
.l , or deliver informa- adoption, including the parties' agreement, if any, and otherwise as
nt is sat~sfied if the
provided by law.
case may be, in an
pient at the time of
§ 10. Effect of Change or Error
ttion by the recipient
inhibits the ability of If a change or error in an electronic record occurs in a transmission
between parties to a transaction, the following rules apply:
ord (i) to be posted or (1) If the parties have agreed to use a security procedure to
nnuni.cated , or trans- détect eh auges or errors and one party has conformed ·to the

317
§ 10 UETA

procedure, but the other party has not, and the nonconform- (b) A requireu
ing party would have detected the change or error had that (a) does not apply
party also .conformed, the conforming party may avoid the enable the record t
effect ofthe changed or erroneous electronic record.
(e) A person
(2) In an automated transaction involving an individual, the another person if
individual · ril.ay avoid the effect of an electronic record that (d) If a law r
resulted from an error made by the individual in dealing original form, or p1
with the electronic ag;ent of another person if the electronic retained in its orig
·agent did not provide an opportunity for the prevention or retained in accorda
correction of the error and, at the time the individuallearns
of the error, the individual: (e) If a law r
satisfied by retenti
(A) prmnptly notifies the other person of the error and that front and back of tl
the individual did not intend to be bound by the elec-
tronic.record received by the other person; (f) A record r'
subsection (a) satü
(B) takes reasonable steps, including steps that conform to evidentiary, audit,
the other person's reasonable instructions, to return to effective date of th
the other person or, if instructed by the other person, record for the speci:
to destroy the consideration received, if any, as a result
of the erroneous electronic record; and (C) has not used (g) This sectio
State from specify:
or .received any benefit or value from the consideration,
record subject to th
·if ahy, received from the other person.
(3) If neither·. paragraph (1) nor paragraph (2) applies, the § 13. Admissib
challge or error has the effect provided by other law, includ-
jng the ·law of mistake, and the parties' contract, if any. In a proceedin
excluded solely beca
(4) Paragraphs (2) and (3) may not be varied by agreement.
§ 14. Automatl
§ 11. N otadzation and Acknowledgment In an automaü),
If a law reqüires a sígnature or record to be notarized, acknowl- (1) A contract 1
edged, verified, or· made under oath, the requirement is satisfied if the of the parties, eve
electronic signature cif the person authorized to perform those acts, electronic agents' ac
together with all other information required to be included by other
applicable law, is attached to or logically associated with the signature or (2) A contract
record. ·agent and an indiv
another person, in<
§ 12. Retention of Electronic Re.cords; Originals performs actions th
which the individu
(a) If a law requires that a record be retained, the requirement is electronic agent to c,
satisfied by retaining an electronic record of the information in the
(3) The terms o
record which:
applicable to it.
(1) accurately reflects the information set forth in the record
after it was first · generated in its final form as an electronic § 15. Time and
record or otherwise; and
(a) Unless otheJ
(2) remains accessible for later reference. an electronic record :

318
 UETA § 15

1d the nonconform- (b) A requirement to retain a record in accordance with subsection

e or error had that (a) does not apply to any information the sole purpose of which is to
rrty may avoid the enable the record to be sent, communicated, or received.
nic record. (e) A person may satisfy subsection (a) by using the services of
an individual, the another person if the requirements of that subsection are satisfied.
!Ctronic record that (d) If a law requires a record to be presented or retained in its
dividual in dealing original forro, or provides consequences if the record is not presented or
;on if the electronic retained in its original form, that law is satisfied by an electronic record
r the prevention or retained in accordance with subsection (a).
b.e individual learns (e) If a law requires retention of a check, that requirement is
satisfied by retention of an electronic record of the information on the
f the error and that front and back of the check in accordance with subsection (a).
bound by the elec- CD A record retained as an electronic record in accordance with
>erson; subsection (a) satisfies a law requiring a person to retain a record for
eps that conform to evidentiary, audit, or like purposes, unless a law enacted after the
1ctions, to return to effective date of this [Act] specifically prohibits the use of an electronic
1y the other person, record for the specified purpose.
d, if any, as a result (g) This section does not preclude a governmental agency of this
md (C) has not used State from specifying additional requirements for the retention of a
m the consideration, record subject to the agency's jurisdiction.
)n.
ph (2) applies, the § 13. Admissibility in Evidence
by other law, includ- In a proceeding, evidence of a record or signature may not be
es' contract, if any. excluded solely because it is in electronic forro.
d by agreement.
§ 14. Automated Transaction
In an automated transaction, the following rules apply:
notarized, acknowl- (1) A contract may be formed by the interaction of electronic agents
mt is satisfied if the of the parties, even if no individual was aware of- or reviewed the
perform those acts, electronic agents' actions or the resulting terms and agreements.
,e included by other (2) A contract may be formed by the interaction of an electronic
with the signature or agent and an individual, acting on the individual's own behalf or for
another person, including by an interaction in which the individual
performs actions that the individual is free to refuse to perform and
pnals which the individual knows or has reason to know will cause the .
1, the requirement is electronic agent to complete the tninsaction or performance.
information in the (3) The terms of the contract are determined by the substantive law
applicable to it.
t forth ·in the record
forro as an electronic § 15. Time and Place of Sending and Receipt
(a) Unless otherwise agreed between the sender and the recipient,
an electronic record is sent when it:

319
 · .'lit" ;

§ 15 UETA

(1) is addressed properly or otherwise directed properly to an determined by ot

information processing system that the recipient has desig- the other law, th(
nated or uses for the purpose of receiving electronic records agreement.
or information of the type sent and from which the recipient
is able to retrieve the electronic record; § 16. Transfc
(2) is in a form capable of being processed by that system; and
(a) In this se·
(3) enters an information processing system outside the control that:
of the sender or of a person that sent the electronic record (1) woul(
on behalf of the sender or enters a region of the information
Code:
processing system designated or used by the recipient which
merci
is under the control of the recipient.
(2) the ü
(b) Unless otherwise agreed between a sender and the recipient, an
trans
electronic record is received when:
(b) A person
(1) it enters an information processing system that the recipi-
ployed for eviden<
ent has designated or uses for the purpose of receiving
reliably establishE
electronic records or information of the type sent and from
record was issued
which the recipient is able to retrieve the electronic record;
and (e) A system;
control of a tran:
(2) it is in a form capable of being processed by that system.
stored, and assign
(e) Subsection (b) applies even if the place the information process-
(1) a sin!
ing system is located is different from the place the electronic record is
deemed to be received under subsection (d). whicl:
vided
(d) Unless otherwise expressly provided in the electronic record or
(2) the m
agreed between the sender and the recipient, an electronic record ~s
deemed to be sent from the sender's place of business and to be received as:
at the recipient's place of business. For purposes of this subsection, the (A) t
following rules apply: o
(1) If the sender or recipient has more than one place of (B) il
business, the place of business of that person is the place r
having the closest relationship to the underlying transac- t
tion. (3) the m
(2) If the sender or the recipient does not have a place of by th(
business, the place of business is the sender's or recipient's (4) copies
residence, as the case may be. 6fthe
(e) An electronic record is received under subsection (b) even if no ofthe
individual is aware of its rec~ipt . (51 each e
(f) Receipt of an electronic acknowledgment from an information readil:
processing system described in subsection (b) establishes that a record copy;;
was received but, by itself, does not establish that the content sent (6) any n
corresponds to the content received. as aut
(g) If a person is aware that an electronic record purportedly sent (d) Except as
under subsection (a), or purportedly received under subsection (b), was ferable record is
not actually sent or received, the legal effect of the sending or receipt is Uniform Commerc
320
 UETA § 16
cted properly to an determined by other applicable law. Except to the extent permitted by
recipient has desig- the other law, the requirements of this subsection may not be varied by
lg electronic records agreement.
· t which the recipient
§ 16. Transferable Records
by that system; and (a) In this section, "transferable record" means an electronic record
1 outside the control that:
;he electronic record (1) would be a note under [Article 3 of the Uniform Commercial
·n of the information Code] or a 'document under [Article 7 of the Uniform Com-
' the recipient which mercial Code] if the electronic record were in writing; and
(2) the issuer of the electronic record expressly has agreed is a
md the recipient, an transferable record.
(b) A person has control of a transferable record if a system em-
;tem that the recipi- ployed for evidencing the transfer of interests in the transferable record
mrpose of receiving reliably establishes that person as the person to which the transferable
~ type sent and from record was issued or transferred .
.he electronic record;
(e) A system satisfies subsection (b), and a person is deemed to have
control of a transferable record, if the transferable record is created,
.l. by that system. stored, and assigned in such a manner that:
information process- (1) a single authoritative copy of the transf~rable record exists
. electronic record is which is unique, identifiable, and, except as otherwise pro-
vided in paragraphs (4), (5), and (6), unalterable;
1 lectronic record or (2) the authoritative copy identifies the person asserting control
J ectronic record is as:
-s and to be received
(A) the person to which the transferable record was issued;
· this subsection, the
or
than one place of (B) if the authoritative copy indicates that the transferable
person is the place record has been transferred, the person to which the
underlying transac- transferable record was most recently transferred;
(3) the authoritative copy is communicated to and maintained
not have a place of by the person asserting control or its designated custodian;
ender's or recipient's (4) copies or revisions that add or change an identified assignee
of the authoritative copy can be made only with the consent
section (b) even if no of the person asserting control;
(5) each copy of the authoritative copy and any copy of a copy is
from an information readily identifiable as a copy that is not the authoritative
tblishes that a record copy; and
. ~at the content sent (6) any revision of the authoritative copy is readily identifiable
as authorized or unauthorized:
~ord purportedly sent (d) Except as otherwise agreed, a person having control of a trans-
~r subsection (b), was ferable record is the holder, as defined in [Section 1- 201(20) of the
~ sending or receipt is Uniform Commercial Code], of the transferabl e record and has the same

321
§ 16 UETA

rights and defenses as a holder of an equivalent record or writing under mat

[the Uniform Commercial Code], including, if the applicable statutory elec1
requirements under [Section 3-302(a), 7-501, or 9-308 of the Uniform be 1
Commercial Code] are satisfied, the rights and defenses of a holder in docu
due course, a holder to which a negotiable document of title has been (3) cont
duly negotiated, or a purchaser, respectively. Delivery, possession, and adeq
indorsement are not required to obtain or exercise any of the rights dent
under this subsection.
(4) any
(e) Except as otherwise agreed, an obligar under a transferable are 1
record has the same rights and defenses as an equivalent obligar under so na
equivalent records or writings under [the Uniform Commercial Code].
(e) Except a:
(f) If requested by a person against which enforcement is sought, require a govern
the person seeking to enforce the transferable record shall provide electronic record:
reasonable proof that the person is in control of the transferable record.
Proof may include access to the authoritative copy of the transferable [ § 19. Inter'
record and related business records sufficient to review the terms of the
transferable record and to establish the identity of the person having The [govern
control of the transferable record. adopts standard~
consistency and
[ § 17. Creation and Retention of Electronic Records and other governmer
Conversion of Written Records By Governmental government and
Agencies tal agencies of t
differing levels o
[Each governmental agency] [The designated state officer] of this State may choos1
State shall determine whether, and the extent to which, [it] [a govern- particular applicE
mental agenP.y] will create and retain electronic records and convert
written records to electronic records.] § 20. Severa
[§ 18. Acceptance and Distribution of Electronic Records By If any provi
Governmental Agencies circumstance is l
sions or applicati
(a) Except as otherwise provided in Section 12(f), [each governmen- invalid provision
tal agency] [the [designated state officer]] of this State shall determine [Act] are severab
whether, and the extent to which, [it] [a governmental agency] will send
and accept electronic records and electrol}ic signatures to and from other § 21. Effecti
persons and othetwise create, generate, communicate, store, process,
use, and rely upon electronic records and electronic signatures. This [Act] ta
(b) To the extent that a governmental agency uses electronic rec-
ords and electronic signatures under subsection (a), the [governmental
agency] [designated state officer], giving due consideration to security,
may speci(y:
(1) the manner. and form.at in which the electronic records must
be created, generated, sent, communicated, received, and
stored and the syst ems established for those purposes;
(2) if electronic records must be. signed by electronic means, the
type of electronic signature required, the m ann er and for-

322
 l~ .· - ·
{{'

UETA § 21

1rd or writing under mat in which the electronic signature must be afflxed to the
applicable statutory electronic record, and the identity of, or criteria that must
308 of the Uniform be . met by, any thircl party used by a person filing a
:lnses of a holder in document to facilitate the process;
:nt of title has been (3) control processes and procedures as appropriate to ensure
ery, possession, and adequate pres~rvation, disposition, integrity, security, confi-
e any of the rights dentiality, and auditability of electronic records; and
(4) any other required attributes for electronic records which
nder a transferable are specified for corresponding nonelectronic records or rea-
valent obligar under sonably necessary under the circumstances.
1 Commercial Code].
(e) Except as otherwise provided in Section 12(D, this [Act] does not
:'orcement is sought, require a governmental agency of this State to use or permit the use of
·ecord shall provide electronic records or electronic signatures.]
transferable record.
r of the transferable [§ 19. Interoperability
iew the terms of the The [governmerital agency] [designated officer] of this State which
f the person having adopts standards pursuant to Section 18 may encourage an,d promote
consistency and interoperability with similar requirements adopted by
other governmental agencies of this and other States and the federal
()nic Records and government and nongovetnmental persons interacting with governmen-
By Governmental tal agencies of this State. If appropriate, those standards may specify
differing levels of standards from which governmental agencies of this
state officer] of this State may choose in. impleínenting the most appropriate standard for a
IV'hich, [it] [a govern- particular applicatlon:]
records and convert
§ 20. Severability Clause
If any provision of this [Act] or its application to any person or
~tronic Records By circumstance is held invalid, the invalidity does not affect other provi-
sions or applications of this· [Act] which can be given effect without the
(D, [each governmen- invalid provision or application, and to this end the provisions of this
3tate shall determine [Act] are severable.
1tal agency] will send
res to and from other § 21. Efféétive Date
.icate, store, process, This [Act] takes effect .- --
signatures.
y uses electronic rec-
i), the [gqvernmental
:ideration to security,

.ectronic records must

ticated, r eceived, and
those purposes;
electronic means, the
the manner ancl for-
323
 ELE
GLOBAL A

. . § 1 (15 u.s.c ..
This Act may
N ational Commen

ELECTB

§ 101 (15 u.s

(a) IN GENE
other rule of law 1
transaction in or a
(1) a sign
actiori
ability
(2) a con1
legal
electn
forma
(b) PRESERV
tle does not-
(1) limit,

1 a stat
and ol
rule o:
r ecord
(2) requir
record
agenc;
which
(e) CONSUMl
(1) CONS
ing su
law rE
t ransa
be pro
 ELECTRONIC SIGNATURES IN
GLOBAL AND NATIONAL COMMERCE ACT
(E-SIGN)
(excerpts)
§ 1 (15 U.S.C.A. § 7001 Note). Short Title.
This Act may be cited as the "Electronic Signatures in Global and
National Commerce Act".

TITLE I
ELECTRONIC RECORDS AND SIGNATURES
IN COMMERCE
§ 101 (15 U.S.C.A. § 7001). General Rule ofValidity.
(a) IN GENERAL.-Notwithstanding any statute, regulation, or
other rule of law (other than this title and title II), with respect to any
transaction in or affecting interstate or foreign commerce-
(1) a signature, contract, or other record relating to such trans-
action may not be denied legal effect, validity, or enforce-
ability solely because it is in electronic form; and
(2) a contract relating to such transaction may not be denied
legal effect, validity, or enforceability solely because an
electronic signature or electronic record was used in its
formation.
(b) PRESERVATION OF RIGHTS AND OBLIGATIONS.-This ti-
tle does not-
(1) limit, alter, or otherwise affect any requirement imposed by
a statute, regulation, or rule of law relating to the rights
and obligations of persons under such statute, regulation, or
rule of law other than a requirement that contracts or other
records be written, signed, or in nonelectronic form; or
(2) require any person to agree to use or accept electronic
records or electronic signatures, other than a governmental
agency with respect to a record other than a contract to
which it is a pa;rty.
(e) CONSUMER DISCLOSURES.-
(1) CONSENT TO ELECTRONIC RECORDS.-Notwithstand-
ing subsection (a), if a statute, regulation, or other rule of
law requires that information relating to a transaction or
transactions in or affecting interstate or foreign commerce
be provided or made available to a consumer in writing, the

325
§ 101 E-SIGN

use of an electronic record to provide or make . available

(whichever is required) such information satisfies the re-
quirement that such information be in writing if- I
(A) the consumer has affirmatively consented to such use (
and has not withdrawn such consent;
(B) the consumer, prior to consenting, is provided with a
clear and conspicuous statement-
(i) informing the consumer of (I) any right or option of
the consumer to have the record provided or made
available on paper or in nonelectronic form, and (II)
the right of the consumer to withdraw the consent
to have the record provided or made available in an
electronic form and of any conditions, consequences (2) OTHl
(which may inelude termination of the parties' rela- (A) I
tionship), or fees in the event of such withdrawal; l'
(ii) informing the consumer of whether the consent d
applies (l) only to the particular transaction which n
gave rise to the obligation to provide the record, or r·
(II) to identified categories of records that may be
(B) \i
provided or made available during the course of the tl
parties' relationship;
(iii) describing the procedures the consumer must use n
to withdraw consent as provided in clause (i) and
to update information needed to contact the con- e
sumer electronically; and ti
(iv) informing the consumer (I) how, after the consent, q
the consumer may, upon request, obtain a paper (3) EFFE
copy of an electronic record, and (II) whether any SENT
fee will be charged for such copy; effecti
(C) the consumer- cuted
the fa
(i) prior to consenting, is provided with a statement of . conser
the hardware and software requirements for access (l)(C)I
to and retention of the electronic records; and
(4) PROS
(ii) consents electronically, or confirms his or her con-
sumer
sent electronically, in a manner that reasonably enforc
demonstrates that the consumer can access infor- able t
mation in the electronic form that will be used to prior
provide the information that is the subject of the con ser
consent; and tive w
(D) after the consent of a consumer in accordance with withdr
subparagraph (A), if a change in the hardware or with p
software requirements needed to access or retain elec- be tre:
tronic records creates a material risk that the consumer paragr

326

..... ~:k.
 E-SIGN § 101

~ or make available will not be able to access or retain a subsequent elec-

ion satisfies the re- tronic record that was the subject of the consent, the
vriting if- person providing the electronic record-
nsented to such use (i) provides the consumer with a statement of (l) the
lt; revised hardware and software requirements for
access to and retention of the electronic records,
;, is provided with a
and (Il) the right to withdraw consent without the
imposition of any fees for such withdrawal and
my right or option of . without the imposition of any condition or conse-
rd provided or made quence that was not disclosed under subparagraph
ctronic form, and (JI) (B)(i); and
rithdraw the consent
(ii) again complies with subparagraph (C).
made available in an
:iitions, consequences (2) OTHER RIGHTS.-
n of the parties' rela- (A) PRESERVATION OF CONSUMER PROTECTIONS.-
of such withdrawal; Nothing in this title affects the content or timing of any
Nhether the consent disclosure or other record required to be provided or
lar transaction which made available to any consumer under any statute,
)rovide the record, or regulation, or other rule of law.
records that may be (B) VERIFICATION OR ACKNOWLEDGMENT.-If a law
ring the course of the that was enacted prior to this Act expressly requires a
record to be provided or made ·a.vailable by a specified
e consumer must use method that requires verification or acknowledgment of
ided in clause (i) and receipt, the record may be provided or made available
d to contact the con- electronically only if the method used provides verifica-
tion or acknowledgment of recéipt (whichever is re-
quired).
ow, after the consent,
1uest, obtain a paper (3) EFFECT OF FAILURE TO OBTAIN ELECTRONIC CON-
and (ll) whether any SENT OR CONFIRMATION OF. CONSENT.-The legal
)py; effectiveness, validity, or enforceability of any contract exe-
cuted by a consumer shall not be denied solely because of
the failure to obtain electronic consent or confirmation of
d with a statement of consent by that consumer in accordance with paragraph
quirements for access (l)(C)(ii).
n.ic records; and (4) PROSPECTIVE EFFECT.-Withdrawal of consent by a con-
n.firms his or her con- sumer shall not affect the legal effectiveness, validity, or
nner that reasonably enforceability of electronic records provided or made avail-
roer can access infor- able to that consumer in accordance with paragraph (1)
n that will be used to prior to implementation of the consumer's withdrawal of
, is the subject of the consent. A consumer's withdrawal of consent shall be effec-
tive within a reasonable period of time after receipt of the
:r in accordance with withdrawal by the provider of the record. Failure to comply
in the hardware or with paragraph (l)(D) may, at the election of the consumer,
, access or retain elec- be treated as a withdrawal of consent for purposes of this
risk that the consumer paragraph.

327
§ 101 E-SIGN

(5) PRIOR CONSENT.-This subsection does not apply to any relating to a tran
records that are provided or made available to a consuroer be in writing, the
who has consented prior to the effective date of this title to record of such cm
receive such records in electronic forro as permitted by any record is not in a
statute, regulation, or other rule of law. reproduced for lat
(6) ORAL COMMUNICATIONS.-An oral coromunication ora to retain the contJ
recording of an oral communication shall not qualify as an (f) PROXIMI'
electronic record for purposes of this subsection except as quired by any stat
otherwise provided under applicable law. warning, notice, <
(d) RETENTION OF CONTRACTS AND RECORDS.- played, or publicly
(1) ACCURACY AND ACCESSIBILITY.-If a statute, regula- (g) NOTARI2
tion, or other rule ot: law requires that a contract or other regulation, or oth«
record relating to a transaction in or affecting interstate or a transaction in
foreign comroerce be retained, that requirement is met by notarized, acknow
retaining an electronic record of the information m the is satisfied if the e
contract or other record that- those acts, togethE
(A) accurately reflects the inforroation set forth m the other applicable ~
contract or other record; and logically associatec
(B) remains accessible to all persons who are entitled to (h) ELECTR<
access by statute, regulation, or rule of law, for the to a transaction iJ
period required by such statute, regulation, or rule of be denied legal eff
law, in a forro that is · capable of being accurately tion, creation, or
reproduced for later reference, whether by transrois- agents so long a:
sion, printing, or otherwise. attributable to thE
(2) EXCEPTION.-A requirement to retain a contract or other (i) INSURAN
record in accordance with paragraph (1) does not apply to title and title 11 a¡:
any inforroation whose sole purpose is to enable the contract (j) INSURAN
or other record to be sent, . cororounicated, or received. or broker acting
(3) ORIGINALS.-If a statute, regulation, or other rule of law contract by means
requires a contract or other record relating to a transaction be held liable for E
in or affecting interstate or foreign cororoerce to be provid- the parties under 1
ed, available, or retained in its' original form, or provides
(1) the a¡
consequences if the contract or other record is not provided,
or int
available, or retained in its original form, that statute,
regulation, or rule of law is satisfied by an electronic record (2) the a~
that complies with paragraph (1). establ
(4) CHECKS.- If a statute, regulation, or other rule of law (3) the aÉ
requires the retention of a check, that requirement is satis-
fied by retention of an electronic record of the inforroation § 102 (15 u.s
on the frol)t and b.ack of the check in accordance with (a) IN GENE
paragraph (1). may modify, liroi
(e) ACCURACY AND ABILITY TO RET AIN CONTRACTS AND respect to State l
OTHER RECORDS.- Notwithstanding subsection (a), if a statute, r egu- (1) consti
lation, or other rule of law reqmres that a contract or other record tronic
328
 E-SIGN § 102
loes not apply to any relating to a transaction in or affecting interstate or foreign commerce
tilable to a consumer be in writing, the legal effect, validity, or enforceability of an electronic
e date of this title to record of such contract or other record may be denied if such electronic
as permitted by any record is not in a form that is capable of being retained and accurately
reproduced for later reference by all parties or persons who are entitled
. communication or a to retain the contract or other record .
tall not qualify as an (f) PROXIMITY.--:-Nothing in this title affects the proximity re-
subsection except as quired by any statute, regulation, or other rule of law with respect to any
V. warning, notice, . djsclosure, or other record required to be posted, dis-
)RDS.- played, or publicly affixed.
-If a statute, regula- (g) NOTARIZATIQN AND ACKNOWLEDGMENT.-If a statute,
t a contract or other regulation, or other rule of law requires a signature or record relating to
tffecting interstate or a transaction in or affecting interstate or foreign commerce to be
,quirement is met by notarized, acknowledged, verified, or made under oath, that requirement
! information m the is satisfied if the eleéttoiüc signature of the person authorized to perform
those acts, together with all other information required to be included by
on set forth in the other applicable statute, regulation, or rule of law, is attached to or
logically associated with the signature or record.
who are entitled to (h) ELECTRONIG AGENTS.-A contract or other record relating
rule of law, for the to a transaction in or ·affecting interstate or foreign commerce may not
regulation, or rule of be denied legaleffect, va]idity, or enforceability solely because its forma-
of being accurately tion, creation, or ·dellvery involved the action of one or more electronic
rhether by transmis- agents so long as .the· action of any such electronic agent is legally
attributable to 'the perso.n to be bound.
.n a contract or other (i) INSURANCE.:.,_,_It is the specific intent of the Congress that this
(1) does not apply to title and title U apply to the business of insurance.
to enable the contract (j) INSURANCE AGENTS AND BROKERS.-An insurance agent
nicated, or received. or broker acting . under the direction of a party that enters into a
, or other rule of law contract by means of an :electronic record or electronic signature may not
1ting to a transaction be held liable for ariy deficiency in the electronic procedures agreed to by
mmerce to be provid- the parties under that contract if-
wl form, or provides (1) . the agerit or broker has not engaged in negligent, reckless,
ecord is not provided, or intentional tortious conduct;
form, that statute,
y an electronic record
(2) the agent or broker was not involved in the development or
establishment of such electronic procedures; and
x other rule of law (3) the. agent .or broker did not deviate from such procedures.
requil:ement is satis-
rd of the information § 102 (15 U.S.C.A. § 7002). Exemption to Preemption.
in accordance with (a) IN GENERAL.- A State statute, regulation, or other rule of law
may modify, limit, or supersede the provisions of section 101 with
CONTRACTS AND respect to State law only if such statute, regulation, or rule of law-
(a), if a statute, regu- (1} constitutes an enactment or adoption of the Uniform Elec-
;ract or other record tronic Transactions Act as approved and recommended for

329
§ 102 E-SIGN

enactment in all the States by the National Conference of (b) ADDITIOI\

Commissioners on Uniform State Laws in 1999, except that shall not apply to--
any exception to the scope of such Act enacted by a State (1) court e
under section 3(b)(4) of such Act shall be preempted to the ing bri
extent such exception is inconsistent with this title or title executE
II, or would not be permitted under paragraph (2)(A)(ii) of
this Sl.lbsection; or (2) any no1
(A) th
(2)(A) specifies the aiternative procedures or requirements for
eh
· the use or acceptance (or both) of electronic records or
.electronic signatures to establish the legal effect, validity, (B) de
or enforceability of contracts or other records, if- ti o
se<
(i) such alternative procedures or requirements are consis- de1
tent with this title and title II; and
(C) th(
(ii) . su eh alterna tive procedures o.r requirements do not beJ
require, or accord greater legal status or effect to, the or
implementation or application of a specific technology
(D) re<
or technical specification for performing the functions
ris.
of creating, storing, generating, receiving, communicat-
ing, or authenticating electronic records or electronic (3) any doc
signatures; and handlin
dangerc
(B) íf enacted or adopted after the date of the enactment of this
(e) REVIEW 01
Act, niakes specific reference to this Act.
(1) EVALU
(b) EXCEPTIONS FOR ACTIONS BY STATES AS MARKET PAR-
acting t
TICIPANTS.:___:Subsection (a)(2)(A)(ii) shall not apply to the statutes,
and Inf
regulations, or other rules of law governing procurement by any State, or
tions in
any agency or,instrumentality thereof.
3 years,
(e) PREVENTIQN OF CIRCUMVENTION.-Subsection (a) does for· the ·
not permit a · State to circumvent this title or title II through the date of,
imposition of n.onelectronic delivery methods under section 8(b)(2) of the submit
U niform Electronic Transactions Act. valuatio
(2) DETER
§ 103 (15 U.S.C.A. § 7003). Specific Exceptions. respect
(a) EXCEPTED REQUIREMENTS.- The provisions of section 101 notice a
shall not apply to a contract or other record to the extent it is governed lishes a
by- longer n
nating s
(1) a statute, regulation, or other rule of law governing the
harm to
creation and execution of wills, codicils, or testamentary
of sectio
trusts;
. (2) a State statute, regulation, or other rule of law governing §· 106 (15 u.s.c
adoption, divorce , or other matters of family law; or For purposes of 1
. (3) . the Uniform Commercial Code, as in effect in any State, (1) CONSUJ
other than sections 1-107 and 1-206 and Articles 2 and 2A. who obt

330
 "''
--~i

E- SIGN § 106

;ional Conference of (b) ADDITIONAL EXCEPTIONS.-The provisions of section . 101

in 1999, except that shall not apply to-
; enacted by a State (1) court orders or notices, or official court documents (includ-
be preempted to the ing briefs, pleadings, and other writings) required to be
ith this title or title executed in connection with court proceedings;
tragraph (2)(A)(ii) of (2) any notice of-
(A) the cancellation or termination of utility services (in-
or requirements for cluding water,. heat, and power);
:Jlectronic records or
(B) default, acceleration, repossession, foreclosure, or evic-
legal effect, validity,
tion, or the right to cure, under a credit agreement
r records, if-
secured by, or a rental agreement for, a primary resi-
tirements are consis- dence of an individual;
(C) the cancellation or termination of health insurance or
equirements do not benefits or life insurance benefits (excluding annuities);
ltus or effect to, the or
a specific technology (D) recall of a product, or material failure of a product, that
>rming the functions risks endangering health or safety; or
ceiving, communicat-
(3) any document required to accompany any transportation or
records or electronic
handling of hazardous materials, pesticides, or other toxic or
dangerous materials.
~he enactment of this (e) REVIEW OF EXCEPTIONS.-
t.
(1) EVALUATION REQUIRED.-The Secretary of Commerce,
S AS MARKET PAR- acting through the Assistant Secretary for Communications
pply to the statutes, and Information, shall review the operation of the excep-
ment by any State, or tions in subsections (a) and (b) to evaluate, over a period of
3 years, whether such exceptions continue to be necessary
-Subsection (a) .does· · for the protection of consumers. Within 3 years after the
title II through the date of enactment of this Act, the Assistant Secretary shall
section 8(b)(2) of the submit a report to the Congress on the results of such e
valuation. -
(2) DETERMINATIONS.- If a Federal regulatory agency, with
ions. respect to matter within its jurisdiction, determines after
notice and an opportunity for public comment, and pub-
visions of section 101
lishes a finding, that one or more such exceptions are no
, extent it is governed
longer necessary for the protection of consumers and elimi-
nating such exc~ptions will not increase the material risk of
of law governing the harm to consume·rs, such agency may extend the application
.cils, or testamentary . of section 101' to the exceptions identified in such finding.

rule of law governing § 106 (15 U.S.C.A. § 7006). Definitions.

'amily law; or For purposes of this title:
1 effect in any State, (1) CONSUMER.- The term "consumer" means an individual
md Articles 2 and 2A. who obtains, through a transaction, products or services

331
 ··r.o~

§ 106 E-SIGN

which are used primarily for personal, family, or household organ

purposes, and also means the legal representative of such an by ant
individual.
(12) STAT
(2) ELECTRONIC.-The term "electronic" means relating to bia a
technology having electrical, digital, magnetic, wireless, opti-
State E
cal, electromagnetic, or similar capabilities.
(13) TRM
(3) ELECTRONIC AGENT.-The term "electronic agent"
tion o
means a computer program or an electronic or other auto-
consm
mated means used independently to initiate an action or
persor
respond to electronic records or performances in whole or in
part without review or action by an individual at the time of (A) thE
the action or response. of
(4) ELECTRONIC RECORD.-The term "electronic record"
ble
means a contract or other record created, generated, sent, (B) thE
communicated, received, or stored by electronic means. int
(5) ELECTRONIC SIGNATURE.-The term "electronic signa-
ture" means an electronic sound, symbol, or process, at- § 201 (15 U.S.(
tached to or logically associated with a contract or other (a) DEFINITIO
record and executed or adopted by a person with the intent
(1) TRANS
to sign the record.
ord" mE
(6) FEDERAL REGULATORY AGENCY.-The term "Federal
regulatory agency" means an agency, as that term is defined (A) WOl

in section 552(f) of title 5, United States Code. me1

(7) INFORMATION.-The term "information" means data, (B) the
text, images, sounds, codes, computer programs, software, is a
databases, or the like. (C) rela
(8) PERSON.-The term "person" means an individual, corpo- A transferable n
ration, business trust, estate, trust, partnership, limited
liability company, association, joint venture, governmental (2) OTHER
agency, public corporation, or any other legal or commercial "electr01
entity. ings pro'
(9) RECORD.-The term "record" means information that is (b) CONTROL.-
inseribed on a tangible medium or that is stored in an system employed for
electronic or other medium and is retrievable in perceivable able record relíably 1
form. transferable record w
(10) REQUIREMENT_.-The term "requirement" includes a (e) CONDITION
prohibition. is deemed to have e'
record is created, sto1
(11) SELF-REGULATORY ORGANIZATION.-The term "self-
regulatory organization" means an organization or entity (1) a single
that is not a Federal regulatory agency or a State, but that which is
is under the supervision of a Federal regulatory agency and vided in·
is authorized under Federal law to adopt and administer (2) the autht
rules applicable to its members that are enforced by such as-
332
 E-SIGN § 201
family, or household organization or entity, by a Federal regulatory agency, or
·esentative of such an by another self-regulatory organization.
(12) STATE.-The term "State" includes the District of Colum-
:" means relating to bia and the territories and possessions of the United
tgnetic, wireless, opti- States.
ties.
(13) TRANSACTION.-The term "transaction" means an ac-
"electronic agent" tion or set of actions relating to the conduct of business,
:tronic or other auto- consumer, or commercial affairs between two or more
initiate an action or persoris, including any of the following types of conduct-
nances in whole or in
tividual at the time of (A) the sale, lease, exchange, licensing, or other disposition
of (i) personal property, including goods and intangi-
bles, (ii) services, and (iii) any combination thereof; and
"electronic record"
1ted, generated, sent, (B) the sale, lease, exchange, or other disposition of any
lectronic means. interest in real property, or any combination thereof.
rm "electronic signa-
mbol, or process, at-
§ 201 (15 U.S.C.A. § 7021). Transferable Records.
a contract or other (a) DEFINITIONS.-For purposes of this section:
erson with the l.ntent (1) TRANSFERABLE RECORD.-The term "transferable rec;-
ord" means an electronic record that-
- The term "Federal (A) would be a note under Article ·3 of the Uniform Com-
.s that term is defined mercial Code if the electronic record were in writing;
~s Code.
(B) the issuer of the electronic record expressly has agreed
1ation" means data,
is a transferable record; and
: programs, software,
(C) relates to a loan secured by real property.
: an individual, corpo- A transferable record may be executed .using an electronic signature.
partnership, limited (2) OTHER DEFINITIONS.-The terms "electronic record",
enture, governmental "electronic signature", and "person" have the same mean-
~r legal or commercial
ings provided in section 106 of this Act.
(b) CONTROL.-A person has control of a transferable record if a
s information that is
system employed for evidencing the transfer of interests in the transfer-
that is stored in an
able record reliably establishes that person as the person to which the
·ievable in perceivable
transferable record was issued or transferred.
(e) CONDITIONS.- A system satisfies subsection (b), and a person
tirement" .includes a
is deemed to have control of a transferable record, if the transferable
record is created, stored, and assigned in such a manner that-
lON.-The term "self-
Jrganization or entity (1) a single authoritative copy of the transferable record exists
cy or a State, but that which is unique, identifiable, and, except as otherwise pro-
regulatory agency and vided in paragraphs (4), (5), and (6), unalterable;
adopt and administer (2) the authoritative copy identifies the person asserting control
are enforced by such as-

333
 § 201 E-SIGN

(A) the person to which the transferable record was issued;

or
(B) if the authoritative copy indicates that the transferable UNITE1
record has been transferred, the person to which the
transferable record was most recently transferred;
CONTRA4
(3) the authoritative copy is communicated to and maintained
by the person asserting control or its designated custodian;
(4) copies or revisions that add or change an identified assignee
of the authoritative copy can be made only with the consent
of the person asserting control;
Since January
(5) each copy of the authoritative copy and any copy of a copy is subject to the Co
readily identifi.able as a copy that is not the authoritative Goods (CISG) . Wit
copy; and much of Article 2.
(6) any revision of the authoritative copy is readily identifi.able for example, the
as authorized or unauthorized.
The Conventi<
(d) STATUS AS HOLDER.-Except as otherwise agreed, a person parties whose pla<
having control of a transferable record is the holder, as defi.ned in section States are Contrae
1-201(20) of the Uniform Commercial Code, of the transferable record autonomy of the p
and has the same rights and defenses as a holder of an equivalent record this Convention o
or writing under the Uniform Commercial Code, including, if the applica- provisions" (CISG
ble statutory requirements under section 3-302(a), 9-308, or revised law that relate to '
section 9-330 of the Uniform Commercial Code are satisfied, the rights
or of any usages."
and defenses of a holder in due course or a purchaser, respectively.
Delivery, possession, and endorsement are not r equired to obtain or Work on the C
exercise any of the rights under this subsection. Institute for the 1
(e) OBLIGOR RIGHTS. -Except as otherwise agreed, an obligor auspices of the L
under a transferable record has the same rights and defenses as an European scholars
equivalent obligor under equivalent records or writings under the Uni- the outbreak of th
form Commercial Code. first draft, solicited
draft taking accour
CD PROOF OF CONTROL.-If requested by a person against which
enforcement is sought, the person seeking to enforce the transferable After the War
record shall provide reasonable proof that the person is in control of the further work, solic
transferable record. Proof may include access to the authoritative copy of vened a diplomatic
the transferable record and related business r ecords suffi.cient to review uniform law on tl

1 the terms of the transferable record and to establish the identity of the
person having control of the transferable record.
(g) UCC REFERENCES.-For purposes of this subsection, all refer-
ences to the Uniform Commercial Code are to the Uniform Commercial
companion uniforn
tional.sale of goods
1: The United StatE
declaration described in
Code as in effect in the jurisdiction the law of which governs the 2. In this context '
tions a nd "Contractin¡
transferable record. The United States die! n
which would have give
broacler application.
3. For a clefi niti ve tr
ve ntion, see J. Honnol•

334

-·'~.
.e record was issued;

;hat the transferable UNITED NATIONS CONVENTION ON

>erson to which the CONTRACTS FOR THE INTERNATIONAL
;ly transferred;
· SALE OF GOODS
l to and maintained
esignated custodian;
n identified assignee
nly with the consent .· COMPILERS' NOTE
Since January 1, 1988 American exporters and importers have been
any copy of a copy is subject to the Convention on Contracts for the International Sale of
.ot the authoritative Goods (CISG). With respect to transactions within its scope, it displaces
much of Article 2, Sales, of the Uniform Commercial Code-including,
s readily identifiable for example, the requirements of the statute of frauds (CISG 11). 1
The Convention ''applies to contracts for the sale of goods between
ise agreed, a person parties whose places of business are in different States . . . when the
as defined in section States are Contra:cting States" (CISG 1). 2 The Convention preserves the
l transferable record autonomy of the parties by allowing them to "exclude the application of
an equivalent record this Convention or . . . derogate from or vary the effect of any of its
.uding, if the applica- provisions;, (CISG 6J. The Convention does not displace rules of national
.), 9-308, or revised law that relate to "the validity of the contract or of any of its provisions
, satisfied, the rights or of any usages." tCISG 4(a)). 3
·chaser, respectively.
'quired to obtain or Work on the Convention began in the 1930s when the International
Institute for the U:rlification of Prívate Law in Rome, then . under the
auspices of the "League of Nations, set up a drafting committee of
l agreed, an obligar
European scholars to work on a uniform law for international sales. By
and defenses as an
the outbreak of the Second World War, the committee had prepared a
;ings under the Uni-
first draft, solicited comments from governments, and prepared a revised
draft taking accou1;1t ofthese comments.
person against which
lrce the transferable After the War the Dutch Government appointed a commission todo
•n is in control of the further work, solicited comments from governments and, in 1964, con-
authoritative copy of vened a diplomatic conference at The Hague. The conference approved a
s sufficient to review uniform law on the international sale of goods (ULIS) and a shorter
:h the identity of the companion uniform law on the formation of contracts for the interna-
tional sale of g()ods.
subs.ection, all refer- l. The United States did not ma ke the International Sales under the 1980 U.N.
U~iform Commercial declaration described in CISG 12. Convention (3d ed. 1999). See also C. Bian-
2. In this context "States" means na- ca, M. Bonell et al., Commentary on the
· which governs the tions and · ' 'Coi1tracting" nieans adopting. International Sales Law: The 1980 Vienna
The United States did not ac~ept CISG l(b), Convention (1987); P . Schlechtriem et al. ,
which would have given the Convention a Commentary on the UN Convention on the
broader applica tion. International Sale of Goods (CISG) (G.
3. For a definitiv e treatment of th e Con·· Thomas trans. 2d ed. 1998).
vention, see ·J. Honnóld; Uníform Law for

335
 <·UNITED NATIONS CONVENTION

Although the United States had quickly put together a delegation to

The Bague to consider a draft prepared by a group of exclusively
European scholars, that delegation's influence was not pervasive enough
to produce a final text that justified United States ratification. 4 Never-
CONV1
theless, ULIS did receive eight adoptions by other countries, enough for TE
it to take effect.
Even befare ULIS had taken effect, however, efforts were afoot
under United Nations auspices to produce a revised international sales
law that would be more widely acceptahle. In 1966, the United Nations
General Assembly established the United Nations Commission on Inter- THE sr
national Trade Law (UNCITRAL). The Commission has "for its object Bearing in m
the promotion of the progressive harmonization and unification of the the sixth special ~
law of international trade." Its members include common law as well as on the establishm
civil law countries, developing ¡;¡_s well as industrialized countries, and
Considering t
countries with centrally planned economics as well as those with free - of equality and n
market economies.
friendly relations ¡
In 1969, UNCITRAL appointed a fourteen-member Working Group
Being of the Oj
on Sales to consider what changes in ULIS would make it more accept-
contracts for the ·
able to countries of varied legal, social, and economic systems. The
different social, e
United States was an active member of this Working Group from its
removal of legal b¿
inception: In 1977 UNCITRAL revised and approved a text of CISG
ment of internatio
prepared by the Working Group on Sales, and in 1978 it integrated into
CISG additional p¡;o:visions on formation and interpretation. In 1980, the Have agreed a
United Nations held in: Vienna a diplomatic confet ence to propase a final
text of CISG. Mte:r five weeks of intensive effort by the sixty-two Part l. Sp
countries ·repn~sented, ·CISG-often r eferred to as "the Vienna Conven- CHA
tion"-was adopted . .
The final ptoduct . of this half-century of work consists of eighty-
eight substantive articles (what we in the United States would call (1) This Conv
"sections") plus -thirteen more articles on effective date, r eservations, parties whose plac(
and the like. Only the eighty-eight substantive articles are set out below. (a) When
CISG took effect following adoption by ten countries. It has now been (b) When
adopted by .76 couritries, including the United S tates.
applicE
4. The traditional scheme for interna- cation within the United States is that a (2) The fact H
tional unification results in a multilat eral country ratifying or acceding to a treaty
treaty, put in fin al form at a diplomatic cannot make ch anges in its text, except for ent States is to be ,
confer ence an d then adopted by ratification a few variations th at the diplomatic confer- from the contract
or accession . One important differ ence be- ence has allowed countries to make by disclosed by, the p;
tween this scheme and that used for unifi- means of r eservations.
contract.
(3) Neither th(
character of the pa
atiori in deterÍninin

This Conventio

336
1 gether a delegation to
group of exclusively
not pervasive enough CONVENTION ON CONTRACTS FOR
s ratification.4 Never-
countries, enough for THE INTERNATIONAL SALE
OFGOODS
r, efforts were afoot
<Jd international sales
' . 3, the United Nations
THE STATES PARTIES TO THIS CONVENTION,
Commission on Inter-
)n has "for its object Bearing in mind the broad objectives in the resolutions adopted by
md unification of the the sixth special session of the General Assembly of the United Nations
)mmon law as well as on the establishment of a New International Economic Order,
ialized countries, and Considering that the development of international trade on the basis
:11 as those with free- of equality and mutual benefit is an important element in promoting
friendly relations among States,
:mber Working Group Being of the opinion that the adoption of uniform rules which govern
make it more accept- contracts for the international sale of goods and take into account the
onomic systems. The . different social, economic and legal systems would contribute to the
rking Group from its removal of legal barriers in ínternational trade and promote the develop-
~oved a text of CISG ment of international trade,
L978 it integrated into
Jretation. In 1980, the Have agreed as follows:
~nce to propose a final
Part l. Sphere of application and general provisions
fort by the sixty-two
"the Vienna Conven- CHAPTER I. SPHERE OF APPLICATION
Article 1
rk consists of eighty-
(1) This Convention applies to contracts of sale of goods between
Ged States would call
parties whose places of business are in different States:
ive date, r eservations,
icles are set out below. (a) When the States are Contracting States; .or
;ries. It has now been (b) When the rules of private international law lead to the
es. application of the law of a Contracting State.
he United States is that a (2) The fact that the parties have their places of business in differ-
1g · or accecling to a treaty ent States is to be disregarded whenever this fact does not appear either
,anges in its text , except for
; that the diplomatic confer- from the contract or from any dealings between, or from information
red countries to make by disclosed by, the parties at any _time before or at the conclusion of the
ations. contract.
(3) N either the nationality of the parties nor the civil or commercial
character of the parties or of the contract is to be taken into consider-
ation in determining the application of this Convention.

Article 2
This Convention does not apply to sales:

337
 CISG

(a) Of goods bought for personal, family or household use, (2) Questions
unless the seller, at any time b efore or at the conclusion of which are not exp1
the contract, neither knew nor ought to have known that the general princi
the goods were bought for ariy such use; principies, in confc
(b) By auction; private internation
(e) On execution or otherwise by authority of law;
(d) Of stocks, shares, investment securities, negotiable instru-
(1) For the p1
ments or money;
other conduct of a
(e) Of ships, vessels, hovercraft or aircraft; where the other p~
(f) Of electricity. intent was.

Article 3 (2) If the precE

and other conduct
(1) Contracts for the supply of goods to be manufactured or pro-
understanding tha1
duced are to be considered sales unless the party who arder the goods party would have h
undertakes to supply a substantial part of the materials necessary for
such manufacture or production. (3) In determi
reasonable person ~
(2) This Convention does not apply to contracts in which the pre-
relevant circumstar
ponderant part of the obligations of the party who furnishes the goods
tices which the par1
consists in the supply of labour or other services.
any subsequent con
Article 4
This Convention governs only the formation of. the contract of sale
and the rights and obligations of the seller imd the .buyer arising from (1) The parties
su eh a contract. In particular, except as otherwise .expressly provided in and by any practicE
this Convention, it is not concerned with: (2) The parties
(a) The validity of the contract or of any of its provisions or of impliedly made app
any usage; which the parties k
tional trade is wide
(b) The effect which the contract may .have on the property in
contracts of the type
the goods sold. · ·

Article 5
This Convention does not apply to the liability ofthe seller for death For the purpose;
or personal injury caused by the goods to any person. (a) If a par1
busines~
Article 6 contract
The parties may exclude the application of this Convention or, stances 1
subject to article 12, derogate from Ór vary the . effect of any o( its before 01
provisions. (b) If a par1
CHAPTER II. GENERAL PROVISIONS be made
Article 7 .
(1) In the interpretation of this Convention, regard is to be had to A Contract of sa:
its international character and to the rieed to prornote uniformity in its and is not subject t
application and the observance of good faith in international trade. proved by any means.
338
 CISG

or household use, (2) Questions concerning matters governed by this Convention

~t the conclusion of which are not expressly settled in it are to be settled in conformity with
o have known that the general principies on which it is based or, in the absence of such
principies, in conformity with the law applicable by virtue of the rules of
prívate internationallaw .
.flaw; Article 8
;, negotiable instru- (1) Fcir the purposes of this Convention statements made by and
other conduct of a party .are to be interpreted according to his intent
where the other party knew or could not have been unaware what that
intent was.
(2) If the preceding paragraph is not applicable, statements made by
and other conduct of a party are to be interpreted according to the
tanufactured or pro- understanding that a reasonable person of the same kind as the other
rvho arder the goods party would have had in the same circumstances.
terials necessary for
(3) In determining the intent of a party or the understanding a
reasonable person would have had, due consideration is to be given to all
:ts in which the pre- relevant circumstances of the case including the negotiations, any prac-
furnishes the goods tices which the parties have established between themselves, usages and
any subsequent conduct of the parties.

Article 9
" the contract of sale (1) The parties are bound by any usages to which they have agreed
e· buyer arising from and by any practices which they have established between themselves.
expressly provided in
(2) The parties are considered, unless otherwise agreed, to have
impliedly made applicable to their contract or its formation a usage of
>f its provisions or of
which the parties knew or ought to have known and which in interna-
tional trade is widely known to, and regularly ~bserved by, parties to
·~ on the property in contracts of the type involved in the particular trade concerned.

Article 10
For the purposes of this Convention:
Jf the seller for death
l.
(a) If a party has more than one place of business, the place of
business is that. which has the closest relationship to the
contract and its performance, having regard to the circum-
this Convention or, stances known to or contemplated by the parties at any time
effect of any of · its befare or at the conclusion of the contract; .
(b) If a party does not have a place of btisiness, reference is to
be made to his habitual residence.
HONS
Article 11
egard is to be had to A Contract of sale need not be concluded in or evidenced by writing
wte uniformity in its and is not subject to a ny other requirement as to form. It may be
· international trade. proved by any means, including witnesses.

339

.i
;......,.;;J !';11¿-'A. •
 CISG

Article 12
Any provision of article 11, article 29 or Part II of this Convention (1) A statemer
that allows a contract of sale or its modification or termination by assent to an offer
agreement or any offer, acceptance or other indication of intention to be itself amount to acc
made in any form other than in writing does not apply where any party
has his place of business in a Contracting State which has made a (2) An accepta
declaration under article 96 of this Convention. The parties may not indication of assent
derogate from or vary the effect of this article. the indication of as:
fixed or, if no time
Article 13 taken of the circun
the means of com1
For the purposes of this Convention "writing" includes telegram
must be accepted i
and telex. wise.
Part 11. Formation of the contract (3) However, i
which the parties h
Article 14
offeree may indicatE
(1) A proposal for concluding a contract addressed to one or more the dispatch of the
specific persons constitutes an offer if it is sufficiently definite and offeror, the accepta
indicates the intention of the offeror to be bound in case of acceptance. provided that the a<
A proposal is sufficiently definite if it indicates the goods and expressly the preceding parag
or implicitly fixes or makes provision for determining the quantity and
the price.
(2) A proposal other than one addressed to one or more specific (1) A reply to
persons is to be considered merely asan invitation to make offers, unless contains additions, 1
the contrary is clearly indicated by the person making the proposal. offer and constitute:

Article 15 (2) However, a

but contains additic
(1) An offer becomes effective when it reaches the offeree. the terms of the e
(2) An offer, even if it is irrevocable, may be withdrawn if the without undue dela
withdrawal reaches the offeree before or at the same time as the offer. notice to that effect
are the terms of t-
Article 16 acceptance.
(1) Until a contract is concluded an offer may be revoked if the (3) Additional <
revocation reaches the offeree before he has dispatched an acceptance. the price, payment,
(2) However, an offer cannot be revoked: delivery, extent of o
disputes are consic
(a) If it indicates, whether by stating a fixed time for acceptance
or otherwise, that it is irrevocable; or
(b) If it was reasonable for the offeree to rely on the offer as (1) A period of t
being irrevocable and the offeree has acted in reliance on or a letter begins to
the offer. dispatch or from th
Article 17 shown, from the dé
acceptance fixed by
An offer, even if it is irrevocable, is terminated when a rejection instantaneous comm
reaches the offeror. offer reaches the offE
340
 CISG

Article 18
II of this Convention (1) A statement made by or other conduct of the offeree indicating
1m or termination by assent to an offer is an acceptance. Silence or inactivity does not in
' t;ion of intention to be itself amount to acceptance.
tpply where any party
(2) An acceptance of an offer becomes effective at the moment the
e which has made a
indication of assent reaches the offeror. An acceptance is not effective if
The parties may not
the indication of assent does not reach the offeror within the time he has
fixed or, if no time is fixed, within a reasonable time, due account being
taken of the circumstances of the transaction, including the rapidity of
the means of communication employed by the offeror. An oral offer
tg'' includes telegram must be accepted immediately unless the circumstances indicate other-
wise.
ttract (3) However, if, by virtue of the offer or as a result of practices
which the parties have established between themselves or of usage, the
offeree may indicate assent by performing an act, such as one relating to
~essed to one or more the dispatch of the goods or payment of the price, without notice to the
Jiciently definite and offeror, the acceptance is effective at the moment the act is performed,
in case of acceptance. provided that the act is performed within the period of time laid down in
te goods and expressly the preceding paragraph.
ning the quantity and
Article 19
one or more specific (1) A reply to an offer which purports to be an acceptance but
to make offers, unless contains additions, limitations or other modifications is a rejection of the
making the proposal. offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance
but contains additional or different terms which do not materially alter
the offeree. the terms of the offer constitutes an acceptance, unless the offeror,
be withdrawn if the · without undue delay, objects orally to the discrepancy or dispatches a
ame time as the offer. notice to that effect. If he does not so object, the terms of the contract
are the terms of the offer with the modifications contained in the
acceptance.
o.ay be revoked if the (3) Additional or different terms relating, among other things, to
1atched an acceptance. the price, payment,. quality and quantity of the goods, place and time of
delivery, extent of one party's liability to the other or the settlement of
disputes are considered to alter the terms of the offer materially.
~ed time for acceptance
Article 20
t;o r ely on the offer as (1) A period of time for acceptance fixed by the offeror in a telegram
.s acted in reliance on or a letter begins to run from the moment the telegram is handed in for
dispatch or from the date shown on the letter or, if no such date is
shown, from the date shown on the envelope. A period of time for
acceptance fixed by the offeror by t elephone, telex or other means of
Lated when a r ejection instantaneous communication, begins to run from the moment that the
offer r eaches the offer ee .

341
 CISG

(2) Official holidays or non-business days occurring during the peri-

od for acceptance are included in calculating the period. However, if a A declaration e
· notice of acceptance cannot be delivered at the address of the offeror on · notice to the other
the last day of the period because that day falls on an official holiday or a
non-business day at the place of business of the offeror, the period is
extended until the first business day which follows. Unless otherw:
if any notice, reqt
Article 21 party in accordan<
(1) A late acceptance is nevertheless effective as an acceptance· if circumstances, a d·
without delay the offeror orally so informs the offeree or dispatches a tion or its failure te
notice to that effect. on the communicat
(2) If a letter or other writing containing a late acceptance shows
that it has been sent in such circumstances that if its transmission had
been normal it would have reached the offeror in due time, the late If, in accordan<
acceptance is effective asan acceptance unless, without delay, the offeror entitled to require
orally informs the offeree that he considers his offer as having lapsed or court is not bound
dispatches a notice to that effect. the court would do
sale not governed b:
Article 22
An acceptance may be withdrawn if the withdrawal reaches the (1) A contract
offeror befare or at the same time as the acceptance would have become merit of the parties.
effective.
(2) A contract
Article 23 modification or ten
othe:rwise modified
A contract is concluded at the moment when an acceptance of an be precluded by his
offer becomes effective in accordance with the provisions of this Conven- that the other part:y
tion.
CHAPTE
Article 24
For the purposes of this Part of the Convention; an offer, declaration The seller must
of acceptance or any other indication of intention "reaches" the address- to them and trans
ee. when it is made orally to him or delivered by any other means to him coritract and this Ce
personally, to his place of business or mailing address or, if he does not
·have a place of business or mailing address, to his habitual residence. Section l. Deli'
Part 111. Sale of goods
If the seller is n
CHAPTER l. GENERAL PROVISIONS place, his obligation
Article 25 (a) If the '
handin~
A breach of contract committed by one of the parties is fundamental
if. it results in such detriment to the other party as substantially to to the b
deprive him of what he is entitled to expect under the contract, unless (b) If, in e
the party in breach did not foresee, and a reasonable person of the same contrae·
kind in the same circumstances would not have foreseen, such a result. drawn

342
 CISG

ring during the peri- Article 26

lriod. However, if a A declaration of avoidance of the contract is effective only if made by
ress of the offeror on notice to the other party.
n official holiday or a
~ fferor, the period is Article 27
Unless otherwise expressly provided in this Part of the Convention,
if any notice, request or other communication is given or made by a
party in accordance With this Part, and by means appropriate in the
as an acceptance if circumstanc;es, a delay or error in the transmission of the communica-
t'e ree or dispatches a tion or its failure tó ai:-rive does not deprive that party of the right to rely
on the communication.
11te acceptance shows Article 28
· its transmission had
::1 due time, the late
If, in accordance with the provisions of this Convention, one party is
1out delay, the offeror entitled to require performance of any obligation by the other party, a
1 r as having lapsed or
court is not bound to enter a judgment for specific performance unless
the court would do so under its own law in respect of similar contracts of
sale not governed by this Convention.

Article 29
hdrawal reaches the (1) A .contract niay be modified or terminated by the mere agree-
~ would have become
ment of the parties: .
(2) A contract in .writing which contains a provision requiring any
modification or · termination by agreement to be in writing m ay not be
otherwise modified or terminated by agreement. However, a party may
an acceptance of an be precluded by his córiduct from asserting such a provision to the extent
sions of this Conven- that the other party has relied on that conduct.

CHAPTER II. OBLIGATIONS OF THE SELLER

Article 30
, an offer, declaration The seller must deliver the goods, hand over any documents relating
:eaches" the address- to them and transfet the property in the goods, as required by the
' other means to him contract and this Convention.
ess or, if he does not
s habitual residence. Section L Delivery of the goods and handing over of documents
Article 31
If the seller is not bound to deliver _the goods at any other particular
IONS. place, his obligation to deliver consists:
(a) If the contract of sale involves carriage of the goods-in
'lrties is fundamental handing the goods over to the first carrier for transmission
r as substantially to
to the buyer;
· the contract, unless (b) If, in cases not within the preceding subparagTaph, the
le person of the same contract relates to specific goods, or unidentified goods to be
·eseen, such a result. clrawn from a specific stock or to be manufacturecl or

343
 CISG

produced, and at the time of the conclusion of the contract Section II

the parties knew that the goods were at, or were to be
manufactured or produced at, a particular place-in placing
the goods at the buyer's disposál at that pl~ce; (1) The sell
and description
(e) In other cases-in placing the goods at the buyer's disposal packaged in the
at the place where the seller had his place of business at the
(2) Except ·
time of the conclusion of the contract.
not conform witl
Article 32 (a) Are
tion
(1) If the seiler, in accordance with the contract or this Convention,
hands the goods over to a carrier and if the goods are not clearly (b) Are
identified to the contract by markings on the goods, by shipping docu- mac
ments or otherwise, the seller must give the buyer notice of the consign- the
ment specifying the goods. buy'
rely
(2) If the seller is bound to arrange for carriage .of the goods, he
(e) PosE
must make such contracts as are necessary for carriage to the place fixed
by means of transportation appropriate in the circumstances and accord- to tl
ing to the usual terms for such transportation. · (d) Are
gooc
(3) If the seller is not bound to effect insurance in respect of the
adec
carriage of the goods, he must, at the buye~'s request_, ptovide him with
all · available information necessary to enable hirri to effect such insur- (3) The seU
ance. preceding parag¡
time of the concl
Article 33 been unaware of
The seller must deliver the goods:
(a) If a date is fixed by or determinable .from .the contract, on (1) The sello
that date; Convention for a
risk passes to tl
(b) If a period of time is fixed by or determinable from the
apparent only aft
contract, at any time within that period unless circum-
stances indicate that the buyer is to . choose a date; or (2) The sellE
after the time im
(e) In any other case, within a reasonable time after the conclu- breach of any of l
sion of the contract. for a period of ti
or for sorne pm
Article 34
characteristics.
If the seller is bound to hand over documerits relatiri.g to the goods,.
he must hand them over at the time and place and in the form required
by the contract. If the seller has handed over documents before that If the seller l
time, he may, up to that time, cure any lack of conformity in the up to that date,
documents, if the exercise of this right does not cause the buyer the quantity of t
unreasonable inconvenience or unreasonable expense. However, the any nonconformi
buyer retains any right to claim damages as provided for in this Conven- the goods delive1
tion. · · · · ·· ·· cause the buyer

344
 CISG

1sion of the contract Section II. Conformity of the goods and third party claims
~ at, or were to be
Article 35
lar place-in placing
; place; (1) The seller must deliver goods which are of the quantity, quality
and description required by the contract and which are contained or
the buyer's disposal packaged in the manner required by the contract.
:tce of business at the
(2) Except where the parties have agreed otherwise, the goods do
not conform with the contract unless they:
{a) Are fit for the purposes for which goods of the same descrip-
tion would ordinarily be used;
~t or this Convention,
:oods are not clearly (b) Are fit for any particular purpose expressly or impliedly
ds, by shipping docu- made known to the seller at the time of the conclusion of
notice of the consign- the contract, except where the circumstances show that the
buyer did not rely, or that it was unreasonable for him to
rely, on the seller's skill and judgment;
iage of the goods, he
(e) Possess the qualities of goods which the seller has h eld out
'iage to the place fixed
to the buyer as a sample or model;
1mstances and accord-
(d) Are contained or packaged in the manner usual for such
goods or, where there is no such manner, in a manner
mee in respect of the adequate to preserve and protect the goods.
test, provide him with
to effect such insur- (3) The seller is not liable under subparagraphs (a) to (d) of the
preceding paragraph for any lack of conformity of the goods if at the
time of the conclusion of the contract the buyer knew or could not have
been unaware of such lack of conformity.

Article ·36
from the contract, on (1) The seller is liable in accordance with the contract and this
Convention for any lack of conformity which exists at the time when the
risk passes to the buyer, even though the lack of conformity becomes
.eterminable from the apparent only after that time.
period unless circum-
to choose a date; or (2) The seller is also liable for any lack of conformity which occurs
after the time indicated in the preceding paragraph and which is dueto a
time after the conclu- breach of any of his obligations, including a breach of any guarantee that
for a period of time the goods will reinain fit for their ordinary purpose
or for sorne particular purpose or will retain specified qualities or
characteristics.
: r·elating to the goods,
d in the form required Article 37
locuments before that If the seller has delivered goods before the date for delivery, he may,
of conformity in the up to that date, deliver any missing part or make up any deficiency in
not cause the buyer the quantity of the goods ·delivered, or deliver goods in replacement of
pense. However, the any nonconforming goods delivered or remedy any lack of conformity in
ied for in this Conven- the goods delivered, provided that the exercise of this right does not
cause the buyer unreasonable incon:venience or unreasonable expense.

345
 CISG

However, the buyer retains any right to claim damages as provided for in (a) Under
this Convention. otherVI
time o
Article 38 be resc
(1) The buyer must examine the goods, or cause them to be exam-
(b) In any
ined, within as short a period as is practicable in the circumstances.
buyer ;
(2) If the contract involves carriage of the goods, examination may
(2) The obliga1
be deferred until after the goods have arrived · at their destination.
not extend to cases
(3) If the goods are redirected in transit or redispatched by the
(a) At the
buyer without a reasonable opportunity for examination by him and at
the time of the conclusion of the contract the seller knew or ought to or coul
have known of the possibility of such redirection or redispatch, examina- (b) The ri~
tion may be deferred until after the goods have arrived at the new technic
destination. cations

Article 39
(1) The buyer loses the right to rely on a lack of conformity of the (1) The buyer :
goods if he does not give notice to the seller specifying the nature of the or article 42 if he d•
lack of conformity within a reasonable time after he has discovered it or of the right or clairr
ought to have discovered it. has become a -\varé · e
(2) In aily event, the buyer loses the right to rely on a lack of
(2) The seller
conformity' of the goods if he does not give the seller notice thereof at the
preceding paragr~pl
latest within a period of two years from the date on which the goods
and the nature of it.
were actually handed over to the buyer, unless this time-limit is inconsis-
tent with a contractual period of guarantee.

Article 40 N otwithstandin
The seller is not entitled to rely on the provisions of articles 38 and paragraph (1) of arti
39 if the lack of conformity relates to facts of which he knew or could not with article 50 or e
have been unaware and which he did not disclose to the buyer. reasonable excuse fo

Article 41 Section III.

The seller must deliver goods which are free from any right or claim
of a third party, unless the buyer agreed to take the goods subject to that
(1) If the seller
right or claim. However, if such right or claim is based on industrial
contract or this Com
property or other intellectual property, the seller's obligation is governed
by article 42. · · (a) ExercüiE
(b) Claim d:
Article 42
(1) The seller must deliver goods which are free from any right or (2) The buyer i
cláim of a third party based on industrial property or other intellectual damages by exercisin
property, of which at the time of the conclusion of the contract the seller (3) No period ol
knew or could not have been unaware, provided that the right or claim is arbitral tribunal wl:
based on industrial property or other intellectual property: contract.

346
 CISG

~es as provided for in (a) Under the law of the State where the goods will be resold or
otherwise used, if it was contemplated by the parties at the
time of the conclusion of the contract that the goods would
be resold or otherwise used in that State; or
se them to be exam- (b) In any other case, under the law of the State where the
1 the circumstances. buyer has his place of business.
1s, examination may (2) The obligation of the seller under the preceding paragraph does
tt their destination. not extend tocases where:
redispatched by· the
(a) At the time of the conclusion of the contract the buyer knew
ation by him and at
or could not have been unaware of the right or claim; or
~r knew or ought to
redispatch, examina- (b) The right or claim results from the seller's compliance with
arrived at the new technical drawings, designs, formulae or other such specifi-
cations furnished by the buyer.

Article 43
of conformity of the (1) The buyer loses the right to rely on the provisions of article 41
!ng the nature of the or article 42 if he does not give notice to the seller specifying the nature
~ has discovered it or of the right or claim of the third party within a reasonable time after he
has become aware or ought to have become aware of the right or claim .
.o rély on a lack of (2) The seller is not entitled to rely on the provisions of the
notice thereof at the preceding paragraph if he knew of the right or claim of the third party
on which the goods and the nature of it.
:ime-limit is inconsis-
Ar ticle 44
Notwithstanding the provisions of paragraph (1) of article 39 and
ns of articles 38 and . paragraph (1) of article 43, the buyer may reduce the price in accordance
with article 50 or claim damages, except for loss of profit, if he has a
he knew or could not
reasonable excuse for his failure to give the required notice.
the buyer.
Section III. Remedies for breach of contract by the seller

m any right or claim Article 45

goods subject to that (1) If the seller fails to perform any of his obligations ·under the
based on industrial contract or this Convention, the buyer may:
bligation is governed
(a) Exercise the rights provided in articles 46 to 52;
(b) Claim damages as providecl in articles 74 to 77 .
(2) The buyer is not deprived of any right he may have to claim
ee from any right or
damages by exercising his right to other remedies.
or other intellectual
he contract the seller · (3) No period of grace may be granted to the seller by a court or
; the right or claim is arbitral tribunal when the buyer resorts to a remedy for breach of
)perty: contract.

347

'-'· ,f(,

·~~~lli:~ ~·~;_,,
 "rrT

CISG

Article 46
(1) The buyer may require performance by the seller of his obli- (1) The buye:
gations unless the buyer has resorted to a remedy which is inconsistent (a) If thE
with this requirement. unde1
(2) If the goods do not conform with the contract, the buyer may ment:
require delivery of substitute goods only if the lack of conformity (b) In ca
constitutes a fundamental breach of contract and a request for substitute good.s
goods is made either in conjunction with notice given under article 39 or in ac1
within a reasonable time thereafter. that l
(3) If the goods do not conform with the contract, the buyer may (2) However,
require the seller to remedy the lack of conformity by repair, unless this buyer loses the ri.
is unreasonable having regard to all the circumstances. A request for (a) In reE
repair must be made either in conjunction with notice given under has h«
article 39 or within a reasonable time thereafter. (b) In re¡
reasm
Article 47
(i) A1
(1) The buyer may fix an additional period of time of reasonable
length for performance by the seller of his obligations. (ii) A
fi
(2) Unless the buyer has received notice from the seller that he will a¡
not perform within the period so fixed, the buyer may not, during that n
period, resort to any remedy for breach of contract. However, the buyer · PI
is not deprived thereby of any right he may have to claim damages for
(iii) j
delay in performance.
ii
(:
Article 48
V
(1) Subject to article 49, the seller may, even after the date fo:r:
delivery, remedy at his own expense any failure to perform his obli-
gations, if he can do so without unreasonable delay and without causing If the goods d
the buyer unreasonable inconvenience or uncertainty of reimbursement the price has alre:;
by the seller of expenses advanced by the buyer. However, the buyer same proportion aE
retains any right to claim damages as provided for in this Convention. time of the deliverJ
(2) If the seller requests the buyer to make known whether he will had at that time.
accept performance and the buyer does not comply with the request his obligations in a
within a reasonable time, the seller may perform within the time refuses to accept
indicated in his request. The buyer may not, during that period of time, articles, the buyer :
resort . to any remedy which is inconsistent with performance by the
seller.
(1) If the selle
(3) A notice by the seller that he will perform within a specified the goods deliverec
period of time is assumed to include a request, under the preceding apply in respect of
paragraph, that the buyer make lmown his decision.
(2) The buyer
(4) A request or notice by the seller under paragraph (2) or (3) of if the failure to n
this article is not effective unless received by the buyer. contract amounts b
348
 CISG

Article 49
, seller of his obli- (1) The buyer may declare the contract avoided:
lich is inconsistent (a) If the failure by the seller to perform any .of his obligations
under the contract or this Convention amounts to a funda-
lct, the buyer may mental breach of contract; or
.ack of conformity (b) In case of non-delivery, if the seller does not deliver the
quest for substitute goods within the additional period of time fixed by the buyer
under article 39 or in accordance with paragraph (1) of article 4 7 or declares
that he will not deliver within the period so fixed.
act, the buyer may (2) However, in cases where the seller has delivered the goods, the
r repair, unless this buyer loses the right to declare the contract avoided unless he does so:
.ces. A r equest for (a) In respect of late delivery, within a reasonable time after he
notice given under has become aware that delivery has been made;
(b) In respect of any breach other than late delivery, within a
reasonable time:
(i) After he knew or ought to have known of the breach;
time of reasonable
(ii) After the expiration of any additional period of time
.. fixed by the buyer in accordance with paragraph (1) of
,e seller that he will article 4 7, or after the seller has .declared that he will
.ay not, during that not perform his obligations within su<;:h im additional
However, the buyer period; or
> claim damages for
(iii) After the expiration of any additiorial f>eriod of time
indicated by the seller in accordm1ce . with paragraph
(2) of article 48, or after the buyer h as declared that he
will not accept performance.
after the date for
;o perform his obli- Article 50
3.nd without causing If the goods do not conform with the contract a_nd whether or not
;y of reimbursement the price has alre_ady been paid, the buyer may reduée the price in the
However, the buyer same proportion as the value that the goods actually delivered had at the
in this Convention. time of the delivery bears to the value that conforming goods would have
had at that time. However, if the seller remedies any failure to perform
)Wn whether he will
his obligations in accordance with article 37 or article 48 or if the buyer
ly with the r equest
refuses to accept performance by the seller in acco~dance with those
m within the time
articles, the buyer may not reduce the price.
~ that period of time,
performance by the Article 51
(1) If the seller delivers only a part of the goods or if only a part of
n within a specified the goods deliver ed is in conformity with the contract, articles 46 to 50
mder the preceding apply in r espect of the part which is missing or whiC:h does not conform.
(2) The buyer may declare the contract avoided in its entirety only
:-agraph (2) or (3) of if the failure to ma ke delivery completely or in conformity with the
rer. contract amounts toa fundamental breach of the contract:

349
 . CISG.

Article 52
(1) If the seller delivers the goods befare the date fiXed, the buyer (1) If the buy1
may take delivery or refuse to take delivery. time, he must pay
ments controlling 1
(2) If the seller delivers a quantity of goods greater than that
with the contract
provided for in the contract, the buyer may take delivery or refuse to
payment a conditio
take delivery of the excess quantity. If the buyer takes delivery of all or
part of the excess quantity, he must pay for it at the contract rate. (2) If the con
dispatch the goods
CHAPTER III. OBLIGAT10NS OF THE BUYER ling their dispositic
payment of the pril
Article 53 ·
(3) The buyer
The buyer must pay the price for the goods and take delivery of opportunity to exa
them as required by the contract and this Convention. payment agreed UJ
such an opportuni~
Section L Payinent of the price
Artiéle 54
The buyer mu:
The buyer's obligation to pay the price includes taking such steps from the contract f
and complying with such formalities as may be required under the or compliance with
contract or any laws and regulations to enable payment to be made.

Article 55
Where a contract has been validly co·l).cluded but does not expressly The buyer's ob
or implicitly fix or make provision for determining the price, the parties (a) In doir
are considered, in the absence of any.indication to the contrary, to have him ir.
impliedly made reference to the . pr~ce generally charged at the time of
the conclusion of the contract for such goods sold under comparable (b) In taki
circumstances in the trade concerned.
Section III.
Artide 56·
If the price is fixed according to 'the weight of the goods, in case of (1) If the buyE
doubt it is to be determined by the netweight. contract or this Cm
(a) Exercü
Article 57 (b) Claim 1
(1) If the buyer is not bound to pay the price at any other particular (2) The seller
place, he must pay it to the seller: damages by exercisi
(a) At the seller's place of business; or (3) N o period
arbitral tribunal v
(b) If the payment is to be made against the handing over of the
contract.
goods or of documents, at the place where the handing over
takes place.
(2) The seller must bear any increase in the expenses incidental to The seller may
payment which is caused by a change in his place of business subsequent perform his other e
to the conclusion of the contract. which is inconsistei
350
 "~' ;,w
l'l>'
'

CISG

Article 58
'l.te fixed, the buyer (1) lf the buyer is not bound to pay the price at any other specific
time, he must pay it when the seller places either the goods or docu-
ments controlling their disposition at the buyer's disposal in accordance
greater than that
with the contract and this Convention. The seller may make such
elivery or refuse to
payment a condition for handing over the goods or documents.
~es delivery of all or
; the contract rate. (2) If the contract involves carriage of the goods, the seller may
dispatch the goods on terms whereby the goods, or documents control-
~ BUYER ling their disposition, will not be handed over to the buyer except against
payment of the price.
· (3) The buyer is not bound to pay the price until he has had an
.nd take delivery ()f opportunity to examine the goods, unless the procedures for delivery or
l. payment agreed upon by the parties are inconsistent with his having
such an opportunity.

Article 59
The buyer must pay the price on the date fixed by or determinable
's taking such steps from the .c ontract and this Convention without the need for any request
required under the . or compliance with any formality on the part of the seller.
tyment to be made.
Section II. Taking delivery
Article 60
.t does not expressly The buyer's obligation to take delivery consists:
he price, the parties (a) In doing all the acts which could reasonably be expected of
he contrary, to have him in order to enable the seller to make delivery; and
1rged at the time of
i under comparable
(b) In taking over the goods.

Section III. Remedies for breach of contract by the buyer

Article 61
(1) If the buyer fails to perform any of his obligations under the
the goods, in case of
contract or this Convention, the seller may:
·(a) Exercise the rights provided in articles 62 to 65;
(b) Claim damages as provided in articles 74 to 77.
any other particular (2) The seller is not deprived of any right he may have to claim
damages by exercising his right to other remedies.
(3) No period of grace may be granted to the buyer. by a court or
arbitral tribunal when the seller resorts to a r emedy for breach of
! handing over of the
contract.
~re the handing over
Article 62
:penses incidental to The seller may require the buyer to pay the price, take delivery or
business subsequent perform his other obligations, unless the seller has resorted to a remedy
which is inconsistent with this requirement.

351
 CTSG

Article 63 communication, t
(1) The seller may fix an additional period of time of reasonable specification mad1
length for performance by the buyer of his obligations.
(2) Unless the seller has received notice from the buyer that he will
not perform within the period so fiXed, the seller may not, during that
period, resort to any remedy for breach of contract. However, the seller . Loss of or dar
is not deprived thereby of any right he may have to claim damages for does not discharg
delay in performance. loss or damage is ,

Article 64
(1) If the COI
(1) The seller may declare the contract avoided:
seller ís not bour
(a) If the failure by the buyer to perform any of his obligations passes to the buy1
under the contract or this Convention amounts to a funda- for transmission b
mental breach of contract; or the seller is boun
(b) If the buyer does not, within the additional period of time place, the risk doe.
fixed by the seller in accordance with paragraph (1) of to th~ carrier at ·
article 63, perform his obligation to pay the price or take retain documents
delivery of the goods, or declares that he will not do so the passage of the
within the period so fixed . (2) Neverthelt
(2) However, in cases where the buyer has paid the price, the seller are clearly identifi
loses the right to declare the contract avoided unless he does so: by shipping docu
(a) In respect of late performance by the buyer, befare the seller
has become aware that performance has been rendered; or
The risk in re,
(b) In rcspcct of any brcach othcr than late performance by the .t he time of the e
buyer, within a reasonable time: · stances so indicatE
(i) After the seller knew or ought to have known of the goods were handc
breach; or embodying the cor
(ii) After the expiration of any additional period of time conclusion of the ct
fixed by the seller in accordance with paragraph (1) of that the goods had
article 63, or after the buyer has declared that he will buyer, the loss or d
not perform his obligations within such an additional
period.
. (1) In cases n
Article 65 buyer when he tak
(1) If under the contract the buyer is to specify the forro, measure- from the time whE
ment or other features of the goods and ht} fails to make such specifica- .breach of contract l
tion either on the date agreed upon or. within a reasonable time after (2) However, i
receipt of a request from the seller, the seller may, without prejudice to other than a place ,
any other rights he may have, make the specification himself in accor- is due and the buy1
dance with the requirements of the buyer that may be known to him. disposal at that pla
(2) If the seller makes the specification himself, he must inform the (3) If the cont1
buyer of the details thereof and must fix a reasonable time within which considered not to 1
the buyer may make a different specification. If, after receipt of such a · eleai:Iy identified to

352
 CISG

communication, the buyer fails to do so within the time so fiXed, the

specification made by the seller is binding.
: time of reasonable
lS. CHAPTER IV. PASSING OF RISK
J.e buyer that he will Article 66
nay not, during that
Loss of or damage to the goods after the risk has passed to the buyer
However, the seller
does not discharge him from his obligation to pay the price, unless the
;o claim damages for
loss or damage is dueto an actor omission of the seller.

Article 6i
(1) If the contract of sale involves carriage of the goods and the
seller is not bound to hand them over at a particular place, the risk
my of his obligations passes to the buyer when the goods are handed over to the first carrier
amounts to a funda- for transmission to the buyer in accordance with the contract of sale. If
the seller is bound to hand the goods over to a carrier at a particular
tional period of time place, the risk does not pass to the buyer until the goods are handed over
th paragraph (1) of to the carrier at that place. The fact that the seller is authorized to
1ay the price or. take retain documents controlling the disposition of the goods does not affect
1t he will not do so the passage of the risk.
(2) Nevertheless, the risk does not pass to the buyer until the goods
l the price, ·the seller are clearly identified to the contract, whether by markings on the goods,
unless he does so: by . shipping documents, by notice given to the buyer or otherwise.
1yer, befo re the seller Article 68
as been rendered; or
The risk in respect of goods sold in transit passes to the buyer from
.e performance .by the the time of the conclusion of the contract. However, if the circum-
stances so indicate, the risk is assumed by the buyer from the time the
> have knqwn ·of the goods were handed over to the carrier who issued the documents
embodying the contract of carriage. Nevertheless, if at the time of. the
conclusion of the contract of sale the seller knew or ought to have known
~ional period of :time
Nith paragr~ph (1) of that the goods had been lost or damaged and did not disclose this to the
buyer, the loss or damage is at the risk of the seller.
declared that he will
n sw;:h an additional Article 69
(1) In cases not within articles 67 and 68, the risk passes to the
buyer when he takes over the goods or, if he does not do so in due time,
from the time when the goods are placed at his disposal he commits a
fy the form, measure-
breach of contract by failing to take delivery.
1 make such specifica-
reasonable t1me after (2) However, if the buyer is bound to take over the goods ata place
, without prejudice to other than a place of business of the seller, the risk passes when delivery
tion himself in accor- is due and the buyer is aware of the fact that the goods are placed at his
tay be known to him. disposal at that place.
.f, he must inform the (3) If the contract relates to goods not then identified, the goods are
ble time within which considered not to be placed at the disposal of the buyer until they are
3.fter receipt of such a clearly identified to the contract.

353
 CISG

Article 70 spect to that inst

If the seller has committed a fundamental breach of contract, avoided with respe1
articles 67, 68, and 69 do not impair the remedies available to the buyer (2) If one part:
on account of the breach. of any instalment !
fundamental breac:
CHAPTER V. PROVISIONS COMMON TO THE ments, he may decl
OBLIGATIONS OF THE SELLER AND he does so within a
OFTHEBUYER (3) A buyer w
Section I. Anticipatory breach and installment contracts delivery may, at th•
already made or o
Article 71 dence, those delive
(1) A party may suspend the performance of his obligations if, after by the parties at th
the conclusion of the contract, it becomes apparent that the other party
will not perform a substantial part of his obligations as a result of:
(a) A serious deficiency in his ability to perform or in his
creditworthiness; or Damages for bJ
to the loss, includi
(b) His conduct in preparing to perform or in performing the
consequence of th1
contract.
which the party in
(2) If the seller has already dispatched the goods before the grounds of the conclusion o1
described in the preceding paragraph become evident, he may prevent which he then kne'
the handing over of the goods to the buyer even though the buyer holds "'
of the breach of con
a document which entitles him to obtain them. The present paragraph
relates only to the rights in the goods as between the buyer and the
seller. · If the contract
(3) A party suspending performance, whether before or after dis- a reasonable time
patch of the goods, must immediately give notice of the suspension to the replacement or th•
other party and must continue with performance if the other party damages may recov
provides adequate assurance of his performance. price in the subst
recoverable under a
Article 72
(1) If prior to the date for performance of the contract it is clear
that one of the parties will commit a fundamental breach of contract, the (1) If the contJ
other party may declare the contract avoided. goods, the party clai
resale under article
(2) If time allows, the party intending to declare the contract the contract and thE
avoided must give reasonable notice to the other party in order to permit further damages re
him to provide adequate assuránce of his performance. claiming damages. h
(3) The requirements of the preceding paragraph do not apply if the the current price at
other party has declared that he will not perform his obligations. of the current price
(2) For the pur;
Article 73 the price prevailing
(1) In the case of a contract for delivery of goods by instalments, if been made or, if the
the failure of one party to perform any of his obligations in respect of other place as servE
any instalment constitutes a fundamental breach of conti~act with re- for differences in th•

354
 CI$G

spect to that instalment, the other party may declare the contract
avoided with respect to that instalment.
>reach of contract,
ailable to the buyer (2) 'If one party's failure to perform any of his obligations in respect
of any instalment gives the other party good grounds to conclude that a
fundamental breach of contract will occur with respect to future instal-
TOTHE ments, he may declare the contract avoided for the future, provided that
ND he does so within a reasonable time. . .
(3) A buyer who declares the contract avoided in respect of any
mt contracts delivery may, at the same time, declare it avoided in respect of deliveries
already made or of future deli~eries if, by reason of their interdepen-
dence, those deliveries could not be used for the purpose contemplated
obligations if, after by the parties at the time of the conclusion of the contract.
;hat the other party
.ons as a result of: Section II. Damages
Article 74
perform or in his
Damages for breach of contract by one party consist of a sum equal
to the loss, including loss of profit, suffered by the other party as a
" in performing the
consequence of the breach. Such damages may not exceed the loss
which the party in breach foresaw or ought to have foreseen at the time
; before the grounds of the conclusion of the contract, in the light of the facts and matters of
nt, he may prevent which he then knew or ought to have known, as a possible consequence
llgh the buyer holds of the breach of contract. ·
e present paragraph
the buyer and the Artlcle. 75
If the contract is avoided and if, in a reasonable manner and within
before or after dis- a reasonable time after ·avoidinice, ·· the buyer has bought goods in
he suspension to the replacement or the seller has resold the goods, the party claiming
if the other party damagés may recover the difference between the contract price and the
price in the substitute transáction as well as any further damages
recoverable under article 74.

Article 76
contract it is clear
each of contract, the (1) If the contract is avoided and . there is a current price for the
goods, the party claiming damages may, if he has not made a purchase or
resale under article 75, recover the difference between the price fixed by
.eclare the contract the contract and the currerit price at the time of avoidance as well as any
ty in order to permit further damages recoverable under article 74. If, however, the party
:e. claiming damages has avoided the contract after taking over the goods,
h do not apply if t[le the current price at the time of such taking over shall be applied instead
rm his obligations. of the current price at the time of avoidance.
(2) For the purposes .of the preceding paragraph, the current price is
the price prevailing at the place where delivery of the goods should have
ds by instalments, if been m ade or, if there is no current price at that place, the price at such
~ations in respect of other place as serves as a reasonable substitute, making due allowance
of contract with r e- for differ ences in the cost of transporting the goods.

355
 C}SG

Article 77
A party who relies on a breach of contract must take such measures
as are reasonable in the circumstances to mitigate the loss, including loss
(1) Avoidance
of profit, resulting from the breach. If he fails to take such measures, gations under it, s
the party in breach may claim a reduction in the damages in the amount does not affect a
by which the loss should have been mitigated. disputes or any ot
obligations of the 1
Section IIL Interest
(2) A. party w:
· Article · 78 may claim restitu1
If a party fails to pay the price or any other sum that is in arrears, has supplied or p1
the other party is entitled to interest on it, without prejudice to any make restitution, t
claim for damages recoverable under article 74.

Section IV. · Exemptions (1) The buyer

require the seller t
· Article 79 make restitution o
(1) A party is not liable for a failure to perform any of his obli- received them.
gations if he proves that the failure .was due to an impediment beyond (2) The prece<
his control and that he could not reasonably be expected to have taken
(a) If the
the impediment into account at the time of the conclusion of the contract
makin
or to have avoided or overcome it 6r its consequences.
tion ii
(2) If the party's failure is dueto· the failure by a third person whom orom:
he has engaged to perform 'the whole or a party of the contract, that (b) If the
party is exempt from liability only if: . ed as
(a) He is exempt under·thepreceding paragraph; and or
(b) The person whom he hasso engaged would be so exempt if (e) If the
the provisions of that paragraph were applied to him. norma
forme<
(3) The exemption provided by this article has effect for the period
discov'
during which the impediment exists. ·. ty.
(4) The party who . fails to perform must give notice to the other
party of the impediment and its effect on his ability to perform. If the
notice is not received by the other party within a reasonable time after A buyer who l
the party who fails to perform knew or ought to have known of the require the seller
impediment, he is liable for damages resulting from such non-receipt. 82 retains all otht
(5) Nothing in this article prevents either party from exercising any
right other than to claim damages under this Convention.
(1) If the sell
·Article 80 interest on it, frorr
A party may not rely ·on a failure of the other party to perform, to (2) The buyer
the extent that such failure was caused by the first party's act or has derived from t
omission. (a) lf he 1

.356 ·
 CISG

Section V. Effects of avoidance

ake such measures Article 81
loss, including loss (1) Avoidance of the contract releases both parties from their obli-
tke such measures, gations under it, subject to any damages which may be due. Avoidance
ages in the amount does not affect any provision of the contract for the settlement of
disputes or any other provision of the contract governing the rights and
obligations of the parties consequent u pon the avoidance of the contract. ·
(2) A party who has performea the contract either wholly or in part
may claim restitution from the other party of whatever the first party
t that is in arrears, has supplied or paid under the contract. If both parties are bound to
tt prejudice to any make restitution, they must do so concurrently.

Article 82
(1) The buyer loses the right to declare the contract avoided or to
require the seller to deliver substitute goods if it is impossible for him to
make restitution of the goods substantially in the condition in which he
·m any of his obli- received them.
impediment beyond (2) The preceding paragraph does not apply:
~cted to have taken
(a) If the impossibility of making restitution of the goods or of
1sion of the contract
making restitution of the goods substantially in the condi-
tion in which the buyer received them is not dueto his act
third person whom or omission;
0
the contract, that (b) If the goods or part of the goods have perished or deteriorat-
ed as a result of the examination provided for in article 38;
aph;and or
ould be so exempt if (e) If the goods or part of the goods have been sold in the
plied to him. normal course of business or have been consumed or trans-
formed by the buyer in the course of normal use before he
~ffect for the period discovered or ought to have discovered the lack of conformi-
ty.
notice to the other
to perform. If the Article 83
,asonable time· after A buyer who has lost the right to declare the contract avoided orto
have known of the require the seller to deliver substitute goods in accordance with article
n such non-receipt. 82 retains all other remedies under the contract and this Convention.
from exercising any Article 84
tion.
(1) If the seller is bound to refund the price, he must also pay
interest on it, from the date on which the price was paid.

::>arty to perform, to (2) The buyer must account to the seller for all benefits which he ·
first party's act or has derived from the goods or part of them:
(a) If he must make restitution of the goods or part of them; or

357
 · ~ ~t

CISG

(b) If it is impossible for him to make restitution of all or part · (2) If the goo
of the goods or to make restitution of all or part of the goods tion · would invol•
substantially in the condition in which he received them, preserve the goo
but he has nevertheless declared the contract avoided or reasoriable measu
required the seller to deliver substitute goods. notice to the othe1

Section VI. Preservation of the goods .(3) A party E

proceeds of sale ru
Article 85 ing the goods and
If the buyer is in delay in taking delivery of the goods or, where for: the. b.alance.
payment of the price and delivery of the goods are to be made concur-
rently, if he fails to pay the price, and the seller is either in possession of
the goods or otherwise able to control their disposition, the seller must
take such steps as are reasonable in the circumstances to preserve them.
He is entitled to retain them until he has been reimbursed his reason-
able expenses by the buyer.

Article 86
(1) If the buyer has received the goods and intends to exercise any
right under the contract or this Convention to reject them, he must take
such steps to preserve them as are reasonable in the circumstances. He
is entitled to retain them until he has been reimbursed his reasonable
expenses by the seller.
(2) If goods dispatched to the buyer have been placed at his disposal
at their destination and he exercises the right to reject them, he must
take possession of them on behalf of the seller, provided that this can be
done without payment of the price and without unreasonable inconven-
ience or unreasonable expense. This provision does not apply if the
seller or a person authorized to take charge of the goods on his behalf is
present at the destination. If the buyer takes possession of the goods
under this paragraph, his rights and obligations are governed by the
preceding paragraph. -

Article 87
A party who is bound to take steps to preserve the goods may
deposit them in a warehouse of a third person at the expense of the
other party provided that the expense incurred is not unreasonable.

Article 88
(1) A party who is bound to preserve the goods in accordance with
article 85 or 86 may sell them by any appropriate m eans if there has
been an unreasonable delay by the other party in taking possession of
the goods or in taking them back or in paying the price or the cost of
preservation, provided that r easonable notice of the intention to sell has
been given to the other party.

358
 CISG

Ltion of all or part (2) lf the goods are subject to rapid deterioration or their preserva-
r part of the goods tion would involve unreasonable expense, a party who is bound to
he received · them, preserve the goods in accordance with article 85 or 86 must take
mtract avoidéd or reasonable measures to sell thern. To the extent possible he must give
ods. notice to the other party of this intention to sell.
:ls (3) A party selling the goods has the right to retain out of the
proceeds of sale an amount equal to the reasonable expenses of preserv-
ing the goods and of selling thern. He rnust account to the other party
e goods or, where for the balance.
) be rnade concur-
ter in possession of
m, the seller rnust
; to preserve them.
bursed his reason-

1ds to exercise any

;hern, he must take
~ircurnstances . He
.·sed his reasoriable

1ced .at his disposal

ect them, he must
.ed that this can be
'asonable inconven-
's not apply if the
ods on his behalf is
:Jssion of the goods
·e goverried by the

:ve the · goods may

the expense of the
not unreasonable.

in accordartce with
m eans · if there has
aking possession of
price or the ·cost of
.ntention to sell has

359
 UN
INTEJ

In 1994, an irr
UNIDROIT PrinciJ
mulgated. 2 Like th
legislative enactme
most part,'' their
found in many, if n
are perceived to b
adopted." These ce
the United Natiom
of Goods (CISG), gE
generally recognize
Uniform Commerci
Since the Princ
that want them to
generally. Accordin¡
international comn
have agreed that t
principies of law,' ti
impact will be larg
suggests that arbitr
the relevant rule o1
uncertain what law
lacks a clear rule. E
likely that the Prir
other types of contr¡
The Principies :
the work on the 1
International Instit1
l. Copyright by . E.
N ote is aclapted from F~
tracts § l.Sa (2d ed. 199!
permission.
2. For discussion by
working group that draf
see M. Bonell, An Inte
ment of Contract Law:
Prin cipies of Internati
 ~1

UNIDROIT PRINCIPLES OF
INTERNATIONAL COMMERCIAL
CONTRACTS

COMPILERS' NOTE 1
In 1994, an important body of rules for international contracts, the
UNIDROIT Principies of International Commercial Contracts, was pro-
mulgated.2 Like the Restatements, · the Principies are not designed for
legislative enactment. What is the source of these Principies? "For the
most part," their Introduction explains, they "reflect concepts to be
found in many, if not all, legal systems," though "they also embody what
are perceived to be the best · solutions, even if still not yet generally
adopted." These concepts are drawn from a variety of sources such as
the United Nations Convention on Contracts for the International Sale
of Goods (CISG), generally recognized principies of civillaw systems, and
generally recognized principies of common law systems-including the
Uniform Commercial Code and tl}:e Restatement (Second) of Contracts.
Since the Principies have not been enacted by a legislature, parties
that want them to apply should· incorporate them, either by name or
generally. According to their Preamble, they "set forth general rules for
international commercial .contracts:' . to be applied "when the parties
have agreed that their contract be governed by [them or by] 'general
principies of law,' the 'lex mercatoria' or the like." It is likely that their
impact will be largely in internation11l arbitration, and their Preamble
suggests that arbitrators apply them if "it proves impossible to establish
the relevant rule of the applicable law." This might be the case if it is
uncertain what law is applicable or ·if, though this is certain, that law
lacks a clear rule. Because CISG covers international sales of goods, it is
likely that the Principies will be significant in disputes arising under
other types of contracts, notably contracts for services.
The Principies are the product of the same organization that began
the work on the unification of the law of international sales, the
International Institute for the UnÍfication of Private Law (UNIDROIT)
l. Copyright by E. Farnsworth. This ·. Contracts (2d ed.1997) (includes bibliogra-
Note is adapted from Farnsworth on Con- . . phy and the text in eight languages) . See
tracts § 1.8a (2d ed. 1998) and is used with generally Perillo, UNIDROIT Principies of
permission. ·International Commercial Contracts: The
2. For discussion by the chair of the Black Letter Text and a Review, 63 Ford-
working group that drafted the Principies, ham L.Rev. 281 (1994); Symposium, 69 Tul.
see M. Bonell, An Intern ational Restate- L.Rev. 1121 (1995); Symposium, 3 Tul.
m ent of Contract Law: The UNIDROIT J.Intl. & Comp.L. 45 (1995); Symposium, 40
Principies of International · Commerdal · Am.J.Comp.L. 541 (1992).

·361 ·

.,,
. ~.,;¡};~ @..~<......
 UNIDROIT PRINCIPLES INT

in Rome. Founded in 1926 under the auspices of the League of Nations, modify the Princi
it has continued as an independent governmental organization of which principie of freedc
the United States is a member. The idea of drafting the Principies dates parties could not
back to 1971, when the topic was put on the Institute's work program, applicable law, an
but it was not until 1980 that the Institute set up a working group,
that the Principie
which the United States joined toward the end of that decade. After
... which are apr
more than a decade of semiannual meetings of the working group, the
Institute's Governing Coún2il approved. publication of the Principies in internationallaw.
1994. Like the Restatement and the Uniform Commercial Code, they are Perhaps surp
accompanied by comments, illustrations, and section captions. Their the first assumpti·
initial success was such that the set of Principies has been expanded the Principies sul
twice-in 2004 and 2011. A similar effort, under different auspices, has varied by the par1
prepared a set of Principies of European Contract Law. 3 Principles." 11 The
The Principies contain sorne 211 articles and deal with such matters dealing 12 and on ~
as contract formation, perfórmance, excuse from performance, and reme- would include in
dies. Asto many of these ma:tters they track the provisions of CISG. On either of these n
sorne matters, however, the Principies break fresh ground. These include explain why such •
precontractual liability, hardship as an. excuse for nonperformance, spe- assumption, despi
cific performance, and stipulated damages. mandatory rules, t
The Principies also break fresh ground by stating a number of requirement of a '
general principies. One is· freedom of contract: "parties are free to en ter ment, the availabil
into a contract and to determine its contents" 4 and "may exclude the provision for stipu
application of these. Priricipfes ... or vary [their] effect." 5 A second is rules that change
pacta sunt servanda (agTeements are to be observed): if "performance agreement-comm
hP.comP.s more onerous for one of thP. pR.rt.ieR, thHt party iR nevertheleRR
bound to perform its obligations. " 6 A third is fairness: a party may avoid
a contract or term "if, at the time of the conclusion of the contract, the
contract or terni unjustifiably gave the other party an excessive advan-
At its 83rd se
tage,"7 and a term "contained in standard terms" that "is of such a
adopted a second e
character that the other party could not reasonably have expected it" is
not effective unless expressly accepted by that party. 8 A fourth is good the 1994 edition, tl
faith and fair dealing: a ''party must act in accordance with good faith as an expanded Pn
and fair dealing irt international trade. " 9 and on Release by
1994 edition of tl
The Principies raise troublesome questions concerning mandatory electrÓnic contracti
rules-rules that the parties are not free to change by agreement. Given
that the Principies are generally applicable only as a result of agreement At its 90th ses
of the parties, one might make two assumptions as to mandatory rules. third edition of the
The first is that the parties would be completely free to exclude or Contracts ("UNIDl
2010 contain new ¡
3. Principies of European Contract Law 6. Art. 6.2.1 ("Contract to be ob-
(Parts 1 & 11) (2000) (inclüdes comments, ser ved").
illustrations, and citations to largely Euro- 10. Art. 1.4, ("Manda
7. Art. 3.10 ("Gross disparity").
pean national sources). · 11. Art. 1.5.
4. Art. 1.1 ("Freedom of contract") . 8. Art. 2.20 ("Surprising terms").
12. Ar t . 1.7.
5. Alt. 1.5 ("Exclusion or .modification 9. Art. 1.7 ("Good faith and fair deal-
by the parties"). ing" ). 13. Art. 3.10.

362
 INTERNATIONAL COMMERCIAL CONTRACTS

League of N ations, modify the Principies, an assumption that seems to be confirmed by the
~anization of which principie of freedom of contract mentioned above. The second is that the
he Principies dates parties could not themselves exclude or modify mandatory rules of the
te's work program, applicable law, an assumption that seems to be confirmed by a provision
, a working group, · that the Principies do not "restrict the application of mandatory rules
that decade. After . .. which are applicable in accordance with the relevant rules of prívate
Norking group, the internationallaw." 10
>f the Principies in
rcial Code, ~hey are Perhaps surprisingly, the Principies qualify both assumptions. Asto
on captions. Their the first assumption, despite the general principie of freedom of contract,
~as been expanded the Principies subject their declaration that they may be excluded or
'erent auspices, has varied by the parties to an exception where "otherwise provided in the
v.s Principies. " 11 These exceptions include the rules on good faith and fair
L with such matters
dealing12 and on gross disparity. 13 It is, to be sure, unlikely that parties
)rmance, and reme- would indude in their contracts explicit provisions derogating from
risions of CISG. On either of these rules, but if they were to do so it might be difficult
mnd. These include explain why such provisions should not be given effect. As to the second
mperformance, spe- assumption, despite the statement that the Principies cannot affect
mandatory rules, the Principies seem to contemplate exceptions asto the
ating a number of requirement of a writing, the requirement for modification of an agree-
[es are free to enter ment, the availability of specific performance, and the enforceability of a
l "may exclude the · ·provision for stipuiated damages. As to all of these, the Principies state
ffect." 5 A second is rules that change common law rules that the parties cannot change by
d): if "performance agreement-common law mandatory rules.
arty is nevertheless
3: a p arty may avoid
of the contract, the
an excessive advan- At its 83rd session in 2004 the Governing Council of UNIDROIT
that "is of such a adopted a second edition of the UNIDROIT P r incipies.* As compared to
have expected it" is the 1994 edition, the new edition contained 5 additionai chapters as _well
y. 8 A fourth is good
. as an expanded Preamble and new provisions on Inconsistent Behaviour
.nce with good faith
. and on Release by Agreement. In addition, wherever appropriate the
1994 edition of the Principies. were adapted to meet the needs of
1cerning mandatory electronic contracting.
)y agreement. Given
result of agreement At its 90th session the Governing Council of UNIDROIT adopted the
to mandatory rules. . third edition of the UNIDRIOT Principies of IJ?.ternational Commercial
free to exclude or Contracts ("UNIDRIOT principies 2010") . The· UNIDRIOT Principies
2010 contain new provisions on restitution in case of failed contracts,
("Contract to be ob-
10. Art. 1.4 ("Mandatory r ul es"). * This material is reprinted from The In-
jross disparity"). ternational Institute for the Unification of
11. Art. 1.5. Private Law, UNIDROIT PRINCIPLES OF
)urprising terms"). 12. Art. 1.7. INTERNATIONAL COMMERCIAL CON-
jood faith and fair cleal- TRACTS, available at http://www.unidro it.
13. Art. 3.10. org/english/prin ciples/contracts/main.htm.

363
 UNIDROIT PRINCIPLES

illegality, conditions, and plurality of obligors and obligees, while with

respect to the text of the 2004 edition the only significant changes made
relate to the Comments to Article 1.4. l
The new edition of the UNIDROIT Principies consists of 211 Arti-
cles (as opposed to the 120 Articles of the 1994 edition and the 185 INTE
Articles of the 2004 edition) structured as follows: Preamble (un-
changed); Chapter 1: General provisions (unchanged); Chapter 2, Section
1: Formation (unchanged); Section 2: Authority of agents (unchanged);
Chapter 3, Section 1: General provisions (containing former Articles 3.1
(amended), 3.2, 3.3 and 3.19 (amended)), Section 2: Ground for avoid-
ance (containing former Articles 3.4 to 3.16, 3.17 (amended), 3.18 and
3.20, and a new Article 3.2.15), Section 3: Illegality (new); Chapter 4:
Interpretation (unchanged); Chapter 5, Section 1: Content (unchanged); (Purpose of th
Section 2: Third Party Rights (unchanged); Section 3: Conditions (new); C1
Chapter 6, Section 1: Performance in general (unchanged), Section 2: Article
1.1 Freedom o
Hardship (unchanged); Chapter 7, Section 1: Non-performance in gener- 1.2 No form n
al (unchanged); Section 2: Right to performance (unchanged); Section 3: 1.3 Binding eh
Termination (containing former Articles 7.3.1 to 7.3.5, 7.3.6 (amended) 1.4 Mandatory
1.5 Exclusion •
and a new Article 7.3. 7), Section 4: Damages (unchanged); Chapter 8: 1.6 Interpreta1
Set-off (unchanged); Chapter 9, Section 1: Assignment of rights (un- 1.7 Good faith
changed); Section 2: Transfer of obligations (unchanged); Section 3: 1.8 Inconsister
1.9 Usages an(
Assignment of contracts (unchanged); Chapter 10: Limitation periods ·1.10 Notice
(unchanged); Chapter 11, Section 1: Plurality of obligors (new), Section 1.11 Definitions
2: Plurality of obligees (new). . 1.12 Computati•

CHAPTER 2

·2.1.1 Manner of
' 2.1.2 Definition <
2.1.3 Withdrawa
2.1.4 Revocation
2.1.5 Rejection ol
2.1.6 Mode ofacc
2.1.7 Time ofacc
2.1.8 Acceptance
. 2.1.9 Late accept
2.1.10 Withdrawal
2.1.11 Modified ac
2.1.12 Writing~ in
2.1.13 Conclusion
t ers or in
2.1.14 Contract wi
. 2.1.15 N egotiation
2.1.16 Duty on cor
2.1.17 Merger clau
* For a collection of
law and bibliography <

364
 bligees, while with
icant changes made
UNIDROIT PRINCIPLES
onsists of 211 Arti- OF
dition and the 185 INTERNATIONAL COMMERCIAL
ws: Preamble (un-
; Chapter 2, Section
CONTRACTS 2010*
1gents (unchanged);
, /ormer Articles 3.1
: Ground for avoid- Table of Contents
"Lmended), 3.18 and PREAMBLE
'f (new); Chapter 4:
(Purpose of the Principies)
Jntent (unchanged);
3: Conditions (new); CHAPTER l. GENERAL PROVISIONS
:hanged), Section 2: Article
1.1 Freedom of contract
,rformance in gener- 1.2 N o form required
changed); Section 3: 1.3 Binding character of contract
~. 5, 7:3.6 (amended) 1.4 Mandatory rules
1.5 Exclusion or modification by the parties
?,anged); Chapter 8: 1.6 Interpretation and supplementation by the Principies
\ ment of rights (un- 1.7 Good faith and fair dealing
ha~ged); Section 3: 1.8 Inconsistent behaviour
1.9 Usages and practices
: Lini~tation periods 1.10 Notice
ligors (new), Section 1.11 Definitions
1.12 Computation of time set by parties

CHAPTER 2. FORMATION AND AUTHORITY OF AGENTS

Section l. Formation
2.1.1 Manner of formation
2.1.2 Definition of offer
2.1.3 Withdrawal of offer
2.1.4 Revocation of offer
2.1.5 Rejection of offer
2.1.6 Mode of acceptance
2.1.7 Time of acceptance
2.1.8 Acceptance within a fixed period of time
2.1.9 Late acceptance. Delay in transmission
2.1.10 Withdrawal of acceptance
2.1.11 Modified acceptance
2.1.12 Writings in confirmation
2.1.13 Conclusion of contract dependent on agreement on specific mat-
ters or in a specific form
2.1.14 Contract with terms deliberately left open
2.1 .15 Negotiation in bad faith
2.1.16 Duty on confidentiality
2.1.17 Merger clauses

'' For a collection of inte rn ational case Principies of International Commercial

la w and bibliography on the UN IDROIT Contracts see http ://www:uníl ex.info.

365

J
. ~;. i:.ifl ±ki'~-.
 ~,

1·

UNIDROIT PRINC1PLES IN~

Article Article
2.1.18 Modification in a particular form 4.3 Relevant
2.1.19 Contracting under standard terms 4.4 Refereno
2.1.20 Surprising terms 4.5 Al! termE
2.1.21 Conflict between standard terms and non-standard terms 4.6 Contra p:
2.1.22 Battle of forms 4.7 Linguisti
4.8 Supplyin¡
Section 2. Authority of Agents
CHAPTE
2.2.1 S cope of the section
2.2.2 Establishment and scope of the authority of the agent
2.2.3 Agency disclosed
2.2.4 Agency undisclosed 5.1.1 Express E
2.2.5 Agent acting without or exceeding its authority 5.1.2 Implied o
2.2.6 Liability of agent acting without or exceeding its authority 5.1.3 Co-opera1
2.2.7 Conflict of interests 5.1.4 Duty toa
2.2.8 Sub-agency 5.1.5 Determin
2.2.9 Ratification 5.1.6 Determin
2.2.10 Termination of authority 5.1.7 Price dett
5.1.8 Contract
CHAPTER 3. VALIDITY 5.1.9 Release h:
·section l. General Provisions

3.1.1 Matters not covered

3.1.2 Validity of mere agreement 5.2.1 Contracts
3.1.3 Initial impossibility 5.2.2 Third par
3.1.4 Mandatory character of the provisioi:J."s 5.2.3 Exclusion
5.2.4 Defences
Section l. Grounds for Avoidance 5.2.5 Revoca ti o
5.2.6 Renuncia1
3.2.1 Definition of mistake
3.2.2 Relevant mistake
3.¿:.3 Error in expression or transmission
3.2.4 Remedies for non-performance
3.2.5 Fraud 5.3.1 Types of e
3.2.6 Threat 5.3.2 Effect of e
3.2.7 Gross disparity 5.3.3 Interferen
3.2.8 Third persons 5.3.4 Duty to p1
3.2.9 Confirmation 5.3.5 Restitutio
3.2.10 Loss of right to avoid
3.2.11 N oti ce of avoidance
3.2.12 Time limits
3.2.13 Partial avoidance
3.2.14 Retroactive effect of avoidance 6.1.1 Time ofpE
3.2.15 Restitution 6.1.2 Performar
3.2.16 Damages 6.1.3
Unilateral declarations Partial pe1
3.2.17 6.1.4 Order ofp
Section 3. lllegality 6.1.5 Earlier pe1
6.1.6 Place ofpE
3.3.1 Contracts infringing mandatory rules 6.1.7 Payment t
3.3.2 Restitution 6.1.8 Payment t
6.1.9 Currency <
CHAPTER 4. INTERPRETATION 6.1.10 Currency 1
6.1.11 Costs of pE
4.1 Intention of the parties · ·· 6.1.12 Imputatim
4.2 Interpretation of statements and other conduct 6.1 .13 Imputa tim

366
 INT.ERNATIONAL COMMERCIAL CONTRACTS

Article
4.3 Relevant circumstances
4.4 Referen~::e to contnict or statement as a whole
4 .5 All terms to be given effect
rd terms 4.6 Contra proferentein rule
4.7 Linguistic discrepancies
4.8 Supplying an omitted term

CHAPTER 5. CONTENT AND THIRD PARTY RIGHTS

1gent Section l. · Content
5.1.1 Express and implied obligations
5.1.2 Implied obligations ·
authority 5.1.3 Co-operation between the parties
5.1.4 Duty to achieve a specific result. Duty of best efforts
5.1.5 Determination of kind of duty in volved
5.1.6 Determination of quality of performance
5.1.7 Price determination
5.1.8 Contract for an indefinite period
5.1.9 Release by agreement

Section 2. Third Pm·ty Rights

5.2.1 Contracts in favciur of third parties
5.2.2 Third party identifiable
5.2.3 Exclusion and limitation clauses
5.2.4 Defences
,ce 5.2.5 Revocation
5.2.6 Renunciation

· ·Section 3. Conditions
5.3.1 Types of condition
5.3.2 Effect of conditions
5.3.3 Interference ~ith conditions
5.3.4 Duty to preserve rights
5.3.5 Restitution in case of fulfilment of a resol u ti ve condition

CHAPTER 6. PERFORMANCE
Section i. Performance in General
6.1.1 Time of perforinance
6.1.2 Performance at one· time or in instalments
6.1.3 Partial performance
6.1.4 Order of performance
6.1.5 Earlier performance
6.1.6 Place of performance
6.1.7 Payment by cheque or other instrument
6.1.8 Payment by funds transfer
6.1.9 Currency of payment
ON 6.1.10 Currency not exp1:essed
6.1.11 Costs of performance
6.1.12 Imputation of payments
6.1.13 ImpuhitiOn ofrión~rrionetary obligations

367
 UNIDROIT PRINCIPLES INTJ.

Article
6.1.14 Application for public permission
6.1.15 Procedure in applying for permission Article
6.1.16 Permission neither granted nor refused 8.1 Conditiom
6.1.17 Permission refused 8.2 Foreign cu
8.3 Set-offby 1
Section 2. Hardship 8.4 Content of
8.5 Effect of s¡
6.2.1 Contract to be observed
6.2.2 Definition of hardship CHAPTER-~
6.2.3 Effects of hardship OBLIG
CHAPTER 7. NON-PERFORMANCE
Section l. Non-Performance in General
9.1.1 Definitions
7.1.1 Non-performance defined 9.1.2 Exclusions
7 .1.2 Interference by the other party 9.1.3 Assignabili
7.1.3 Withholding performance 9.1.4 Partial assi
7.1.4 Cure by non-performing party 9.1.5 Future rigl
7.1.5 Additional period for performance 9.1.6 Rights assi¡
7.1.6 Exemption clauses 9.1.7 Agreement
7.1.7 Force majeure 9.1.8 Obligor's at
9.1.9 Non-assign
Section 2. Right to Performance 9.1.10 Notice to tl
9.1.11 Successive ;
7 .2. 1 Performance of monetary obligation 9.1.12 Adequate p
7.2.2 Performance of non-monetary obligation 9.1.13 Defences ar
7.2.3 Repair and replacement of defective performance 9.1.14 Rights relal
7.2.4 Judicial penalty 9.1.15 Undertakin
7.2.5 Change ofremedy

Section 3. Termination ~

7.3.1 Right to termínate the contract 9.2.1 Modes oftr;

7.3.2 Notice of termination 9.2.2 Exclusion
7.3.3 Anticipatory non-performance 9.2.3 Requiremer
7.3.4 Adequate assurance of due performance 9.2.4 Advance cm
7 .3.5 Effects of termination in general 9.2.5 Discharge o
7.3.6 Restitution with respect to contracts to be performed at one time 9.2.6 Third party
7.3.7 Restitution with respect to contracts to be performed over a 9.2.7 Defences an
period of time 9.2.8 Rights relat

Section 4. Damages St
7.4.1 Right to damages 9.3.1 Definitions
7.4.2 Full compensation 9.3.2 Exclusions
7.4.3 Certainty of harm 9.3.3 Requiremen
7.4.4 Foreseeability of harm
Proof of harm in case of replacement transaction 9.3.4 Advance cor
7.4.5 9.3.5
Proof of harm by current price Discharge ol
7.4.6 9.3.6
Harm due in part to aggrieved party Defences an
7.4.7
Mitigation of harm 9.3.7 Rights tram
7.4.8
7.4.9 lnterest for failure to pay money
7.4.10 Interest on damages CR
7.4.11 Manner of monetary redress
7.4.12 Currency in which to assess damages 10.1 Scope of the
7.4.13 Agreed payment for non-performance 10.2 Limitation ¡:

368
 INTERNATIONAL COMMERCIAL CONTRACTS

CHAPTER 8. SET-OFF
Article
8.1 Conditions of set-off
8.2 Foreign currency set-off
8.3 Set-off by notice
8.4 Content of notice
8.5 Effect of set-off

CHAPTER 9. ASSIGNMENT OF RIGHTS, TRANSFER OF

OBLIGATIONS, ASSIGNMENT OF CONTRACTS
:E Section l. Assignment of Rights
eral
9.1.1 Definitions
9.1.2 Exclusions
9.1.3 Assignability of non-monetary rights
9.1.4 Partial assignment
9.1.5 Future rights
9.1.6 Rights assigned without individual specification
9.1.7 Agreement between assignor and assignee su fficient
9.1.8 Obligor's additional costs
9.1.9 Non-assignment clauses
e 9.1.10 Notice to the obligor
9 .1.11 Successive assignments
9.1.12 Adeqtiate proof of assignment
9.1.13 Defences and rights of set-off
9.1.14 Rights related to the right assigned
9.1.15 Undertakings of the assignor

Section 2. Transfer of Obligations

9.2.1 Modes of transfer

9.2.2 Exclusion
9.2.3 Requirement of obligee's consent to transfer
9.2.4 Advance consent of obligee
9.2.5 Discharge of original obligor
Jrmed at one time 9.2.6 Third party performance
performed over a 9.2.7 Defences and rights of set-off
9.2.8 Rights related to the obligation transferred

Section 3. Assignment of Contracts

9.3.1 Definitions
9.3.2 Exclusions
9.3.3 Requirement of consent of the other party
9 .3.4 Advance consent of thé .other party
n
9.3.5 Discharge of the assignor
9.3.6 Defences and rights of set-off
9.3.7 Rights transferred with the contract

CHAPTER 10. LIMITATION PERIODS

1 O.1 Scope of the chapter

10.2 Limitation periocls

369
 UNIDROIT PRINCIPLES INT
Article
10.3 Modification of limitation periods by the parties They may be
10.4 N ew limitation period by acknowledgement govern their cont1
10.5 Suspension by judicial proceedings · They may be
10.6 Suspension by arbitral proceedings
10.7 Alternative dispute resolution
law instruments.
10.8 Suspension in case of force majeure, death or incapacity law.
10.9 Effects of expiration of limitation period They may ser
10.10 Right of set-off
10.11 Restitution
CH
CHAPTER 11. PLURALITY OF OBLIGORS AND OF OBLIGEES
Section l. Plurality of Obligors
11.1.1 Definitions The parties a
11.1.2 Presumption of joint and severa! obligati mis con tent.
11.1.3 Obligee's rights against joint and severa! obligors
11.1.4 Availability of defences and ríghts of set~off
11.1.5 Effect of performance or set-off
11.1.6 Effect of release or settlement
11.1.7 Effect of expiration or suspension of lirriitation period N othing in tl:
11.1.8 Effect of judgment ·
11.1.9 Apportionment among joint and severa! obligors other act to be m
11.1.10 Extent of contributory claim · proved by any mea
11.1.11 Rights of the obligee
11.1.12 Defences in contributory claims
11.1.13 Inability to recover

Section 2. Plurality of Obligees A contract val

only be modified
11.2.1 Definitions
11.2.2 Effects of joint and severa! claims . agreement or as ot
11.2.3 Availability of defences against joint and severa! obligees
11.2.4 Allocation between joint and severa! obliges

PREAMBLE
N othing in the
(Pwpose of the Principles) ry rules, whether
These Principies set forth general rules for international commercial which are applical
contracts. internationallaw.
They shall be applied when the parties have agreed that their
contract be governed by them.(*)
(Ext
They may be applied when the parties have agreed that their
contract be governed by general principies of law, the lex mercatoria or The parties rr
the like. derogate from or '
otherwise provided
* Parties wishing to provide that their Parties wishing to provide in addition for
agr eement be governed by the Principle·s · · the ·applicatioh of the law of a particular
might use the following words, adding any jurisdiction might use the following words:
desired exceptions or modifications: "This contract shall be governed by (Interpreta
the UNIDROIT Principies (2010) [ex-
"This contract shall be governed by cept as to Articles ... ], supplement- (1) In the inteJ
the UNIDROIT Principies (2010) [ex- . . ed when necessary by the law of [ju- their international 1
cept as to Articles ... ] ". risdiction X]".
promote uniformity
370
 INTERNATIONAL COMMERCIAL CONTRACTS

They may be applied when the parties have not chosen any law to
~S
govern their contract.
They may be used to interpret or supplement international uniform
law instruments. They may be used to interpret or supplement domestic
law. .
ncapacity
They may serve as a model for national and internationallegislators.

CHAPTER !-GENERAL PROVISIONS

.ND OF OBLIGEES Article 1.1
ors (Freedom of contract)
The parties are free to enter into a contract and to determine its
con ten t.
·ors
Article 1.2
(No form required)
1 period N othing in these Principies requires a contract, statement or any
other act to be made in or evidenced by a particular form. It may be
ors proved by any means, including witnesses.

Article 1.3
(Binding character of contract)
e es A contract validly entered into is binding upon the parties. It can
only be modified or terminated in accordance with its terms or by
agreement or as otherwise provided in these Principies.
:al obligees Article 1.4
(Mandatory rules)
N othing in these Principies shall restrict the application of mandato-
ry rules, whether of national, international or supranational origin,
ternational commercial which are applicable in accordance with the relevant rules of private
internationallaw.
ave agreed that their Article 1.5
(Exclusion or modification by the parties)
ave agreed that their The parties may exclude the application of these Principies or
,, the lex mercatoria or derogate from or vary the effect of any of their provi~ions, except as
otherwise provided in the Principies.
ng to provide in addition for
, of the law of a particular Article 1.6
"ht use th e following words:
(lnterpretation and supplementation of the Principles)
~act shall be governed by
OIT Principies (2010) [ex- (1) In the interpretation of these Principies, regard is to be had to
!\J.·ticles . .. ], supplement-
:cessary by the law of [ju- their international character and to their purposes including the need to
:]''. promüte uniformity in their application.

371
 UNIDROIT PRINCIPLES

(2) Issues within the scope of these Principies but not expressly cured by A. \i
settled by them are as far as possible to be settled in accordance with decide whethe:r
their underlying general principies. the contracts p;.
tematic and ur
Article 1.7 approve any co
A would be aga
(Good faith and fair dealing) 4. Under a li:
(1) Each party must act in accordance with good faith and fair ment between J
dealing in international trade. customer, A sl,i.·
cably refuses .t<
(2) The parties may not exclude or limit this duty. vanees to B wh(
heavy losses <
Comment so: it is the weekend, the fax at
N otwithstandin
l. "Go.od faith and fair dealúig" as a A's office is disconnected and
agreement cont .
fundamental idea underlying the Prin- there is no telephone answering
machine which can take the mes- ting A to accel
cipies will", A's dema
sage. When on the following Mon-
There are a number of provisions day A refuses B's acceptance A full . without p
throughout the different ehapters of acts contrary to good faith since with no justiJ
the Principies which constitute a direct when it fixed the time-limit for against good fai
or indirect application of the principie acceptance it was for A to ensure 2. Abuse of rights
of good faith and fair dealing. See that messages could be received at A typical examplE
above all Article 1.8, but see also for its office throughout the forty- trary to the principl
instance, Articles 1.9(2); 2.1.4(2)(b), eight hour period. fair dealing is what
2.1.15; · 2.1.16, 2.1.18 and 2.1.20; 2. A contract for the supply and tems is known as '·'.:
2.2.4(2), 2.2.5(2), 2.2.7 and 2.2.10; installation of a special production is characterised by ;
3.2.2, 3.2.5 and 3.2.7; 4.1(2), 4.2(2), 4.6 line contains a provision according behaviour which ·o•
and 4.8; 5.1.2 and 5.1.3; 5.2.5; 5.3.3 to which A, the seller, is obliged to when a party exerc:i
and 5.3.4; 6.1.3, 6.1.5, 6.1.16(2) and communicate to B, the purchaser, to damage the oth .
6.1.17(1); 6.2.3(3)(4); 7.1.2, 7.1.6 a nd any improvements made by A to purpose other th~n .
7.1.7; 7.2.2(b)(c); 7.4.8 and 7.4.13; the technology of that line. After a it had been granted,
9.1.3, 9.1.4 and 9.1.10(1). This means year B learns of an important im- cise of a right is d
·that góod faith and fair dealing may be provement of which it had not the originally intend ·
considered to be one of the fundamen- been informed. A is not excused by
tal ideas underlying the Principies. By the fact that the production of Illustrations
stating in general terms that each par- that particular type of production 5. A rents pn
ty must act in accordance with good line is no longer its responsibility the purpose of
faith and fair dealing, paragraph (1) of but that of e, a wholly-owned affil- business. The
this Article makes it clear that even in iated company of A. It would be for five years,
the absence of special provisions in the against good faith for A to invoke years laterA re~ ·
Principies the parties' behaviour the separate entity of e, which in the area is vE
throughout the life of the contract, in- was specifically set up to take over to close the bm
cluding the negotiation process, must this production in order to avoid B that it is no le
conform to good faith and fair dealing. A's contractual obligations vis-a- renting the pre
vis B. · of contract woul
Illustrations 3. A, an agent, undertakes on be- B's having the e
l. A grants B forty-eight hours half of B, the principal, to promote miriatihg the ci:;
as the time within which B may the sale of B's goods in a given ing damages or .
accept its offer. When B, shortly area. Under the contract A's right performance. Ij(
before the expiry of the deadline, to compensation arises only after circumstances ·B
. decides to accept, it is unable to do B's approval of the contracts pro- its rights if it 1

372

'·
c{.at '~~.
 INTERNATIONAL COMMERCIAL CONTRACTS

's but not expressly · cured by A. While B is free to the rent for the remaining two
decide whether or not to approve years of the contract instead of
l in accordance with
the contracts procured by A, a sys- terminating the contract and
tematic and unjustified refusal to claiming damages from A for the
approve any contract procured by rent it has lost for the length of
A would be against good faith. time necessary to find a new ten-
4. Under a line of credit agree- ant.
good faith and fair . ment between A, a bank, and B, a 6. A rents premises from B for
customer, A suddenly and inexpli- the purpose of opening a restau-
cably refuses to make further ad- rant. During the summer months
ty. vances to B whose business suffers A sets up a few tables out of doors,
heavy losses . as a consequence. but still on the owner's property.
e weekend, the fax at Notwithstanding the fact that the
is disconnected and On account of the noise caused by
agreement contains a term permit- the restaurant's customers late at
> telephone answering ting A to accelerate payment "at
1ich can take the mes- night, B has increasing difficulties
will", A's demand for payment in finding tenants for apartments in
on the following Mon- full without prior warning and
lSes B's acceptance A the same building. B would be
with no justification would be abusing its rights if, instead of re-
ry to good faith since against good faith.
x:ed the time-limit for questing A to desist from serving
it was for A to ensure 2. Abuse of rights out of doors late at night, it re-
5es could be received at A typical example of behaviour con- quired A not to serve out of doors
throughout the forty- trary to the principie of good faith and at all.
period. fair dealing is what in sorne legal sys- 3. "Good faith and fair dealing in
:act for the supply and · . tems is known as "abuse of rights" . It intemational trade''
. of a special production is characterised by a party's malicious
behaviour which occurs for instance The reference to "good faith and fair
1s a provision accqrding dealing in international trade" first
, the seller, is obliged"to when a party exercises a right merely
to damage the other party or for a makes it clear that in the context of
tté to B, the purchaser, the Principies the two concepts are not
vements made by A to purpose other than the one for which
it had been granted, or when the exer- to be applied according to the stan-
.ogy of that line. After a dards ordinarily adopted within the
:ns of an important im- cise of a right is disproportionate to
the originally intended result. different national legal systems. In .
of which it had · not other words, such domestic standards
ned. A is not excused by may be taken into account only to the
Illustrations
hat the production . of extent that they are shown to be gen-
ular type of production 5. A rents premises from B for
the purpose of setting up a retail erally accepted among the various legal
longer its responsibility systems. A further implication of the
e, a wholly-owned affil~ business. The renta} contract is
formula used is that good faith and
>any of A. It would be for five years, but when three
years later A realises that business fair dealing must ·be construed in the
Jd faith for A to invoke
light of the special conclitions of inter-
tte entity of e, which in the area is very poor, it decides
to close the business and informs national trade. Standards of business
cally set up to take over ·
B that it is no longer interested in practice may indeed vary considerably
ction in order to avoid
renting the premises. A's breach from one trade sector to another, and
LCtual obligations vis-a~
of contract would normally lead to even within a given tt·acle sector they
B's having the choice of either ter- may be more or less stringent depend-
1gent, undertakes. on be- .
minating the contract and claim- ing on the socioeconomic environ~ent
.he principal, to promote in which the enterprises· operate, their
,f B's goods in a giveri
ing damages or requesting specific
performance. However, under the size and technical skill, etc.
~r the contract A's right
,sation arises · only after circumstances B would be abusing It should be notecl that whenever the
ral of the cont~acts wo- . its rights if it requirecl A to pay provisions of the Principies and/or the

373

.. '
._;,._.,.,.;·,:-·;¿ltd_,3,~
 UNIDROIT PRINCIPLES INTj

comments thereto refer only to "good 8. The facts are the same as in (2) A notice •
faith and fair dealing", such references Illustration 7, except that A oper- given.
should always be understood as a ref- a tes in a country where this type
erence to "good faith and fair dealing of equipment is so far almost un- (3) For the ¡:
in international trade" as specified in known. A does not lose its right to when given to th;
this Article. rely on the defect because B, being business or mailin
aware of A's lack of technical (4) For the p
Illustrations knowledge, could not reasonably
7. Under a contract for the sale
demand, request e
have expected A properly to identi-
of high-technology equipment the fy the nature of the defect.
purchaser loses the right to rely
on any defect in the goods if it 4. The mandatory nature of the prin-
does not give notice to the seller cipie of good faith and fair dealing
In these Princ
specifying the nature of the defect The parties' duty to act in accor-
without undue delay after it has dance with good faith and fair dealing - "court
discovered or ought to have discov- is of such a fundamental nature that - where
ered the defect. A, a buyer operat- the parties may not contractually ex- releva1
a
ing in country where such equip- elude or limit it (paragraph (2)). As to relatio
ment is commonly used, discovers specific applications of the general pro-
a defect in the equipment after regard
hibition to exclude or limit the princi- the pa
having put it into operation, but pie of good faith and fair dealing be-
in its notice to B, the seller of the contra·
tween the parties, see Articles 3.1.4,
equipment, A gives misleading in- 7.1.6 and 7.4.13. - "oblig<
dications as to the nature of the and "o
defect. A loses its right to rely on On the other hand, nothing prevents
parties from providing in their con-
ance oJ
the defect since a more careful ex-
amination of the defect would tract for a duty to observe more strin- "writir
have permitted it to give B the gent standards of behaviour (see, e.g., a r ecor
necessary specifications. Article 5.3.3). ofbein
Article 1.8
(1 nconsistent behaviour)
A party cannot act inconsistently with an understanding it has (1) Official ho
caused the other party to have and upon which that other party set by parties for a
reasonably has acted in reliance to its detriment. period.
Article 1.9 (2) However, i
non-business day a
(Usages and practices)
the period is exten
(1) The parties are bound by any usage to which they have agreed the circumstances i
and by any practices which they have established between themselves.
(3) The releva
(2) The parties are bound by a usage that is widely lmown to and
party setting the
regularly observed in international trade by parties in the particular
trade concerned except where the application of such a usage would be CHAPTER 2-1
unreasonable.
Article 1.10
(Natice)
(1) Where notice is required it may be given by any means appropri- A contract ma)
ate to the circumstances. by conduct of the p;
374

,,
..,;.··~-·-
 INTERNATIONAL COMMERCIAL CONTRACTS

:ts are the same as in (2) A notice is effective when it reaches the person to whom it is
7, except that A oper- given.
m ntry where this type
(3) For the purpose of paragraph (2) a notice "reaches" a person
nt is so far almost un-
.o es not lose its right to
when given to that person orally or delivered ·a:t that person's place of
defect because B, being business or mailing address.
A's lack of technical (4) For the purpose of this Article "notice" includes a declaration,
could not reasonably demand, request or any other communication of intention.
;ed A properly to identi-
re of the defect. Article 1.11
tory nature of the prin- (Definitions)
faith and fair dealing In these Principies
duty to act in accor- - "court" includes an arbitral tribunal; .
d faith and fair dealing
1ndamental nature that - where a party has more than one place of business the
y not contractually ex- relevant "place of business" is that .which has the closest
t (paragraph (2)). As to relationship to the contract and its performance, having
tions of the general pro- regard to the circumstances kriown to or contemplated by
.ude or limit the princi- the parties at any time before or at the conclusion of the
th and fair dealing be- contract;
ties, see Articles 3.1.4, "obligor" refers to the party who is to perform an obligation
3. and "obligee" refers to the party who is entitled to perform-
· hand, nothing prevents ance of that obligation.
)roviding in their con-
- "writing" means any mode of communication that preserves
y to observe more strin-
1 of behaviour (see, e.g.,
a record of the information coritained therein and is capable
of being reproduced in tangible for.m . .

Article 1.12
(Computation of time set by parties)
understanding it has (1) Official holidays or non-business days occl,lrring during a period
ich that other party set by partí es for an act to be performed are included in calculating the
period.
(2) However, if the last day of the period is an official holiday or a
non-business day at the place of business of the party to perform the act,
the period is extended until the first business day which follows, unless
hich they have agreed the circumstances indicate otherwise.
l between themselves. (3) The relevant time zone is that of the place of business of the
widely known to and party setting the time, unless the . circllmstance.s indicate othe;rwise.
ties in the particular
1uch a usage would be CHAPTER 2-FORMATION AND AUTHORITY OF AGENTS
SECTION 1: FORMATION
.. . . .
Article 2.1.1
(Manner of formation)
•Y any means appropn- A contract may be concluded either by the acceptance of an offer or
by conduct of th e partí es that is sufficient to show agreement.

375
 ,: ..

UNIDROIT PRINCIPLES · INTJ..

Article 2.1.2 terms to be negotiat

(Definition of offer) unlimited, and mus·
the principie of go
A proposal for concluding a con:tract constitutes an offer if it is dealing laid down i:
sufficiently definite and indicates the intention of the offeror to be bound particular instance
in case of acceptance. bad faith which is E
in paragraph (3) of ;
Article 2.1.3 where a ·party enter:
or continues to neg(
(Withdrawal af offer) .· intention of conclud
(1) An offer becomes effective when it reaches the offeree. with the other part~
are where one party
(2) An offer, even if it is irrevocable, may be withdrawn if the
by negligence misled
withdrawal reaches the offeree before or at the same time as the offer. to the nature or terr
contract, either by :
Article 2.1.4 senting facts, or by r
(Revocation of offer) which, given the nat
and/or the contract
(1) Until a contract is concluded an offer may be revoked if the
disclosed. As to th~
revocation reaches the offeree before it has . dispatched an acceptance. tiality, see Article 2.1
(2) However, an offer cannot be revoked A party's liability
(a) if it indicates, whether by stating a fixed time for acceptance bad faith is limite
or otherwise, that it is irr~vocable; ·~r caused to the other
(2)). In other words, 1
(b) if it was reasonable for the offeree to rely on the offer as ty may recover the E
being irrevocable and the offeree· has acted in reliance on in the negotiations
the offer. compensated for the
to conclude another
Article 2.1.5 third person (so-caller
ative interest), but n
(Rejection of offer) recover the profit w
. . .
(1) A party is free to negotiate and is not liaqle for failure to reach resulted had the origi
an agreement. concluded (so-called
positive interest).
(2) However, a party who negotiates or · breaks off negotiations in
Only if the parties
bad faith is liable for the losses caused to the other party.
agreed on a duty to 1
a
(3) It is bad faith, in particular, for party to enter into or continue faith, will all the ren
negotiations when intending not to reach an agreement with the other of contract be availa
party. cluding the remedy of
fm·mance .
Comment dom of contract enunciated in Article
1.1; and is e"sséntial in arder to g'uaran- Illustrations
1. Freedom of negotiation tee healthy .competition among busi- l. A learns of
As a rule, parties are not only free to ness people ·engaged in international sell its restauran1
decide when and with whom to enter .. trade. intenLion whatso
into negotiations with a view to con- the restaurant, ;
2. Liability for negotiating in bad
cluding a contract, but also if, how and ters into lengthy 1
faith
for how long to proceed with their B for the sale pm
efforts to reach an agreement. This . A par:ty's right freely to en ter into ing B from sellin:
follows from the basic principie of free- n egotiations and to decide on the to e, a competito
376
 ·... INTERNATIONAL COMMERCIAL CONTRACTS

terms to be negotiated is, however, not breaks off negotiations when e

unlimited, and must not conflict with has bought another restaurant, is
the principie of good faith and fair liable to B, who ultimately suc-
Lltes an offer if it is dealing laid down in Article l. 7. One ceeds in selling the restaurant at a
1e offeror to be bound particular instance of negotiating in lower price than that offered by e,
bad faith which is expressly indicated f01~ the difference in price.
in paragraph (3) of this Article is that
where a party enters into negotiations 2. A, who is negotiating with B
or continues to negotiate without any for the promotion of the purchase
intention of concluding an agreement of military equipment by the
with the other party. Other instances armed forces ofB's country, learns
the offeree. that B will not receive the neces-
are where one party has deliberately or
be withdrawn if the by negligence misled the other party as sary import licence from its own
.me time as the offer. to the nature or terms of the proposed governmental authorities, a pre-
contract, either by actually misrepre- requisite for permission to pay B's
senting facts, or by not disclosing facts fees. A does not reveal this fact to
which, given the nature of the parties B and finally concludes the con-
and/or the contract, should have been tract, which, however, cannot be
tay be revoked if the disclosed. As to the duty of confiden- enforced by reason of the missing
:ttched an acceptance. tiality, see Article 2.1.16. licences. A is liable to B for the
A party's liability for negotiating in costs incurred after A had learned
bad faith is limited to the losses of the impossibility of obtaining
ed time for acceptance caused to the other party (paragraph the required licence.
(2)). In othe.r. words, the aggrieved par- 3. A enters into lengthy negotia-
o rely on the offer as ty may r~cover the expenses incurred tions for a bank loan from B's
3 acted in reliance on
in the negotiations and may also be branch office. At the last minute
compensated for the lost opportunity the branch office discloses that it
to conclude another contract with a had no authority to sign and that
third person . (so-called reBanee or neg-
its head office has decided not to
ative interest), but may generally not
approve the draft agreement. A,
recover the .profit which would have
who could in the meantime have
resulted had the original contract been
Jle for failure to reach obtained the loan from another
concluded (so-called expectation or
bank, is entitled to recover the
positive interest).
expenses entailed by the negotia-
1ks' off negotiations in Only if the parties have expressly tions and the profits it would have
· party. agreed on a duty to negotiate in good made during the delay befare ob-
enter into or continue faith, will al! the remedies for breach taining the loan from the other
eement with the other of contract be available to them, in- banlt.
cluding the remedy of the right to per-
fül·mance. 4. eontractor A and supplier B
act enunciated in Article enter into a pre-bid agreement
Illustrations whereby they undertake to negoti-
;ential in arder to guaran-
;ompetition among busi- l. A learns of B's intention to ate in good faith for the supply of
mgaged in international sell its restaurant. A, who has no equipment in the event that A suc-
intention whatsoever of buying ceeds in becoming prime contrac-
the restaurant, nevertheless en- tor for a majar construction pro-
for negotiating in bad ters into lengthy negotiations with ject. A is awarded the construction
B for the sale purpose of prevent- contract, but after preliminary
:ight freely to enter into ing B from selling the restaurant contacts with B refuses to contin-
and to decide on the to e , a competitor of A's. A, who ue the negotiations. B may request

377
 UNIDROIT PRINCIPLES INTj'

enforcement of the duty to negoti- issues relating to the future contract

ate in good faith . on which the parties have already
3. Liability for brealúng off negotia- reached agreement. (1
tions in bad faith (1) A late ac•
The right to break off negotiations Illustration
without undue de
also is subject to the principie of good 5. A assures B of the grant of a that effect.
faith and fair dealing. Once an offer franchise if B takes steps to gain
has been made, it may be revoked only experience and is prepared to in- (2) If a comn
within the limits provided for in Arti- has been sent in
vest USD 300,000. During the
cle 2.1.4. Yet even before this stage is normal it would h:
next two years B makes extensive
reached, or in a negotiation process is effective as an
preparations with a view to con-
with no ascertainable sequence of offer
and acceptance, a party may no longer cluding the contract, always with informs the offere1
be free to break off negotiations A's assurance that B will be grant-
abruptly and without justification. ed the franchise. When all is ready
When such a point of no return is for the signing of the agreement,
reached depends on the circumstances A informs B that the latter must
of the case, in particular the extent to invest a substantially higher sum . . .An acceptanc1
which the other party, as a result of B, who refuses, is entitled to re- offeror before ·ór a
the conduct of the first party, had rea- cover from A the expenses in- effective.
son to rely on the positive outcome of curred with a view to the conclu-
the negotiations, and on the number of sion of the contract.

Article 2.1.6
(Mode of acceptance) (1) A reply t(
(1) A statement made by or other conduct of the offeree indicating contains additions,
assent to an offer is an acceptance. Silence or inactivity does not in itself offer and constitut•
amount. to acceptance. (2) However; l
(2} An acceptance of an offer becomes effective when the indication but contains .additi
of assent reaches the offeror. the terms of the
G3) However, if, by virtue of the offer or as a result of practices without undue del.
which the parties have established between themselves or of usage, the object, the terms
offeree may indicate assent by performing an act without notice to the modifications cont~
offeror, the acceptance is effective when the act is performed.
Article 2.1. 7
(Time of acceptance)
An offer must be accepted within the time the offeror has fixed oi-, if If a writing
no time is fiXed, within a reasonable time having regard to the circum- conclusiori of the C(
stances, including the rapidity of the means of communication employed contract contains a
by the offeror. An oral offer must be accepted immediately unless the of the contract, un]
circumstances indicate otherwise. without undue dela

Article 2.1.8
(Acceptance within a fixed period of time) (Conclz
· A period of acceptance fixed by the offeror begins to run from the on S)
time that the offer is dispatched. A time indicated in the offer is deemed Whei:e in the. 1
to be the time of dispatch unless the circumstances indicate otherwise. the contract is not 1
378

.,,
_,,. ~-1.1 l(;~Y_:..;;.
 INTERNATIONAL COMMERCIAL CONTRACTS

to the future contract Article 2.1.9

parties have already
ent. (Late acceptance. Delay in transmission)
(1) A late acceptance is nevertheless effective as an acceptance if
without undue delay the offeror so informs the offeree or gives notice to
:es B of the grant of a that effect.
' B takes steps to gain (2) If a communication containing a late acceptance shows that it
and is prepared to in- has been sent in such circumstances that if its transmission had been
300,000. During the
normal it would have reached the offeror in due time, the late acceptance
ears B makes extensive
ts with a view to con-
is effective as an acceptance unless, without undue delay, the offeror
l contract, always with
informs the offeree that it considers the offer as having lapsed.
tce that B will be grant-
chise. When all is ready Article 2.1.10
ning of the agreement, (Withdrawal of acceptance)
B that the latter must
tbstantially higher sum. An acceptance may be withdrawn if the withdrawal reaches the
fuses, is entitled to re• · offeror before or at the same time as the acceptance would have become
a A the expenses in- effective.
h a view to the conclu-
contract. Article 2.1.11
(Modified acceptance)
(1) A reply to an offer which purports to be an acceptance but
the offeree indicating contains additions, limitations or other modifications is a rejection of the
ivity does not in itself. offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance
e when the indication but contains additional or different terms which do not materially alter
the terms of the offer constitutes an acceptance, unless the offeror,
a result of practices : without undue delay, objects to the discrepancy. If the offeror does not
;elves or of usage, the object, the terms of the contract are the terms of the offer with the
without notice to the modifications contained in the acceptance.
>erformed.
Articl~ 2.1.12
(Writings in confirmation)
If a writing which is sent within a reasonable. time after the
offeror has fixed or, if · condusion of the contract and which purports to be a confirmation of the
regard to the circum- contract contains additional or different terms, such terms become part
amunication employed of the contract, unless they materially alter the contract or the recipient,
nmediately unless · the without undue delay, objects to the discrepancy.

Article 2.1.13

>{time) (Conclusion of contract dependent on agreement

on specific matters or in a particular form)
,egins to run from the
in the offer is deemed vVhere in the course of negotiations one of the parties insists that
ces indicate otherwise. the contract is not concluded until there is agreement on specific matters

379
 . ~.

UNIDROIT PRINCIPLES INTJ..

or in a particular form, no contract is concluded before agreement is or agreements. He

reached on those matters or in that form. interpret the writi

Article 2.1.14
(Contract with terms deliberately left open)
(1) If the parties intend to conclude a contract, the fact that they A contract in
intentionally leave a term to be agreed upon in further negotiations or to cation or terminat
be determined by a third person does not preven~ a contract from coming be otherwise modii
into existence. by its conduct fror
(2) The existence of the contract is not affected by the fact that party has reasonab
subsequently
(a) the parties reach no agreement on the term; or
(b) the third person does not determine the term,
(1) Where one
provided that there is an alternative means of rendering the term
definite that is reasonable in the circumstances, having regard to the ing a contract, the
2.1.20-2.1.22.
intention of the parties.
(2) Standard t•
Article 2.1.15 general and repea
(Negotiations in bad faith) without negotiatior

(1) A party is free to negotiate and is not liable for failure to reach
an agreement.
(2) However, a party who negotiates or breaks off negotiations in
bad faith is liable for the losses caused to the other party. (1) No term co
ter that the otheJ
(3) It is bad faith, in particular, for a party to enter into or continue effective unless it h
J.
negotiations when intending not to reach an agreement with the other
party. (2) In determi:
shall be had to its c·
Article 2.1.16
(Duty of confidentiality)
Where information is given as confidential by one party in the (Conflict betL
course of negotiations, the other party is under a· duty not to disclose In case of cónfl
that information or to use it improperiy for its own purposes, whether or a standard term the
not a contract is subsequently concluded. Where appropriate, the remedy
for breach of that duty may include compensation based on the benefit
received by the other party.

Article 2.1.17 Where both par

on those terms, a ce
(Merger clauses)
and of any standar<
A contract in writing which contains a clause indicating that the party clearly indica
writing completely embodies the terms on which the parties have agreed informs the other p
cannot be contradicted or supplemented by evidence of prior statements contract.

380

....~.il.~ z~. ·-
 (

INTERNATIONAL COMMERCIAL CONTRACTS

Jefore agreement is or agreements. However, such statements or agreements may be used to

interpret the writing.

Article 2.1.18
open) (Modification in a particular form)
;, the fact that they A contract in .writing which contains a clause requiring any modifi-
er negotiations or to cation or termination by agreement to be in a particular form may not
ontract from coming be otherwise modified or terminated. However, a party may be .precluded
by its conduct from asserting such a clause to the extent that the other
party has reasonably acted in reliance on that conduct.
;ed by the fact that
Article 2.1.19
~rm; or
(Contracting under standard terms)
term,
(1) Where one party or both parties use standard terms in conclud-
rendering the term ing a contract, the general rules on formation apply, subject to Articles
taving regard to the 2.1.20- 2.1.22.
(2) Standard terms are provisions which are prepared in advance for
general and repeated use by one party and which are actually used
without n egotiation with the other party.

e for failure to reach Article 2.1.20

(Surprising terms) .
:s off n egotiations in
(1) No term contained in sta ndar d .t erms which is of such a charac-
Jarty. ter that the other party could not reasonably have expected it, is
!nter into or continue effective unless it has been expressly accepted by that party.
!ment with the other
(2) In determining whether a terin is of such · a character regard
shall be had to its content, language and prese~tatioJ:?..

Article 2.1.21
(Conflict between standard terms and non-standard terms)
by one party in the
. duty not to disclose In case of conflict between a standard term and a term which is not
purposes, whether or a standard term the latter prevails.
propriate, the remedy
Article 2.1.22
based on the benefit
(Battle of form s)
Wher e both parties use standard t erms and r each agreement except
on those t erms, a contract is concluded on the basis of the agreed terms
and of any standard t erms which are common in substance unless one
;e indicating that the party clearly indicates in advance, or later and without undue delay
1e parties h ave agreed informs the other party, that it does not intend to be bound by such a
ce of prior st at ements contract.

381
 UNIDROIT PRINCIPLES · INTl

SECTION 2: AUTHORITY OF AGENTS

Article 2.2.1 (Agent
(Scope of the section) (1) Where an
(1) This Section governs the authority of a person ("the agent") to its acts do not af1
affect the legal relations of another person ("the principal") by or with third party.
respect to a contract with a third party, whether the agent acts in its (2) However,
own name or in that of the principal.
to believe that the
(2) It governs only the relations between the principal or the agent and that the age1
on the one hand, and the third party on the other. ' principal may not
(3) It does not govern an agent's authority conferred by law or the the agent.
authority of an agent appointed by ·a public or judicial authority.

Article 2.2.2
(Liability of
(Establishment and scope of the authority of the agent)
(1) An agent t
(1) The principal's grant of authority toan agent may be express or failing ratification
implied. third party in the !
(2) The agent has authority to perform all acts necessary in the and not exceeded it
circumstances to achieve the purposes for which the authority was (2) However, t
granted. .
to have known th:
Article 2.2.3 authority.

(Agency discloséd) ·
(1) Where an agent acts within the· scope of its authority and the
third party knew or ought to have known that the agent was acting as
an agent, the acts of the agent shall directly affect the legal relations (1) If a contr~
between the principal and the third party and :no legal relation is created conflict of interests
between the agent and the third party. ought to have kno\'
(2) Hoy.rever, the acts of the agent shall affect only the relations avoid is subject to P
between the agent and the third party, where the agent withthe consent (2) However, tl
of the principal undertakes to become the party ~o the contract.
(a) if the I
Article 2.2.4 known
ests; or
(Agency undiselosed)
(b) if the .
(1) Where an agent acts within the scope of its authority and the
princip.
third party neither knew nor ought to háve known that the agent ·was
time.
acting as an agent, the acts of the agent shall affect only the relations
between the agent and the third party.
(2) However, where such an agent, when contraeting with the third
party on behalf of a business, represents itself to be the owner of that
business, the third party, upon discovery of the real owner of the An agent has i
business, may exercise also against the latter the rights it has against acts which it is not
the agent. rules of this Section

382
 1}

·... INTERNATIONAL COMMERCIAL CONTRACTS

NTS Article 2.2.5

(Agent acting without or exceeding its authority)
(1) Where an agent acts without authority or exceeds its authority,
::m ("the agent") to its acts do not affect the legal relations between the principal and the
ncipal") by or with third party.
1e agent acts in its (2) However, where the principal causes the third party reasonably
to believe that the agent has authority to act on behalf of the principal
:ncipal or the agent and that the agent is acting within the scope of that authority, the
principal may not invoke against the third party the lack of authority of
erred by law or the the agent.
l authority.
Article 2.2.6
(Liability of agent acting without or exceeding its authority)
ethe agent) (1) An agent that acts without authority or exceeds its authority is,
t may be express or failing ratification by the principal, liable for damages that will place the
third party in the same position as if the agent had acted with authority
ts necessary in the and not exceeded its authority.
the authority was (2) However, the agent is not liable if the third party knew or ought
to have known that the agent had no authority or was exceeding its
authority.

Article 2.2. 7
s authority and the (Conflict of interests)
agent was acting as
t the legal relations (1) If a contract concluded by an agent involves the agent in a
3.1 relation is created conflict of interests with the principal of which the third party knew or
ought to have known, the principal may avoid the contract. The right to
avoid is subject to Articles 3.2.9 and 3.2.11 to 3.2.15.
t only the relations
:mt with the consent (2) However, the principal may not avoid the contract
.e contract. (a) if the principal had consented to, or knew or ought to have
known of, the agent's involveme_nt in the conflict of inter-
. ests; or
(l)) if the agent had disclosed the conflict of interests to the
;s authority and the principal and the latter h ad not objected within a reasonable
, that the agent was ·time. ·
ct only the relations
Article 2.2.8
1cting with the third (Sub-agency)
>e the owner of that
real owner of the An agent has implied authority to appoint a sub-agent to perforrn
rights it has against acts which it is not r easonable to expect the agent to perform itself. The
rules ofthis Section apply to the sub- agency.

383
 UNIDROIT PRINCIPLES · INT,

Article 2.2.9
(Ratification) (1
(1) An act by an agent that acts without authority or exceeds its The provisior
authority may be ratified by the principal. On ratification the act tained in this Cha
produces the same effects as if it had initially been carried out with
authority. SEC'J
(2) The third pa_rty may by notice to the principal specify a reason-
able period of time for ratification. If the principal does not ratify within
that period of time it can no longer do so.
(3) If, at the time of the agent's act, the third party neither knew
Mistake is m
nor ought to have known of the lack of authority, it may, at any time existing when the
before ratification, by notice to the principal indicate its refusal to
become bound by a ratification.

Article 2.2.10 (1) A party n

(Termination of authority) contract was con<
(1) Termination of authority is not effective in relation to the third reasonable person
party unless the third party knew or ought to have known of it. have concluded th
have concluded it
(2) Notwithstanding the termination of its authority, an agent re-
mains authorised to perform the acts that are necessary to prevent harm Üt) the o1
to the principal's interests. mistal
and it
CHAPTER 3-V ALIDITY fair de
SECTION 1: GENERAL PROVISIONS (b)· the of
acted j
Article 3.1.1
(2) However, ~
(Matters not covered)
(a) it was
This Chapter does not deal with lack of capacity.
(b) the m]
Article 3.1.2 of mis
stance
(Validity of mere agreement)
A contract is concluded, modified or terminated by the mere agree-
ment of the parties, without any further requirement. (l

Article 3.1.3 An error occur

is considered to be
(lnitial impossibility) emanated.
(1) The mere fact that at the time of the conclusion of the contract
the performance of the obligation assumed was impossible does not
affect the validity of the contract.
(2) The mere fact that at the time of the conclusion of the contract a A party is no
party was not entitled to dispose of the assets to which the contract mistake if the circ1
relates does not affect the validity of the contract. have afford~d, ~ ~~r
384
 INTERNATIONAL COMMERCIAL CONTRACTS

Article 3.1.4
(Mandatory character of the provisions)
J.ority or exceeds its The provisions on fraud, threat, gross disparity and illegality con-
ratification the act tained in this Chapter are mandatory.
,en carried out with
SECTION 2: GROUNDS FOR AVOIDANCE
pal specifY a reason- Article 3.2.1
loes not ratify within (Definition of mistake)
Mistake is an erroneous assumption relating to facts or to law
l party neither knew existing when the contract was concluded.
it may, at any time
dicate its refusal to Article 3.2.2
(Relevant mistake)
(1) A party may only avoid the contract for mistake if, when the
contract was concluded, the mistake was of such importance that a
reasonable person in the same situation as the party in error would only
relation to the third have concluded the contract on materially different terms or would not
have known of it. have concluded it at all if the true state of affairs had been known, and
thority, an agent re- (a) the other party made the same mistake, or caused the
sary to prevent harm. mistake, or knew or ought to have known of the mistake
and it was contrary to reasonable commercial standards of
fair dealing to leave the mistaken party in error; or
(b) the other party had not at the time of avoidance reasonably
:IONS acted in reliance on the contract.
(2) However, a party may not avoid the contract if
(a) it was grossly negligent in committing the mistake; or
'(. (b) the mistake relates to a matter in regard to. which the risk
of mistake was assumed or, having regard to the circum-
stances, should be borne by the mistaken party.

Article 3.2.3
ld by the mere agree~
nt. (Error in expression or transmission)
An error occurring in the expression or transmission of a declaration
is considered to be a mistake of the person from whom the declaration
emanated.
:lusion of the contract
Article 3.2.4
impossible d.oes not .
(Remedies for non-performance)
1sion of the contract a A party is not entitled to avoid the contract on the ground of
.o which the contract mistake if the circumstances on which that party relies afford, or could
have afforded, a remedy for non-performance.

385
 UNIDROIT PRINCIPLES INT

Article 3.2.5 under the same

(Fraud) that of the party :
A party may avoid the contract when it has been led to conclude the (2) Where fr
contract by the other party's fraudulent representation, including lan- person for whose
guage or practices, or fraudulent non-disclosure of circumstances which, may be avoided if
according to reasonable commercial standards of fair dealing, the latter threat or disparit:
party should have disclosed. in reliance on the

Article 3.2.6
(Threat)
A party may avoid the contract when it has been led to conclude the If the party
contract by the other party's unjustified threat which, having regard to confirms the con
the circumstances, is so imminent and serious as to leave the first party avoidance has bE
no reasonable alternative. In particular, a threat is unjustified if the act
or omission wíth which a party has been threatened is wrongful in itself,
or ít is wrongful to use it as a means to obtain the conclusion of the
contract.

Article 3.2. 7 (1) If a party

other party declar
(Gross disparity) it was understooc
(1) A party may avoid the contract or an individual term of it if, at considered to havE
the time of the conclusíon of the contract, the contract or term unjustifi- other party must
ably gave the other party an excessive advantage. Regard is to be had, promptly after ha'
among other factors, to entitled to avoidar
(a) the fact that the other party has taken unfair advantage of has reasonably act
the first party's dependence, economic distress or urgent (2) After such
needs, or of its improvidence, ignorance, inexperience or lost and any earlie:
lack of bargaining skill, and
(b) the nature and purpose of the contract.
(2) U pon the request of the party entitled to avoidance, a court may
adapt the contract or term in order to make it accord with reasonable
The right of a
commercial standards of fair dealing.
the other party.
(3) A court may also adapt the contract or terin upon the request of
the party receiving notice of avoidance, provided that that party informs
the other party of its request promptly after receiving such notice and
before the other party has reasonably acted in reliance on it. Article
3.2.10(2) applies accordingly. (1) Notice of
having regard to 1
Article 3.2.8 could not have bee
(Third persons) acting freely.
(1) Where fraud, threat, gross disparity or a party's mistake is (2) Where an
imputable to, or is known or ought to be known by, a third person for party under Artid
whose acts the other party is responsible, the contract may be avoided · · ance begins to ru
386
 INTERNATIONAL COMMERCIAL . CONTRACTS

under the same conditions as if the behaviour or knowledge had been

that of the party itself.

n led to conclude the (2) Where fraud, threat or gross . disparity is .imputable to a third
ation, including lan- person for whose acts the other party 'is not responsible, the contract
:ircumstances which, may be avoided if that party knew or ought to have known of the fraud,
ir dealing, the latter threat or disparity, or has not at the time of avoidance reasonably acted
in reliance on the contract.

Article 3.2.9 .
(Confirmation)
n led to conclude the If the party entitled to avoid the contract .expressly or impliedly
tch, having regard to confirms the contract after the period of time .for giving notice of
. leave the first party avoidance has begun to run, avoidance of the contract is excluded.
unjustified if the act
. is wrongful in itself, Article 3.2.10 .
he conclusion of the
(Loss of right to avoid)
(1) If a party is entitled to avoid the contract for mistake but the
other party declares itself willing to perform or performs the contract as
it was understood by the party entitled to . avoidimce, the contract is
idual term of it if, at considered to have been concluded as the latter party understood it. The
act or term Únjustifi- other party must make such a declaration or render such performance
Regard is to be had, promptly after having been informed of the máriner in which the party
entitled to avoidance had understood the contract and before that party
· has reasonably acted in reliance on a notice of avol.dance.
1 unfair advantage of
.e distress or urgent (2) Mter such a declaration or performance the right to avoidance is
nce, inexperience or lost and any earlier notice of avoidance .is ineffective ~

Article 3.2.11

roidance, a court may (Natice of avoidance) ·

cord with r easonable The right of a party to avoid the cqntract .is exercised by notice to
the other party.
n upon the request of
at that party informs Article 3.2.12
.ving such notice and
(Time limits) ..
eliance on it. Article
(1) Notice of avoidance shall be given within a reasonable time,
having regard to the circumstances, after the avoiding party knew or
could not have been unaware of the relevant facts or became capable of
acting freely.
a party's mistake is (2) Wher e an individual term of the contract may be avoided by a
)y, a thir d person for party under Article 3.2.7, the period of time for giving notice of avoid-
tra ct may be avoided ance begins to run when that t erm is á.sserted by the other party.

387
 UNIDROIT PRINCIPLES INTl

Article 3.2.13 these Principies, 1

(Partial avoidcmce) the effects, if any,
Where a ground of avoidance affects only individual terms of the (2) Where th
contract, the ·effect of avoidance is limited to those terms unless, having effects of an infrir
regard to the circumstances, it is unreasonable to uphold the remaining exercise such rem
contract; reasonableo
(3) In determ:
Article 3.2.14 lar to:
(Retroactive effect of i:woidance) (a) the pt
Avoidance takes effect retroactively o (b) the ca
. (e) any sa
Article 3.2.15
(d) the se
(Restitution)
(e) wheth
(1) On avoidance either party maY daim restitution of whatever it the inl
has supplied under the contract, or the part of it avoided, provided that
the party concurrently makes restitution of whatever it has received CD wheth1
infring
under the contract, or the part of it avoidedo
(g) the pa
(2) If restitution in kind is not possible or appropriate, an allowance
has to be made in money whenev~r reasonableo
(3) The recipient of the performance does not have to make an
allowance in money if the impossibilityo to make restitution in kind is
(1) Where the1
attributable to the other partyo o o
mandatory rule ur
(4) Compensation may be claimed for expenses reasonably required this would be reaso
to preserve or maintain the pei·formance receivedo (2) In determi1
Articl~ 3.2.16 appropriate adapta
(3) If restituti<
(Damages/
with appropriate ac
Irrespective of whether or not othe contract has been avoided, the
party who knew or ought to have known of the ground for avoidance is Cl
liable for damages so as to put the other party in the same position in
which it would have been if it had not concluded the contracto

Article 3;2.17 (1) A contraet

(Unilateral declarations) tion of the partieso
The provisions of this Chapter apply with appropriateo adaptations to (2) If such an i
any communication of intention addressed by one party to the othero interpreted accordi
same kind as the l
SECTION 3: ILLEGALITY
Article 3.3.1
(lnterpJ
(Contracts úifringing mandatory rules) (1) The statem
(1) Where a contract infringes a mandatory rule, whether of nation- according to that pi
al, international or supranational arigin, applicable under Article 1.4 of have been unaware

388
 i ~·

INTERNATIONAL COMMERCIAL CONTRACTS

these Principies, the effects of that infringement upon the contract are
the effects, if any, expressly prescribed by that mandatory rule.
(2) Where the mandatory rule does not expressly prescribe the
vidual terms of the
effects of an infringement upon a contract, the parties have the right to
erms unless, having
exercise such remedies under the contract as in the circumstances are
)hold the remaining
reasonable.
(3) In determining what is reasonable regard is to be had in particu-
lar to:
(a) the purpose of the rule which has been infringed;
(b) the category of persons for whose protection the rule exists;
. (e) any sanction that may be imposed under the rule infringed;
(d) the seriousness of the infringement;
(e) whether one or both parties knew or ought to have known of
Lltion of whatever it the infringement;
oided, provided that (D whether the performance of the contract necessitates the
wer it has received infringement; and
(g) the parties' reasonable expectations.
,priate, an allowance
Article 3.3.2
t have to make an (Restitution)
~stitution
in kind is (1) Where there has been performance under a contract infringing a
mandatory rule under Article 3.3.1, restitution may be granted where
reasonably required this would be reasonable in the circumstances.
(2) In ·determining what is reasonable, regard is to be had, with the
appropriate adaptations, to the criteria referred to in Article 3.3.1(3).
(3) I(restitution is granted, the rules set out in Article 3.2.15 apply
with appropriate adaptations.
ts been avoided, the
und for avoidance is CHAPTER 4-INTERPRETATION
the same position in Article 4.1
contract. (Intention of the parties)
(1) A contract shall be interpreted accórding to the common inten-
tion of the parties.
(2) If such an intention cannot be established, the contract shall be
pria t e adaptations to interpreted according to the meaning that reasonable persons of the
party to the other. same kind as the parties would give to it in the same CÍrcumstances.

Article 4.2
(Inte1pretation of statem ents and other conduct)
d es) (1) The statements and other conduct of a party shall be interpreted
e, whether of nation- according to that party's intention if the other party knew or could not
under Article 1.4 of have beeri unaware of that intention .

389
 UNIDROIT PRINCIPLES IN1

(2) lf the preceding paragraph is not applieable, sueh statements

and other eonduet shall be interpreted aecording to the meaning that a
reasonable person of the same kind as the other party would give to it in
the same eireumstances. (1) Where th
term which is im]
Article 4.3 ·. term which is ap:r
(Relevant circumstances) (2) In detern
·. among other faetc
In applying Articles 4.1 and 4.2, regard shall be had to all the
cireumstanees, including (a) the ir
(a) preliminary negotiations between the parties; (b) the n
(b) practices which the parties have established between them- (e) good:
selves; (d) reaso
(e) the conduct of the parties subsequent to the eonclusion of CHAPTER
the contraet;
(d) the nature and purpose of the contraet;
(e) the meaning eommonly given to terms and expressions in
the trade eoneerned;
(f) usages.
The eontractu

Article 4.4
(Reference to contract or statement as a whole)
lmplied obliga
Terms and expressions shall be interpreted in the light of the whole
contraet or statement in whieh they appear. (a) the na
(b) practi1
Article 4.5 (e) good f¡
(All terms to be given effect) (d) reason
Contraet terms shall be interpreted so as to give _effect to all the
terÍns rather than to deprive sorne of them of effeet.

Article 4.6 Each party s}

(Contra proferentem rule) · operation may re¡
party's obligations.
lf eontract terms supplied by one party are unclear, an interpreta-
tion against that party is preferred ..

Article 4.7 (Duty to e

(1) To the ext'
(Linguistic discrepancies) aehieve a specific
Where a contract is drawn up in two or more language versions (2) To the extl
which are equally authoritative there is, in case of diserepancy between best efforts in the
the versions, a preferenee for the interpretation according to a version in make such efforts a
which the contract was originally drawn up . kind in the same cir
390
 INTERNATIONAL COMMERCIAL CONTRACTS

.e, such statements Article 4.8

the meaning that a (Supplying an omitted term)
y would give to it in
(1) Where the parties toa contract have not agreed with respect toa
term which is important for a determination of their rights and duties, a
term which is appropriate in the circumstances shall be supplied.
(2) In determining what is an appropriate term regard shall be had,
among other factors, to
be had to an · the
(a) the intention of the parties;
(b) the nature and purpose of the contract;
rties;
(e) good faith and fair dealing;
shed betweeri therri-
(d) reasonableness.

;o the conclusion of CHAPTER 5-CONTENT AND THIRD PARTY RIGHTS

SECTION 1: CONTENT
Article 5.1.1
and expressions in (Express .and implied obligations)
The contractual obligations of the parties may be express or implied.

Article 5.1.2
(Implied obligations)
whole) . Implied obligations stem from
1e light of the wh()le (a) the nature and purpose of the contract;
(b) practices establishcd bctween the parties and usages;
(e) good faith and fair dealing;
(d) reasonableness.
. .
~ve effect to all the Article 5.1.3
(Co-operation between the parties)
Each party shall cooperate with the other party when such co-
operation may reasonably be expected for the performance of that
party's obligations.
clear, an interpreta-
Article 5.1.4
(Duty to achieue a specific result. Duty of best efforts)
(1) To the extent that an obligation of a party involves a duty to ·
achieve a specific result, that party is bound to achieve that result ..
·e language versions (2) To the extent that an obligation of a party ínvolves a duty of
discrepancy between best efforts in the performance of an activity, that party is bound to
>rding to a version in make such efforts as would be made by a reasonable person of the same
kind in the same circumstances .

391
 UNIDROIT PRINCIPLES INT

Article 5.1.5
(Determination of kind of duty involved)
In determining the extent to which an obligation ofa party involves (1) An oblige
a duty of best efforts in the performance of an activity or a duty to
(2) An offer t
achieve a specific result, regard shall be had, among other factors, to
if the obligor does
(a) the way in which the obligation is expressed in the contract; aware ofit.
(b) the contractual p~ice and other terms of the contract;
SI
(e) the degree of risk normally involved in achieving the expect-
ed result;
(d) the ability of the other party to influence the performance of
the obligation.
(1) The parti~
Article 5.1.6 express or impliec
ry").
(Detennination of quality of performance)
(2) The existE
Where the quality of performance is neither fixed by, nor determin-
promisor are deter
able from, the contract a party is bound to render a performance of a
to any conditions e
quality that is reasonable and not less than average in the circum-
stances.

Article 5.1. 7
(Price determination) The beneficiar
(1) Where a contract does not fix or make provision for determining contract but need
the price, the parties are considered, in the absence of any indication to
the contrary, to have made reference to the price generally charged at
the time of the conclusion of the contract for such performance in
comparable circumstances in the trade concerned or, if no such price is
available, to a reasonable price. The confermeJ
invoke a clause in
(2) Where the price is to be determined by one party and that
the beneficiary.
determination is manifestly unreasonable, a reasonable price shall be
substituted notwithstanding any contract term to the contrary.
(3) Where the price is to be fixed by a third person, and that person
cannot or will not do so, the price shall be a reasonable price.
(4) Where the price is to be fixed by reference to factors which do The promisor 1
not exist or have ceased to exist or to be accessible, the nearest the promisoi- could
equivalent factor shall be treated as a substitute.

Article ~.1.8

(Contract for an indefinite period) The parties m

A contract for an indefinite period may be ended by either party by contract on the bm
giving notice a r easonable time in advance. reasonably acted in

392
 INTERNATIONAL, GOMMERCIAL CONTRACTS

.Article 5.1.9
l) (Release by agreement)
f a party involves (1) An obligee may release its right by agreement with the obligar.
rity or a duty to (2) An offer to release a right gratuitously shall be deemed accepted
other factors, to
if the obligar does not reject the offer without delay after having become
!d in the contract; · aware of it .
.e {!Ontract;
SECTION 2:. THIRD P ARTY RIGHTS
tieving the expect-
. Article 5.2.1
he performance of (Contracts in favour of third parties)
(1) The parties (the "promísor" and the "promísee") may confer by
express or implied agreement a right on a third party (the "beneficía-
ry").
ce)
(2) The existence and content of the beneficíary's right agaínst the
by, nor determin- promisor are determined by the agreement of the parties and are subject
performance of a to any conditions or other limitations under the agreement.
;;e in the circum-
Article 5.2.2
(Third party identifiable)
The beneficíary must be identifiable with adequate certainty by the
contract but need not be in existence at the time the contract is made.
m for determining
f any indication to
Article 5.2.3
nerally charged at
h performance in (Exclusion and limitation clauses)
if no such price is
The conferment of rights in the beneficiary íncludes the ríght to
invoke a clause in the contt:act .which excludes or límits the liabílíty of
1e party and that the beneficiary.
tble price shall be
~ontrary. Article 5.2.4
'n, and that person (Defences)
~ price.
The promisor may assert against the beneficíary all defences which
o factors which do
the promisor could assert against the promisee.
sible, the miarest
Article 5.2.5
(Revocatio n)
The partíes may modl.fy or revoke the ríghts conferred by the
by either party by contract on the beneficíary untíl the beneficíary has accepted them or
reasonably acted in reliance on them .

. . 393

.
'~
..... ,¡jJ¡;·,
 •. '!

UN!DROIT PRINCIPLES INTE

· Article 5.2.6 (2) If the par

operate retroactiv•
(Renunciation) apply with approp1
The beneficiary inay renóU:nce a right conferred on it.

SECTION .3: CONDITIONS

SECTl
. Article 5.3.1
(Types of condition)
A contract or a contractual obligation may be made conditional upon A party must 1
the occurrence of a future uncertain event, so that the contract or the
contractual obligation only takes effect if the event occurs (suspensive (a) if a ti
condition) or comes to an end if the event occurs (resolutive condition). that ti
(b) if a p
· Article 5.3.2 contra
· {Effect of conditions) stance
(e) m any
Unless the parties otherwise agree :
sion of
(a) the relevant contráct or contractual obligation takes effect
upon fulfilment of a suspensive condition;
(b) the relevant eontract or contractual obligation comes to an (Per¡
end upon fulfilmen~ of a resolutive condition.
In cases undE
·Article 5.3.3 obligations at one
and the circumstar.
(Interference with conditions)
(1) If fulfilment of a condition is prevented by a party, contrary to
the duty of good faith and fair dealing or the duty of co-operation, that
party may not rely on the non-fulfilment of the condition.
(1) The oblige
(2) If fulfilment of a CC?ndition is brought about by a party, contrary performance is dt
to the duty of good faith and fair dealing or the duty of co-operation, that assurance as to the
party may not rely on the fulfilrnent of the condition. legitimate interest

Article 5.3.4 (2) Additional

are to ·be borne b)
(Duty to preserve rights)
Pending fulfilment of a condition, a party may not, contrary to the
duty to act in accordance with good faith and fair dealing, act so as to
prejudice the other party's rights in case of fulfilment of the condition.
(1) To the ex
rendered simultanE
· Article 5.3.5
neously unless the
(Restitution in case of fulfilment of a resolutive condition) (2) To the exb
(1) On fulfilment of a resolutive condition, the rules on restitution period of time, that
set out in Articles 7.3.6 and 7.3. 7 apply with appropriate adaptations. the circumstances i

394
 INTERNATIONAL COMMERCIAL CONTRACTS

(2) If the parties have agreed that the resolutive condition is to

operate retroactively, the rules on restitution set out in Article 3.2.15
apply with appropriate adaptations.
m it.
CHAPTER6-PERFORMANCE
SECTION 1: PERFORMANCE IN GENERAL
Article 6.1.1
(Time of performance)
.de conditional upon A party must perform its obligations:
the contract or the
. occurs (suspensive (a) if a time is fiXed by or determinable from the contract, at
~solutive condition) .
that time;
(b) if a period of time is fixed by or determinable from the
contract, at any time within that period unless circum-
stances indicate that the other party is to choose a time;
(e) in any other case, within a reasonable time after the con clu-
sion of the contract.
ligation takes effect
l; Article 6.1.2
igation comes to an (Performance at one time or in instalments)
.tion.
In cases under Article 6.l.l(b) or (e), a party must perform its
obligations at one time if that performance can be rendered at one time
and the circumstances do not indicate otherwise.

Article 6.1.3
a party, contrary to
)f co-operation, that (Partial performance)
.tion. (1) The obligee may reject an offer to perform in part at the time
by a party, contrary performance is due, whether or not such offer is coupled with an
of co-operation, that assurance as to the balance of the performance, unless the oblígee has no
legitimate interest in so doing.
(2) Additional expenses caused to the obligee by partial performance
are to be borne by the obligor without prejudice to any other remedy.

Article 6.1.4
not, contrary to the
dealing, act so as to (Order of perforrñ.ance)
ant of the condition. (1) To the extent that the performances of the parties can be
rendered simultaneously, the parties are bound to render them simulta-
neously unless the circumstances indicate otherwise.
ive condition) (2) To the extent that the performance of only one party requires a
, rules on restitution period of time, that party is bound to render its performance first, unless
ropriate adaptations. the circumstances indicate otherwise.

395

. W..,.'J :;;:¡¡,_';.¡.,
 UNIDROIT PRINCIPLES INT,

Article 6.1.5 (a) that <

(Earlier performance) (b) the p
(1) The obligee may reject an earlier performance unless it has no in th
legitimate interest in so doing. press·
(2) Acceptance by a party of an earlier performance does not affect (2) If it is i
the time for the performance of its own obligations if that time has been étirrency in which
fiXed irrespective of the performance of the other party's obligations. require payment i
(3) Additional expenses caused to the obligee by earlier performance case referred to in
are to be borne by the obligor, without prejudice to any other remedy. (3) Payment i
according to the
Article 6.1.6 payment is due.
(Place of performance) (4) However,
(1) If the place of performance is neither fixed by, nor determinable is due, the obligee
from, the contract, a party is to perform: of exchange prev2
(a) a monetary obligation, at the obligee's place of business; actual payment.
(b) any other obligation, at its own place of business.
(2) A party must bear any increase in the expenses incidental to
performance which is caused by a change in its place of business
subsequent to the conclusion of the contract. Where a mone
cy; payment must 1
Article 6.1. 7 to be made.
(Payment by cheque or other instrument)
(1) Payment may be made in any form used in the ordinary course
of business at the place for payment.
Each party sh¿
(2) However, an obligee who accepts, either by virtue of paragraph
(1) or voluntarily, a cheque, any other order to pay ora promise to pay,
is presumed to do so only on condition that it will be honoured.

Article 6.1.8 (1) An obligm

(Payment by funds transfer) obligee may specifJ
(1) Unless the obligee has indicated a particular account, payment • the payment to be
expenses, then inte
may be made by a transfer to any of the financia! institutions in which
the obligee has made it known that it has an account. (2) If the obli
(2) In case of payment by a transfer the obligation of the obligor is
within a reasonab
discharged when the transfer to the. obligee's financia! institution be- obligation to which
comes effective. is ciue and undispu
(3) In the ah
Article 6.1.9 payment is impute
(Currency of payment) ing eriteria in the o
(1) If a monetary obligation is expressed in a currency other than (a) an obli
that of the place for payment, it may be paid by the obligor in the (b) the obl
currency of the place for payment unless (e) the obl
396
 '&:

INTERNATIONAL COMMERCIAL CONTRACTS

(a) that currency is not freely convertible; or

(b) the parties have agreed that payment should be made only
ce unless it has no in the currency in which the monetary obligation is ex-
pressed.
mee does not affect (2) If it is impossible for the obligar to make payment in the
· that titne has been currency in which the monetary obligation is expressed, the obligee may
party's obligations. require payment in the currency of the place for payment, even in the
earlier performance case referred to in paragraph (l)(b).
. any other remedy. (3) Payment in the currency of the place for payment is to be made
according to the applicable rate of exchange prevailing there when
payment is due.
(4) However, if the obligar has not paid at the time when payment
y, nor determinable is due, the obligee may require payment according to the applicable rate
of exchange prevailing either when payment is due or at the time of
actual payment.
· ace ofbusiness;
)Usiness. Article 6.1.10
)enses incidental to (Currency not expressed)
place of business
Where a monetary obligation is not expressed in a particular curren-
cy, payment must be made in the currency of the place where payment is
to be made. ··

writ) Article 6.1.11

the prdinary course (Costs of performance)
Each party shall bear the costs of performance of its obligations.
virtue of paragraph
. or a p;romise to pay, Article 6.1.12
will pe honoured.
(Imputation of payments)
(1) An obligar owing severa} monetary obligations to the same
obligee may specify at the time of payment the debt to which it intends
the payment to be applied. However, the payment discharges first any
1r áccount, payment expenses, then interest due and finally the principal.
.nstitutions in which
(2) If the obligar makes no such specification, the obligee may,
within a reasonable time after payment, declare to the obligar the
tion .of the obligar is obligation to which it imputes the payment, provided that the obligation
. mcial institution be- is due and undisputed.
(3) In the absence of imputation under paragraphs (1) or (2),
payment is imputed to that obligation which satisfies one of the follow-
ing criteria in the order indicated:
. .
(a) an obligation which is due or which is the first to fall due;
currency other than
the obligar in the
;¡ (b) the obligation for which the obligee has least security;
(e) the obligation which is the most burdensome for the obligor;

397
 UNIDROIT PRINCIPLES IM

(d) the obligation which has arisen first. only, only such t
If none of the preceding crite'ria applies, payment is imputed to all is reasonable to 1
the obligations proportionally. (2) Where t;
the contract im:¡:
Article 6.1.13 ance apply.
(Imputation of non-monetary obligations)
Article 6.1.12 applies with appropriate adaptations to the imputation
of performance of non-monetary obligations.

Article 6.1.14
(Application for public permission) Where the P'
of the parties, th:
Where the law of a State requires a public permission affecting the subject to the foll
validity of the contract or its performance and neither that law nor the
circumstances indicate otherwise
(a) if only one party has its place of business in that State, that
party shall take the measures necessary to obtain the per-
mission; There is haJ
alters the equilib
(b) in any other case the party whose performance requires performance has
permission shall take the necessary measures. party receives ha:
Article 6.1.15 (a) the t
part)
(Procedure in applying for permission)
(b) the E
( 1) The party required to take the measures necessary to obtain the
permission shall do so without undue delay and shall bear any expenses coun
incurre d. sion ·
(2) That party shall whenever appropriate give the other party (e) the E
notice of the grant or refusal of such perrnission without .undue delay. party
(d) the r
Article 6.1.16 party
(Permission neither granted nor refused) Com;
(1) If, notwithstanding the fact that the party responsible has taken l. Hardship defim
all measures required, permission is neither granted nor refused within
This article defi
an agreed period or, where no period has been agreed, within a reason- situation where 1
able time frorn the conclusion of the contract, either party is entitled to events fundamenta
terminate the contract. librium of the cont
(2) Where the perrnission affects sorne terms only, paragraph (1) those ev'ents. meet
which are laid dow
does not apply if, having regard to the circurnstances, it is reasonable to
to (d) .
uphold the rernaining contract even if the perrnission is r efused .
2. Fundamental a.
Article 6.~.17 rium of the contract
Since the general
(Pennission refused)
change in circumst
(1) The refusal of a permission affecting the validity of the contract fect the obligation t
renders the contract void. If the refusal affects the validity of sorne terrns 6.2.1), it follows tha

398
 INTERNATIONAL .COMMERCIAL CONTRACTS

only, only such terms are void. if; having regard to the circumstances, it
J.t is imputed to all is reasonable to uphold the remaining contract.
(2) Where the reftisal of a ·permission renders the performance of
the contract impossible in whoh~ · or in part, the rules on non-perform-
ance apply.
ons)
SECTION 2: HARDSHIP
1s to the imputation
Arlicle 6.2.1
(Contract to be observed)
Where the performance of a contract becomes more onerous for one
)
of the parties, that party is nevertheless bound to perform its obligations
J.ission affecting the subject to the following provisions on hardship.
ter that law nor the
Article 6.2.2
:s in that State, that (Definition of hardship)
y to obtain the per- There is hardship where the occurrence of events fundamentally
alters the equilibrium of the contract either because the cost of a party's
~rformance requires performance has increased or because the value of the performance a
sures. party receives has diminished, and
(a) the events occur .or become known to the disadvantaged
party after the conélusion of the contract;
:on)
(b) the events Gould ·nof .reasonably have been taken into ac-
~essary to obtain the count by the disadvantaged party at the time of the conclu-
11 bear any expenses sion of the contract; · ·
(e) the events are · beyond the control of the disadvantaged
ive the other party
party; and
rithout undue delay.
(d) the risk of the e~ents \VaS not assumed by the disadvantaged
party.
1-sed) Comment be invoked unless the alteration of the
esponsible has taken l . Hardship defined . equilibrium of the contract is funda-
d nor refused within This article defines harclship as a mental. Whether an alteration is "fun-
~ea, within a reason- situation where the occurren,ce · of damental" in a given case will of
r party is entitled to events fundamentally alters the equi- course depend upon the circumstances.
librium of the contract, provided that
those events meet the requirements Illustration
only, paragraph (1) which are laid down in súb-p~n·ás. ·(a)
~s, it is reason~ble to l. In September 1989 A, a dealer
to (el). in electronic goods situated in the
n is refused.
2. Fundamental alteration of equilib- former German Democratic Re-
rium of the contract public, purchases stocks from B,
Since the general principie is that a situated in country X, also a for-
change in circumstances does not af- mer socialist country. The goods
tlidity of the contract fect the obligation to perform (see Art. are to be delivered by B in Decem-
·alidity of some t erms 6.2.1), it follows that hardship may not ber 1990. In November 1990, A

399

: ....
..4,.,....wr¿.,.~ ' ·....-.....
 Yf!

U!'f!DROIT PRINCIPLES IN1

informs B that the goods are no quired (e.g. the effect of a prohibi- price for the 1
longer of any use to it, claiming tion to build on a plot of land withstanding
that after the . unification of the acquired for building purposes or tensions in thc
German Demócratic Republic and the effect of an export embargo on after the conc
the Federal Republic of Germany goods acquired with a view to tract, a war e
there is no longer any market for their subsequent export). tending factio:
such goods imported from eountry countries. Tht
Naturally the decrease in value of
X. Unless the circumstances indi- world energy c
the performance must be capable
cate otherwise, A is entitled to in- increase drasti
of objective measurement: a mere
voke hardship. tled to invokt
change in the personal opinion of
a. Increase in costo{ performance such a rise in t
the receiving party as to the value
In practice a fundamental altera- was not unfore
of the performance is of no rele-
tion in the equilibrium of the con- vance. As to the frustration of the Sometimes the
tract may manifest itself in two purpose of the performance, this stances is gradual,
different but related ways. The can only be taken into account of those gradual e
first is characterised by a substan- when the purpose in question was tute a case of har(
tial increase in thé cost· for one known or at least ought to have began before the ce
party of performing its obligation. been known to both parties. ed, hardship will r
This party will normally be the pace of change inc
3. Additional requirements for hard-
one who is tó perform the non- during the life of th
ship to arise
monetary obligation. The substan-
tial increase in the cost may, for a. Events occur or become hnown Illustration
instance, be due to a dramatic rise after conclusion of the contract 3. In a sales
in the price of the raw materials According to sub-paragraph (a) of and B the prict
necessary for the production of the this Article, the events causing hard- currency of cm
goods or the rendering of the ser- ship must take place or become known the value of
vices, or to the ín.t roduction of to the disadvantaged party after the depreciating sl
new safety regulations requiring conclusion of the contract. If that par- major currenci
far more expensíve ·· pi:oduction ty had known of those events when clusion of the e
procedures. entering into the contract, it would thereafter a
b. Decrease in value of the ·perform- have been able to take them into ac- country X lea(
ance received by One party count at that time. In such a case that valuation of i
The second manifesta,tion of hard- party may not subsequently rely on order of 80%.
ship is characterised by a substan- hardship. stances indica
tial decrease in the value of the constitutes a
b. Events could not reasonably have
performance received by one par- since such a di
been tahen into account by disadvan-
ty, including cases where the per- of the loss of v;
tagedparty
formance no longer has any value of country X v
at all for the receiving party. The Even if the change in circumstances c. · Events beyond t
performance may relate either to a occurs after the conclusion of the con- vantaged party
monetary or a non-monetary obli- tract, sub-paragraph (b) of this Article
makes it clear that such circumstances Under sub-para¡p
gation. The substantial decrease in ele a case of hardsl
the value or the total loss of any cannot cause hardship if they could
reasonably have been taken into ac- the events causin~
value of the performance .may be beyond the contro
due either to drastic changes in count by the disadvantaged party at
the time the contract was concluded. taged party.
market conditions (e:g. · the · effect
of a dramatic increase in inflation d. Rishs· must not
on a contractually agreed price) or Illustration by disadvantaged p(
the frustration of the imrpose for 2. A agrees to supply B with Under sub-parag
which the performance was re- crude oil from country X at a fixed be no hardship if

400
 '1!1 '
' ~~

INTERNATIONAL COMMERCIAL CONTRACTS

Ghe effect of a prohibi- price for the next five years, not- party had assumed the risk of the
.d on a plot of land withstanding the acute political change in circumstances. The word
building purposes or tensions in the region. Two years "assumption" makes it clear that the
a n export embargo on after the conclusion of the con- risks need not have been taken over
.red with a view to tract, a war erupts between con- expressly, but that this may follow
uent export). tending factions in neighbouring from the very nature of the contract. A
te decrease in value of countries. The war results in a party who enters into a speculative
ance must be capable world energy crisis ancl oil prices transaction is deemed to accept a cer-
measurement: a mere increase drastically. A is not enti- tain degree of risk, even though it may
1e personal opinion of tled to invoke hardship because not have been fully aware of that risk
s party as to the value such a rise in the price of crude oil at the time it entered into the con-
•rmance is of no rele- was not unforeseeable. tract.
the frustration of the Sometimes the change in circum-
the performance, this stances is gradual, but the final result Illustration
::l taken into account of those gradual changes may consti- 4. A, an insurance company spe-
1rpose in question was tute a case of hardship. If the change cialised in the insurance of ship-
t least ought to have began before the contract was conclud- ping risks, requests an additional
to both parties. ed, hardship will not arise unless the premium from those of its custom-
pace of change increases dramatically ers who have contracts which in-
:equirements for hard-
during the life of the contract. elude the risks of war and civil
insurrection, so as to meet the
~ ur or become hnown Illustration substantially greater risk to which
of the contract 3. In a sales contract between A it is exposed following upon the
sub-paragraph (a) of and B the price is expressed in the simultaneous outbreak of war and
' events causing hard- currency of country X, a currency civil insurrection in three coun-
>lace or become known the value of which was already tries in the same region. A is not
,taged party after the depreciating slowly against other entitled to such an adaptation of
e contract. If that par- major currencies before the con- the contract, since by the war and
of those events when clusion of the conLract. One month civil insurrection clauses insur-
he contract, it would thereafter a political crisis in ance companies assume these
to take them into ac- country X leads to a massive de- risks even if three countries are
ne. In such a case that valuation of its currency of the affected at the sam e time.
subsequently rely on order of 80%. Unless the circum- 4. Hardship relevant only to pelform-
stances indicate otherwise, this ance not yet rendered
constitutes a case of hardship,
dd not reasonably have By its very nature h ardship can only
since such a dramatic acceleration
account by disadvan- become of relevance with respect to
of the loss of value of the currency
of country X was not fo~eseeable . performances still to be rendered: once
1ange in circumstances a party has performed, it is no longer
c. Events beyond the control of disad-
conclusion of the con- entitled to invoke a substantial in-
vantaged party
raph (b) of this Article crease in the costs of its performance
hat such circumstances Under sub-paragraph (e) of this Arti- or a substantial decrease in the value
tardship if they could cle a case of hardship can only arise if of the performance it receives as a
~ been taken into ac-
the events causing the h ardship are co:nsequence of a change in circum-
lisadvantaged party at beyond the control of the clisadvan- stances which occurs after such per-
mtract was concludecl. taged party. for·mance.
d. Risks must not have been assumed If the fundamental alteration in the
by disadvantaged party equilibrium of the contract occurs at a
es to supply B with Under sub-paragraph (d) there can time when performance h as been only
>m country X at a fixed be no hardship if the disadvantagecl partially rendered, harclship can be of

401
 UNIDROIT PRINCIPLES INTEI

relevance only to the parts of the per- 6. Hardship and force majeure Comm1
formance still to be rendered.
In view of the definitions of hardship 1: Disadvan.tagcd pa
in this Article and force maj eure in quest renegotiations
Illustration
Article 7.1.7, under the Principies Since hardship con
5. A enters into a contract with there may be factual situations which mental alteration of t
B, a waste disposal company in can at the same time be considered as the contract, paragra)
country X, for the purpose of ar- cases of hardship and of force majeure. ticle in the first inst
ranging the storage of its waste. If this is the case, it is for the party dis8:dvantaged party
The contract provides for a four- affected by these events to decide other party to enter i
year term and a fiXed price per ton which remedy to pursue. If it invokes · of the original termE
of waste. Two years after the con- force majeure, it is with a view to its with . a view to adapt
clusion of the contract, the envi- non-performance being excused. If, on changed circumstance
ronmental movement in country X the other hand, a party invokes hard-
gains ground and the Government Illustration
ship, this is in the first instance for the
of country X prescribes prices for
purpose of renegotiating the terms of l. A, a construc1
storing waste which are ten times
the contract so as to allow the contract . uated in country
higher than before. B may success-
fully invoke hardship only with re- to be kept alive although on revised · lump sum contra
spect to the two remaining years terms. ernmental agency
of the life of the contract. 7. Hardship and contract practice of a plant in cm
.the sophisticated
5. Hardship normally relevant to The definition of hardship in this be imported frorr
long-term contracts Article is necessarily of a rather gener- an unexpected dt
Although this Article does not ex- al character. International commercial currency of cour
pressly exclude the possibility of hard- contracts often ·contain much more the currency of p
ship being invoked in respect of other precise and elaborate provisions in this of the machiner.
kinds of contract, hardship will nor- regard. The parties may therefore find matically. A is er
mally be of relevance to long-term con- it appropriate to adapt the content of .·.. B to renegotiate
tracts, i.e. those where the perform- this Article so as to take account of the tract price so as 1
ance of at least one party extends over parLit:ular feaLure~ uf Lhe ~pecific . changed circumst
a certain period of time. transaction. A request for ren
a,dmissible where
Article 6.2.3 self already inc01
.providing for the
(Effects of hardship) tation of the cont
(1) In case of hardship the disadvantaged party is entitled to request providing for aut<
renegotiations. The reque.st shall be made without undue delay and shall of the price if c1
cur).
indicate the grounds on which it is based.
(2) The request for renegotiation does not in itself entitle the Illustration
disadvantaged party to withhold perforlll:ance. 2.. The facts arE
(3) Upon failure to reach agreem~nt"within a reasonable time either Illustration 1, ex<
tract contains a
party may resort to the court.
clause relating to
(4) If the court finds hardship it may, if reasonable , cost of materials
not entitled to re<
(a) terminate the contract at a date and on terms to be fixed, or · tion of the price.
(b) adapt the contract with a view to restoring its equilibrium. However, even ir
· negotiation on ac'

402
 INTERNATIONAL COMMERCIAL CONTRACTS

forcf! majeure Comment would not be precluded if the ad-

1. Disadvantaged party entitled to re- aptation clause incorporated in the
efinitíons of hardship
quest renegotiations contract did not contemplate the
td force maj eure in
events giving rise to hardship.
1der tlie Principies Since hardship consists in a funda-
;ual situations which mental alteration of the equilibrium of Illustration
ime be ·considered as the contract, paragraph (1) of this .AJ:-
and of force majeure. ticle in the first instance entitles the 3. The facts are the same as in
~, it is for the party disadvantaged party to request the Illustration 2, except that the sub-
e events to decide other party to enter into renegotiation stantial increase in A's costs is due
pursue: If it invokes of the original terms of the contraét to the adoption of new safety regu-
is with a view to its with a view to adapting them to the lations in country Y. A is entitled
being excused. If, on changed circumstances. to request B to renegotiate · the
, party invokes hard- original contract price so as to
first instance for the Illustration adapt it to the changed circum-
)tiating the terms of stances.
l. A, a construction company sit-
to allow the contract uated in country X, enters into a 2. Request for renegotiations without
although on revised lump sum contract with B, a gov- undue delay
ernmental agency, for the erection The request for renegotiations must
· contract practice of a plant in country Y. Most of be made as quickly as possible after
the sophisticated machinery has to the time at which hardship is alleged
of hardship in this be imported from abroad. Due to to have occurred (paragraph (1)). The
:ily of a rather gener- an unexpected devaluation of the
precise time for requesting renegotia-
rnátional commercial currency of country Y, which is
tions will depend upon the circum-
contain much more the currency of payment, the cost
stances of the case: it ·may, for in-
. :ate .provisions in this of the machinery increases dra-
stance, be longer when the change in
es. may therefore find matically. A is entitled to request
circumstances takes place gradually
adapt . the content of B to renegotiate the original con-
(see Comment 3(b) on Article 6.2.2).
~o take account of the tract price so as to adapt it to the
~e s of the specific changed circumst ances. The disadvantaged party · does not
A request for renegotiations is not lose its right to request renegotiations
admissible where the contract it- simply because it fails to. act without
self already incorporates a clause undue delay. The delay in making the
providing for the automatic adap- request may however affect the finding
. tation of the contract (e.g. a clause as to whether hardship actually existed
providing for automatic indexation and, if so, its consequences for the
; entitled to request
of the price if certain events oc- contract.
due delay and shall
cur). 3. Grounds for request for renegotia-
tions
L itself · entitle the Illustration
Paragraph (1) of this Article also
2. The facts are the same as in imposes on the disadvantaged party a
.sonable time either Illustration 1, except that the con- duty to indicate the grounds on which
tract contains a price indexation the request for renegotiations is based,
clause relating to variations in the so as to permit the other party better
cost of materials and labour. A is to assess whether or not the request
not entitled to request a r enegotia- for rénegotiatións is justified. An in-
.erms to be flXed, or tion of the price. complete request is to be considered as
ing its equilibrium. However, even in such a case re- not being raised in time, unless the
negotiation on account of hardship grounds of the alleged hardship are so

403
 UNJDROIT PRINCIPLES INT,

obvious that they need not be spelt out and to the duty of cooperation (see Another possibili
in the request. Article 5.1.3). Thus the disadvantaged court to adapt the e
Failure to set forth the grounds on party must honestly believe that a case to restoring its equi
which the request for renegotiations is of hardship actually exists and not re- (4)(b)). In so doing
based may have similar effects to those quest renegotiations as a purely tacti- to make a fair distri
resulting from undue delay in making cal manoeuvre. Similarly, once the re- between the partieE
the request (see Comment 2 on this quest has been made, both parties not, depending on
Article). must conduct the renegotiations in a hardship, involve ~
constructive manner, in particular by _However, if it does,
4. Request for renegotiations and
refraining from any form of obstruc- not necessarily refl
withholding of performance ·
tion and by providing all the necessary entailed by the e
Paragraph (2) of this Article pro- information. stances, since the
vides that the request for renegotia- stance, have to con
tions does not of itself entitle the 6. Resort to the court upon failure to
reach an agreement which one of the ¡:
disadvantaged party to withhold per- risk and the extent
formance. The reason for this lies in If the parties fail to reach agreement entitled to receive 1
the exceptional character of hardship on the adaptation of the contract to still benefit from th:
and in the risk of possible abuses of the changed circumstances within a
the remedy. Withholding performance reasonable time, paragraph (3) of this Paragraph (4) of t
may be justified only in extraordinary Article authorises either party to re- ly states that the ce
circumstances. sort to the court. Such a situation may or adapt the contra<
arise either because the non-disadvan- reasonable. The e
Illustration taged party completely ignored the re- even be such that r
quest for renegotiations or because the nor adaptation is 1
4. A enters into a contract with
renegotiations, althouglÍ ·conducted by consequence the on
B for the construction of a plant.
both parties in good fiüth, did not have tion will be for tl
The plant is to be built in country
a positive outcome. direct the parties 1
X, which adopts new safety regula-
tions with a view
tions after the conclusion of the How long a party must wait befare ment on the adap
contract. The new regulations re- resorting to the court will depend on tract, or to confirn
quire additional apparatus and the complexity of the issues to be set- contract as they sta1
thereby fundamentally alter the tled and the particular circumstances
equilibrium · of the contract mak- ofthe case.
ing A's performance substantially Cl
more onerous. A is entitled to re- 7. Court measures in case of hardship
SECTI01
quest renegotiations and may According to para. (4) of this article
withhold performance in view of a court which finds that a hardship
the time it needs to implement the situation exists may react in a number
new safety regulations, but it may of different ways.
also withhold the delivery of the
A first possibility is for it to termí- Non-performE
additional apparatus, for as long
as the corresponding price adapta- nate the contract. However, since ter- gations under th
mination in this case does not depend performance.
tion is not agreed.
on non-performance by one of the par-
5. Renegotiations in good faith ties, its effects on the performances
Although nothing is said in this Al-ti- already rendered might be different
ele to that effect, both the request for from those provided for by the rules
renegotiations by the disadvantaged governing t.erminatiori in general (see
party and the conduct of both parties Articles 7.3.1. et seq.). Accordingly, A party may
during the renegotiation proeess are paragraph (4)(a) provides that termi- the extent that su
subject to the general principie of good nation shall take place "at a date and or omission or b)
faith ancl fair dealing (see Article l. 7) on terms to be fix.e d" · by the court. risk.

404
 INTERNATIONAL. COMMERCIAL CONTRACTS

of cooperation (see Another possibility would be for a lllustration

us the disadvantaged court to adapt the contract with a .view
5. A, an exporter, under takes to
tly believe that a case to restoring its equilibrium (paragraph
supply B, an importer in country
1lly exists and not re- (4)(b)). In so doing the court will seek
)ns as a purely tacti- to make a fair distribution of the losses X, with beer for three years. Two
imilarly, once the re- between the parties. This may or may years after the conclusion of the
made, both parties not, depending on the nature of the contract new legislation is intro-
e renegotiations in a hardship, involve a price adaptation. duced in country X prohibiting the
mer, in particular by However, if it does, the adaptatioil. will sale and consumption of alcoholic
any form of obstruc- not necessarily reflect in full the loss dririks. B immediately invokes
ding all the necessary entailed by the change iri · ci~curri." hardship and requests A to rene-
stances, since the court will, for in- gotiate the contract. A recognises
stance, have to consider the extent to that hardship has occurred, but
court upon failure to
which one of the parties has taken a refuses to accept the modifications
nt
risk and the extent to which the party of the contract proposed by B. M-
ül to reach agreement entitled to receive a performance may ter one month of fruitless discus-
m of the contract to still benefit from that performance. sions B resorts to the court.
cumstances within a
Paragraph (4) of this Article express- lf B has the possibility to sell the
paragraph (3) of this
ly states that the court may termínate beer in a neighbouring country,
,s either party to re-
or adapt the contract only when this .is although at a substantially lower
Such a situation may
reasonable. The circumstances may price, the court may decide to up-
use the non-disadvan-
even be such that neither termination hold the contract but to reduce the
)letely ignored the re-
nor adaptation is appropriate and in agreed price.
;iations or because the
consequence the only reasonable. solU:-
lthough conducted by If on the contrary B has no such
tion will be for the court eithe.r to
)Od faith, did not have possibility, it may be reasonable
direct the parties to resume negotia-
te.
tions with a view to reachi~g agree- for the court to termínate the con-
:trty must wait before ment on the adaptation of the <;on- tract, at the same time however
court will depend on tract, or to confirm the ·te.r ms ·or
the requiring B to pay A for the last
f the issu es to be set- contract as they stand. consignment still en route.
rticular circumstances
CHAPTER ·7-NON-PERFORMANCE
r·es in case of hardship
SECTION 1: NON-=-PERFORMANCE IN GENERAL
1ara. (4) of this article
'inds that a hardship Article 7.1.1
nay react in a number
(Non-per{61'mance defined)
lity is for it to termi- Non-performance is failure by a party to perform any of its obli-
:t. However, since ter- gations under the contract, including defective performance or late
case does not depend performance.
mee by one of the par-
on the performahces Article 7 .1.2
d might be different
rided for by the rules (1 nterference by the other party)
nation in general (see
et seq.). Accordingly, A party may not rely on the non-performance of the other party to
) provides that termi- the extent that such nün"performance was caused by the first party's act
e place "at a date and or omission or by another evÉmt as to which the first party bears the
fixed" by the court. risk.

. 405

:.~,

. ~¡¡¡· ¡~~AJ'
 UNIDROIT PRINCIPLES INT

Article 7 .1.3 that period. If thE

(Withholding performance) shall be extended
notice provide th:
(1) Where the parties are to perform simultaneously, either party
allowed by the no
may withhold performance until the other party tenders its performance.
(2) Where the parties are to perform consecutively, the party that is (4) Paragrapi
to perform later .may withhold its performance until the first party has been performed ü
performed. · non-performing p:

Article 7.1.4
(Cure by non-performing party)
(1) The non-performing party may, at its own expense, cure any A clause wh:
non-performance, provided that performance or w:
(a) without undue. delay, it gives notice indicating the proposed tially different frc
manner and timing of the cure; be invoked if it VI
(b) cure is appropriate in the circumstances; purpose of the con
(e) the aggrieved party has no legitimate interest in refusing
cure; and
(d) cure is effected promptly.
(2) The right to cure·is not precluded by notice of termination. (1) Non-perfo
(3) Upon effective n.otice of cure, rights of the aggrieved party that the non-performru
are inconsistent with the. non-performing party's performance are sus- that it could ~ot 1
pended until the time for cure has expired. into account at tl
avoided or overcon
(4) The aggrieved party may withhold performance pending cure.
(2) When the
(5) Notwithstanding cure, the aggrieved party retains the right to
effect for such per
claim damages for delay as.well as for any harm caused or not prevented
impediment on thE
by the cure.
(3) The party
· Article 7 .1.5 party of the impe<
(Additional period for performance) notice is not recei1
the party who fai
(1) In a case of non-performance the aggrieved party may by notice
to the other party allow an additional period of time for performance. impediment, it is
(2) During the additional period the aggrieved party may withhold (4) N othing ir
performance of its own reciproca! obligations and may claim damages to terminate the e<
but may not resort to a:ny other remedy. If ít receives notice from the on money due.
other party that the latter will not perform within that period, or if u pon
expiry of that period due performance has not been made, the aggrieved SEC1
party may resort to any of the remedies that may be available under this
Chapter.
(3) Where in a case of delay in performance which is not fundamen- (.
tal the aggrieved party has given notice allowing an additional period of Where a party
time of reasonabie ierigth, it may terminate the contract at the end of party may require •
406
 INTERNATIONAL COMMERCIAL CONTRACTS

that period. If the additional period allowed is not of reasonable length it

shall be extended to a reasonable length. The aggrieved party may in its
notice provide that if the other party fails to perform within the period
usly, either party allowed by the notice the contract shall automatically termínate.
s its performance.
(4) Paragraph (3) does not apply where the obligation which has not
', the party that is
;he first party has been performed is only a minor part of the contractual obligation of the .·
non-performing party.

Article 7.1.6
(Exemption clauses)
3xpense, cure any A clause which limits or excludes one party's liability for non-
performance or which permits one party to render performance substan-
1.ting the proposed tially different from what the other party reasonably expected may not
be invoked if it would be grossly unfair to do so, having regard to the
purpose of the contract .

.terest in refusing Article 7.1.7

(Force majeure)

termination. (1) Non-performance by a party is excused if that party proves that

the non-performance was due to an impediment beyond its control and
grieved party that that it could not reasonably be expected to have taken the impediment
formance are sus-
into account at the time of the conclusion of the contract or to have
avoided or overcome it or its consequences.
e pending cure.
(2) When the impediment is only temporary, the excuse shall have
!tains the right to effect for such period as is reasonable having regard to the effect of the
d or not prevented impediment on the performance of the contract.
(3) The party who fails to perform must give notice to the other
party of the impediment and its effect on its ability to perform. If the
notice is not received by the other party within a reasonable time after
the party who fails to perform knew or ought to have known of the
1rty may by notice impediment, it is liable for qamages resulting from such non-receipt.
3 for performance.
(4) Nothing in this Article prevents a party from exercising a right
9.rty may withhold
to termínate the contract or to withhold performance or request interest
tay claim damages
es notice from the on money due.
t period, or if u pon
SECTION 2: RIGHT TO PERFORMANCE
tade, the aggrieved
vailable under this Article 7.2.1
(Performance of monetary obligation)
1.is not fundamen-
.dditional period of Where a party who is obliged to pay money does not do so, the other
;ract at the end of party may require payment.

407
 UNIDROIT PRINCIPLES INTj

Article 7.2.2 (2) In deterr

amounts to a fu
(Performance of non-morietary obligation)
particular, to whe
_ Where a party who owes an obligation other than one to pay money
does not perform, the other party may require performance, unless (a) the r.
party
(a) performance is impossible in law or in fact;
unles:
(b) performance or, where relevant, enforcement is unreason- ably 1
ably burdensome or expensive;
(b) strict
(e) the party entitled to performance may reasonably obtain perfOJ
performance from another source;
(e) the n<
(d) performance is of an exclusively personal character; or
(d) the n
(e) the party entitled to performance does not require perform-
ance within a reasonable time after it has, or ought to have, believ
become aware of the non-performance. perfm
(e) the n<
Article 7.2.3 a resu
(Repair and replacement of defective performance) termil
The right to performance includes in appropriate cases the right to (3) In the cas
require repair, replacement, or other cure of defective performance. The contract if the otl
provisions of Articles 7.2.1 and 7.2.2 apply accordingly. .under Article 7.1.5
Article 7 .2.4
(Judicial penalty)
( 1) Where the court orders a party to perform, it may also direct
(1) The right
that this party pay a penalty if it does not cornply with the arder. · notice to the other
(2) The penalty shall be paid to the aggrieved party unless mandato-
(2) If perforn
ry provisions of the law of the forum provide otherwise. Payment of the
·conform to the e
penalty to the aggrieved party does not exclude any claim for damages.
· termínate the con1
Article 7.2.5 reasonable time af
(Change of remedy) or of the non-confc
(1) An aggrieved party who has required performance of a non-
monetary obligation and who has not received performance within a
period fixed or otherwise within a reasonable period of time may invoke
any other remedy. Where prior t1
(2) Where the decision of a court for performance of a non-monetary clear that there w
obligation cannot be enforced, the aggrieved party may invoke any other · the other party ma
remedy.

SECTION 3: TERMINATION (Ac

Article 7.3.1 A party who 1
(Right to terminate the contract) non-performance b
(1) A party may termínate the contract where the failure of the due performance :
other party to perform an obligation under the contract amounts to a Where this assurm
fundamental non-performance. ·. demanding it may

408

"
....._;i!J.i~¿;¡.
 INTERNATIONAL COMMERCIAL CONTRACTS

(2) In determining whether a failure to perform an obligation

amounts to a fundamental non-performance regard shall be had, in
tion)
particular, to whether
m one to pay money
)erformance, unless (a) the non-performance substantially deprives the aggrieved
party of what it was entitled to expect under the contract
.ct;
unless the other party did not foresee and could not reason-
:emerit is unreason- ably have foreseen such result;
(b) strict compliance with the obligation which has not been
r reasonably obtain performed is of essence under the contract;
(e) the non-performance is intentional or reckless;
1 character; or
(d) the non-performance gives the aggrieved party reason to
10t require perform-
believe that it cannot rely on the other party's future
:ts, or ought to have,
performance;
(e) the non-performing party will suffer disproportionate loss as
a result of the preparation or performance if the contract is
'ormance) terminated.
te cases the right to (3) In the case of delay the aggrieved party may also termínate the
ve performance. The contract if the other party fails to perform befare the time allowed it
.y. under Article 7.1.5 has expired .

Article 7 .3.2
(Notice of termination)
· t, l.t may also direct (1) The right of a party to termínate the contract is exercised by
ply with the order. notice to the other party.
· trty úriless mandato-
(2) If performance has been offered late or otherwise does not
vise. Payment of the
conform to the contract the aggrieved party will lose its right to
r claim for damages.
termínate the contract unless it gives notice to the other party within a
reasonable time after it has or ought to have become · aware of the offer
or of the non-confor;ming performance.

formance of a non- Article 7 .3.3

. :rformance within a
(Anticipatory non-performance)
. of time may invoke
Where prior to the date for performance by one of the parties it is
clear that there will be a fundamental non-performance by that party,
:e of a non-monetary
1ay invoke any other the other party may termínate the contract.

Article 7.3.4
(Adequate assurance of due performance)
A party who reasonably believes that there will be a fundamental
) non-performance by the other party may demand adequate assurance of
e the failure of the due performance and may meanwhile withhold its own performance.
ntract amounts to a Where this assurance is not provided within a reasonable time the party
demanding it may termínate the contract.

409
 UNIDROIT PRINCIPLES INTl

Article 7 .3.5
(Effects of termination in general)
(1) Termination of the contract releases both parties from their (1) The aggri
obligation to effect and to receive future performance. sustained as a res
(2) Termination does not preclude a claim for damages for non- any loss which it f
performance. into account any g
of cost or harm.
(3) Termination does not affect any provision in the contract for the
(2) Such han
settlement of disputes or any other term of the contract which is to
operate even after termination. physical suffering

Article 7.3.6
(Restitution with respect to contracts to be performed at one time)
(1) Compensa
(1) On termination of a contract to be performed at one time either
is established with
party may claim restitution of whatever it has supplied under the
contract, provided that such party concurrently makes restitution of (2) Compensa
whatever it has received under the contract. to the probability e
(2) If restitution in kind is not possible or appropriate, an allowance (3) Where th€
has to be made in money whenever reasonable. sufficient degree o
court.
(3) The recipient of the performance dcies not have to make an
allowance in money if the impossibility tci make restitution in kind is
attributable to the other party.
(4) Compensation may be claimed for expenses reasonably required
to preserve or maintain the performance received. The non-perfo1
could reasonably l
Article 7.3.7 contract as being li

(Restitution with respect to contracts to be

performed ouer a period of time)
(Proof o
(1) On termination of a contract to be performed over a period of
Where the ag.
time restitution can only be claimed for the period after termination has made a replacem€
taken effect, provid~d the contract is divisible. reasonable mannm
(2) AE far as restitution has to be made, the provisions of Article price and the price
7.3 .6 apply. any further harm.

SECTION 4: DAMAGES
Article 7 .4.1
(Right to damages) (1) Where the
not made a replac€
Any non-performance gives the aggrieved party a right to damages performance contn
either exclusively or in conjunction with any other remedies except contract price and ;
where the non-performance is excused under these Principies. ed as well as dama~
410
 INTERNATIOlyAL COMMERCIAL CONTRACTS

· Article 7 .4.2
l) (Full compensation)
t parties from their (1) The aggrieved party is entitled to full compensation for harm
e. sustained as a result of the non-performance. Such harm includes both
any loss which it suffered and any gain of which it was deprived, taking
,y damages for non-
into account any gain to the ággrieved party resulting from its avoidance
of cost or harm.
l· the contract for the
(2) Such harm may be non-pecuniary and includes, for instance,
~ontract which is to
physical suffering or erilotioniil distress.

Article 7 .4.3
(Certainty of harm)
·med at one time)
(1) Compensation is due only for harm, including future harm, that
:!d at one time either is established with a reasonable degree of certainty.
supplied under the
nakes restitution of (2) Compensation may be due for the loss of a chance in proportion
to the probability of its occurrence.
(3) Where the amount of damages cannot be established with a
Jpriate, an allowance
sufficient degree of certainty, the assessment is at the discretion of the
court.
)t have to make an
·estitution in kind is f\rticle 7 .4.4
·(Foreseeability of harm)
; reasonably required
The non-performing party is liable only for harm which it foresaw or
could reasonably have .foreseen at the time of the conclusion of the
contract as being likely ~o result from its non-performance.

· to be Article 7 .4.5
~J (Proof of har;m in case of replacement transaction)
11ed over a period of Where the aggrieved party has terminated the contract and has
~fter termination has made a replacement transaction within a reasonable time and in a
reasonable manner it may .r ecover the difference between the contract
provisions of Article price and the price of the replacement transaction as well as damages for
any further harm. ·

· Article 7.4.6
(Proof of. harm by current price)
(1) Where the aggrieved party has terminated the contract and has
not made a replacement transaction but there is a current price for the
y a right to damages performance contracted for, it may recover the difference between the
her remedies except contract price and the price current at the time the contract is terminat-
Principies. ed as well as damages for any further harm.

411
 UNIDROIT PRINCIPLES INTj

(2) Current price is the price generally charged for goods delivered
or services rendered in comparable circumstances at the place where the
contract should have been performed or, if there is no current price at
that place, the current price at such other place that appears reasonable (1) Damages
to take as a reference. payable in instaln
priate.
Article 7.4. 7 (2) Damages ·
(Harm due in part to aggrieved party)
Where the harin is due in part to an act or omission of the aggrieved
(<
party or to another event as to which that party bears the risk, the
amount of damages shall be reduced to the extent that these factors have Damages are
contributed to the harm, having regard to the conduct of each of the monetary obligati<
partíes. was suffered, whic

Article 7 .4.8
(.
(Mitigation of harm)
(1) Where thE
(1) The non-performing party is not liable for harm suffered by the
is to pay a specifi
aggrieved party to the extent that the harm could have been reduced by
ance, the aggrievec
the latter party's taking reasonable steps. harm.
(2) The aggrieved party is entitled to recover any expenses reason- (2) However,
ably incurred in attempting to reduce the harm. specified sum may
excessive in relati
Article 7 .4.9
and to the other ci
· · (Interest for failure to pay money)
(i) If a· party does not pay a sum of money when it falls due the
aggrieved party is entitled to interest upon that sum from the time when
payment is due to the time of payment whether or not the non-payment
is excused. . (1) Where twc
(2) The rate of interest shall be the average bank short-term lend- of the same kind,
ing rate to prime borrowers prevailing for the currency of payment at obligation against ·
the place for payment, or where no such rate exists at that place, then set-off,
the same rate iri the State of the currency of payment. In the absence of (a) the fir,
such a rate at either place the rate .of interest shall be the appropriate
rate fixed by the law of the S tate of the currency of payment. (b) the otl
andar
(3) The aggrieved party is ent_itled to additional damages if the non-
(2) If the obli¡
payment caused ita greater harm.
the first party may
Article 7.4.10 other party which .

(Interest on damages)
Unless otherwise agreed, interest on damages for non-performance
of non-monetary obligations accrues as from the time of non-perform- Where the obli
ance. right of set-off nÚty
412

l'
.......aY tlh"
 INTERNATIONAL COMMERCIAL CONTRACTS

)d for goods delivered Article 7.4.11

tt the place where the (Manner of monetary redress)
lis no current price at
1at appears reasonable
(1) Damages are to be paid in a lump sum. However, they may be
payable in instalments where the nature of the harm makes this appro-
priate.
(2) Damages to be paid in instalments may be indexed . .. ·
. arty) Article 7.4.12
ssion of the aggrieved (Currency in which to assess damages)
y bears the risk, the
hat these factors have Damages are to be assessed either in the currency in which the
mduct of each ·of the monetary obligation was expressed or in the currency in which the harm
was suffered, whichever is more appropriate.

Article 7.4.13
(Agreed payment for non-performance)
(1) Where the contract provides that a party who does not perform
harm suffered by the is to pay a specified sum to the aggrieved party for such non-perform-
have been reduced by ance, the aggrieved party is entitled to that sum irrespective of its actual
harm.
any expenses reason- (2) However, notwithstanding any agreement to the contrary the
specified sum may be reduced to a reasonable amount where it is grossly
excessive in relation to the harm resulting from the non-performance
and to the other circumstances.
ey)
CHAPTER 8-SET-OFF
when it falls due the
Article 8.1
m from the time when
· not the non-payment (Conditions of set-off)
(1) Where two parties owe each other money or other performances
bank short-term lend- of the same kind, either of them ("the first party") may set off its
trrency of payment at obligatiqn against that of its obligeé ("the other party") if at the time of
sts at that place, then set-off,
1ent. In the absence of (a) the first party is entitled to perform its obligation;
all be the appropriate (b) the other party's obligation is ascertained as to its existence
fpayment. and amount and performance is due.
al damages if the non- (2) If the obligations of both parties arise from the same contract,
the first party may also set off its obligation against an obligation of the
other party which is not ascerfained as to its existence or to its amount.

Article 8.2
s for non-performance (Foreign currency set-off)
time of non-perform- Where the obligations are to pay money in different currencies, the
right of set-off may be exercised, provided that both currencies are freely

413

. ~~ t/ ~
..... l. ~wrlfb' I\1,~~L=t..: ...
 UNIDROIT PRINCIPLES IN1

convertible and the parties have not agreed that the first party shall pay ·
only in a specified currency.

Article 8.3 A right to n•

assignment does
(Set-off by notice) sorne.
The right of set-off is exercised by notice to the other party.

Article 8.4
(Content of notice) (1) A right t
partially.
(1) The notice must specify the obligations to which it relates.
.(2) A right te
(2) If the notice does not specify the obligation against which set-off
is divisible, and t
is exercised, the other party may, within a reasonable time, declare to
cantly more burdE
the first party the obligation to which set-off relates. If no such declara- ·· ·
tion is made, the set-off will relate to all the obligations proportionally . .

Article 8.5
A future rigl
(Effect of set-off)
agreement, provic
(1) Set-off discharges the obligations. identified as the ri
(2) If obligations differ in amount, set-off discharges the obligations ·
up to the amount of the lesser obligation.
(Right~
(3) Set-off takes effect as from the time of notice.
Anumber ofr
CHAPTER 9-ASSIGNMENT OF RIGHTS, TRANSFER OF provided such rigt.
OBLIGATIONS, ASSIGNMENT OF CONTRACTS relates at the timE
SECTION 1: ASSIGNMENT OF RIGHTS
Article 9.1.1 (Agreemé
(Definitions) (1) A right is ;
the assignee, withc
"Assignment of a right" means the transfer by agreement from one
person (the "assignor") to another person (the "assignee"), including (2) The conse~
transfer by way of security, of the assignor's right to payment of a in the circumstanc'
monetary sum or other performance from a third person ("the obligor").

Article 9.1.2
(Exclusions) The obligor h1
assignee for any ad
This Section does not apply to transfers made under the special
rules governing the transfers:
(a) of instruments such as negotiable instruments, documents
of title or financia! instruments, or-
(1) The assign
(b) of rights in the course of transferring a business. effective notwithst

414
 INTERNATIONAL COMMERCIAL CONTRACTS

first party shall pay Article 9.1.3

(As signability of non-monetary rights)
A right to non-monetary performance may be assigned only if the
assignment does not render the obligation significantly more burden-
some.
·ther party.
Article 9.1.4
(Partial assignment)
(1) A right to the payment of a monetary sum may be assigned
partially.
lich it relates.
(2) A right to other performance may be assigned partially only if it
tgainst which set-off is divisible, and the assignment does not render the obligation signifi-
.ble time, declare to cantly more burdensome .
. If no such declara-
Gions proportionally. Article 9.1.5
(Future rights)
A future right is deemed to be transferred at the time of the
agreement, provided the right, when it comes into existence, can be
identified as the right to which the assignment relates.
trges the obligations Article 9.1.6
(Rights assigned without individual specification)
A number of rights may be assigned without individual specification,
rRANSFER OF provided such rights can be identified as rights to which the assignment
NTRACTS relates at the time of the assignment or when they come into existence.

GHTS Article 9.1.7

(Agreem ent between assignor and assignee sufficient)
(1) A right is assigned by mere agr eement between the assignor and
the assignee, without notice to the obligar.
agreement from one (2) The consent of the obligar is not required unless the obligation
tssignee"), including
in the circumstances is of an essentially personal character.
ht to payment of a
rson ("the obligar") . Article 9.1.8
(Obligor's additional costs)
The obligar has a right to be compensated by the assignor or the
assignee for any additional costs caused by the assignment.
e under the special
Article 9.1.9
ruments, documents (Non-assig nment clauses)
(1) The assignment of a right to the payment of a monetary sum is
business. effective notwithst anding an agr eem ent between the assignor and the

415
 UNIDROIT PRINCIPLES IN1

obligor limiting or prohibiting such an assignment. However, the assign-

or may be liable to the obligor for breach of contract.
(2) The assignment of a right to other performance is ineffective if it
The assignmc
is contrary to an agreement between the assignor and the obligor
limiting or prohibiting the assignment. Nevertheless, the assignment is (a) all tl
effective if the assignee, at the time of the assignment, neither knew nor un de
ought to have known of the agreement. The assignor may then be liable (b) all ri¡
to the obligor for breach of contract.

Article 9.1.10
(Notice to the obligar) The assignor
(1) Until the obligor receives a notice of the assignment from either disclosed to the a:::
the assignor or the assignee, it is discharged by paying the assignor. (a) the a
(2) After the obligor receives such a notice, it is dischm;ged only by un les.
paying the assignee. (b) the a1
Article 9.1.11 (e) the ri¡
ee, an
(Successive assignments)
(d) the ol
If the same right has been assigned by the same assignor to two or
(e) neith~
more successive assignees, the obligor is· discharged by paying according
to the order in which the notices were received. off cm
notice
Article 9.1.12 CD the as
(Adequate proof of assignment) receivE
was gi·
(1) If notice of the assignment is gi:ven by the assignee, the obligor
may request the assignee to pro'!"ide within a reasonable time adequate SECTI
proof that the assignment has been made.
(2) Until adequate . proof is provided, the obligor may withhold
payment.
An obligation
(3) Unless adequate proof is provided, notice is not effective.
transferred from o
( 4) Adequate proof includes, but · is not limited to, any writing (the "new obligor"
emanating from the assignor and indicating that the assignment has (a) by an
taken place. obligm
Article 9.1.13 (b) by an
bywhi
(Defences and rights of set-off).
(1) The obligar may assert against the assignee all defences that the
obligor could assert·against the assignor.
(2) The obligor may exercise against the assignee any right of set-off This Section d
available to the obligor against the assignor up to the time notice of the special rules 1
assignment was received. . . transferring a busil
416
 INTERNATIONAL COMMERCIAL CONTRACTS

However, the assign- Article 9.1.14

(Rights related to the right assigned)
mee is ineffective if it The. assignment of a right transfers to the assignee:
nor and the obligor
ss, the assignment is (a) all the assignor's rights to payment or other performance
mt, neither knew nor · . under the contract in respect of the right assigned, and
or may then be liable · . (b) all rights securing performance of the right assigned.

Article 9.1.15
(Undertakings of the assignor)
The assignor undertakes towards the assignee, except as otherwise
:signment from either disclosed to the assignee, that:
paying the assignor. (a) the assigned right exists at the time of the assignment,
is discharged only by · · unless the right is a future right;
(b) the assignor is entitled to assign the right;
(e) the right has not been previously assigned to another assign-
ee, and it is free from any right or claim from a third party;
(d) the obligor does not have any defences;
:ne assignor to two or (e) . neither the obligor nor the assignor has given notice of set-
:l by paying according off concerning the assigned right and will not give any such
notice;
(f) ·the assignor will reimburse the assignee for any payment
· . received from the obligor before notice of the assignment
u was given.
~ assignee, the obligor
:onable time adequate SECTION 2: TRANSFER OF OBLIGATIONS
Article 9.2.1
>bligor may withhold (Modes of transfer)
An obligation to pay money or render other performance may be
; not effective. . transferred from one person (the "original obligor") to another person
lited to, any writing (the "new obligor") either
t the assignment has (a) by an agreement between the original obligor and the new
· obligor subject to Article 9.2.3, or
(b) .by an agreement between the obligee and the new obligor,
by which the new obligor ~ssumes the obligation.
F')
Article 9.2.2
e all defences that the
(Exclusion)
r1ee any right of set-off This Section does not apply to transfers of obligations made under
to the time notice of the special rules governing transfers of obligations in the course of
trárisféi·ririg a business.

417

>·Ó

· .. ~.i:.~.~.~'; : : ·~-
 UNIDROIT PRINCIPLES INT

Article 9.2.3 (2) If the or

(Requirement of obligee's consent to transfer) security granted
performance of t
The tránsfer of an obligation by an agreement between the original agrees that it sho1
obligar and.the new obligar requires the consent of the obligee.
(3) DischargE
Article 9.2.4 the original obli!
obligation, unless
(Advance consent of obligee) part of a transad
(1) The obligee may give its consent in advance.
SECTl
(2) If the obligee has given its consent in advance, the transfer of
the obligation becomes effective when a notice of the transfer is given to
the obligee or when the obligee acknowledges it.

Article 9.2.5 "Assignment

one person (the '
(Discharge of original obligar) assignor's rights ¡
(1) The obligee may discharge the original obligar. person (the "othe1
J
(2) The obligee may also retain the original obligar as an obligar in
case the new obligar does not perform properly.
· (3) · Othérwise the original obligar and the new obligar are jointly
This Section
and severa.lly liable.
under the special
Article 9.2.6 transferring a bus:

(Third party performance)

· (1) Without the obligee's consent, the obligar may contract with .(Re,
another person that this person will perform the obligation in place of The assignmE
. the obligar, unless the obligation in the circumstances has an essentially party. ·
person¡;tl cha:racter.
(2). The obligee retains its claim against the obligar.

Article 9.2. 7
. (1) The other
(Defences and rights of set-off) (2) If the othE
(1) The new obligar may assert against the obligee all defences ment of the contn
which the original obligar could assert against the obligee. is given to the ot
· (2) · The new obligar may not exercise against the obligee any right
of set-off available to the original obligar against the obligee.

Article 9.2.8 (1) The other

(Rights related to the obligation transferred) (2) The other
(1) The obligee may assert against the new obligar all its rights to case the assignee d
. payment or other performance under the contract in respect of the (3) Otherwise
obligation transferred. liable.

418

,,
.~ . .'}A·· ~lt
 INTERNATIONAL COMMERCIAL CONTRACTS ·

(2) If the original obligor is discharged under Article 9.2.5(1), a

security granted by any person other than the new obligor for the
:nsfer)
performance of the obligation is discharged, unless that other person ·
etween the original agrees that it should continue to be available to the obligee.
te obligee. (3) Discharge of the original obligor also extends to any security of
the original obligor given to the obligee for the .performance of the
obligation, unless the security is over an asset wliich is transferred as
part of a tr~nsaction between the original obligor and the new obligor.

SECTION 3: ASSIGNMENT OF CONTRACTS

nce, the transfer of
Article 9.3.1
transfer is given to
(Definitions)
"Assignment of a contract" means the transfer by agreement from
one person (the "assignor") to another person (the "assignee") of the
assignor's rights and obligations arising out of a contract with another
person (the "other party").
lr.
igor as an obligor in Article 9.3.2
(Exclusion)
v obligor are jointly This Section does not apply to the assignment of contracts madé
under the special rules governing transfers of contracts in the course of
transferring a business.

Article 9.3.3
may contract with (Requirement of consent of the other party)
bligation in place of The assignment of a contract requires the consent of the other
es has an essentially party.

Article 9.3.4
gor.
(Aduance consent of the other party)
(1) The other party may give its consent in advance.
(2) Ji the other party has given its consent in advance, the assign-
obligee all defences ment of the contract becomes effective when a notice of the assignment .
>ligee. is given to the other party or when the other party aclmowledges it.
:he obligee any right Article 9.3.5
obligee.
· (Discharge of the assignor)
(1) The other party may discharge the assignor.
ferred) (2) The other party may• also retain the assignor as an obligor in
case the assignee does not perform properly.
ligor all its rights to
ct in respect of the (3) Otherwise the assignor and the assignee are jointly and severally
liable.

419
 UNIDROIT PRINCIPLES INJ

Article 9.3.6 (e) exteJ

(Defences and rights of set-off) year:

(1) To the extent that the assignment of a contract involves · an

assignment of rights, Article 9.1.13 applies accordingly. (NE
(2) To the extent that the assignment of a contract involves a (1) Where tl
transfer of obligations, Article 9.2.7 applies accordingly. period acknowlec
period begins on ·
Article 9.3. 7 (2) The max:
(Rights transferred with the contract) may be exceeded
(1) To the extent that the assignment of a contract involves an under Article 10.!
assignment ofrights, Article 9.1.14 applies accordingly.
(2) To the extent that the assignment of a contract involves a
transfer of obligations, Article 9.2.8 applies accordingly.
(1) The runn
CHAPTER 10-LIMITATION PERIODS (a) when
pro cE
Article 10.1
that
(Seope of the chapter) oblig1
(1) The exercise of rights governed by these Principies is barred by · (b) in th
the expiration of a period of time, referred to as "limitation period", as ser
according to the rules of this Chapter. (e) in thf
(2) This Chapter does not govern the time within which one party is is the
required under these Principies, as a condition for the acquisition .or . dissol
exercise of its right, to give notice to the other party or to perform any (2) Suspensio
act other than the institution of legal proceedings. the proceedings h1

Article 10.2
(Limitation periods)
(1) The runn
(1) The general limitation period is three years beginning on the
day after the day the obligee knows or ought to know the facts as a obligee performs
result of which the obligee's right can be exercised. arbitral proceedin¡
the arbitral tribur
(2) In any event, the maximum limitation period is ten years In the absence o
beginning on the day after the day the right can be exercised. determining the e>
the proceedings ar
Article 10.3 that the right in
(Modification of limitation periods by the parties) (2) Suspensim
(1) The parties may modify the limitation periods. the proceedings ha
(2) However they may not
(a) shorten the general limitation period to less than one year;
(b) shorten the maximum limitation period to less than four . The provision
years; modifications to oi

420
 INTERNATIONAL COMMERCiAL CONTRACTS

(e) extend the maximum limitation period to more than fifteen

years.

mtract involves an Article 10.4

y. (New limitation period by acknowledgement)
~ontract involves a (1) Where the obligor before the expiration of the general limitation
ly. period acknowledges the right of the obligee, a new general limitation
period begins on the day after the day of the acknowledgement.
(2) The maximum limitation period does not begin to run again, but
~t) may be exceeded by the beginning of a new general limitation period
under Article 10.2(1).
)ntract involves an
y. Article 10.5
contract involves a (Suspension by judicial proceedings)
ly. (1) The running of the limitation period is suspended

[QDS (a) when the obligee performs any act, by commencing judicial
proceedings or in judicial proceedings already instituted,
that is recognised by the law of the court as asserting the
obligee's right against the obligor;
nciples is barred by (b) in the case of the obligor's insolvency when the obligee has
"limitation period", asserted its rights in the insolv~ncy proceedings; or
(e) in the case of proceedings for dissolution of the entity which
is the obligor when the obligee has asserted its rights in the
n which one party is
dissolution proceedings.
r the acquisition or
' y or to perform any (2) Suspension lasts until a final decisión has been issued or until
the proceedings have been otherwise terminated.

Article. 10.6
(Suspension by arbitral proceedings)
(1) The running of the limitation period is suspended when the
rs beginning on the obligee performs any act, by commencing arbitral proceedings or in
:{.now the facts as a arbitral proceedings already instituted, that is recognised by the law of
the arbitral tribunal as asserting the obligee's right against the obligor.
)eriod is ten years In the absence 0f regulations for arbitnil proceedings or provisions
xercised. determining the exact date of the commencement of arbitral proceedings,
the proceedings are deemed to commence on the date on which a request
that the right in dispute should be adjudicated reaches the obligor.
o parties) (2) Suspension lasts until a binding decision has been issued or until
the proceedings have been otherwise terminated.
ls.
Article 10.7
> less than one year; (Alternatiue dispute resolution)
>d to less than four The prov1swns of Articles 10.5 and 10.6 apply with appropriate
modifications to other proceedings wher eby the parties request a third

421
 UNJDROIT PRINCIPLES INT

person to assist them in their attempt to reach an amicable settlement of (a) the e
their dispute. boun
Article 10.8 (b) the o
(Suspension in case of force majeure, death or incapacity) for it
(1) Where the obligee has been prevented by an impediment that is
beyond its control and that it could neither avoid nor overcome, from
causing ~ limitation period to cease to run under the preceding articles, (Pre;
the general limitation period is suspended so as not to expire before one When severa]
year after the relevant impediment has ceased to exist. obligee, they are 1
(2) Where the impediment consists of the incapacity or death of the circumstances ind
obligee or obligor, suspension ceases when a representative for the
incapa<;:itated or deceased party or its estate has been appointed or a
successor has inherited the respective party's position. The additional
one-year period under paragraph (1) applies accordingly. (Obliget
When obligm
Article 10.9 require performar
(Effects of expiration oflimitation period) been received.
(1) The expiration of the limitation period does not extinguish the
right.
(2) For the expiration of the liniítation period to have effect, the (A va
obligor must assert it as a defence.
A joint and s
(3) A right may still be relied on as a defence even though the obligee may assert
expiration of the limitation period for that right has been asserted. to it or that are
defences or rights
Article 10.10
other co-obligors.
(Right o{ set-o{{)
The obligee may exercise the right of set-off until the obligor has
asserted the expiration of the limitation period.

Article 10.11 Performance e

(Restitution) obligee against om
Where there has been performance in order to discharge an obli: in relation to the
gation, there is no right of restitution merely because the limitation
period has expired.

CHAPTER 11-PLURALITY OF OBLIGORS

AND OF OBLIGEES (1) Release of
SECTION 1: PLURALITY OF OBLIGORS joint and severa! o]
the released or set
Article 11.1.1 wise.
(Definitions)
(2) When the
When several obligors are bound by the same obligation towards an released obligor, tl
obligee: released obligor un
422

~~'·,
._..,;..~ ~..~.
 INTERNATIONAL COMMERCIAL CONTRACTS

[cable settlement of (a) the obligations are joint and several when each obligor is
bound for the whole obligation;
(b) the obligations are separate when each obligor is bound only
for its share.
· incapacity)
impediment that is Article 11.1.2
10r overcome, from
~ preceding articles,
(Presumption of joint and seueral obligations)
.o expire before one When several obligors are bound by the same obligation towards an
obligee, they are presumed to be jointly and severally bound, unless the
city or death of the circumstances indicate otherwise.
resentative for the
een appointed or a Article 11.1.3
ion. The additional (Obligee's rights against joint and seueral obligors)
~ly.
When obligors are jointly and severally bound, the obligee may
require performance from any one of them, until full performance has
·iod) been received.
not extinguish the
Article 11.1.4

to have effect, the .(Áyailability of defences and rights of set-off)

A joint and &everal obligor against whom a claim is made by the
:e even though the obligee may ass~rt · all the defences and rights of set-off that are personal
has been asserted. to it or that are common to all the co-obligors, but may not assert
defences or ·rights · of set-off that are personal to one or several of the
other co-obligors:

ntil the obligor has Article 11.1.5

· (Effect of performance or set-off)
Performance or set-off by a joint and several obligor or set-off by the
obligee against onejoint and several obligar discharges the other obligors
in rehttion to the obligee to the extent of the performance or set-off.
) discharge an obli-
:ause the limitation Article 11.1.6
(Effect of relea_se or settlement)
·~IGORS
(1) Release of one joint and several obligar, or settlement with one
joint and several obligar, discharges all the other obligors for the share of
[GORS the released or settling obligor, unless the circumstances indicate other-
Wlse.

(2) When the other obligors are discharged for the share of the
bligation towards an released obligor, they no longer have a contributory claim against the
released cibligor ünder Article 11 .1.1 O.

423
 UNIDROIT PRINCIPLES !N1

Article 11.1. 7 (2) An oblig·

(Effect of expiration or suspension of limitation period) rights against thE
precedence over e
(1) Expiration of the limitation period of the obligee's rights against
one joint and several obligor does not affect:
(a) the . obligations to the obligee of the other joint and several
obligors; or
Ajoint and s
(b) the rights of recourse between the joint and several obligors obligor who has p
under Artiele. 11.1.10.
(a) may
(2) If the obligee initiates proceedings under Artieles 10.5, 10.6 or were
10.7 against one joint and severa! obligar, the running of the limitation oblig1
period is also suspended against the other joint and several obligors. (b) may ¡
Article 11.1.8 (e) may
(Effect of judgment) perso
(1) A decision by a court as to the liability to the obligee of one joint
and several obligar does not affect:
(a) the . obligations to the obligee of the other joint and several If a joint an<
obligors; ór obligor's share is 1
· (b) the rights of recourse between the joint and several obligors bution from anotl
underArtiele 11.1.10. ineluding the· óne ·
(2) Ho~ever, the other joint and several obligors may rely on such a
SEC'
decision, · except if it was based on grounds personal to the obligor
.concerned;. In such a case, the rights of recourse between the joint and
several obligors under Artiele 11.1.10 are affected accordingly.
When severa!
Article 11.1.9 from a~ obligo~:
(Apportionment among joint and several obligors) (a) the eli
As among themselves, joint and several obligors are bound in equal share;
shares, ·unless the circumstances indicate otherwise. (b) the el¡
the wl
Article 11.1.10
(e) the el~
(Extent of contributory claim) ance t1
A joint and several obligor who has performed more than its share
may elaim the excess from any of the other obligors to the extent of each
· obligor's unperformed share:

Article 11.1.11 Full performa1

severa] obligees dis
(Rights of the obligee)
(1) A joint and several obligar to whom Artiele 11.1.10 applies may
also exercise the rights of the obligee, ineluding all rights securing their (Availabilit)
·. perfon11ance, to recover the excess from all or any of the other obligors (1) The obligc
to the extent of each obligor's unperformed share. obligees all the de
424
 INTERNATIONAL COMMERCIAL CONTRACTS

(2) An obligee who has not received full performance retains its
rights against the co-obligors to the extent of the unperformed part, with
~ionperiod)
precedence over co-obligors exercising contributory claims.
igee's rights against
Article 11.1.12
r joint and several (Defences in contributory claims)
A joint and several obligor against whom a claim is made by the co-
md several obligors obligor wpo has performed the obligation :
(a) may raise any common defences and rights of set-off that
rticles 10.5, 10.6 or were available to be asserted by the co-obligor against the
ing of the limitation obligee;
nd several obligors. (b) may assert defences which are personal to itself;
(e) may not ass~rt defences and rights of set-off which are
personal to one or severa! of the other co-obligors.

e obligee of one joint Article 11.1.13

(Inability to recouer)
~r joint and several If a joint and several obligor who has performed more than that
obligor's share is unable, despite all reasonable efforts, to recover contri-
and several obligors bution from another joint and several obligor, the share of the others, .
including the one who has performed, is increased proportionally.
·s may rely on such a SECTION 2: PLURALITY OF OBLIGEES
;onal to the obligor Article 11.2.1
~tween the joint ¡md
(Definitions)
cordingly.
When several obligees can claim performance of the same obligation
from an obligor:
' obligors) (a) the claims are separate when each obligee can only claim its
·s are bound in equal share;
(b) the claims are joint and several when each obligee can claim
the whole performance;
(e) the claims are joint when all obligees have to claim perform-
ance together .
. more than its share
Article 11.2.2
to the extent of each
(Effects of joint and seueral claims )
Full performa:p.ce of an obligation in favour of one of the joint and
several obligees discharges the obligor towards the other obligees.

Article 11.2.3
e ll.i.10 applies may
rights securing their (Auailability of defences against joint and seueral obligees)
of the other obligors (1) The obligor may assert against any of the joint and several
obligees all the defences and rights of set-off that are personal to its ·

425

- • ~· ~'1;.;;;..
 f
UNIDROIT PRINCIPLES

relationship to that obligee or that it can assert against all the co-
obligees, but may not assert defences and rights of set-off that are .
personal to its relationship to one or several of the other co-obligees.
SELECTEJ
(2) The provisions of Articles 11.1.5, 11.1.6, 11.1.7 and 11.1.8 apply,
with appropriate adaptations, to joint and several claims.

Article 11.2.4
(Allocation between joint and several obligees)
(1) As among themselves, joint and severa! obligees are entitled to This section o
equal shares, unless the circumstances indicate otherwise. in a series of wel
(2) An obligee who has received more than its share must transfer order, are: .Wood
the excess to the other obligees to the extent of their respective shares. Bloor u. Falstaff B
Educational Testir.
We also inclu.
2007-08 SAT Sen
Scores; this makes
Bulletin used in D1
signed by participa
we include a stand
familiar: Google's '

1 426
:tgainst all the co-
of set-off that are
l other co-obligees. SELECTED CONTRACTS AND STANDARD
.7 and 11.1.8 apply, FORM AGREEMENTS
ms.

ligees) COMPILERS' NOTE

5ees are entitled to This section offers the complete contracts that underlie the disputes
Nise. in a series of well-known cases. The cases, presented in chronological
order, are: Wood v. Lucy, Peevyhouse v. Garland Goal & Mining Co.,
.hare must transfer
Bloor v. Falstaff Brewing Corp., In the Matter of Baby M., and Dalton v.
r respective shares.
Educational Testing Service.
We also include three standard form agreements. The first is the
2007-08 SAT Service Terms and Conditions regarding Cancellation of
Scores; this makes an interesting comparison with the 1991 Registration
Bulletin used in Dalton. The second is the Standard Consent Agreement
signed by participants in connection with the 2006 Borat movie. Finally,
we include a standard form agreement with which sorne readers may be
familiar: Google's Terms of Service.

427
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CC

CONTRACT IN WOOD v. LUCY* "It is expres

in this agreemen
"Whereas, the said Lucy, Lady Duff-Gordon, occupies a unique and high
made by the saic
position as a creator of fashions in America, England and France,
this agreement ir
"And whereas, her personal approval and endorsement over her own ances and lectm
name of certain articles and fabrics used not only in the manufacture of publication of sig
dresses, millinery and other adjuncts of fashion, but also divers other articles or books
articles of use to people of taste has a distinct monetary value to the portraits of dres~
manufacturers of such articles, said Lucy, Lady
time, as such pt
"And whereas, the said Otis F. Wood possesses a business organiza-
"It is agreed
tion adapted to the placing such endorsements as the said Lucy, Lady third party runni
Duff-Gordon, has approved, the said Otis F. '
"It is agreed by the said Lucy, Lady Duff- Gordon, that the said Otis lifetime of such a
F. Wood is hereby granted the exclusive right to place such endorse- der are not to cea
ments on such terms and conditions as may in his judgment, and also in "It is unders
the judgment of the said Lucy, Lady Duff-Gordon, or A. Merritt, her the said Otis F.
personal business adviser, be most advantageous to the said Lucy, Lady "It is agreec
Duff-Gordon, and the said Otis. F. Wood. contracts made "'
"And whereas, the said Lucy, Lady Duff-Gordon's approval and collected by the s1
selection of certain articles and fabrics used in the manufacture of her are to be divided
model gowns, millinery and other adjuncts of fashion which she designs, understood, howe·
shall be directed 1
has a distinct monetary value to the manufacturers of such articles used,
Lady Duff-Gordo
"It is agreed, that the said Otis F. Wood shall have the exclusive royalties without
right to make such terms, under the same conditions as set forth in this it is further exp1
agreement, but it is expressly understood and agreed by both parties account monthly, ·
that no such arrangement can be entered into before such goods have Lady Duff-Gordor
been personally passed upon and approved by the said Lucy, Lady Duff- Wood agrees to ta
Gordon, and also that nothing in this limits the right of the said Lucy, marks as may in h
Lady Duff-Gordon, to select and use any fabrics or other articles or articles as an
whatsoever in her business, provided the said Lucy, Lady Duff-Gordon, proceedings as ·JIU
does not allow her endorsement to be used for said goods. such patents, cop:
that such patents,
"And whereas, the said Lucy, Lady Duff- Gordon, creates from time the said Lucy, Lad:
to time different· articles, such as parasols; belts, handbags, garters, etc., patents, copyright
etc., and these also have a distinct monetary value independent of their infringement, shaL
specific use in her own dress creations sold at her own houses of 'Lucile,' ly understood and
"It is agreed, that the said Otis F . Wood shall have the exclusive said Otis F . Wooc
right of placing these articles on sale or licensing the rights to others to Gordon, or of the s
manufacture and market of such articles. "It is agreed, 1
the signing hereof,
* 118 N.E. 214 (N .Y. 1914). The contract from the Kewpie Dolls in Professor automatically rene
is taken from the Amended Complaint, Goldberg's FRAMING CoNTRACT LAw: AN Eco.
Read in Support of Motion. Thanks to Vi c- NOM IC' ANALYSIS (2007), a Jso avaiJabJe at
year, unless either
tor Goldberg fo r providing this material. http://papers. ssrn.com/sol 3/paper s.cfm ?abs his or her intentic
For more on the contract, see Reading tracLid = 870474. (90) days precedin
Wood u. Lucy, Lady Duff Gorclon with Help
expiration of any s1
428
 ¡ ~·

?.EEMENTS SEL..CONTRACTS & STANDARD FORM AGREEMENTS

"It is expressly understood and agreed by both parties that nothing

in this agreemer¡.t shall apply to any other executed or pending contract
's a unique and high made by the said Lucy, Lady Duff-Gordon, prior to this date, nor does
1gland and France, this agreemehtinclude any rights to moving pictures, theatrical perform-
>ement over her own ances and lectures, the distribution of photographs of her gowns or
the manufacture of publication of signed articles by the said Lucy, Lady Duff-Gordon, or any
ut also divers other articles or books which may be hereafter written by her, or the sale of
portraits of dresses unless said permission be expressly granted by the
,netary value to the
said Lucy, Lady Duff- Gordon, or by the said A. Merritt, from time to
time, as such permission may be asked by the said Otis F. Wood.
a business organiza- "It is agreed, that in the event any arrangement is made with the
the said Lucy, Lady third party running longer than the time stated in this agreement, that
the said Otis F. Wood is to share in the returns from same during his
n, that the said Otis lifetime of such agreement, and the said Otis F. Wood's rights thereun-
der are not to cease at the expiration of this agreement.
place such endorse-
tdgment, and also in "It is uriderstood, that the Fashion Portfolio Service, suggested by
, or A. Merritt, her the said Otis F; Wood, is covered under the terms of this agreement.
the said Lucy, Lady "It is agreed, that all profits and revenues derived under and
contracts made with third persons hereunder are to be paid over and
collected by the said Otis F. Wood, and that all said profits and royalties
·don's approval and are to be divided equally between the parties hereto, it being expressly
manufacture of her understood, however, that the cost of securing such profits and royalties
n which she designs, shall be direéted toward this half share of Otis F . Wood, the said Lucy,
Jf such articles used, Lady Duff- Gordon, receiving a full half share of all said profits and
l have the exclusive royalties without any expense whatsoever being directed against it; and
.s as set forth in this it is further expressly understood that the said Otis F. Wood shall
·eed by both parties accoüht Ihortthly, to wit, on the first day of each month, to the said Lucy,
ore such goods have Lady Duff-Gordon, for all such moneys received by him. The said Otis F.
lid Lucy, Lady Duff- Wood agre~s to take out and procure such patents, copyrights or trade-
marks as may in his judgment be necessary to protect such names, ideas,
~ht of the said Lucy,
or articles as are affected hereby and to carry out such actions or
3S or other articles
proceedings as rriay, in his judgment, be necessary in order to protect
, Lady Duff-Gordon, such patents, cbpyrights or trade-marks. And it is further understood
nods. that such patents, copyrights or trade-marks shall be held in the name of
,n, creates from time the said Lucy, Lady Duff-Gordon, and that the expense of obtaining such
ndbags, garters, etc., patents, copyrjghts, or trade-marks and of protecting the same from
independent of their infringement, shall be shared equally by parties hereto. But it is express-
vn houses of 'Lucile,' ly understood and agreed that no such suit or action can be begun by the
said Otis F. Wood without the consent of the said Lucy, Lady Duff-
.ll have the exclusive Gordort, bt of the ·said A. Merritt. ·
ie rights to others to
"It is agreed, that this contract shall cover a period of one year from
the signing hei·eof, and that at the expiration of the said period it shall
>ie Dolls in Professor automatically renew itself for another year, and thereafter from year to
~G CoN'l'RACT LAw: fu-.¡ Eco- year, unless either party shall give notice in writing to the other party of
2007), also available at his or her intention to termínate this agreement not less than ninety
.com/so l3/papers.cfm?abs
(90) days preceding the expiration of the said term of one year or the
expiration of any succeeding term thereafter. ''

429
 . · SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. C(

CONTRACT IN BLOOR v. FALSTAFF BREWING CORP. * and whi

Pm'chase Agreement dated as of March 3, 1972 between P. BAL- orders a
LANTINE & SONS, a New Jersey corporation (hereinafter called the ing with
Seller), and FALSTAFF BREWING CORPORATION, a Delaware corpo- collectiv•
ration (hereinafter called the Buyer). relating
B-D her
The Seller desires to sell, and the Buyer desires to purchase, the
alcoholic
Ballantirie Assets (as defined in Section 1 hereof) of the seller for the
in Exhib
cash payments, referred to in Section 2 hereof and the assumption by the
Buyer ofcertain obligations of the Seller as specified in Section 3 hereof, (e) all right
all upon the terms and subjects to the conditions hereinafter set forth. promotic
connecti1
·NOW, THEREFORE, in consideration of the promises and of the
mutual ·~greements hereinafter set forth, the parties hereto agree as (f) provided
follows: court of <
l. · Sale of Ballantine Assets. On the terms and subject to the mental a
conditions set forth in this Agreement, the Seller hereby agrees to sell, and ínter
convey, assign, transfer and deliver to the Buyer on the Closing Date, of the Se
and the Buyer hereby agrees to purchase from the Seller on the Closing in writin.
Date the following assets, properties, and rights of the Seller relating to ter callee
or used in connection with the production, bottling, packaging, storage receivab},
and distribution of malt alcoholic beverage by the Seller, all as the same "Seller's
shall exist on the Closing Date except as such assets, properties and 2. Pvrcha1
rights may have been disposed of, adjusted or supplemented prior to the to the conditions
Closing Date in the ordinary course of business or in accordance with the the Seller as the
provisions of this Agreement (hereinafter called the "Ballantine As- the assumption o
sets"): · i) o
· (a) all right, title and interest of the Seller in and to the brand tirie Ass•
names, trademarks, trade names, copyrights and other proprie- hereof, t
. tary rights owned by or registered in the name of the Seller and (ii)
listed and described in Exhibit A hereto (hereinafter called the tine Ass1
''Proprietary Rights"); hereof;
(b) all right, title and interest of the Seller in and to the inventory (iii)
and supplies held and used by the Seller generally described in BallantiJ
Exhibit B hereto; . Section:
(e) all right, title and interest of the Seller in and to (i) the vehicles (iv)
and auxiliary equipment and cooperage in hand or in the trade determir
and related component parts listed or generally described in records 1
· Exhibit C hereto and (ii) all cases, bottles and pallets on hand or Exhibit:
in the trade of similar character to the items referred to in in parag
· paragraph (a) above returnable to the Seller; the tim<
· (d) áll right, title and interest of the Seller in and to the (i) the BallantÍI
leases or other agreements under which the Seller is lessee of or Closing:
holds or operates personal property owned by any third party BallantÍI
* 601 F:2d 413 (2d Cir.l979) . Thanks to contract from the case file . The contract (v) '
Professor Victor Goldberg for providing tbis has been retyped for clarity. Hi72, ar.

430
?.EEMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

WING CORP.* and which are listed in Exhibit D hereto and (ii) the contracts,
orders agreements, commitments and other instruments, includ-
2 between P. BAL-
ing without limitation, supply and requirements contracts and
'r einafter called the
collective bargaining agreements to which the Seller is a party
f, a Delaware corpo-
relating to the items of personal property referred to in Exhibits
B-D hereto or to the sale and delivery by the Seller of its malt
es to purchase, the alcoholic beverage directly to retail sellers and which are listed
)Í the seller for the in Exhibit E hereto;
.e assumption by the
in Section 3 hereof, (e) all riglit, title and interest of the seller in the advertising and
ereinafter set forth. promotional signs and materials used or for use by the Seller in
connection with the Proprietary Rights; and
>romises and of the
ies hereto agree as <D provided that such purchase is not precluded by an order of a
court of competent jurisdiction issued at the request of a govern-
mental authority and effective on the Closing Date, all right, title
: and subject to the
and interest of the Seller in and to each retail account receivable
ereby agrees to sell,
of the Seller and each account receivable of the Seller confirmed
n the Closing Date,
in writing to either party hereto prior to May 1, 1972 (hereinaf-
)eller on the Closing
ter called the "Buyer's Receivable"), excluding those accounts
he Seller relating to
receivable listed in Exhibit F hereto (hereinafter called the
·, packaging, storage
"Seller's Receivable").
~ller, all as the sam~
sets, properties and 2. Purchase Price and payment. (a) Upon the terms and subject
~mented prior to the · to the conditions set forth in this Agreement, the Buyer agrees to pay to
accordance with the the Seller as the Purchase Price for the Ballantine Assets (in addition to
~he "Ballantine As- the assumption of certain obligations as provided herein),
i) On the date hereof, $2,000,000 in respect of the Ballan-
n and to the brand tine Assets referred to in paragraphs (a) and (e)-( e) of Section 1
s and other proprie- hereof, the receipt of which is hereby acknowledge
me of the Seller and (ii) On March 15, 1972, $1,000,000 in respect of the Ballan-
ereinafter caBed the tine Assets referred to in paragraphs (a) and (e)-( e) of Section 1
hereof;
md to the inventory (iii) On the Closing Date, $1,000,000 in respect of the
merally described in Ballantine Assets referred to in paragraphs (a) and (c)- (e) of
Section 1 hereof;
nd to (i) the vehicles · (iv) On the Closing Date, a sum in cash equal to the cost, as
1and or in the trade determined by the Seller in accordance with the books and
nerally described in · r ecords of the Seller, of the inventory and supplies described in
ld pallets on hand or. Exhibit B hereto, .in respect of the Ballantine Assets referred to
tems referred to in in paragraph (b) of Section 1 hereof; provided, however, that at
the time that ·the Buyer shall take possession of any such
1 and to the (i) the Ballantine Assets pursuant to Section 5(c) hereof prior to the . .
.Seller is lessee of or Closing Date, it shall pay to the Seller the pro rata cost of such
. by any third party Ballantine Assets;
~ case fil e. The contract (v) on the 7th day of each month, commencing May 7,
'or cla rity. 1972, and terminating April 7, 1978 (the "Royalty Period"), a

431

''
1 ,:,.~{' ~~:&--.
 í .~

SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CO

sum in cash computed at the rate of $.50 per barrel for each 75% of 1
barrel of 31 U. S. gallons sold by the Buyer during the preceding distribut
calendar month under any of the Proprietary Rights, as royal-
ties in respect of the use of such Proprietary Rights; provided (e) Those pe
that the Royalty Period will be extended by the duration of any graphs (i
restraining order, if lifted, issued by a court of competent delivery
jurisdiction, and the obligation to niake royalty payments here- certified,
under will recommence immediately following the lifting of such in the am
order; and provided, however, that if during the Royalty Period . Purchase
the Buyer substantially discontinues the distribution of beer paragrapl
under the brand name "Ballantine" (except as the result of a by delive
restraining order in effect for 30 days issued by a court of collection
competent jurisdiction at the request of a governmental authori- (d) If the Bu
ty), it will pay to the Seller a cash sum equal to the years and receiver,
fraction thereof remaining in the Royalty Period · times general ¡;
$1,100,000, payable in equal monthly installments on the first vent, file
day of each month commencing with the first month following bankrupt
the month in which such discontinuation occurs; an arran¡
(vi) On the Closing Date, a sum in cash equal to 75% of the ruptcy, in
aggregate amount of the Buyer' s Receivables as of the Closing each of t:
Data (hereinafter called the "First Receivables Paymerit"), in · graph (v:
respect of part of the Ballantine Assets referred to in paragraph forthwith
(f) of Section 1 hereof; and any kind.
(vii) (1) On May 7, 1972, a sum in cash equal to 75% of the 3. Assumpt
aggregate amount of the Buyer's Receivables as of April 30, ·· demnity. (a) Upc
1972, in addition to those referred to in subparagraph (vi) above this Agreement, tl
(hereinafter called the "Second Receivables payment") and (2) agrees to pay, pe
on the seventh day of each month commencing May 7, 1972, a (i) al
sum, if any, in cash equal to 75% of that portian collected by the leases an
Buyer during the previous month of the difference between the under th€
aggregate of the First and Second Receivables Payments and the · listed in i
aggregate amount in excess thereof the total of all Buyer's insurancE
Receivables collected up to and including the last day of the items ger
previous month. under rel
(b) The aggregate of the First and .Second Receivables Payments or otherw
shall not exceed $7,125,000. For purposes of the computation of ing to sev
payments pursuant to clause (2) of subparagraph (vii) of para- . marketin¡
graph ~a)· above, any amounts which may be paid to the Buyer ever, tha1
by an obligor in satisfaction of any obligation distinct from the under or
Buyer's Receivables relating to such obligor shall be treated by above, in
the Buyer as a collection of Buyer's Receivables, and the Buyer curred by
waives any right which it may have to make any claim, offset or prior to tl
counterclaim against such amounts r eceived. Upon the termi- (ii) tl
nation of contractual or customer relations with any distributor, the adver1
the Buyer will promptly pay to the Seller an amount equal to ments set
432
 1.

'tEEMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

per barrel for each 75% of any Buyer's Receivables then due in respect of such
luring the preceding distributor.
try Rights, as royal-
Lry Rights; provided (e) Those portions of the Purchase Price referred to in subpara-
graphs (ii)-(iv) and (vi) of paragraph (a) above shall be paid by
the duration of any
court of competent delivery to the Seller on the dates referred to therein of a
alty payments here- certified or official bank check payable to the order of the Seller
in the amounts specified therein. Payments of that portion of the
lg the lifting of such
· ~ the Royalty Period Purchase Price referred to in subparagraphs (i), (v), and (vii) of
paragraph (a) above shall be paid on the dates referred to therein
distribution of beer
by delivery to the Seller on such dates of checks, subject to
•t as the result of a
collection, payable to the order of the Seller.
sued by a court of
vernmental authori- (d) If the Buyer shall apply for or consent to the appointment of a
Ial to the years and receiver, trustee or liquidator, of the Buyer or its assets, make a
'alty Period times general assignment for the benefit of creditors, become insol-
.llments on the first vent, file a voluntary petition in bankruptcy or be adjudicated a
rst month following bankrupt, file a petition or an answer seeking reorganization or
~urs; an arrangement with creditors or take advantage of any bank-
. equal to 75% of the ruptcy, insolvency, dissolution or liquidation law or statute, then
es as of the Closing each of the payments or installments provided for in subpara-
l.bles Payment"), in gTaph (v) of paragTaph (a) above shall immediately become
rred to in paragraph forthwith due any payable without demand or other notice of
any kind.

equal to 75% of the 3. Assumption of Certain obligations by the Buyer and In-
oles as of April 30, demnity. (a) Upon the terms and subject to the conditions set forth in
oaragraph (vi) above this Agreement, the Buyer will assume on and as of the Closing Date and
; payment") and (2) agrees to pay, perform and discharge in accordance with their terms:
cing May 7, 1972, a (i) all obligations and liabilities of the Seller (1) under the
tion collected by the leases and other agreements listed in Exhibit D hereto, (2)
'ference between the under the contracts, orders, commitments and other agreements
:JS Payments and the listed in Exhibit E hereto, (3) for all premium payments under
total of all Buyer's insurance contracts and binders covering or relating to the
the last day of the items generally described in Exhibits B and C hereto and (4)
under relevant collective bargaining agreements, commitments
Jceivables Payments or otherwise, including, without Ümitation, all obligations relat-
f the computation of ing to severance and vacation pay, regarding all delivery, sales,
1graph (vii) of para- marketing, clerical and administrative personnel; provided how-
'e paid to the Buyer ever, that the Buyer shall not assume any accounts payable
on distinct from the under or in respect of the instruments set forth in (1) and (2)
· shall be treated by above, including; without limitation, liabilities for taxes, in-
tbles, and the Buyer curred by the Seller and due during or in respect of the period
1 any claim, offset or
prior to the Closing Date; and
Jd. Upon the termi- (ii) the obligations and liabilities of the Seller in respect of
with any distributor, the advertising contracts, orders, commitments and other agree-
an amount equal to ments set forth in Exhibit G hei·eto.

433
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CC

(b) All obligations and liabilities of the Seller not assumed by the assignin¡
Buyer pursuant to paragraph (a) above shall remain the sole firming ~
responsibility of the Seller. The Seller will indemnify and save (e) The Buy1
the Buyer harmless from and against any and all claims, liabili- Assets ar
ties or obligations whatsoever, to the extent the same shall arise as possH
our of or result from (i) the ownership of the Ballantine Assets delivery 1
prior to Closing Date and shall not have been assumed by the within a
Buyer pursuant toa paragraph (a) above. The Buyer will indem- goods inc
nify and save the Seller harmless from and against any and all Seller for
claims, liabilities or obligations on account of obligations and case and
liabilities of the Seller assumed by the Buyer pursuant to para- the BuyE
graph (a) above or arising out of or resulting from the ownership Assets fr<
by the Buyer of the Ballantine Assets on and after Closing Date. 6. Assignm
(e) Each party shall promptly notify the other of the assertion of contained in this
any claim against such party to be indemnified against hereun- (i) any contract, j
der, and will give to the indemnifying party an opportunity to ing, without limit
participate, at its own expense, in the conduct of any proceedings assignable with01
instituted by any third party or in the settlement of such claim. unless consent sh
asto which all th
4. Information. From and after the date of this Agreement until Seller would not,
June 30, 1973, pursuant to the reasonable requests of the Buyer, the the assignment p1
Seller shall give the Buyer access to thé ·Ballantine Assets, shall furnish its best efforts to
information relating thereto and permit the Buyer to make extracts right, lease, licem
from, or copies of the books and records of the Buyer relating thereto. to the Buyer in al
The Buyer shall use its best efforts to keep confidential all information (b) The SellE
respecting the business and operations of the Seller which it may have · authority
obtained in the course of its investigations and which is not public agrees to
information. Seller, all
5. The Closing. (a) The purchase and sale provided for in this promptly
Agreement shall take place at the offices of Investors Funding Corpora- cash or o1
tion of New York, 630 Fifth Avenue, New York, NY at 10:00 a.m., Seller's R
Eastern Standard Time, on March 31, ·1972, or such other date as the receive frc
Seller and the Buyer may mutually agree upon (herein called the of both tb
"Closing Dat~"). ing Seller
and until
(b) The sale, conveyance, transfer, assignment and delivery of the to be held
Ballantine Assets as provided in this Agreement shall be effected parties hE
by bilis of sale, endorsements, assignments and other instru- shall be a
ments of transfer and conveyance as the Buyer shall reasonably to the Se:
\ request and shall be sufficient to convey all of the title of the Buyer, if l
Seller to the Ballantine Assets. The Seller agrees that it will at paid in fu
anytime on or after the Closing Date, upon the reasonable make any
request of the Buyer, execute, acknowledge, and deliver, or will received. 1
cause to be done, executed, acknowledged and delivered, all such with any <
further acts, deeds, assignments, transfers, conveyances, powers are due, tl
of attorney and assurances as may be required for the better amount oJ
434
 :EEMENTS . S]fJL. CONTRACTS & STANDARD FORM AGREEMENTS

tot assumed by the . assigning, transferring, granting conveying, assuring and con-
l.ll remain the sole firming such title to the Buyer.
.ndemnify and save (e) The Buyer at its expense shall take possession of the Ballantine
.d all claims, liabili- Assets and remove them from the premises of the Seller as soon
;he same shall arise as possible after the date hereof. The Seller agrees to make
e Ballantine Assets delivery to the Buyer to such locations the Buyer may designate
en assumed by the wlthin a radius of 17 miles of Seller's premises of all finished
e Buyer will indem- goods included in Exhibit B hereto. The Buyer shall pay the
against any and all Seller for such cieliveries delivery charges at the rate of $.06 per
of obligations and case and $.50 per half-barrel. The Seller agrees to cooperate with
r pursuant to para- the Buyer in assembling and removing the other Ballantine .
from the ownership Assets from its premises.
after Closing Date. 6. Assignment and Collection of Receivables. (a) Nothing
of the assertion of contained in this Agreement shall be construed as an attempt to assign
ied against hereun- (i) any contract, right, lease, license, commitment or agreement, includ-
. an opportunity to ing, without limitation, any sales or purchase order, which is in law non-
; of any proceedings assignable without the consent of the other party or parties thereto
ment of such claim. unless consent shall have been given or (ii) any such instrument or right
as to which all the remedies for the enforcement thereof enjoyed by the
lis Agreement until Seller would not, as a matter of law, pass to the Buyer asan incident of
; of the Buyer, the the assignment provided for by this Agreement. The Seller agrees to use
1.ssets, shall furnish its best efforts to obtain the consent of the other party to any contract,
~ to make extracts right, lease, license, commitment or agreement to the assignment thereof
er relating thereto. to the . Buyer in all cases where such consent is required for assignment.
ttial all information (b) The Seller agrees that the Buyer shall have the right and
which it may have authority to collect as the agent of the Seller, and the Buyer
rhich is not public . agrees to use its best efforts to collect, for the account of the
Seller, all Seller's Receivables. The Buyer agrees that it will
1rovided for in this · promptly transfer and deliver to the Seller any and all checks,
s Funding COl·pora- cash or other property that the Buyer may receive in respect of
NY at 10:00 · ~.m., . ·seller's Receivables or any and all checks or cash which it may
1 other date as the
receíve from any party which is at the time of receipt an obligor
(herein called the of both the Buyer and Seller up to the amount of the outstand-
ing Seller's Receivables due the Seller in respect of such party,
and until so transferred and delivered the same shall be deemed
and delivery of the to be held in trust for the Seller (it being the intention of both
:mt shall be effected parties hereto that all such payments received by the Buyer
1 and other instru- shall be applied first on account of the customer's indebtedness
rer shall reasonably to the Seller, and nót to such customer's indebtedness to the
l of the title of the Buyer, if any, until all such indebtedness to the Seller has been
srees that it will at paid in full). The Buyer waives any right which it má.y have to
>On the reasonable make · any claim, offset or counterclaim against such payments
and deliver, or will received. Upon termination of contractual or customer relations
:1 delivered, all such with any distributor with respect to which a Seller's Receivables
·:onveyances, powers are due, the Buyer will promptly pay to the Seller the aggregate
1 lired for the better amount of such Seller's Receivables and agrees to assume any

435
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CC

obligation for the payment of any amounts which may become (b) The Buy
refundable to such distributor as a result of such termination. pledge o:
The Seller and the Buyer will cooperate, and will use their best forman<
efforts to have their officers, directors and other employees Rights a1
cooperate, at the request of either party, on and after the of Sectic
Closing Date; in endeavoring to effect the collection of all deliver t
.receivables and other items owing to the Seller and in furnishing thereto ~
l.nformation, evidence, testimony and other assistance in connec- perfect i:
tion with any actions, proceedings, arrangements, or disputes vided, ho
involving the Seller or the Buyer based upon contracts, arrange- of the te
ments or acts of the Seller which were in effect or occurred on or the BuyE
. prior to the Closing Date. good faii
7. Certain Other Covenants of Seller. (a) After the Closing c6nsents
Date the Seller will cease and desist from using in its corporate name or required
that of a:ny of its subsidiaries or affiliates or otherwise (i) the word or tions det
name "Ballantine", (ii) any trademark or trade name included in Ballan- ble as af<
tine Assets or (iü) any other words, initials or expressions so closely with sucl
. resembling such words or name or any of them as to be likely to be reasons t
confused therewith by the general public. The Seller will execute such (e) The Buy1
consents . and other documents as the Buyer may reasonably request in harmless
writi~g in order to enable the Buyer to use as it may desire such words,
w.hich ma
or ·any one or more of them, or any similar words, names, initials or . contempl;
exprf)ssions. Bailan tino
· (b) The Seller will reimburse the Buyer for all liabilities and obli- (d) The BuyE
.·. gations assumed by the Buyer pursuant to subparagraph (ii) of
owh empl
Section 3(a) hereof for all advertising payments made by the
agraph Ci:
· Buyer in respect thereof exceeding an aggregate amount of
$389,885.00. Any such reimbursement shall be made by the (e) The Buy1
Seller by way of set-off against monthly royalty payments due iransfer t
from the Buyer to the Seller pursuant to subparagraph (v) of out the w
Section 2(a) hereof, and the Seller hereby authorizes the Buyer (f) From and
to credit such advertising payments made in any particular officers, a
month against the royalty payments due to the Seller in respect tives of t l
of such month. · records of
(e) The Seller will reptlrchase after the Closing Date the Buyer's use by thE
Receivables then uncollected by the Seller at the purchase price the Buyer
paid therefor by .the Buyer pursuant to subparagraph (vi) of the Seller
.Section 2(a) hereof in the event a court of competent jurisdiction investiga ti
issues an order at the request of a governmental authority amounts e
effective for a period of 30 days during the period from the Section 2(
Closing Date through May 30, 1972, restraining the use by the extracts fi
Buyer of the Proprietary Rights. shall also ·
8~ Certain Other Covenants of Buyer. (a) After the Closing asthe Sell
Date the Seller will use its best efforts to promete and maintain a high . (g} The B1
volume of sales under the Proprietary Rights. Buyer's Recei

436
EEMENTS SEL. C.ONTRACTS & STANDARD FORM AGREEMENTS

which may become (b) The Buyer agrees to deliver to the Seller on the Closing Data a
' such termination . pledge of the Buyer to the Seller, dated the Closing Date and in
. will use their best forro and substance satisfactory to the Seller, of the Proprietary
d other employees Rights as security for the payments set forth in subparagraph (v)
on and after ·the of Section 3 (a) hereof, and the Buyer agrees to execute and
.e collection of all deliver to the Seller such financing statement or amendment
~r and in furnishing thereto as the Seller may reasonably request so as to better to
>sistance in connec- perfect in the Seller the security interest created thereby; pro-
ments, or disputes víded, however, that if such a pledge would be in violation of any
contracts, arrange- of the terms, conditions or covenants of any other agreement of
ct or occurred on or the Buyer currently in full force and effect, the Buyer will in
good faith attempt to obtain prior to the Closing Date any
After the Closing consents to such pledge which maybe required; and if any
; corporate name or required consent is unobtainable or obtainable only upon condi-
fise (i) the word or tions detrimental to the Buyer, such pledge will not be delivera-
included in Ballan- ble as aforesaid. In such event, the Buyer will furnish the Seller
)ressions so closely with such evidence as it may reasonably request to ascertain the
: to be likely to be reasons therefor.
'r will execute such (e) The Buyer agrees that it shall pay and shall hold the Seller
asonably request in harmless against the payment of any sales or use tax, if any,
' desire such words, which may be imposed in connection with the purchase and sale
, names, initials or contemplated hereby or the possession by the Buyer of any of the
Ballantine Assets.
liabilities and obli- (d) The Buyer agrees that it will use its best efforts to retain as its ·
mbparagraph (ii) of own employees those personnel described in clause (4) of subpar- .
nents made by . the agraph (i) of Section 3(a) hereof.
:gregate amount of
1l be made by · the (e) The Buyer agrees that it will not sell, assign or otherwise
yalty payments due transfer the Proprietary Rights during the Royalty Period wíth-
mbparagraph (v) of out the written consent of the Seller.
uthorizes the Buyer (f) From and after the date hereof, the Buyer will afford to the
~ in any particular officers, attorney, accountants and other authorized representa-
the Seller in respect tives of the Seller access to the offices, properties, books and
records of the Buyer relating to or used in connection with the
g Date the Buyer's use by the Buyer of the Proprietary Rights and the collection by
e the purchase price the Buyer of the Buyer's and Seller's Receivables, in order that
. ubparagraph (vi) of the Seller may have full opportunity to make such reasonable
mpetent jurisdiction investigation. and verification as it shall desire to confirm . the
'rnmental authority amounts of royalty payments due pursuant to subsection (v) of
he period from the Section 2(a) hereof, and the Seller shall be permitted to make
ning the use by the extracts from, or copies of, such books and records. The Buyer
shall also furnish to the Buyer such information relating thereto
as the Seller may from time to time reasonably request .
.) After the Closing
md maintain a high (g) The Buyer shall in good faith use its best efforts to collect all
Buyer's Receivables.

437
 ¡• ·

SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CO.

9. Representations and Warranties of the Seller. The Seller Delaware

hereby represents and warrants to the Buyer as follows: carried ot
(a) The Seller is a corporation duly organized, validly existing and in 11. eonditi
good standing under the laws of the State of New Jersey and has the Buyer hereu:
the corporate power to own or lease its properties and to carry conditions that or
on its business as now being conduct~d. (a) The Selle
(b) Except as stated in Exhibits D and E, each of the instruments al respect
described therein is to its knowledge in full force and effect and herein to
constitute a legal, valid and binding obligation of the respective eiosing D
parties thereto enforceable in accordance with its terms. (b) The Selle
(e) Except as stated in Exhibits B ande, the Seller owns outright all its Secre1
the items and equipment referred to therein other than proper- rectors w
ties sold or otherwise disposed of in the ordinary course of the consu
business subsequent to the date hereof, in each case free and ed herein.
clear of all mortgages, liens, encumbrances or charges of any (e) All action:
kind or nature whatsoever, except as stated herein or in the carry out
Exhibits hereto. related le¡
(d) The Seller has no knowledge and has received no notice, except son, Cunr
as stated in Exhibit B hereto, that any of the items listed in approval s
Exhibit e hereto, or the sale or use thereof, infringe any tradec (d) The Buye
mark, trade name or copyright of another. Date, or ]
(e) The Board of Directors of the Seller has approved this Agree- Seller, in
ment and the transactions conterpplated herein and has authot-. effect that
ized the execution and delivery of this Agreement by the Seller, and in go<
and the Seller has full power, authority and legal right urider its and has tl
certificate of incorporation, by-laws and the laws of the State of carry on i
New Jersey to sell and transfer the Ballantine Assets as herein. ofthe Arti
provided. · any contn
CD The items generally described in Exhibits B and e are useable or .. listed in a
marketable by the Seller in accordance with its customary stan- tion of ar
dards, and all finished malt alcoholic beverage products sold to precedent
the Buyer hereunder shall be produced under a high degree of actions cm
quality control. is require<
10. Representation and Warranties of the Buyer. The Buyer given in E
hereby represents and warrants to the Seller as follows: power and
the Ballan
(a) The Buyer is a corporation duly organized and existing and in corporate:
good stañding under the laws of the State of Delaware and has on the pa:
the corporate power to own its properties and to carry on its Seller to e;
business now being conducted. · plated hen
(b) The Board of Directors of the Buyer has approved this Agree- Ballantine
ment and the transaction contemplated herein and has author- the instru
ized the execution and delivery of this AgTeement by the Buyer, the Seller
and the Buyer has full power, authority and legal right under its authorized
certificate of incorporation, by-laws and the laws of the State of dance with

438
EMENTS SEL. CONTRACTS &. .STANDARD FORM AGREEMENTS

leller. The Seller Delaware and Missouri to carry out the transactions to be
carried out on its part hereunder.
:lly existing and in 11. Conditions to Obligations of the Buyer. The Obligations of
ew Jersey and has the Buyer hereunder are, at the option of the Buyer, subject to the
rties and to carry conditions that on or before the Closing Date:
(a) The Seller shall have performed and complied with in all materi-
,f the instruments al respects all of the terms, covenants and conditions contained
rce and effect and herein to be performed and complied with by it on or prior to the
1 of the respective Closing Date.
its terms. (b) The Seller shall have furnished to the Buyer a copy, certified by
r owns outright all its Secretary, of resolution duly adopted by its Board of Di-
)ther than proper- rectors which constitute necessary corporate authorization for
rdinary course of the consummation by the Seller of the transactions contemplat-
!aCh case free and ed herein.
or charges of any (e) All actions, proceedings, instruments and documents required to
l herein or in the carry out this Agreement or incidental thereto and all other
related legal matters shall have been approved by Messrs. Will-
d no notice, except son, Cunningham and McClellan, counsel for the Buyer, which
;he items listed in approval shall not be unreasonably withheld.
infringe any trade- (d) The Buyer sh all h ave r eceived an opinion, dated the Closing
Date, or Messrs, Carro, Spanbeck and Londin, counsel for the
proved this Agree- Seller, in form and substance satisfactory to the Buyer, to the
lÍn and has author- effect that the Seller is a corporation duly organized and existing
ment by the Seller, and in good standing under the laws of the State of New Jersey
egal right under its and has the corporate power to own or lease its properties and to
laws of the State of carry on its business as now being conducted; that no provision
11e Assets as herein of the Articles of Incorporation or the By-laws of the Seller, or of
any contract .or ot.her instrument to which the Seller is a party
nd C are useable or listed in any Exhibits hereto, requires the consent or authoriza-
tion of any other person, firm or corporation as a condition
its customary stan-
precedent to the consummation of this Agreement or the trans-
.ge products sold to
actions contemplated herein, or if such consent or authorization
er a high degree of
is required, that such consent or authorization has been duly
given in a proper manner and form; that the Seller has full
Buyer. The Buyer power and authority to sell, convey, assign, transfer and deliver
;vs: the Ballantine Assets to the Buyer as herein provided; that all
and existing and in corporate acts and other proceedings required to be taken by or
,f Delaware and has on the part of the Seller or its ·shareholders to authorize the
and to carry on its Seller to carry out this Agreement and the transactions contem-
plated hereby and to sell, convey, assign, transfer and deliver the
.p proved this Agree- Ballantine Assets have been duly and properly taken; and that
·ein and has author- · the instruments of conveyance, transfer .and assignment from
ement by the Buyer, the Seller to the Buyer of the Ballantine Assets have been duly
legal right under its authorized, executed and delivered; are legally effective in accor-
laws of the State of dance with their tespective terms and vest in the Buyer all right,

439

..!. ;.~ •.•

 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CO.

title and interest of the Seller in and to the Ballantine Assets. In transactions con1
rendering the foregoing option, Messrs. Carro, Spanbeck & Lon- arrangements, or
din. former party witl:
(e) The representatives and warranties made by the Seller herein 16. No Wa1
shall be substantially correct, as of the Closing Date, with the graph (f) of Sectil
same force and effect as though such representations and war- hereunder "as ü
ranties had been made on and as of the Closing Date, except to warranties of an)
the extent that such representations and warranties shall be chantability or fit
incorrect as of the Closing Date because of events or changes Assets.
occurring or arising after the date hereof in the ordinary course
of business of the Seller or in fulfillment of the express provi- 17. Bulk s~
sions of this Agreement. Seller with the p1
13. Conditions to Obligations of the Seller. The Obligations of 18. Expens
the Seller under this Agreement are, at the option of the Seller, subject hereby shall be ce
to the conditions that on or befare the Closing Date: expenses incurrec
and entering into
(a) The Buyer shall have performed and complied with in all materi- tions.
al respects all of the terms, covenants and conditions-contained
herein to be perforriled and complied with by it on or prior to the 19. Assignn
Closing Date. binding upon and
respective succesf
(b) All actions, proceedings, instruments and documents required to assign this AgreE
carry out this Ag'ieement or incidental thereto and all other hereunder withow
related legal matters shall have been approved by Messrs. Carro,
Spanbeck, and Londin, counsel for the Seller, which approval (b) This Agre
shall not be unreasonably withheld. pursuant
parties he:
(e) The Seller shall have received an opinion dated the Closing Date,
of Méssrs. Willson, Cunningham, and McClellan to the effect 20. Notices.
a
that the Buyer is . corporation duly organized, validly existing to be given hereun
delivered personal
and in good· standing under the laws of the State of Delaware
and that all corporate acts and proceedings to be taken by the (a) if to the Buye1
Buyer to authorize the carrying out of this Agreement and the _ Missouri 63166, a1
transactions contetnplated hereby shall have been duly and prop- the Buyer shall dE
erly taken. Freeman St., Ne'
Haymes. Copies H
. 14. Termination of Covenants. All representations; warranties in Section 10 here<
and covenants in or pursuant to this Agreement (other than the obli-
gations set forth in subparagraphs (v) and (vii) of Section 2(a) and 21. Entire A¡
Sections 2(b)-(d), 3, 4, 5 (b) and (e) and 6- 8 and 9 (D hereof) shall be hereto, contains tl
deemed to be conditions to the purchase and sale contemplated hereby respect to the tr
and shall not survive the Closing Date. previous negotiatic
15. Brokerage Commissions. Each party hereto represents and 22 . Counterp
1

warrauts that there are no claims for brokerage commissions or finders' counterparts, each
fees in connection with the transactions contemplated by this Agreement together shall cons
resulting from any action taken by it. Each party hereto will indemnify
the other party and hold. harmless against and in respect of any claim for
brokerage or other commissions relative to this AgTeement 6r to the

440
?EEMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

3allantine Assets. In transactions contemplated hereby, based in any way on agreements,

·o, Spanbeck & Lon- arrangements, or understandings claimed to have been made by such
former party with any other party or parties whatsoever.
>y the Seller herein 16. No Warranty asto Condition. Except as set forth in para-
sing Date, with the graph (f) of Section 9 hereof, Ballantine Assets will be sold by the seller
sentations and war- hereunder "as is" and that the Seller makes no representations or
sing Date, e:Xcept to warranties of any kind with respect to the description, condition, mer-
warranties shall be chantability or fitness for any particular purpose of any of the Ballantine
f events or changes _Assets.
the ordinary course
17. Bulk Sales Law. The Buyer hereby waives compliance by the
f the express provi-
Seller with the provisions of the so-called Bulk Sales Law of any State.
18. Expenses: Whether or not the transactions contemplated
·. The Obligations of
· hereby shall be consummated, each party hereto shall pay to costs and
>f the Seller, subject
expenses incurred by it or on its behalf incident to the preparation of
· and entering into this Agreement and the consummation of said transac-
d with in all materi- . tions.
~onditions-contained
19. Assignment and Amendment. (a) This Agreement shall be
· it on or prior to the
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that neither party shall
cuments required to · ~ssign this Agreement or any of its rights, privileges or obligations
ereto and all other hereunder without this prior written consent of the other.
ed by Messrs. Carro,
(b) This Agreement cannot be altered or otherwise amended except
ller, which approval
pursuant to an instrument in writing signed by each of the
parties hereto.
;ed the Closing Date,
20. Notices. Any notices, requests, instruction or other document
;lellan to the effect
to be given hereunder by either party to the other shall be in writing and
ized, validly existing
delivered personally or sent by registered or certified mail, postage paid,
e State of Delawai'e
(~) if to the Buyer, addressed to it at 5050 Oakland Avenue, St. Louis,
to be taken by the
Missouri 63166, attention of Robert T. Colson or such other persona as
Agreement and the
the Buyer shall designate, and (b) if to the Seller addressed to it at 57
beeñ duly and prop-
Freeman St., Newark, New Jersey 07101, attention of Stephen D.
Haymes. Copies thereof shall be delivered or sent to counsel referred to
ntations, warranties in Section 10 hereof.
other than the obli-
21. Entire Agreement. This Agreement, together with the Exhibits
of Section 2(a) and
hereto, contains the entire agreement between the parties hereto with
~ (f) hereof) shall be
respect to the transactions contemplated herein and supersedes all
:ontemplated hereby
. previous negotiat'ions, commitments, and writings.
22. Counterparts. This Agreement shall be executed in one or more
~reto represents and
counterparts, each of which shall be deemed an original and all of which
1missions or finders'
tógether shall constitute one and the same instrument.
:d by this Agreement
ereto will indemnify
pect of any claim for
•greement or to the

441
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CO

CONTRACT IN PEEVYHOUSE v. GARLAND

COAL & MINING CO.*

COAL LEASE
............... - .... :13111 ••• ~ ,¿"" ............ r....... &potll1
m ·wo~a-=-r
__oar-....;•..:;•---- ...........
------~--~'-•~O'QIIWD..;.,,....,._•~""'-~J.acille=~-~'·-~-=---••::....lo_•_u_•_DII-- ot ~]lita.
COIIH L<Nort. ...__ _ll&>"i_...~~;_Coal..;_.;_ulll_...;_vl.;_J!..;.lp..;:C~~.;.;.;;:=:..:•.;__ _ _ _ _---l!.,.lullor Ollld l.oootol

\\'tTNEUmB
-~. ~ J,.eteot~t u. U...,...,,.. ot. u b n lb rllbl ~111M Ul4 JCDOTtJYr.~Qallab"J.q: &a4 iN ri.Pt ·\Ct &&U
lA•••• ·~.. t
all pan DI U.t ~tu> r.o.uowtw 44atri\Jri 1u4t " ' - - - - - - - - - - - - - - - - - - -
or..,
CnatT· lhta &.~>~;

The Soutlltut. Qla..tiN' ot t:ho S~~ ot llocticn 7, 'low.bip é llort:h

11M llon&• 21. ka\, Mil, tbo 8ollt:h E&lt ot t:ho llol'tluüt. Qoa..tor ot \be Soutb-
oaet. Qlaart.or ot llectioll 12, ~llip 8 llo..tll Olll Bongo 20 iaa\ 1

'
--
'rl!t &.1•11 . .flll U . . . . 1111 UIUlhfl

iE:.-:rf.sm~&:]1$ff;e'G:Eilihli'~r;.;¡~ssªl'as~ª
lile •llld , •• 1 .,
1
, ,.. "71
1111 1

,., ., ••,
1 11"

JI'""'' ...
pnr...

~~~~~·~·
' '* \ t ' 'e" "*\••ef r' 11 J p' ')

wtn PQ" &D ta.u1 arlllaJ JroiD .. ,

-
Afl.-r coaun.,&nnaelll.. t1K" Qttt.Uon. lllboU M c.ntt4 •• '- a ..Z.W.UU and ..,oQmulLlt JUilDtr, u kaaliT COD41~tf
in .talllar OPI'nUou. 1..n:tn •'7 el.dp Ult onrbnda froo. he.\ eo.l u ab.&ll k preUt..Wr mluabl• aad a•d&ttt~ ut
llllalD•
ope,.Uoa. W lAuon Dlttt lbd 1Uf ,ut pa7 u4 ' " ' ' yald aU U.X.. ~~ tllfl ~
U..• btf'ela l•au4. r..u .. thall ~ lw ..._..._ cawri 'br a..-....•, ''"""""• o....uoaa. -. ..-.•lal'
aop.a " .-.14 ~

_,_
U 11 111Wtnlnlld u• •rr'ftll tU\ lo ttlt , , . ot OPtnlloa c:o&ttt\»bttd. bT l.ettM tL \1 aft..IU7 \e PI'KII,.. lusu ot oUI•r
propef'&T ,..._ •lllcb CMI ~ \HI JOlHd ot att1P,f'111 n .... to fa.a&lf7 UM .. ~~"'' " " SUdt . , l..tiNI Ud I'D. COIIIWITIUOb
o: tbo ro~tr '-nlD ,.u. t..a.r. .,.DI a. th t..'" tta• tJJtu u. hl•l • .,.., aM auou ...u praml.tu -..d. "-'"'~ ~4 "~
t.Goal ( 1"0ttl a4Ja.tt"Dt lauda ,,.., ~ ur '"'-'•

"382 P.2d 109 (0kla.1962). Thanks to specific duties." Maute, Peevyhouse v. Gar-
Professor Judith L. Maute for unearthing land Coa! and Mining Co. Revisited: The
this contr act. Prof. Maute describes the Bailad of Willie and Lucille, 89 Northwest-
lease as "a preprinted form lease containing ern L. Rev. 1341 (1995). We include a copy
some handwritten modifications ancl one of th e original lease followed by a more
t.yped page defi ning the remedia! ancl other legible, retypecl version.

442
EEMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS .·

flLAND -?&-
J.ee10n hel'tliT ~· recdpt ot the awa ot f2 1 DOO.OO u ad\'meed ~~
vtl1ch 11 w 11• oftdiW Qn 11fT J07Alt)' d~~a tozo ooa1 tllere&nel' 11111111 bola Ai4
laMe liT a1d 1.41••"
bm b t1ftt. ooal Jli'QCluecl. .

-?b-
lienn a¡reu to Jlllb'tull1a tbl ;pl.ta clu& Oll ad4 Flllliata on th• prope1't7 ~~
~ &liOb ~ tMt f-&1 Olll b1 ;pl.&ol(l thlreoll aM &OCIIIB bl4 to Oppo.d.tl aidM
..:;''----·- ot thl 'plh. ·
-?o-
l.e11t1 a¡reu w IIIIOOtb oU thl top ot tho o¡:oil.a bNilal on tho abvre pzoW:ao ....

-'14-
J.euM a¡reea t.o laan tho Ol'ellk óroaeilla tila abcmt :pzoelliau 1a a'IIGb a ccmdi.t1on
th&t 1t w1U 110t ~ 'llith tbo orou1a¡a to be lllll&lo 1a ~· •• 1ot. CNf. 1a 'lb•

-7•-
Le.,,, &P'III to lniUd &al ll&iJitWl a oetU. p:ll :ln the aoutb tmce ot SY; S~
ot lliciticD 7 1t u aeon• li'Oid 1e 1114• throqb 11&14 tmc••
- ?t-

•7J-
It. 1a ~er 1\groecl. bet.vem tbe J*lU• hereto that. th1a le~~ae 1D not to be
.Ualced, U&mtened or &'llli-3At ~tbO\It thl Vl"itt.c ~ ot the l.uiiOl'Sl
l'J'ow214 ~~owner, th&t. ua ue1pct ot tilia hue w tlle CUI&d1ll1 lUJI1ng Oo=p.q
•hall. DOt ~ iwia mtt.~ pm111ae1on.
U th'M'f r'" rtP 'T 'ht
~
en

,',;::t•::;!!·:·;o:: -'lh-
"'tri
tiJilW" t
·~"'
'''
.,. f't ....., ... ];Q'a.. &¡;reft to lían ~1ie &IXI'ft c!ea~ecl ~.. wr-re71d' aD1 tbe bo~ lJJioa
oa 111Wll!l'8111Dea eatal!l1eblll pioior.to ~ ot cl1u1D& ooaJ.,

r \0 PI'KI!I'T lualf ot ~n
:,O.iHt AD4 ID toaiWttaUOb
w ....... Üllro-fl!\ ~~~ lit..

m te, P eevyhouse v. Gar-

ning Co. Revisited: The
d Lucille, 89 Northwest-
L9 95) . Wc includc a copy
¡se follow ed by a more
S JOll.

443
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS·
SEL. CC

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wlln .. otu..
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l>an 1110 rlllll "'_.,,..., ot llo
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~o-

lt la IIIOIUllr Ullaalllod a1ld - ' lllal U.. rtcbl. piiYII•,. oa4 obiiPII... bortla coolun4 •• \!la panlta alWI k blll4·
me oa Qe txtCUIOI'I.. &4ID1Diatra&On. btln, IUC'UIOI'8 or ~ or u.e •nlta Jattt.&O w.tr.el.hu ao •PKU&cülr alate4 bere!A or
DDt: •• tM 1 •• --~t.MeiM 111'11 O. . hu '!.'1 !bt 41 at lh f"IIIIUI tad tMio-!Mft"""'4t•ha' 111Ut üa.ll faS tSakr
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1bo rlabl 10 pap aaltl 11oaa Ull clo4aU lroa ro7111>' ••• ~ .

IN 'WI'I'm:S8 WBT.REÓI",Il>o l'&nlto )a" . . t 23rd_ _..,,, ,..__ _

ihtlr looJl4o 1>fh1111•,__;.,. llanobel." 54-
_ _ _ _ _.;_,_ _ 1· 8

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M7 C.lllllllttlco ~~~-------------

444
fENTS SEL. CONTRACTS & $.TANDARD FORM AGREEMENTS

State ot Olclahoa,
~7 ot llulcelll.,
..,

.4...,.

---- ·.
.,.,
n'lltlowto, hU wire
"''"' \0 mollla• ~~>•r

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445

''
• .~•• jj._;.,J )L~
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. ce
CONTRACT IN PEEVYHOUSE v. GARLAND COAL royalty due for
&MININGCO Lessors on or bE
mined and remo
(Retyped) shall have the ri¡
purpose of verify
Whereas, Lessee desires to mine and remove the coal underlying
the right at reas<
said premises and Lessors desire to lease the same to Lessee for that
purpose:
Now, therefore, in consideration of the sum of One Dollar ($1.00) Lessee shall
cash in hand paid by Lessee to Lessors, receipt whereof is hereby prospect for coal,
acknowledged and in consideration of the performance by each party of determines coal
the conditions hereinafter set forth, Lessors grant and lease to the strip, remove, se
Lessee the exclusive right to slope, shaft, deep mine or strip and remove that in the opini
coal underlying the above described property, together with the right to therefrom, toget:
use and/or remove any and/all the surface of said lands necessarily success of such e
incidental thereto, subject to the following terms and conditions: across said prop
purpose of enter
-1- tion and transpc
This lease shall be in full force and effect for a term and period of 3
years from and after the date hereof unless terminated sooner under its
provisions. The y~v_v..xxx..v_v_v..x x_.v._y._y_v..xxxxx xxxxxxx..v_v..x x.v_v_v_v_v_v..xx Mter comm
XY.Ys....xxx..v....x to the Lessor XXX XY_V_v_v._y..xy_v..x xxx.v..xx_.v_v_v.x x.v_v_v_v_v_v_v_v....x lessee miner-like and '
for x ...v"'.Y.....v~"'·YaK y,..y_..v...XX:Y......XXX XY..X:Kr...Y......v~LX XYs.::..v.....v.....v~XXXX XY...Y...Y...Y....Y..Y..XXX x....v..y_v_v...Y...X.:X
operations. Less€
XXXXXXY..X XY..Y..Y..Y..Y-v..X XX,'CXXXXX the minimum royalty XXXXXXXXX XXY..XX..V..,'{XX profitably mineal
~
the mining opera
all said taxes U]
-2- damages, caused
The Lessee agrees to .common operations on said land within one said lands.
year from date her;eof or in x.v_v..x thereof will pay to the Lessor an
advance royalty on any part or portion of within described land Lessee.
shall determine needed in Lessees operation of any time during the life It is underst1
of this lease the sum of 50 xx..v..x xxx XY..xx the second year 75 x.vy....x Y=xx of said land may
xxxx the third year, and One Dollar ($1.00) per acre the fourth and all consideration of •
subsequent years during the term of this Lease as minimum royalty on by Lessee in the
poal to be mined from said lands these payments to begin one year from drainage ditches
the date hereof and to be credited xx xxx royalty-Que for coal these after other structures
mined from said lands by said Lessee, his heirs, successors, and assigns. pit or pits or co¡
will be located ca
-3- least damage or
Lessee agrees to pay the Lessors upon all coal mined, removed and · Lessee agrees th¡
sold from these premises a royalty of 16 XX 20 cents per ton of 2000 of the· actual mil
pounds, railroad weights to govern if shipped by rail, truck scale weights they will save h
if loaded on tru.cks, such royalty to be paid not later that the 20th day of liability arising f1
each month succeeding the month in which the same to be mined, such operations:
removed and sold, provided that mínimum royalties which may have right without lia
been advanced at the rates per acre herein set forth shall be credited on conducting such

446
EMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

TD COAL · royalty due for coal mined and sold. And Lessee will furnish to the
Lessors on or before said date a statement showing the amount of coal
mined and removed and sold during the preceding month: the Lessors
·. shall have the right at reasonable times to inspect Lessee's books for the
purpose of verifying the amount of coa! so mined and Lessors shall have
e coal underlying
· the right at reasonable times to inspect Lessee's operations.
o Lessee for that
-4-
1ne Dollar ($1.00) Lessee shall have the exclusive right to enter upon same and
·hereof is hereby · prospect for coa!, drill holes and make any necessary excavations and lf it
~ by each party of determines coal be present in paying quantities, then to dig, mine or
and lease to the s,t rip, remove, sell and dispose of all the mineable and marketable coa!
strip and remove that in the opinion of the Lessee can be profitably mined and removed
· with the right to · therefrom, together with all incidental mining rights necessary to the
lands necessarily success of such operation, and the right of ingress and egress in, to and
mditions: · across said property. Or x.v.x the property owned by Lessors for the
purpose of entering upon said premises in connection with the produc-
tion and transportation of coal from said premises on adjacent lands.
m and period of 3
:l sooner under its -5-
a~xx.x x.v..Y~xx.v_v_v.x
Mter commencement, such operations shall be carried on in a
KXY_v_v_v_v_v_y.x lessee miner-like and workmanlike manner, as usually conducted in similar
operations. Lessee may strip the overburden from such coal as shall be
·profitably mineable and marketable and will pay all taxes arising from
the mining operation, and Lessors agree that they will pay and keep paid
... all said taxes u pon the premises herein leased. Lessee shall pay for
damages, caused by Lessee's prospecting operations, to growing crops on
l land within one said lands.
to the Lessor an
:ribed land Lessee -6-
ne during the life It is understood that in the mining operations hereunder the surface
yBar 75 x.v_v.x XY~x of said land may be excavated and the Lessors agree to furnish Lessee, in
~he fourth and all ·consideration of said royalty, all surface as may be necessary to be used
nimum royalty on by Lessee in the operation of strip pits, and may be used by Lessee for
gin one year from drainage ditches, haulage roads, spoil banks, tipples, tracks, and any
'or coal these after other structures that Lessee finds necessary in the operation of said strip
38ors, and assigns. pit or pits or coal mine and the Lessee agrees that all such structures
will be located consistent with good operating practice so as to cause the
least damage or· inconvenience to the owner or user of such surface:
n ed, removed and . Lessee agTees that he will save Lessors harmless from claims arising out
s per ton of 2000 · of the actual mining and removing of said coal and Lessors agree that
ruck scale weights .they will save harmless and indemnity the Lessee from any claim or
.at the 20th day of liability arising from any damage to the surface of these lands caused by
Lme to be mined, such operations: it is further recognized that the Lessee shall have the
w hich may have right without liability to the Lessor, wherever it may be necessary in
1all be credited on · conducting such operations, to change the course of any streams or

447
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CO

water courses and to erect and maintain such drainage ditches as it shall the lessors. Prov
· . deem advisable having due regard for the successful operation of said Canadian Minin~
strip pit and damage to the r emainder of the pr operty.

-7-
Lessee agree
It is understood and agreed that in the type of operation contemplat- the boundary lint
ed by the Lessee it is necessary to procure leases of other property from of digging coal.
which coal can be mined or stripped so as to justify the investment to be
made by the Lessee and in consideration of the royalty herein paid,
Lessors grant to the lessee the right to haul over and across said
pi:emises and through said pits coal from adjacent lands free from any The right is l
charge. thirty (30) days'
therefrom shall ir
-7a- the sole judge as t
Lessors hereby acknowledges receipt of the sum of $2,000.00 as
advanced royalty which is to be credited on any royalty due for coal
thereafter mined from said lands by said Lessee from the first coal In case LessE
produced. with any one of t
Lessee fifteen (15
- 7b- by Lessee, specify
Lessee agrees to make fills in the pits dug on said premises on the terms of this agre
· property lines in such manner that fences can be place thereon and default, the Lesso
. access had to opposite sides of the pits. · the leased premis
have the right t
- 7c- supplies from the
Lessee agrees to smooth off the top of the spoils banks on the above have been paid in
premises. In the event t
J.,essee elects to e
- 7d- out, the Lessee st
Lessee agrees to leave the creek crossing the above premises in such from said termina
a condition that it will not interfere with the crossings to be made in pits property, machim
as set out in 7b. upon said demiset
premises shall be
- 7e- Lessee.
Lessee agrees to build and maintain a cattle guard in the south
fence of SWL SWL of Section 7 if an access road is made through said
· fence. It is mutually
obligations herein
- 7f-
executors, admini:
Lessee further agrees to leave no shale or dirt on the high wall of h ereto whether so
· said pits. Lessors shall own
x.v_v.xxxx Lessee-sb
- 7g- shall appear. If thE
. . It is further agreed between the parties hereto that this lease is not . .lessee shall have t
. to be assigned, transferred, or sub-let without the written permission of due Lessors.

448
EEMENTS SEL. CONTRACTS & STANDARD FORM A.GREEMENTS

e ditches as it shall the lessors. Pr.ovided however, that an assignment of this leas~ to the
l operation of said Canadian Mining Company shall not require such written permission.

-7h-
Lessee agrees to have the above described premises surveyed and
~ration contemplat- the boundary lines on said premises established prior to commencemEmt
ther property from of digging coal. . . .
1e investment to be
>yalty herein paid, -8-
~r and across said
mds free from any The right is hereby conferred upon Lessee to cancel this Lease upon
thirty (30) days' written notice when the operation of removal of coal
therefrom shall in his judgment become unprofitable and Lessee shall be
the sole judge as to when same is unprofitable ·
m of $2,000.00 as - 9-
>yalty due for coal
:rom the first coal In case Lessee fails to pay the royalty when due or fails to comply
with any one of the other terms of this lease, the Lessors shall give the
Lessee fifteen (15) days' written notice, calling attention tothe default
by Lessee, specifying wherein the Lessee has failed to comply with the
tid premises on the terms of this agreement, and if at the end of said period, Lessee is still in
place thereon and default, the Lessors shall have the right to take immediate possess~on of
the leased premises without let or hindrance, and the Lessee shall not
have the right to remove any of its property, machinery, tools, Dr
supplies from the demised premises until all amounts due the Lessors
banks on the above have been paid in full.
In the event this lease expires by operation of its own terms, or the
Lessee elects to cancel the same under the provisions hereinabove · set
out, the Lessee shall have, provided it is not in default, six (6) ."months
ve premises in such from said termination or cancellation within which to remove all of its
s to be made in pits property, machinery, tools, supplies, or equipment that it might have
upon said demised premises.-All structures built or erected upO:n said
prem1ses shall be and remain the sole and separate property of the
Lessee.
~uardin the south
made through said - 10-
It is mutually understood and agreed that the right, privileges and
obligations herein conferred on the parties shall be binding on . the
executors," administrators, heirs, successors, or assigns of the parties
Jn the high wall of hereto whether so specifically stated herein or not: in the event that the
Lessors shall own less than the fee of the premises .and eoal . her¡:¡in
x.v~xxxxx Lessee shall pay royalty to them as their respective interests
shall appear. If the property is encumbered by a mortgage or othér liens,
aat this lease is not lessee shall have to the right to pay said liens and deduct from royalty
ritten permission of due Lessors.

449
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. CC

In witness whereof, the parties have set their hands this 23rd day of CONT
November 1954.
Sl
THIS AGREEMi
Willie Peevyhouse (signature) between MARY I
to as "Surrogate
Lucille Peevyhouse (signatu.re) · ferred to a "Hm
"Natural Father'
Lessors
RECITALS
Garland Coal and Mining Compa- THIS AGREEME
ny
(1) WILLIAM 81
By xxxxxxxx Compton (signature) eighteen (18) ye
(2) The sole purJ
and his infertile
WILLIAM STERJ
(3) MARY BETI
HEAD, her husb~
of entering into t i
NOW THEREFO
Herein and the
agree as follows:
l. MARYBETH
ble of conceiving
agrees that in thE
to form a parent
conceive, carry te
this Agreemen t, a
Natural Father, i
parental rights to
2. MARY BETf
HEAD, her husb:
WHITEHEAD is •
of this Agreeme
WHITEHEAD, 81
the provisions of
in the best intere
parent-child rela1
WHITEHEAD, S
described herein,
custody of the eh
nate his parental
he will do all acts
* Appendix A, 537 1

1988).

450
f!JMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

s this 23rd day of CONTRACT IN IN THE MATTER OF BABY M*

SURROGATE PARENTING AGREEMENT ·
TRIS AGREEMENT is made this 6th day of February, 1985, by and
e (signature) between MARY BETH WHITEHEAD, a married woman (herein referred
to as "Surrogate"), RICHARD WHITEHEAD, her husband (herein re-
se (signature) ferred to a "Husband"), and WILLIAM STERN, (herein referred to as
"Natural Father").
R~CITALS
.d Mining Compa- TRIS AGREEMENT is made with reference to the following facts:
(1) WILLIAM STERN, Natural Father, is an individual over the age of
npton (signature) eighteen (18) years who is desirous of entering into this Agreement.
(2) The sole purpose of this Agreement is to enable WILLIAM STERN
and his infertile wife to have a child which is biologically related to
WILLIAM STERN.
(3) MARY BETH WHITEHEAD, Surrogate, and RICHARD WHITE-
HEAD, her husband, are over the age of eighteen (18) years and desirous
of entering into this Agreement in consideration of the following:
NOW THEREFORE, in consideration of the mutual promises contained
Herein and the intentions of being legally bound hereby, the parties
agree as follows:
l. MARY BETH WHITEHEAD, Surrogate, represents that she is capa-
ble of conceiving children. MARY BETH WHITEHEAD understands and
agrees that in the best interest of the child, she will not form or attempt
to form a parent.-ehiln relationship with any child or children she may
conceive, carry to term and give birth to, pursuant to the provisions of
this Agreement, and shall freely ·surrender custody to WILLIAM STERN,
Natural Father, immediately upon birth of the child; and terminate all
parental rights to said child pursuant to this Agreement.
2. MARY BETH WHITEHEAD, Surrogate, and RICHARD WHITE-
HEAD, her husband, have been married since 12/2/73, and RICHARD
WHITEHEAD is in agreement .with the purposes, intents and provisions
of this Agreement and acknowledges that his wife, MARY BETH
WHITEHEAD, Surrogate, shall be artificially inseminated pursuant to
the provisions of this Agreement. RICHARD WHITEHEAD agrees that
in the best interest of the child, he will not form or attempt to form a
parent-child relationship with any child or children MARY BETH
WHITEHEAD, Surrogate, may conceive by artificial insemination as
described herein, and agrees to freely and readily surrender immediate
custody of the child to WILLIAM STERN, Natural Father; and termí-
nate his parental rights; RICHARD WHITEHEAD further acknowledges
he will do all acts necessary to rebut the presumption of paternity of any
* Appendix A, 537 A2d 1227, 1265 (N .J.
1988).

451
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. C

offspring conceived and born pursuant to aforementioned agreement as (C) WILLIAM ~

provided by law, including blood testing and/or HLA testing. by MARY BETl
3. WILLIAM STERN, Natural Father, does hereby enter into this more specificall)
written contractual Agreement with MARY BETH WliiTEHEAD, Surro- (1) All medica!
gate, where MARY BETH WHITEHEAD shall be artificially inseminated therapy expense
with the semen of WILLIAM STERN by a physician. MARY BETH pregnancy, not
WHITEHEAD, Surrogate, upon becoming pregnant, acknowledges that medica! insuran
she will carry said embryo/fetus(s) until delivery. MARY BETH WHITE- reasonable expel
HEAD, Surrogate, and RICHARD WHITEHEAD, her husband, agree or problems rel
that they will cooperate with any background investigation into the expenses be pai
Surrogate's medica!, family and personal history and warrants the elapsed since tl
information to be accurate to the ,best of their knowledge. MARY BETH Agreement spec
WHITEHEAD, Surrogate, and RICHARD WHITEHEAD, her husband, non-itemized in•
agree to surrender custody of the child to WILLIAM STERN, Natural (2) WILLIAM S'
Father, immediately upon birth, acknowledging that it is the intent of latent medica! e
this Agreement in the best interests of the child to do so; as well as of the child, unl1
institute and cooperate in proceedings to terminate their respective was known and
parental rights to said child, and sign any and all necessary affidavits, (6) week period
documents, and the like, in order to further the intent and purposes of representative o
this Agreement. It is understood by MARY BETH WHITEHEAD, and requested, advisi
RICHARD WHITEHEAD, that the child to be conceived is being done so (3) WILLIAM S'
for the sole purpose of giving said child to WILLIAM STERN, its natural costs of all pater
and biological father. MARY BETH WHITEHEAD and RICHARD WILLIAM STEii
WHITEHEAD agree to sign all necessary affidavits prior to and after the surrogate fee fr
birth of the child and voluntatily participate in any paternity proceed- Father, is conclu
ings necessary to have WILLIAM STERN'S name entered on said child's child as a result 1
birth certificate as the natural or biological father. and MARY BETl
fee. WILLIAM S
4. That the consideration for this Agreement, which is compensation ment of all med
for services and expenses, and in no way is to be construed as a fee for I:;lEAD, Surrogat1
termination of parental rights or a payment i:t;1 exchange for a consent to
surrender the child for adoplion, in addition to other provisions con- (4) MARY BETI
tained herein, shall be as follows: .
at the request of
5. MARY BETl
(A) .$10,000 shall be paid to MARY BETH WHITEHEAD, Súrrogate,
HEAD, her husbl
upon surrender of custody to WILLIAM STERN, the natural and biologi-
the risk of deatb
cal father of the child born pursuant to the provisions of this Agreement
birth, including 1
for surrogate services and expenses in carrying out her obligations under
said possible risl
this Agreement;
part hereof (see 1
(B) The consideration to be paid to MARY BETH WHITEHEAD, Surro- 6. MARY BETl
gate, shall be deposited with the Infertility Center of New York (herein- HEAD, her husb
after ICNY), the répresentative of WILLIAM STERN, at the time of the JOAN EINWOHJ
signing of this Agreement, and held in escrow until completion of the or an agent the1
duties and obligations of MARY BETH WHITEHEAD, Surrogate, (see psychiatric evah
Exhibit "A" for a copy of the Escrow Agreement), as herein described. WHITEHEAD sl
452
 ,.
(

1ENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

d agreement as .(C) WILLIAM STERN, Natural Father, shall pay the expenses incurred
1g. by MARY BETH WHITEHEAD, Surrogate, pursuant to her pregnancy,
:mter into this more specifically defined as follows:
EHEAD, Surro- (1) All medical, hospitalization, and pharmaceutical, laboratory and
tlly inseminated therapy expenses incurred as a result of MARY BETH WHITEHEAD'S
MARY BETH pregnancy, not covered or allowed by her present health and major
nowledges that medical insurance, including all extraordinary medical expenses and all
BETH WHITE- reasonable expenses for treatment of any emotional or mental conditions
husband, agree . or problems related to said pregnancy, but in no case shall any such
~ation into the expenses be paid or reimbursed after a period of six (6) months have
l warrants the · elapsed since the date of the termination of the pregnancy, and this
l. MARYBETH
Agreement specifically excludes any expenses for lost wages or other
>, her husband, non-itemized incidentals (see Exhibit "B") related to said pregnancy.
TERN, Natural (2) WILLIAM STERN, Natural Father, shall not be responsible for any
is the intent of latent medical expenses occurring six (6) weeks subsequent to the birth
• so; as well as of the child, unless the medical problem or abnormality incident thereto
;heir respective . was known and treated by a physician prior to the expiration of said six
:;sary affidavits, (6) week period and in written notice of the same sent to ICNY, as
md purposes of representative of WILLIAM STERN by certified mail, return receipt
ITEHEAD, and requested, advising of this treatment.
is being done so .(3) WILLIAM STERN, Natural Father, shall be responsible for the total
mN, its natural éosts of all paternity testing. Such paternity testing may, at the option of
and RICHARD · WILLIAM STERN, Natural Father, be required prior to release of the
to and after the surrogate fee from escrow. In the event WILLIAM STERN, Natural
Gernity proceed- . Father, is conclusively determined not to be the biological father of the
:1 on said child's child as a result of an HLA test, this Agreement will be deemed breached
and MARY BETH WHITEHEAD, Surrogate, shall not be entitled to any
fee. WILLIAM STERN, Natural Father, shall be entitled to reimburse-
s compensation mept of all medical and related expenses from MARY BETH WHITE-
ued as a fee for HEAD, Surrogate, and RICHARD WHITEHEAD, her husband.
for. a consent to
provisions con- (4) MARY BETH WHITEHEAD'S reasonable travel expenses incurred
at ·the request ofWILLIAM STERN, pursuant to this Agreement.
5. MARY BETH WHITEHEAD, Surrogate, and RICHARD WHITE-
:AD, Surrogate,
HEAD, her husband, understand and agree to assume all risks, including
1ral and biologi-
the risk of death, which are incidental to conception, pregnancy, child-
this Agreement
birth, including but not limited to, postpartum complications. A copy of
bligations under said possible risks and/or complications is attached hereto and made a
part hereof (see Exhibit "C").
EHEAD, Surro- 6. MARY BETH WHITEHEAD, Surrogate, and RICHARD WHITE-
w York (herein- HEAD, her husband, hereby agree to undergo psychiatric evaluation by
the time of the . JOAN EINWOHNER, a psychiatrist as designated by WILLIAM STERN
mpletion of the .or an agent thereof. WILLIAM STERN shall pay for the cost of said
Surrogate, (see . psychiatric evaluation. MARY BETH WHITEHEAD and RICHARD
.erein described. WHITEHEAD shall sign, prior to their evaluations, a medical release

453
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. O

· permitting dissemination of the report prepared as a result of said genetic and con
psychiatric evaluations to ICNY or WILLIAM STERN and his wife. fetus is genetic
· 7: · MARY BETH WHITEHEAD, Surrogate, .and RICHARD WHITE- HEAD, Surroga
HEAD, her husband, hereby agree that it is the exclusive and sole right STERN, Natun:
ofWILLIAM STERN, Natural Father, to name said child. will be in accor
refuses to abot
8. · "Child" as referred to in this Agreement shall include all children obligations as s1
born simultaneously pursuant to the inseminations contemplated herein. to obligation of ¡
9. In the event of the death of WILLIAM STERN, prior or subsequent 14. Despite thE
. to the birth of said child, it is hereby understood and agreed by MARY Father, recognü
BETH WHITEHEAD, Surrogate, and RICHARD WHITEHEAD, her not be detected
husband, that the child will be placed in the custody of WILLIAM to be the biolog
STERN'S wife. for any child wl
.10: In the event that the child is miscarried prior to the fifth (5th) Exhibits "E" an
month of pregnancy, no compensation, as enumerated in paragraph 4(A), 15. MARYBE1
shall be paid to MARY BETH WHITEHEAD, Surrogate. However, the all medica! instJ
. expenses enumerated in paragraph 4(C) shall be paid or reimbursed to well as her indE
MARY BETH WHITEHEAD, Surrogate. In the event the child is miscar- agrees not to s
ried, dies or is stillborn subsequent to the fourth (4th) month of drugs, or take 1
pregnancy and said child does not survive, the Surrogate shall receive without written
$1,000.00 in lieu of the compensation enumerated in paragraph 4(A). In HEAD agrees t
'the event of a miscarriage or stillbirth as described above, this Agree- coll'sist of no few
m~nt shall termínate and neither MARY BETH WHITEHEAD, Surro- (7) months of pr
gate, nor WILLIAM STERN, Natural Father, shall be under any further during the eight:
obligation under this Agreement.
16 .. MARY BE1
11. MAnY BETII WIIITEIIEAD, Surrogate, ancl WILLIAM STERN, WHIT~READ, .
Natural Father, shall have undergone complete physical and genetic annexed hereto ¡
evaluation, under the direction and supervision of a licensed physician,
17. Each party
to . ~etermine whether the physical health and well-being of each is
Agreement and i
satisfactory. Said physical examination shall include testing for venereal
and voluntarily 1
diseases, specifically including but not limited to, syphilis, herpes and
other(s) did not J
gonorrhea. Said venereal diseases testing shall be done prior to, but not
.limited to, each series of inseminations. 18. In the even
be invalid or unE
1.2. In the event that pregnancy has not occurred within a reasonable
remainder of tl
time, in the opinion of WILLIAM STERN, Natural Father, this Agree-
unenforceability
ment shall termínate by written notice to MARY BETH WHITEHEAD,
shall be deemed
Surrogate, at the residence provided to the ICNY by the Surrogate, from
sháll be deemed
· ICNY, as representative ofWILLIAM STERN, Natural Father.
law.
13. MARY BETH WHITEHEAD, Surrogate, agrees that she will not 19. The origina
abort the children conceived except, if in the professional medica! opin- the Infertility Cf
ío:ri of the inseminating physician, such action is necessary for the MARYBETHW
physical health of MARY BETH WHITEHEAD or the child has been Father, having t i
determined by said physician to be physiologically abnormal. MARY
.. BETH WHITEHEAD further agrees, upon the request of said physician WILLIAM STEB
to undergo amniocentesis (see Exhibit "D") or similar tests to detect DATE 2/6/85

454
 ~EMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

, a result of said genetic and congenital defects. In the event said test reveals that the
RN and his wife. fetus is genetically or congenitally abnormal, MARY BETH WHITE- .
[CHARD WHITE- HEAD, Surrogate, agrees to abort the fetus upon demand of WILLIAM
sive and sole right STERN, Natural Father, in which event, the fee paid to the Surrogate
ild. . will be in accordance to Paragraph 10. If MARY BETH WHITEHEAD
refuses to abort the fetus upon demand of WILLIAM STERN, his
1clude all children obligations as stated in this Agreement shall cease forthwith, except as ·
· ltemplated herein. to obligation of paternity imposed by statute.
rior or subsequent 14. Despite the provisions of Paragraph 13, WILLIAM STERN, Natural
. agreed by MARY Father, recognizes that sorne genetic and congenital abnormalities may
ffiiTEHEAD, her not be detected by amniocentesis or other tests, and therefore, if proven .
;ody of WILLIAM to be the biological father of the child, assumes the legal responsibility
for any child who may possess genetic or congenital abnormalities. (See
to the fifth (5th) Exhibits "E" and "F").
in paragraph 4(A), 15. MARY BETH WHITEHEAD, Surrogate, further agrees to adhere to.
;ate. However, the all medica} instructions given to her by the inseminating physician as
. or reimbursed to well as her independent obstetrician. MARY BETH WHITEHEAD also
;he child is miscar- agrees not to smoke cigarettes, drink alcoholic beverages, use illegal
1 (4th) month of drugs, or take non-prescription medications or prescribed medications
)gate shall receive without written consent from her physician. MARY BETH WHITE~
)aragraph 4(A). In HEAD agrees to follow a prenatal medica} examination schedule . to
above,. this Agree- consist of no fewer visits then: one visit per month during the first sev.en ·
ITEHEAD, Surro- (7) months of pregnancy, two visits (each to occur at two-week inb:irvals)
under any further during the eighth and ninth month of pregnancy. ·
16. MARY BETH WHITEHEAD, Surrogate, agrees to cause RICHARD
viLLIAM STERN, WHITEHEAD, her husband, to execute a refusal of consent form as
ysical and genetic annexed hereto as Exhibit "G".
licensed physician,
17. Each party acknowledges that he or she fully understands this
.[-being of each is
Agreement and its legal effect, and that they are signing the same ·freely ·
~sting for venereal
and voluntarily and that neither party has any reason to believe that the :
philis, herpes and
other(s) dicl not freely ancl voluntarily execute said Agreement.
e prior to, but not
18. In the event any of the provisions of this Agreement are deemed tó
be invalid or unenforceable, the same shall be deemed severable from .the ·
ithin a reasonable remainder of this Agreement and shall not cause the invalidity or
'ather, this Agree-
unenforceability of the remainder of this Agreement. If such prcivision
rH WHITEHEAD,
shall be deemed invalid due to its scope or breaclth, then said provision
1e Surrogate, from
shall be deemed valid to the extent of the scope or breadth permitted by
. Father.
law.
that she will not 19. The·original of this Agreement, upon execution, shall be retained by
onal · medica} opin- the Infertility Center of New York, with photocopies being distributed to
necessary for the MARY BETH WHITEHEAD, Surrogate and WILLIAM STERN, Natural
he child has been Father, having the same legal effect as the original.
abnormal. MARY
t of said physician WILLIAM STERN, Natural Father
lar ·tests to detect DATE 2/6/85

455
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. C

STATE OF NEW YORK COl

SS.:
COUNTY OF NEW YORK
On the 6th day ofFebruary, 1985, before me personally carne WILLIAl\II .
STERN, known tome, and tome known,to be the individual described
in the foregoing instrument and he acknowledged to me that he executed
the same as his free and voluntary act. ·
NOTARY PUBLIC
APPENDIXB
We have read the foregoing five pages of this Agreement, and it is our
collective intention by affixing our signatures below, to enter into a ·
binding legal obligation.
MARY BETH WHITEHEAD, Surrogate
DATE 1- 30-85
RICHARD WHITEHEAD, Surrogate's Husband
DATE 1-30-85
STATE OF NEW YORK
SS.:
COUNTY OF NEW YORK
On the 6th day of February, 1985, before as personally carne MARY
BETH WHITEHEAD, known to me, and to me known to be the .
individual described in the foregoing instrument and she ackn~~lEidg~d .
to me that she executed the same as her free and voluntary act . .
NOTARY PUBLIC
STATE OF NEW YORK
SS.:
COUNTY OF NEW YORK
On the 6th day of February, 1985, before as personally carne RICHARD
· WHITEHEAD, known to me, and to me known to be the individual
described in the foregoing instrument and he acknowledged to me tha.t
he executed the same me his free and voluntary act. ..........
, • •
..........
• !
........
, •
. ....
.... ........
11 ' ' •• 1 1.

NOTARY PUBLIC

* 63 N.E.2d 28~
thanks to Vincent N

456
EMENTS SEL. CONTRACTS & STANDARD F ORM AGREEM ENTS

CONTRACT IN DALTON v. EDUCATIONAL

TESTING SERVICE*

y carne WILLIAM
lividual described Hlgh Se/loo! Coda:

l that he executed

V Flnd out u rly whethcr the c olloq., thal

lntera•t you Bquiro ot ~mm•nd the lHts
and whllt tkolr dendllnes nre fOf" reeeMng

V Seloct:~~ppropd at o tu.t dotoa.ll titkos nP{Ifo)(i·

ma!aty l!fO W!MkS In prot:.QU 'fOUI SOY!tll 8od
mail ihtim 10 eoOouoG. so Choose datos tht.t al\Ow'
ent, and it is our to umch CO:Ioges by :holt doadlines.
~¡o·our .5COtCU
(SH calendar, back cover.)
, to enter into a v IJ you'ro epplylng to college lor oorly dec}~
JJion, taktt I ~S AT sa • Junior. Whii\J mar1y
to~ wllf ac.ct'pt Novemoor SAT scores kN
IY.Ut'( dec\t;ioro. 501no m4triro e:JrllOf t~os.

V Plan lo lnke Ac hlevomont Testa u you flnlsh

fl course; you rX"Af~ l'm"l! to wtt ll or.til 'YO'" ~ior
yoat.

V Gef TtJklltg lhtlSArCH" T11kl ng lhc Ac:hleVf!-

m ~m t Tes t~ fTom yom guldanco o HIGo lor l OS!·
t akingllp$Mdpti'\Ctiort.qv~J.sti\lNl

v' FUI out your R~ l sttoi/Qn Fotm (s ~ png• 3)..

Mallll eali y $0 you 'tl bo mo10 t:kely lo l;l6'
ns:Jignod lo Uru t e:~ \ ctJnlnr yoo want (page 12). ,.
OA
Re-reglfter by phMo it yoo hav~ o Rog'f.>trot~n
Form Ol'l lile. (~ pago 2 for inatructloiU' n,ncl
fe&t: .)'ifr
Y CMck your Adn)l .. lon nck~ l aa soon •• -you
reulve lt. lmmOOlntel)l r~t urn tho Corrodlon
Fonn 11 ~ ty. (Seo pt~go5.)

ti lt you n~ t o clutnQO )'OUr tcoat dnto, '"''

e&nlet, ot te.1 cholcft, Cl'lll no tatot than two
tally carne MARY end on.-haUwcok• belote Uw. lHt dato.
(See Pfi90 2 for l n •lTucUon• llnd !!XI•,) S'
;nown to be the V Arrive ni your tttel conter hotw~n 8:00 4nd
8: 15 o.m. Toko yO<.nAr.1rnls9!on 'I1G)I&t, r.o: o No. 2
she acknowledged (sol'l·l~~t~ poncll&, and aoooptabiQIO (il1t91J 5) ,
YOI.I wl\1 not bit admiHed to tite tee l cf!nter

1d voluntary act. wt thout pcoper ldeot/U u tl on.

v' To &end addlllonlll • e()( e reporte, ~e-e p,1ge Eh

v To ru sh stOroe, e.oe page Ei. T

KHp lhl• Bullolln~ Yoo tn.l)' IIL'Od it ulter you 10$ ~

pmtietJiflrfyíf )'CI !J f(J.jjiSUU IOI OñOllliWIDS /01\I'Itr./la
b:Jv&~liSSIJ'lt to add/1/onflt~salldscllofa r· :
$11P ptograms.
Oo ~a u have ttle rlght Outletln?
• To !t):'l \ lil Now York S tOi d, UGO l h& Jo/OIV Yot.\' 5 11116
Ediliot1.
y carne RICHARD • To 1 e~111\ Poa1m l'ik:ó, vsl'! thtl Soul!oom fdit,:on..
• To leal oulsklo tho Uni:OO b'!atos or Pvorhl fUco, Ot
be the individual tn U.S . lolriiQOOS. ua, the /ntemi1f•M81 Erl.'r lw,
lltho OOIIIon you O'IOOti iló not nva!tabk'l hom y.ouf
ledged to me that g11idonoo ot1ioo. C.'lll 01 wril.o COl&flt\o
pag112 •
&l nt~IAfP. Soo

...............................................
. . .. . . . . . . . . . . . . . . . ' ...
~

'' .. ' . ...... ..... ... ... .

''' 63 N .E.2d 289 (N.Y. 1995). Many ing this material. Copyright © 1991 The
thanks to Vince_nt Nicolosi, _Esq ., for provid- College Board. Reprintecl with permission .

457
 SEL. CONTRACTS & S TANDARD FORM AGREEMENTS SEL. C

Scholaslic Aptitud
You can request services and lnformatlon 24 hours,* The SATis a lhtoo.oo.x,
7 days a week,* lf you call from a TouchTone r M phone Ut.at mee$Ures !he verbel
abt~Ues yoo havo devtrio$
bolh in and otA of schoot.
CALL: 609-n1 -76DO (Prlncelon, NJ) • 51D-653-1564 1Bay Area. CAl con1ans:
• To &peed your ;al!, try lo ilvuid )t¡e busiesl t.! ay {Monday) 31)(1 1:-te busia~ hOur& daily (3:00 lo 5:00 p m.
b<>temtirnt) • two 30-mínute .scctioos
VQCOlbiJlaty. vo1bal roae
• Uy~t~.~call In:~ m 1 rotary phone, or 11 )'011 A"d illofmJ Uon or servicH not llfled hete, please hokl. \'ou W1!1
be coMtctcd wilh one ol our cuslomer. servict reprnentalins, who are on lloty 8:30 a, m. - 9:30 p.m. El
eomProhon${oo

-·'"""'· • two 30-m!nula soctioot

to ~ problomt kfvoJ
A~r.bta, a.nd gaomeey
To changeyourtesl choice, To re·reg lster To send addltlonal To rush se ores
test date, or lest u nter lyouare cumnlly in h!Qh schcol • ono JO-minuto Teto! ol ~
score reports tlt.lkesabou t thr~e weeks tosc:ore
E~li&h (TSWE) that rn
Vo1.1 rnust aU b1 Wednesd¡y, two llld hM! prevtously subm(ned a ll yii'J I1M~~o::211)'rtctivt'd \he lfSISan d a.nothtrtwq wceks te
R~i~rathm Form ror either 1~ sen doU(scorf~ lio'f>lt\-'et, ilyoo to IOCOQniLollO!J use $1

7
and ooe·hall wreks berore !he tes! SCCJresandwanl losendlhemto
dile. Hyou can'l cal! by lhe SAT oc Achlevtmtnt Testo;, yo u additional colq¡esandW!ola.r· want colleges to g~ t your se ores Engh¡h, Vovr TSWE &e
\~"day dcadlinc, on the 1es1 llon1 nave to till oU1 another shipPJOQtalris.SCOI'uwlllbe fulu.youe¡nc:aJitore~ueSI coUoge )'OU attend pcac
da.y take ~u r tickP.t to the tasi Rtgislratton form lo regl~te r tor ma~cd lh1eelo live wec::ks alter nush Rep0f1¡ng. When y&J order «H..rM appropriato ro y
unter \vhere yc!J want to ~ ~r tKI dJie. Just can. yauc.~ll fl,usnAepofling,yourSCOfesare
tesltd. 11 $pace and fllcllerills ate You11be t!il<ed $6.00 tor eac:h You wiU be bile<J $3.00 per can, sen! wlthln two wor\ln!J d.T¡s attu TOO tul also inc1udes ~
•milahle. you ..,.;u be admilted test data you requosl. plus the tes t plus $6.00 lor mil r~port • you rle'ithasbeenscored; yoor Qt OQ.uallng QUOstions (vo
ahud ol slandb'¡ caodidal~s. T h~ ~es and lees lor any addiUon.ai testlsnotsc:otedlaster. nrov or TSWE), Answets io rtw:
lee !Of c:hal'lgln~ yoúr ttst.clioke, 5etvicn you reqttesl. See \he back requestscor estnr;afuture te~ ccunt lll'W:Sid yoor $COJO,
testdate, or tul t!nterisS15.00. c:overlorreglstrallondeadllnes. dale your request wiW be h~ld until Voot SAT r.co.-o-s.. court

1
Vou witlbcblllc:d forthlsserv tce. l h~escme s area-nltlble.
lnlormnlion about yout 31.:;
Uyou changeyourte~l dólte, ~ Wnenvo ur tQuestRu~h
hotp col~ edmls.u>n or
youartootentill9::1toa(1atxentet \ R!J)orllnU. we wtil stnd to tne
relund lor th~ mlgin;al dJle. oo11co~andscholirsl1i p wctl pteparOO you aro ro 1
prog rams3n lnterlmreport w0t1<". Oocausc r.ouf5os a

~--------· - ~·:,~~7°:;~:;,g;suat~nnumber
conlalning al! your SAl and dard3 vary 'Widcly lrom .se:
Achíevemt:nt Tast scort5: plus 6001~0t'1Siandordiledtt

. ldenllliCJUon tntormatic n. You witt

ratei'Jea t opyconfir mín o ~ete
reportsha'-lobecii'I Senl. YouwiU
SAT. lwtp coile~s COfT\pf
sludonts from ditfetthl $C
¡you"ll lindlt onyourscort Takf-lg ~SATis aire'
report or llcket) and \he lesl be bitled $20.00 lorthis ~ce
datethat malchesit(You'rt plus S6.00 for rach rewrt. Futt lrOf"l'l yQIX ~ gUidano
asslgoedaditfCfer.treg!stmlion reportswJi besent to ltle how the teslls O'SJllnilet.l,
numb!Jr for eadl test 001e). We íns titu\lonsyouspecifceddurinv and lho typcs of q~liM
AeelftllisinformaUontolelriM the next scheduttd procastlnó Of oornpteta proctico te$-t in 1
your l ~e . repo tts.
There ls on~ ooe $20.00 Uood id9a ol \\1\a. t to wcpe
• The 5-<ligit code k!r the test senllcefee regardlw uf ltle tho letil-ta)¡ing ~s hillplul
Call 609·771.-7600 Y cenl ~ you vnn\ (wht'l :/OU number 01 ca lis you make il on~
re·teqiste·rorcha~e tesrcenler day, 11 yoo arder more tiWl !igkl
lar reco rded lnlormallon or testda.te). Stepage 12\or You rmy hav& heltd
(An:capolllle Bullelio} rilpo~. you'll h~e.to pfac.e a
codes. · secondc:all.
the SA.T aro plaoood. H
• R~istralion deadlioes lot eactl 1l1e c;,.,_ wilf nol.,.
te$! date
• Standby itsling
• Thc 4-dlgil cOOe.s tor colleoes
or sc.holarshlp prognms (wtlen
· you send or r ~Wl stores or
-•r-o.n.o
lMIOOOialnodlnlhloiS
lnlot

• AdrnlssionUtkelsand rt·reQiste r). Setbage 11 lor Olld In lBJdng ""'SATo

eorrtcHon lorm todM. . Call609·771·7600 T eonWlt of fue tost lo tM
• Ar.ceptable ID lo request publicatlons In 1991·9:2.
To r.,quaSt tt!i!Reg/sfiJiiQn
• Se ore reports- General Bulferin, TaJ'.kiD th~ SAT, Ta•ing
lnlorrriallon thll Achf.ll~ment Tesis. Addit!Onal
11" Occasb¡lalty. tho database may
• SAl Oues1ion ar.d Answ~r no! b'ea~aila ble becaun it is RupOII Request Forms, and
Servico-hmo.· taarder llel_no upd_ated. Pie-Jsetall ao:Jlll. tnfornullon on Colleoe Boord
pub licatlonsan d softwart,lea~ You Can Re·Reglsto
)'our n;;"n1e and address.
by Phone . •.
rDOforhearinv imOillrcd; lt you alroooyhsve a Regl
609·7iH t50
ftlo . Soo paQO 2 fOt instn..<
{mustc.atttrom"alDD)

To Flll Out the

Whn you wrllt to Us-, allow a mintmum offl1.'8 btl~u ~VS ror nuil to reach us. Pli~ase ba specilic whenyou writewith c~ mments, suggestlons. or comptalnts. lf yotJ wri'le abou! an Reglstratlon Form .
lnvoiet alld havr. alrndy submltled p.ayrr.em, pitaSe tnclude ltopyof the lront and back of your a.nccl! d chedl. NtRys inciOlle your lasl name, first name. and mlddle initiJI. addrrss. reto r to tl\e tn&trucsklc\s ho
w , birth date, social Slturt.y numbu. re~n6on n•mbat and lhe test el ate. for las ter repty.lnclude yOur pl)one number. CGIIC1Je Board t\TP. P.O. Box 6200, Prinaton, HJ 06541-6200.
ltem• 1--3: Your oame, dal
Cq.yrighl .o Ul91 "V¡ Cor.ege Enlra.--.ce f...!anW\IIion Boatd.M llt;tlts roJ~~~ are tEtqUired 10 ftStabli!h y.
)'OUJ rec.ords. Fli1 1n these 1
CciiiC}II Board, Schoiii'SiicApUiúdo Teu, SAT, Stlldei\IS.31dl S.Mc•. af'd lhe aCom logo aro reglst&fad l~ ~~Cole9') EnllfltW:::o E.uminlllton Doard.
aamo way ~eh tJme you '
Tho .Mrri~s Tosliog Progr11m i~ a PfOOr.m ct 1t1e CO~ Bllofrd. • non¡¡rofil rnembersh~ otgVIU•ion COflllOJ«i ol mora Uan 2,700 collogoa. ~. tchool5)11llfTII, and ltducallon shOota . at'td. aoy time you r
auoeialion5. 1-t!lpfeMnlalNes OIIM me!OOers ~onV\e Boatd 01 TMI&es and D<t.~/ c.ouncls imdCOfNTIInoos thaloons.lder tne prngmmsollt-oo Conoge Board81ld paf1)óp81& In Irte :-;Urvleo,. f( yov don'l , yoor
dcltfi"J'IiNotlofl d"$ pollcjos a{'d !ICtivilie6.:fhaColegtiOollrdhU IU.ued GII~J Mlhe UWJ ofColls(}o lk»rdTOSI5ooro1$1U'dAÑtcd0tJ/a, wf\k:h doscrlbes II"IG rospo~"c"lowlllch
lhe Colej)& BoArd COITimi15 :u ril U 1 '90f\JOI of IM11 Wld lOMees e!'Id Glm(.S IM polelot. pt"RdletU, elld ~1101"1$ r&LIM\111 tqlhe ~ft'io;u$ UUif of IOt l!l. NI UHII'S (ll Colle!)e 9oarcf1etl lH>rvloos will be ooto)'Od.
MtvieU b.a~te b.l.m alkedto relld thls Sllltemem n be {JUidod by lt.UI• nvi<llR~e wí1hou1cha1go lrom Colleoe ~n:IATP, P.O. Boll &.."00, Prtocoton. NJ 08541·6200. -
lho College Bo:Kd tJY"...o&Of5 01081 servicu lo "-"'C •l~ts in ma~n11 pbns IOf co~eQo. Porlodcaly, 1t-4 COII&ge &o¡td may mtll vov .,,flmll\liorl M>out1hoso ¡::rog•ems 0t a~ lot yt:-~or
·JOiurllary coope•otioO In P'Oit.'CISIO help I~OYO ls 16Nic~ ku " •ldffils
lhls ~ rut w.ts l> lo;>t)l.IIL'tl at>d J.'tCKlvcc'J by EWc:.atioNI TM!ing Service ce::·r:;¡, y,nit;n d&vtllop:s _&J'td adninls l et~ lha lesü ol lht Admlulon' Tes~ Pr~ra.m lor 1M Ccllege Board.
Tho Conc-uo 8oo1d ood Educ.a1klllol TosliriQ ScMc:a OJe lkl<kat&d lo lhil pOr-opio ol eQUal Q9POf\\Jnity, arOd lheir P!O(;fatl\$, 'er.icn,IIIKJ ~~loymefil policio!t a1o go..ldodby IMI p~ .

458
 !EMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

Scholaslic Aptitude Test (SAT) Achievement Tests Somo roquire vnrious t:omblnat.iMs oJ lnt>ts:
tours,* ThG SAT 1t a lhroo·hOUf, muU:ptfH;holeo to.st Tho Achlevt:Kr~onl Te-sts iliO ooe-hour, othon; poi1T\i1 slud&nts 10 ehOoso. Ch«ik lho
rcqutromanla or tho c:ohoge$ whoro you mlg.ht
' phone thot me6SUtes the ~rboJ o.nd mothomalioal multipltHho'co to&ts.ln $pedlic: sub;ects
8PP"f bofOIO dccld!ng Which 18111$ lO tako.
abi~tles yao havo d~ ovo1 many years uur.k.e lha SAT, wtücJ\ moa&uro.s moto
_bol:h In and otA of :school. Each to.st book gon.cral abl,tios.Ach\oV\Jf'OOf>l Tuts mouoro 'Tn~ the kh.lvvemonr Test1, a hoo
1) boQklot availablo trom your ~ guldanc&
yoor lo.nowlodge ol partiict.daf sub;0014 Wld
i:OOp.m. orr~. h3s dctailed doscripllon!l end samp¡o
• two 30-mll\111t &eeliot"a lhat tost yovr your ability to a~ lhal kr'IO'NfOOgo. Sonw
ooneges tequi(e OM 01 moro Achiovcm()O{ quosf100s lor uch les\. Shrtoon Achieo.-emeot
vocabulaty. vorbal reasoniog. and tlll\dj.n.g Tests aro o ltered on the dotu:s iodkatetl
1hok1. Youwil Trmts 1« aOO\h:tloo or placoment putp050$.
•:30p.IJ). EJ c~Prohensioo bolow.
• two 30-minut• $edl0fla: INal t(l~ yo ur abUity
. to r.olve. problems lnwMng nntOmot:ic,

~
:\lgebftt. and qeometty
Tq rush scores
ll takes¡¡bolJI Ihreewuks" tostore • ono 30-mlnuto Test ot Standard W rít10fl
~a l est sand anolhe rtwow~ks t o
send otrt scores. Howevér, il"you
· · En{;zlish (TSWE) that rncta5utes your abllity
. lo tecogni.ze and u se standaro w rinon Achloevemeru Tesi s'
"'~
want colle!Jis lo gel your se ores
tasutt,you ean tallto raquest
Engli~th . Yoot TSWE OCOfO can holp iM
colloge yOU ilkúld plaCO V0U J.o Uf\ Engli,h
"'
Engllsh Compo::dtionr
Rush Aepotling. When you order
RushReponirlg,your scotesa/e
sent wilhlntwo wo r1Cln!) d."IVS af\et
CCH.irsn ilppropri¡lte to yout obaí.lhts..
Tho te¡l al:so iocludos e 30-mlnvlo sedion
All·muRipkf.dlolco)
Wrthbsay
•
youllesthasbeenscor"eii:Y6ur
test ts not scored faste r..n yov
mqu estsco~ts l nrafulure· te!.i
of ~ting QUQ!>tioos (v0lb.11, mothernahcGI.
01 TSWE}. AM·MlfS to !htt&O quos.tloM do not
Uteralwo
•
daleyour requesl wiUin helduntiÍ
lh<;tSescoresare avallablc.
e~ !o)Watd ) 'OUt scmo.
YOfJt SAT iíCOJO$, COUJ60 Qllldos. M d ottaar
infoonallon about )1001 at.Bdun\k: lJac.kgu>und
i\m(lrlcan Histofy Md Soclal Studlos
Eut\lp&atl H~ory and Watkt CulttJt&s.
•
Whenyourequtst Ru!.h
Reportlng . ~wihsend t othe help col!~ admls!.iOI\ othcers ovatuate now
w!leges alld schotirshlp
prOQrams¡¡ninterim repoO
well ¡Xo.pared yoo oro to 0o colloge-tov~l
wonc. BacavM coun>6'S ar~ QIUdlng ~A.I\·
Mathornalk::s t.ovof
M&lhqmotics lovcH 11'
11
••
oonla!ning a11 your SAT;md . dafds vary w!Qoty lrom II.Chool to !.Choot, Malhomallcsl.f.n.oal tiC (Calcutatot)•
Achievernent Test scorn:ptus $C(:I(()$ Ot\ stand.tu dlzed tosta, soch as tho
kltntifícallon lnlormatlon. You wih
race_lve acopycoorumlnuWt.ere
reportshavobecn senl. Youwilf
SAT: hcilp ooUoges compnro lho ilbiltfy ot
&h.ldoots lromditferbhl ~hoo($.
F"tl)nch
Gon·nnn
•
be billed $20.00 lor thís service TaA:ñg fM SATis 8 freo booklot nvw1ablo Modarnl-!Gbrow
plusS6.00 foreachreport.Full 11om vour 6Chool gilldal"lOO otfieo that et¡.:phain$
ltaliafl'
rcportswill besenllo lhe . how lhe test !$ orq¡nill."\1, tiTI<Kt, and ISCOmd,
instituHQns you wecllied durfng Larin
and ttw lypqG ol Qllti-$tlons u&od. 'Jbko th&
lhe nm W"leduled proconlnQ or
tepons..
There ls onty one $20.00
completo PfDdicc tost iO thnt .bookJot to got a
I)OOd k»& of'Atlllt to uxpoct. You wíú otso fln d
Spanísh
•
servlcefee regardlus ol lht
number of caiiS you m ~e in o n~
the te ~J·I akiog t~1 t-,olpfvl. BloiOgy
Chomlsloy
••
day. 11 you order moro than tiOhl
rap~, you'll have. l o place a
second call.
You may havo hoatd \ha t changes to
the SAT aro J)Janood. ttow«tV<~ r, IT)0$1 of
Physlu
•
lho o:hange$ wil noi bo lmplomontod tor ' I O!iko:SIJ~IIIIctW...,~ 4 1t.l,._l9?f~~l$aoldbtbetd(ol\t.c.ly l 1,19'n..

N'leráJ yoon. "The inlotmatton obou'l tho 'lM~~~C»QalnNOvtr\lom"i>\trotr.d)~~~Cf'lt~O. ~~Wi.lltWf,

• tet.t contahed In rhJs "1001·92 EMlol/n ~t!:.1u~l==),:;=~¡~=f,:-:~~-:~:

and in 1ltki"lg lhs SA r JOfklcta lho l\oll... ~~l
Call609-771 ·7600 T content of tho tosl lo be udmlni&10fod 1
lolltll:t91#r. ~~I<'U".Me·t.loeliiiUJ} , ~lMII,li"4M.ia"Mt~~- ~~ .... ~btatwtdGnAp'II ~. I W2.
lo request publicallons .In 199 1·92. 'AI!N~lnc.~ lr>d!IG. wt.~. !l"fo ~II!U..IWI, fl .... k~Olft .... it\llhth•of~. A
To reqll\ls.t the Rto/Sit:Jiion ~b<~e41Ufi101!íl $-tt~~~IQI:hiQI~(~!cf~t,lfU.cl~tlfipttw.f~'
BrJiletitt, Taklng tht SAT, Tilkíng '~" l~I , II>IIUÑftftJI .... !'O!At"«<IIICIIiottn.:le< tnf
tfle Acfltevement rests. Aódillon~ l
RupOl"l Request Fo1ms. and
lnlotmallon on Colleoe Board
publicatlons_and softVIar2, 1!ave Yóu·Can Re·Reglster ltorn 4: Vour 4oclal aecurlty number )s u$ed tne S AT. Fíll Sn lho "Yos"o.vat to pat11clp~ne.
you rn ~ n:e an:J ~dress. lo t.olp kktt\Uty yout record and add KOrct.\ to UM~Iiarn Alt~ otvq t~ C<OIIog(l ~m
by Phone .• . Jt il you leste! othér límos, h w~l appoar oo pormiss!on to lel oollegea and govemmonf·
11)'OU 11/"MIJ';' hevo a JlegiM11tlion Fnrm M SCOfO rwor1PY!N ro<NOSI tQ ~ aenllo your 5ponsored sdlol&rship programs ~ thal
tilo: $9o P'IOO 2 lor lnstrucliooG ond t~s. s.chool ·aoo to coUoQH ond l!Cholarshlp you are ~l or0$lod 1(1 roeoí'l/.ng tn rormot~
programa.. Wtth yOOf soc.ial SOClJñly 01 /nlbor. Q.bovt Odoe:RIIonat aod f~nanda l a id opportonl-
TQFlll Out !he vour r·oeor¡n can bo I'OQic:hod rt)Ofo roadily. Ir Hes they o" or,
yoo portícipateln the Stod9nt So areh Sel'llioo Tho StoOOnt SonrW SqNio& wm &«<d.
IIOI)s.or c.omplalnl$. lfyotJwri1eaboutan Reglstratlon Form . •. (soo ltem 8), 1t will al &O bo mJ.de ovailabl!t 1o coiiOQ'O$ lho loltowing fn.formnUon obou1 you:
lit ,fitsl nanlf!, and mlddle inítial. atklless. ret-er lo \he i"lstnJCiioM hofe af\d on the IOfm.
. P.O. Bo:c 6200. Princelon, NJ 06$<11 ·6200. f)3 rtkipalllg instiluUom . nafYll.'l, ackkoss, ~x. blrth dalo,.schoot, :;cc\81
ltemt 14: Yoor nam&, da lo ol Wrth, and ~x ltern 7: Wñlo ~ UKI year you e11p&el to 5-0Ctlr!ty numbor (ff '{W givo it). nnd intoodod
1tro 1tquired to asl.abksh yout fdo u.nd rnatet- coll&gemt'IJor,
gt11duate lrom hlgilschoof, ond liJI in tho
yovrtooords. Flf n lheso ltoma exocUy lbo Cottoootand go~mmoni·:ij)O(Isorec
iru\lionBon•d. corrosponding ovnb ond tho oval !<!r lho
s.anlO way oach timo yoo¡t 16{115101, on M~wo r 5Ch013tshlp ptog rnms !Ntt usa lho Stl.idont
month you expecl to g rnduole.
:.ct'toOOo, Khool 5)111..-nt, •nd edueatioo sMols, af\d any ttnlt you r()QVost A.TP. Seorch Sorvicu teco!-.oo your nnrne b«:..1LI~
~ Collttge Bo.ard and par'llc:lp;ue .lrl me . StJ~. 11 you don'l, yoor scoros ond olhor 11om 8: Tht Stud&nt Seo n: h Sorvlce is a ol CO.II8.lí\ ChtHOCI(IIiS\k:S you .h& \'0 &uch ft9
hlc h do~bes lllfl 1119p0~klo' 10 wtkh a spocffic grado O\<Ordgo, SCOfú rnngo,
services will be delov-oo . f•oo írllonoallon s.orvfr-.e 104' ~;ludoots who lako
1 lnt1!1 . AH UI(Ifl ol Coli1190 8oa rd ~AS I
)(\, r-u 08541·6200. ~

, f'•Oil • a~t~ lO< 1t.. C:11t9e eoaro.

ofll PO'k.ies are gOOod by moLPrif>l;lf>IO.

459
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. (

timo ls nol available unt

lntondod c;.olkJge major, stato or zip coda, or Use the following abbrevialio~ lor stales and cient space, 1eSiing materials, and staft. Don't
raports wíft not indK:ate
ethnlc background (if you provid6 it). The U S terri1ories lry to mske arrangements with test supeM·
the les! al a 'nonstanda
Student Soareh So!VIce does not report yoor .NIWm& .......... Al~ .. . . . . . . . MO
sors In advance bécause lhey will oo\ know if
be eflgible, lho ~ludonl (
scores lo them. Al;asb ...... . ....... AK~ . . . . . . .. WIT you can be adml«ed.
Amt~ SMoo;¡¡ •••• •.• AS ~ -· •. •• Hf: must notity !he test cent
11 you a1e a standby, arrive' at a test téf'ller

==·. .
htlorla ••• .. .. 111. /kQd.l ............. HV days be1ore thelast. All
Arbnsu .. .......... AA Hew~hlrt .. .... ltH by 8:00a.m. , although you wift not be
signar &hould arrive oan
ltem 10! lf you Uva moro than 75 miles ~~: :::::· :·::• ...: : ~
Connl'ttlcVI . CT lrlto~Vot11
·::::::""J
.. .......... NY
admit1od untilall pre-rog[stered candidatas
from the nearesl test cenler (see list. page havo been soatod. Take wlth you:
12), ft may bo possiblo to test closer lo your S:rtt'~~ :::: ~ =~.:: ....... ::i • a ccmpleled Ragistration Form, sealed 1n Students wlth Dls
~ect~ ltQI1!\efll~rl¿....,tl,latl(biM'
home. Enterthe number02.()()()as your o1~ ..... .. fW(tjo .... .. .. . ..... DH its reglstrallon onvelope along wi1h a check
Flo!W.a .... .... .. .... ll~ . . . . . . 0«. Eligibility requirements ¡
first-dlolce test centar, enclose a latter
describlng your situation, and malllhe ~\1_::·:· .. • · ··-- ~~ls!Mid .. .. :: :.-- ~ or money order (no cash), payab\.e to are explained in rntorma
t!lwil . .. . . . . . . HI~ . Poli Admlsslons To&tlng Program, for the Speclal Noods and in re
Registtalion Form o.nd lettor belore tho IdiliO .. . .. . 10 PutttóRic:o . . . . . . . PA
llrlnoi4 ..... ... . .. . ... 1LIIhodt~ .. .. RI appropriate test fee and the addiUonal available in YQUr guidant
regular regls1ratton deadllne. (Sea the se
~ ............ ut~tarotw~.~ ... $30.00 standby tee: and . counselo.-towriteATP ~
calendar on lhe back cover.) Aoquests from 1~ .. . . . . . . . .... IASOoNIO~ 50
capped Studenls, P.O . e

=.:·....
KMAS •••. •• .••• ••• KS ltnl\tSUIIII . • •• .. nt • acceptable ID. You will not be admitted
outside th6 Unhed States mus! be recelved
by the special requests dBadline. :~ ::·· ·:::·::: ff l::: :::: ·:--.. :.-:::: m wilhoutit. NJ 08541-6226. Two Opl
MJint ... ... . ....... ME Vtfl'llOI'It .. ... . .. ... .. VT Plan A (Sptellll Aoco

hem 11: To havo acore reporta .anito

s::.:::::::e ~·:· ·:·:-~
lf your feo \s not onclosed, your Aegistratton
Fonn wlll be retumed to you and yo\lf SCOfO&
Students with docunent.
phy&lcal, or loamlog dis.t:
collegea 01 a<:holarehlp programa. writo in ~--.. .:.:::::~ =~.:::. ::. ::.~ will be delayed . for special ed~ions of lh1
t.lissts~ .. ..... u~~I'IQ ...... .. .. Wt
tholr codo numbors end fiU In lhe conespond- type, Jarge type, braillo, •
lng ovals . Codas are Nsted on pagas 17-23. Sunday Testlng and are permitted use ol
(lf a coltege or pn)Q•·am is no' listed, see 11 You Need a Fee Walver Sunday testing is available onty tor aludenls
r~rdor, magr'lifylng glal

lf you cannot afford lhotest fee, you may tesllng lime. Acl\ievemer
Cod8 Llsrs: Test Centers and Test Score who cannot tako a test on Saturday becauso
apply for a feo walver 11\rough your guidance Wl regular and largo type.
ReclpJsnts In your school guldance offiCO.) of rel!gious convlc\lons. To be e\ll}lb$8:
Tests eliglble sludcnts m
Your Ice for tho SAT or Achlevement Tests counsolor. Efigi~ soniors or Junlors may
• enter 01-000 in item 10 (under Flr&l devlces and extonded t.in
covers the oost of sending reports to any four receive only ooe ree waiver fOf lhe SAT and
Choice) on your Reglstrallon Form: do not may lake thesa tests a11
oollogos or sd'lolarsl\lp progrnms \ha! you ono lor lho Achlevemcnl Tests which may be
cnter a second choice; times arrangod by the st1
request at lhe timo you rogistor, or on the usod in either tho senior or junior year onty.
• lnc\ude wilh your Reglstralion FOtTn a klller Plan B (Ext&nded Tln
Corroctiorl Form (see page 5), provided tho The waíver covors lhe tes! lee and leo for the
of oxplanatioo oo your cktric'a letlarhead ITlOfO fimited than Plan A .
form ls recelved by Col lego Board ATP by the SAT Quostion·and·Answer Service or SAT
slalionery, signad by your c!eric; and wi1h documented loam!nl
day ot lhe test. You may enter up to folH' · Score VeriflcaUon SeMce (seo pages 6
partlclpale, (2) only the S
more scoro reclplonts in i1em 11b ol tha and 7). 11 does not cover any othar leos. Fee • sond lho Reglstration Form and letter
regular·type SAT and ma
Acglstrotion Form Of tt you re-registar b)' walvers are avallable only lo studenls testing logelher bGioro the regular mgl&traHon answer sheet must tM us
telephooo, for a fee of $6.00 tor oach addl· In thG United Sta les, Puerto Rico, or U.S. doadline (or In time to be roceived by the modatlon ls oflered excea
Uoruil score repor1. Addltional reports may territorios. For rT'IO(O inlormatioo, ask your spoclaJ requests deadllno if tostlng outslde addltlonal testing timo, (5
a1so be requested al any tima by lolephona counselor elther to consult !he 199,.92 !he Unitod States or Puorto Aleo). lf you avallablo (Novombor 2, t
(pago 6), or on \he Addilional Aoport Requost GuJdolines and Procodures for Dislributlng miss lhe late roglstration deadJine and wlsh 1992), and (6) tho tost m•
Forrn (paga 8), Of through telephono Rush ATP FH Wslver.s or lo can the Collego Board to test on a Sunday as a standby, you must COOI&r listed Wl this 8uflet
Ropo!11ng (pago 6). Regk>nal Offic:o \ha\ serves your state. take with you the letter from YOll" cleric. tion·and·Answor SoiVicG
Note: Your rogbtrnUon C8MOt be prooessed Soe "Testlng as a Standby,· ab<wO. pago 6).

be-
un!oss tho o.ppropria1o iee-waiver catd is Candidatos ro-rogls tertng by telephone A Res¡latr.tlon Form e
Hem 13: Use tho following abbrev¡¿¡tJoos for flt'ldoood. A lotlor from your CJOtJIUalor 1$ not {GOO pago 2) wi/1 be ass.lgned toa Sunday lorm required by ATP Ser
streel addresses. acoopfablo. lf "PJ do not endose a fe&.waiver center onty if thoy testod on a Sunday c.appod Students must be
can!. }'OUT Reg/slm#on Fonn .,;r praviously. wooks priot to adminlslrat
~
AvMuo :
.. mM .......
AVE l'ulcw7t . .
.N
PKV
llouWYJtd ......... . IRVO l"ii:t .. . ..... . . ...... PI
and yoo may mtss the teg\stra6on dea<h.
Sunday •'*"'"""""""" to1ow oac11 Sanroay
by regular ragistratton do1
(September27,199 1, lor
: '.....:::"O:::::.::.';".!.:a~:bo
b ................ BX Plau ............ PI..
llrtlado¡qy ... . .. . 80Wt Pok'lt ...
Otde . .. .. Ct l'ol1 ........
.. ... .. PT
.. PAT
To Register Late Mareh 27, 1992, fot May).
Cow1 ..... .......... CT PtmO!fu . . . PO lf you miss the regular r&gislralion dead~ no. May 31 . ln 1991-92, Sunday actrni"llstmtions w11 PracUce mstarlal1 tor
Dlt.oe ... • ... DR RIJI'd ... .. .... .. AD
yoo can stlll rogister by tho late roglstratlon de~live booldot wi1h a.

=·. . . . . . .
Eut . . .. f. Rootl . . RT be on November 3, Decembor e, January 26,
Fort ... .. ..... fl so..ttl . .S doad~ne. (Seo calondar, back covor.J How- Apri\5, May 3, anct May31 . 1n stateswhef'e the sampfe SAT (togulo.r type,
~IdeA -- ·.:·. ~~ ~ ever, Regislration Forms postmari(ed after SAT b given in October, the &n;Jay $esl date 01 casset1e), and sampla t
~. • :· ••. HTSTIII'r._ . • • • . lEA
the regular ragistratlon deadline muat be will bo Octobcr 13. (Students leS!Wlgin New YOfk sure to ask your counsefo.
HS~T:::::::
Movn1 .. .. ..
....~ :.::'~ ~=~ -.-.-.- -:..::......
.. MT Wlt .
: ::·: ~
. WY
accompanled by e.n additlonal $15.00 lato
reglstratlon reo. Aogistrolion Forms post-
State should consuft !he &Chedu4e htho
New ~ Sfste Eldílion or the 8WJ91in) May 31s
mstorials in p!onty of time
ping Rnd practico. FOf PI&
~ lllN~ . .. ...... . W
Noc'lh ... • ..... N marked alter the late reglstration deadline wiM !he on~ S\.rlda.y aatlinlstration tor wtK:f1 fJe is avoilab&e from your guid
be retumed. Studenls registering Jatethrough SAT Ooostion..and-Answer SeMoe is avaRable. Scor. ntporla for any a
Easy Ao-Reglstrallon wiU be bllled the tate lee. Testing 00 both Saturday and Sooday ls lhrough ATP Servlces foi t
lf your street addrass has a fractlon, k>avo Late reglstralion ls noJ evailablo lo sludonts : not pormittod, and scores from both days wift Studonta will lndlcate tl\at ·
a blank box alter the whole number, thon who tost oulskto lhe United Sl atos and not be reportad. tlle SATorlheAchiGvomer
entor the numerator kllha nem box.. a slash Puerto Rloo Of lo &tudenls who test through "'nonslandard admlnlslralk
In th9 next, and the OOnominalor in the noxt. ATP Sarvices for Hendicapped Studenls. requires nelther speclal en
AU In !he corresponding ovals (lho oval tor 11 You Need a oxtondod tosting time, you
lhe slash /s at the bot1om of lho column of Testlng as a Standby Slgn·Language lnturpreter tho regular national progra
ovals). For examplo, you would enlar the SIUdents wilh tcmporar:
11 you miss thc lato rogislration deadlino, you Sludents who ore doaf or hard of heariog
addres.s 24'h as foUows: broken erm. for instance -
may slill be able to take the tost as a standby. rnay briog an Interpretar to slgn \he introduc·
for a lahn dale in lho rogul:
Howevor, thero la no guar&nlee: tos! tory ln9lrucflons to \he 'SAT or Achlovement
gram. Howavor, if you neot
cenlers accept standbys - on a firsH:ome, Tests. Fo\lowk'lg the lnstrucliOM, tho &lgnor
firs t·sorvod basls - only illhoy havo suffi- must loave the tos! room. Addi11onal testlng

460

J..: ...
 1ENTS . SEL. CONTRACTS & STANDARD FORM AGREEMENTS

timo ls not available undor lhis oplion. Scoro application doadline, ask your counselor to
naterial.s, and stafl. Don't (Of\$ChoOIIetltotoud')
report& wiH not indicate that lhe studonl took contact ATP Services lar Handicapped
n~mts with test supervl· N-orst...Ot<v
the test al a -nonstandard administration.· To Stuclonts.
ilu$9 they wi\1 no\ know it Ue~ Waigtot
be ellg!bkt, the studont or guldlilncG counsetor
ly, aniv8 al a test cantar
Jh you wiU not be
·registered candidatas
must notify the test center supervisOf" severa!
days befare the tasi. Al so, !he student and
signer óhould atrive earty a tthe cenler.
Your Admission Ticket/
Conection Form
...
E-,.~

folheATPTnt~el
Halo(;olot

Supemsor. ·
You will rocaive an admlssion packel al y0ur Thtt.Mtltlo .. dewtlediJXIYitts 11il.tl.odolllllllll'oi:ll
3.ke wlth you:_ mailing address belore the test dale. t1 will 5oet'ootandhni;gn.dlhiadoa..nl«<titlmy~.
ilration Form, sealed ln Students wlth Dlsabilities coolaln your Admisslon Ticket wilh attached Sigll~&oiSI\.dtnt OGie
•elope along wilh a check · Eligibility requiremenls and accommodations Conoctlon Fonn and an Additional Roport $9\&luledCo..lst'lol'
o cash), payable lo ara explained in lnfomJstlon for Students wilh Request Form {see page 6). tf your packat 01P~
g Program, fOf" the Sp$Cial NHds and In rogislralion material$ doea not an-lve by the Wedmt&da:y before
>e and the adclil\of\al available in your guidanco officc, or ask your the te-at. cal! ~n1·7600. . · lamhpel$0t'l~de~atldsigovluJ•
e;and . counseklr lo write ATP Servtces for Handi- H you lote your Admtuton T1cket, call lfC)pell,._. . • .,.,~thkdoct.merolinlhe

:.1 will not be adrnitted capped S1udents, P.O. Box 6226, Princeton, 609·n1.7600 foryour regl:stration number pr-ewnotoiWII.t~~sqllonJ>edóryolf"leiHl

NJ 08541-6226. Two optlons are available. and the neme and address ot your asslgned Sq.a-t""'dSII.dwol Cate
Plan A {SpeeLII Accommodatlons). test cofl!er. When you arrive atthe test
tosed, your Registratioo contor, explain lo the lesl center supervisor. 11
Students with docomantod \llsual, hearing, A watch might be helpful, but you cannot
d lo Y.OU and your scorea you have acceptable idoolification (soo
physlcal, or leamlng disabiliHes may register take a watch with an alarm or a calculator, Or
lor special editions of lhe SAl (in regular examptes below), you will be adqlitted. a watch that beeps. Olhor thlngs you may
type, larga type. braillo. or cassetle versions) NOT take lnto !he test room incJude:
and are pennitled use ol certaio aids (reader,
r~rdor, mag'\ifylng g\ass) and exteodod
Changing Your Test Choice, T • food Ot drink
allable only for sludenls
tesling lime. Achievement Tests are available
Test Date, or Test Center • scratch paper
~si on Saturday because To ctlange your teat chotee (lrom SAT to
in regular and larga type. For Achiovemont • notes, books, diclionaries
.ns. To be ellgi~: Achievomenls or vM;e versa), test date, or
Tests eliglb4o students may use magnifying • calcu\ators of any kind (eKCOpllor lho Level
tm 10 {under F'irst devlcos and extonded lime. Eligible students test center, call609·n1·7600 by Wédnes-
IIC MathcmalicsAchkJVOI"Ilent Test. See
leglstration Fonn: do not may lake thesa tests al lhelr home sdlool al day two aod one·hatf woeks before the test
Tsking tho Achiel/8ment Tosrs for !he list of
oice; times arrangod by the studenl and counsotor. date . Soe paga 2 for instrucUons.
.awroved cak:ulators.)
ReglstraHon Form a letler Pf•n B (EXtended Time Only}. Thts plan i:s
• compassos, protractors., rulars, Of any
your cleric's letterhead more limi1ed than PlanA: (1) only students Dn the Test Day otherakfs
by your cleric; and wilh documented kJaming disabililles may Arri'JB at the teat center botw~n 8:00 and
participate. (2) only the SATis available. (3) a 8:15a.m. Takewilh yoo: • portable listening or rocordlng devlces o(
tion Form and letter nny kind (with or wilhout oarphones) or
regular·type SAT and machine·scannablo
e regularreglstration • Your Admlulon Tlcket
onswer sheet must be usad. (4) no accom· photographic equipment
e to be rocoiv&d by the modation is offered except 90 minutas of • l'Wo No. 2 (soft..ftled) penclle and a good
)oa.dllne lf losllng outskJe additional testing time, (5) only two dates are oraser
or Puerto Ak:o). 11 you &va~ble (Novombor 2, 1991, and May 2, • Acceptable ldenUflcat.lon (requlrod for Taklng the Test
1tratton deadline and wlsh 1992), and (6} the test mus! be laken al a toS1 The test adminlslrellon star16 at 8:30 a.m.
adrnission and may also be chocked
r¡ 86 8 standby, you must cent&rlisted in this Bul!etin. The SATOoos- anytime during tho tost sasslon), wtlich end ends al aboUI12:30 p.m. Vou wlll get a
letter from your cl&nc. tion·and·Answer Sotvlce ls availabfc (sea short break atlho eod of each hour of tosling
mu9tlnclude (1) • photograph ora
Standby," abolle. pago 6). wrltten phyak:el de.crlpUon, (2) your timo. You must W'Ofk. within each section ot
¡lsl<>ring by lelephona A Reglatratfon Form and the additfonal name, and (3) your •lgn•ture. Examples . the tssl only for the tino allott~ lo it. Y!lu wijl
assigned toa Sunday form required by ATP Sorvlces for Handl- ol accoptable ID inctvdo: not be pennitted to go back to a sectk>n onoe
-sted on a Sunday capped Students mus! bo poslmarked shc thal soclion has ended. Your aupoM:sor will
- Vour driver's licons.o
weeks prior lo adminislration of Plan A and koep traek ollasting time. Proctors may walk
by regular reglslralion doadlinos for Plan B -School ldontiriC31ion card oboot the room during the test to chf)Q( on
"""' , _ each Salurday
-e Juno 6 Saturday test (September27, 1991,1or November and - Current passport sludonts' progress.
lnday admillsttatlon wil be March 27, 1992, for May). - Talenl Search idenUrtcation card Beforo the test sterts, tho test supervisor.
~t.ndsy admirdstrations wti PtactJce material• for Plan A aro: a (grades 7 and 8) will givB you all the n~ inslructions.
ecembet 8, Janual)' 26, descriptiva booklot with oompie quostions, First you will be asked to rtllln ldentitylng
- A briaf d&scription ol yoursoll on school
'il'f31. tn staleS where the aample SAT (rogulo.r typo, largo typo, braille, infonnatlon on your answer shoot. Make suru
stationery or on a schooiiD tonnltlat
er, the Sooday 1e:st date Of cassette), and sample answer sheet. Be yo u give the !denticallnforrnatiQn ttlat )tOU.
you have signed In the presoooe of
tudenta tesMg 11 NtFN Ved< sure to ask your counselor to order practico gava on your Roglstraüon Form Of your
malerials in plomy of time to allow for ship- your principal or guldance counselor,
Correctlon Fonn. Any dlrfM'ItflC&8 betweon
ho schedule ri ""' who must also sigo lt. Your school can
no!lhe8ullebil.)May3b plng e.nd prectice. FOf" Plan B. Taking lhB SAT the ldanllfylng lnformatlon on your ·
prepare an ID fonn using lha exampkl
ln\sllationlotwhlch!ho l:s avoilablo from your guidance offiCe. anawer ah MI and your 'reglatraUon record
illuslrated above. Your name. physlc:al
tswer Service is avaJ'labkt. ScoJw l"1lpOrb. for any stodent who tests wtll defay your •~-
ooscripllon. and signatura mu;st be
~lutday and Sooday ls
lhroughATP Services foi HandicaJ)Ped Whon yoo take lhe tes1, be su re lhal you •
included. Vou may be asked to slgn tho
• cores ftotn .both days wln S1udenl$ wiU lndlcate thal the student look mark your answers onty on 1ho answor sh!Ktl.
documoot again at !he tost contor.
the SAT ortho Achlevement Tests al a You may uso the test boolo: for scro.tch work,
-nonstandartl administralion.• lf your disability Eleamples ol utu~ceeptable 10 include a bu1 you will not recelvo credit for any
requires netther speclal afl"9ngemonts nor social &ecurity card, parant's drivet's lk:onse, responses wrilten in lt.
oldondod testing time, you should rogistor for ora birth certilicate (lncludlng waUet-size birth To preven! any 5tudent from galnlng en
the regular national program. cer1ifieatos avaij¡lble In some slales).
1 Interpretar Students with tomporery dlaabllltlea- e IF YOU OON7 TAKE ACCEPTABLE 10
unfair ad'olanlege ove'r othors, ce11ain proce-
dures or regulatlons ore enforced by "ETS lhat
1af or hard of hearing
broken arm, lor instan<:e - should régislor WlTH YOU TO THE TEST CENTER, YOU allow studGnts an equal opportunity todo
eter lo slgn "the in\roduc-
lora latar date in the t&Qular nation.al pro- WILL NOT BE PERMIITEO TO TAKE thoir bes! on thBiesl. Sludenls may be
le ·sAT or Achlevement
gram. Howover, if you noed to moot an THETEST. dismlssed lrom lhe 1esllng room or may havo
Jnstructioos, the signar
room. Additlonal tesllng

461
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. C

their scores canceJed it they lailto follow any oach report is $6.00. Mako your requeS1 at ETS believes there ls roason to questlon tho Satutday, Novemb<
ol tM to51ing lnS1rvclions given by the test leaat Hve weeks bofore the date you want score'& validity. Before lest scoros aro · Saturday, Janua.y:
supervisor. or colloges and scholarship programs to cancoled for misconduct, tho &tudont is Saturday, April 4, 11
• attempt lo remove trorn the test room any receive your ropon. Once recelved, the notifiOd Md g~en nn .oPPortun;ty lo provide Saturday, May 2, 11
pa" of a test book or any notes refating lo requeat cannot be earM;:eled. additional flfoonatlon . Whon tost seotOS aro · Sunday, May 3, 19t
thei0$1 · ~ bocaustl of·admlnlstrative irregúlari·
Tho feo fot the SAT Qu
• atlempllo take tho tost for someooe als&
• give or rocoive asslstanca during tho test
To Rush Scores T
h takos about three weeksto SCOte all the
ties, SUch as lmpropor tlming or defoctlvo
materia!s, tho sludentls given an opportunity
10 take the tost again as soon as pos.siblo at.
Service ls S10.00. You m;
reglater tor the test orup·
!he test date. Fil in the .,:
• creete a diS1urbanoe tests, and another two woeks lo send out alt the College Board's expenso.
ftem 18ofthe~stratkx
the scores. However, if you want colleges to YJh&n tho vafid1ty of a t~»t seo re ls qoos-
• read 01 work on one aaction ot !he test when you can il tor Eaay
get your scores laste( ·you can calt lo re<~uest tioned becaus& it may hav& been obtained
durlng lime aRowed tor ·another or c:ontinue compJete the order lonn •
A~ Reportlng. Whon you order Rush unfllir1y, ETS notifles tho tost taker of the
lo worX aher time ls eallod Yovr Coltege Pfanning ~
Roportlng, your scores are sent wrthln two roasons Jor quostlonlng the score and 9iv~» ·
• look through the test book before lha start panles your score report.
worklng day& afler your test has been SCOfed; hlm or her an opportooity to provide add¡..
olthetest seiVioe when you regi.at&r
your teatla no1 .cored taater. Seo page 2 tionat inJoonation, lo conflrm the questioned
mailod about elght woeka
• Jeave the test room wllhout pormtss\on lor lnslrue1ions and fees. SOOfe by taking the te~t agaln•.orlo authorize
are available. JI you use tt
e uso any ol the prohibitod alds ETS to cancollhe score and reoeive a·refond
Uslng Your Coihlge Plann
of all test feos.
• tako food or drink lnto tho test room Stopping Automatlc will be mailed about elght
In additlon, tho testtaker can request third-
request is roceivod.
Reportlng of Scores party revlew ol the manor by asking any
This service does noe In
Score Reports Your test sooros and tho informalion you givo lnstitution to rovJew tho inlormatlon and make
lhe oquatlng section of tt'u
You wm receive your College Planning about yoursetf are coofidentlal. Excopt for its own doetsion about accoptlng a score that ·
ment Tosts, oran SAT glv
Aopof1, wtlich includ9s your scores, at your m ay be invatid or by asklng thal a momber ol
certaln statit scholarship and guklance dale or uoder Plan A for 1r
homo addros.s about frvo wooks altor the test. tho American Atbitration AssociaUon albitra.to
programs, your scores are SOn1 only lo the dlsabilitles.
Some scores may take loogor to report, lnstitutions you hove specifiCSIIy deslgnatsd.
ETS's action In ac:cordance with ETS proce- ·
Mwever, bocause of probktms such as H you aro from one of the stales lisled be!ow, dures established for thls purpo:se. Speclal
inconsl&tonlldenlif~eatlon Jnforrnation. In any )'OUt $CO(OS wiN be routlnoly sont to tho
excepOOns Md ;:ídditk:lnat detalls of tho SAT Se ore Verifica
~ . you shoukl rocefvo your sooro report prooodures lor questionlng BCOte& and ior You can check the ~
stato'$ scholersh¡p program unless you tell·us
no laler than ttm week• oher tho tost. In thlrd-party reviews ·am avaitable ·upon · answor ahom by roquosUr
olhorwJ.se. Sooroo are sen! for all junlors in
order to kHP your •corea eonfkienllal, roquost.
Pennsylvanla and for all juniora ¡n ll ~nois who Voriflcation Servloe. You "
they wUI not b& glven on the telephone. take the 1os1 botwoon Soptomber t, 1991, your answer sheet, the co
Pf ...N do not "11 to . .k for your acores. and Jl.I'Kt 30, 1992. In New Jersey, Ahode instructions for seoring, b\1
U you reques!od thol your scores bo eent to lsland, and Maryland, scores are sent
Archlved Scores recoive the test questions.
coltegos or SC:hofarshfp pmgrBms, a rapo" Thero ls nn adcitional $5.00 feo lo report
followlng tho junior yoar and agaln In tho availabte for all SAT !Ht d
wil be sonlto each, usually within loor weeks scores moru than one yesr aftec' your high
middlo ot tho seniOt yoor. In Washington for whlch the SAT OuosUo
altef the test Your high school wiD also school graduatlon. rn addi'tlon lo yoor curren! Se Mee is avala~. {Sea 1
state, soores are sent for aU juo'ors who take
receive a score report U you provided your name and addross, ~ase provide your wlth diaabilities who lost u
the test between September 1, 1991 and
high schoo' coda nurnbor. nome and address at th6 lime you tostad eügiblo. You may order IN!
Juno 7, 1992. 11 you onond school or livo In
lheM roports are cumulatlve: thoy i'lclude ono of thasa statea and do not want yoor roceiYe your scont report 1
infonnatlon you gave on lho Student Oescrip- month$ a flor ttKt tost dato.
tlve Questionnalre, end scores IOt up to six
scores sent lo tho stalo scholan;hip or Mlsslng Scores order torm in lho booklet (.
guldanoe progrem, write Col lego Board ATP,
SAT and &ix Achievement Test administra· 11 prevJoua ecorea 8ro mlsslng from your· Planning Raporl. 1he feo i
P.O. Box 6200, Priocoton, NJ 08541-6200, by
tions. You eannot .end only yourlatett or Colego PSannlng Aapo1t, call609-n1-'t600
the ~owing deadlinea: Rhode lsland and reeoJvo the matertaJa abou
hlgh•t teOtH, or .eperat• ae~ for the Board ATP, Atterrtion: •
0t write lo College
Now J8f'50)' (seniora). Jnnuary 31, 1992: yoor roqUO$l i.s roooivod.
SAT, T6WE, or ACh'-tvernent Tests. Undar Unreported Scoros, P.O. Bo.IC 6200,
MaryiMd, FobruOJY 15, 1992; Poonsylvanla,
curront proceduros, your sooros aro kopt Princotoo, NJ 08541-6200. Please provkie
May 31, 1992; IHínols, Rhodo lsland, and
indafflitely. Howovor, sooros moro than rl\lc NewJersey(junlors),August1, 1992;
klentlfication fnlormation. test dal.os ka lhé Hand Scorlng Servil
years old will be accompankJd by a mossago unreportod sooros, and prey~ score In addition 10 machlne ~&C<M
Washklgton ji.K'IIore, Juno 15, 1992. recipienta to 'Ntlich you wanl updnted reports
oxpfainlng that they may be )0$$ valkt reqoestthat your answer S
prodlc1ors ot oolloge ocodomlc perfotmaneo sont (lhey will bo sent at no charg9). IKOnHf by 8 han<f..$COffng 1
11 you havo takon moro !han sll. SATs, or .
lhBn more recent scoms woukf be. Cancellatlon of Scores Achievoment Tosts oo rnon1 than· sil: ttfst
scorfng la availabkl foral t•
YotX Conogo Planning Aeport will also lis!: tests - SAT, TSWE, and tt
·aH the colloges end ocholarship progrOtfls bJ the College Board dates, or have been out ol hlgh s.chool moro Tests. (For the Er,gllsh Con
yoo do.signafed lo I'OCOivo score ropor1s, whh The College Board i.s obtigated to repor1 than two years, your anUro record ~a.nnot 00 ment TeS1 wllh Easey, only
descriptiva and deadllne lnformatlon about &COrOS that aocuratoty rofloct your porfor· combinad, but r&productions trom rrúcrofiche choice portion wll be hand
each ol thé coll&ges liatod. (Tho 11&1 of eolloges manco. F01lhla reason, ETS malntaiM, on ol your unreportod soores will be s.enl. lf yoV ossays are routlnoty read b
daos not appear on r&ports sent lo colleges.) bohaH of the Colloge Board, test adminlstra- teslln the S8V91lth 01 ~th grade,.th06& two expert readers.)
Uon and test socunty &lando.tds doslgnod to scores are removed from your ~los al the or:xf . Yoo will receive a ktUer a
To Send Addltlonal Score Reports ae.sure that alltost takors aro given tho sarno of that tesling year. computatkHl ol your soorea
opportunily to domonstrate tholr abilitles and the original seorlng of the a
•~:v~o~::t~~:~::,e:, T
colleges caA 609-n1-7BOO. Soo page 2
to preven1arry atudent from galning an unfair
odvanlage over others b6caus& of tosting
lrTegutaritles or mlsconduct. ETS routinely
SAT Questlon·and·Answer Sarvice
You can got a oopy of the verbal ruld meth-
found, lhe hand &OOrirlg fea
In the unfikety event that so
hand scoms wil prevan, 81"11
IOt instruc:Uons ond feos. reviews lnegulariUes ond tet~t scores bolievod em&bl &octions of the SAT you look1 and a · of your scores wiH be notitit
OR to bo oamed undor unusoal or quoslionab#e copy ol your answer sheet, the corroct You may order hand scor
• S&nd in an Additlonal Report R&q..~est clrcumstanoos. · answers, and scoring inatrucUons, lf you rocoive yolH SCOfO report ar
Form. You recoived ono wllh your admls· ETS reservos !he righl to cancel any tost order lh!l SAT Ouostion·ond-Answ6r SofYico. months alter lho test date. C
sion packot. Additiooal forms are ave~abkl scoro if tho student ongagog in mlsoonduct, lf Thls sorv'oo ls av.ailabl~ OQiy tor fho SAT order fonn in lh& bookktt u,
lrom your guKJanco counselor. lhe too for thMa;, an aclmlnlstralion irregulartty, m it lakon on the fol towifl9 dates: PIIJllning Repon or senda 1

462
l¡fENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

s roason to questlon the Saturdat. November 2, 1991 Board ATP,f. O. Box 6203, Prinooton, NJ
Contact ETS by ttle Wednesday att.er the
re test ISCOros aro Saturday, Janu:;uy 25, 1992 06541-6200. lnclude your tBSI date and your
t&at dtte
duc1, the stUdent 1s Salurday, April4, 1992 name, birth date, sex, registration number,
,.._ 1""""' 1''''"
' opportunity lo provide Saturday, May 2, 1992 streel, city, slale.-and z" code, the name,
'" .
n. Yo/hon tost seoros are

- ¡"'"...., r::es
city, and state of your l9sl contar, and your lbc:Mllnl
Sunday, May 3. 1992
r adminislralive irregulari·
er llming or deloctfvo
The fee fcw the SAT Queslion-and-Answer
signatura. The fee for tho Hand ScoMg
Servlco ls $25.00 fOf an tosts taken on tho
""" ¡....... 1""'""
Servioe ls $10.00. You may arder i1 when you •114IP<il$: ATPTI:SC
11 is given an OppOrtunity
registM for lhe tost or up lo riVe months atter
samo date. Requests receivod without a 1:.:,..,. 1~:=~
, as soon as po:ssiblo al
expense.
the test dale. Fll in lhe appropriate oval In
slgnatura oi foewia be retumad. You wlll
recoive the lettor about oighl woeb aftor your
""""
~-5.20-109.l:60!H~·~•olti0t-711·7Mt
of a test score ls ques·
hem 18 of the ~strallon Fonn, roquest it
wheo you cal r.lcw Easy Ro--Registration, or
requesl is receivod. "'" lfit».m-1906
1y haV& beeo obtaned tnn:; &43420f0UT1STSVPRIII
compk)te the order fonn In the booklet Using
; tho teS1 takor ot lho rw.t SI0-685·SI59210UCTISTSYC
YOtK Collilg(l P1aming Repott, which accom-
tlng the score and gives
panles yoor scont report. JI you requestthe
To Questlon a Test Question tat.~t: EOUCitsnvs
tunity to provlde add¡.. H you rll'ld an error ot él~TliMguity In a test
seMce whenyou regiater, materials wiH be IMn'lig)ll U. S. PosllfStrk.tfloofm!Mt:
1 connnn the queslioned question, please repot1 it lo !he test supervi-
maikKI abo4A c»¡jrt woek$ after your scoros ~ P.O.b62'2'8,f'ñrlcdM..kJO&S41-6211
:est agatn, orlo authoñze sor on lho test day Of notity ETS by UHt
are IIV8ilable. lf you use thG order form in W'ci-Ao(llllr<~lwnoice:
::ore and receive a refund Wednesday atter the teat dato. (See tho
Using YourColfeQs PfBMing Roporl, material Oowrlflli'IO!HYI;.l440l-Ftrr,N.
char1, right, for lnsttuctlons.)
will be maiod about e'9hl WGOkt> after your lftt1on,NJOI61l
st takor can requesllhird- lncludo the test dale, the name and
request ls recoiwd. Fio~-<llu (ea.onltbeusedto~oyala11!umionl
natter by asking any This servicedoes not lnclude !he TSWE,
address of !he test cantar, tho namo or tho
..at. CI:Jic9t&oltdTN~~
-thO inlorrnauon and rnako test. the test soction, the test quostion (as (~l~Strloc.a.
lhe equaüng seclion ol the SAT, the Achiav~
M accepting a soore tt\31 mont Tests, oran SAT givon on any ofhor
weH as you can remember), and a n explana- P. 06oJ.6656.Pr«AAICII\HJOI$-41~
• asklng lhat a mombor of tion of your concem.
dato or under Plan A lot' studcnts wi1h
ttion Association arbitra te ETS will send you a writton rosponso after
dlsabititles. raquostlor cancoHatiorl, and scoros 11om al!
ndanco wi\h ETS prpc&- your ioqulry has b&en roviewed by subjoct-
Achievement Tests takan on that date wil be
"this purpose. Spoclal m attor specialials. U the responso doos not
cancelad. You cannot gel a refund if you
i1ional dotalts of tho SAT Score VMiflcatlon Servlce rosotvo your ooncem, you can request that
cancel your SAT Of" Achiovomeol Toat sooros.
;tionlng SCOfee and fOf You can check the scoring of your SAT th e Director of Teal Oavalopmont lnh.late
11 you decido lo cancel your seo res aftet
tre availablo opon anGWOf' shoet by roquosllng tho SAT Scoro fur1hot nMews of yOUf lnqulry. lf you slill havo
you leavelhe le.st conler. you must notity
Verification SoMoe. You will rocolvo a copy of conc.ems, you can reque&t a fonnsl roviow of
ETS by the Wec:tne.dey tftef the te.et date.
your answer sheet, tho corred answors, and your ioquiry by an indopendent roview panel.
(Sea thG chart aboYo.) lncludo your te st date,
i'l&lructK>ns for &COring, but you will not Coplos of ETS's prooadures for resoNing
your losl contar numbor, thG 1est you wanlto
llS recoiv& th& test questlons. The sel'\lice ls inquiries aboul test questions can bo
cancel (SATo.- Achtavement Testa), your laal
al $5.00 f9fl lo roport availab'e f01 al SAT test dates except those Obt.ainod by writing to Collego Board Test
name, first nomo, and midde initiaJ, address,
ll9 yaar after y04Jf hiQh for wNch the SAT Q.H,stion-and-Answor Oovolopmont, EducaOOnaJ Testing Sorvice.
sox, blrth dato, social socurity number, and
n addi'tkMl to yourcurront So~ ls availsblo. (Soo above.) Sludonts P.O. Box 6656, Prinoaton, NJ 08541-6656.
reglstraUon numbar. Once your requut: for
please prov;de your with <babitities who tosC undor Plan A aro no\ tf your lnquiry cono&m& a tes1 tor whlch lho
c.ncellng acores h111 breen recelved, your
at Hie rime you tasted. eHgiblo. You may Ofdor thls service alter you SAT Ouostioh·and-Answer Servk:e is avail-
acores eartnot be refnttated and wtll not
receive 'f04JI &OOt8 repoft and up lo frVe ablo, ETS d retain YfAK letter (with your
be reported to you or y out _dMignated
monlhs after 1he tost dato. Comploto tho tdontfficalion ~ aJong with olher lotters
S lntUtutJona.
order form In 1M bodtl81 Using Your Collf196 concemlng the leste. Vou can obtaln copies
ro mls.slng from your P18nning Repon. The lee is $8.00. Vou will of thls corrospondonco Jora nornilal lee by
BpOrt, cal! GOO-n1-7600 recoNo the matoñats abou1 olght woekS aMor wriHng to tho aboYo addres.s. 11 You're Absent from a Test
Joard ATP, Attentioo: yoor roquosl is rocoivod. U you wera absont lrom a test for which yoo
P.O. Box 6200, had rogistored and want lo test on onothot'
1-6200. Please prOYide To Complaln about lile Test Center dato. call609-n1-7600. You wltl be charged
ation, test dolO$ for tho Hand Scorlng Service lf yoU havo a complaint abou1 tho tos.t contor lhe $15.00t&61 datochange lee.
Elnd ptevlous SCOfe In additlon to machine fJC'Oring, you can or tho conditions ondar whlch you were 11 you ware ab&ent and do not want lo test
fOO want updaled rnports reque.stlhat )'Ollf answer sheet be hand tostad, contact ETS by the W.ttMadlly afler oo another dato, you eat1 gol a pt~rtlltl rotund.
lfll at no charge), scored by a han<f..5COring spoeialisl. Hand !he lnl dat. with the name of the test, lho S~n the back ol tho Admis.sion l'icf(et and
moro than sU SATs, or scoring it available for atl test dales for aH te st dato, !he namo and addross of tho tosl rotom il 'l'lithn lwo monlh.s aftor the test dcllo
on moro than six test lttSis- SAT, TSWE. and the Achiovemont contor, ol"'d an oxplanation olthe problom. to CoUego Board ATP, Candidato Refunds,
, 01.1\ ol hlgh school mom Tests. (For the Engllsh Compositlon Achlove- (Seo tho chatt. right.lo< lnstructions.) P.O . Box .6200, Prineoton, NJ 00541-6200. 11
r eotlre rocord co.nooc be menl TeS1 with EBSay, only the multlpl&- you were absont from lho test, no sco1e
Ktuctions trom microflcho cholce portlon wil be ha.nd scored. The mports will bo sont. H yoo lo5l your Admisslotl
JOOres will be sent. lf you ossays ai& routlnely read by a mlnlmum ol To Cancel Your Se ores Ticket, write a lottor to lhe above address
>r alghth Qtada, th060 two export readers.) Aftor the test, yoo may decida that yoo do not roqoesting a refund. lndlcato tho tost tor
1 from your filo& at !he ond You wiii"'C99v8 a letler showing !he want yoor tést soores roportod. To cancel wttlc:h you regist~ and include identifica·
computaüon of your soores. 11 an error In your &c:>O!OS, ask tho tost supervisor foJa !ion infonnat\on. (Soo pago 2.) No refood&
tho orighal scoring ot the answer shoot ls Reque.St to Cancel Test Soorea Form, wil be processed until about ~ week& after
lound, lhe hand &eoring lee wiU bo rofúnded. complete it immadiatety, anc.1 ratum lt to lhe tho tost.
¡nd·AnswBf Service In !he unl'k.ely evenl thal SOOil'IS ditfer, the supervisor be foro you loa ve the room. You wlll recalve a rtfund or S4.00 for
of tho vetbaJ Bnd mato- hand soores will prevan, and the reclplonts You must cancel al &ODreS IOf that test the SAT snd $8.00 for lhe Achlevement
! the SAT you took, and a of yoor soor&S will be notiti&d by kltter. date. 11 you took tha SAT, you may not canool Test•. The teat sorvice feo and late rogtstra-
r sheet, the corroct You may ordef hand scoring .ahor you only your SAT-vorbo.t, or SAT-math, or TSWE tlon loo aro not rafundable. Howover, you
19 instrucUons, H you recoive your soore report and up lo ftve scoro. 11 you look Adlievomonl Tests, you will aU1omatlcally recoive a relund lor any
:lion-ond-Answor Sorvico. monlt'IS aftor lho test dato. Comploto lhe may no! Cancel scoros from lncividuaJ tests. lf additional pak:l scoro roport& ond othor
~e onty for the SAT ordEH' fonn tn the booklot Usfng your CoQogo you erase all fesponses lo an Individual oorvioos you roquostod whon you rogistGrod
r¡g dalas: Planning Reporl or send a \etter to College Achlovom.ont Te$1, il will bG QOnSidorod o for that test dato.

463

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......fu:.f.a..:.<
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. C

Tho Scoro Verificalion .S

Speciallnformalion lor Students Noto,Jhat tho total feos for standby candl·
dates {seo pege 4) In New York State test
Tha Coltoge Board will refoase to tho New
able to studanls who us
Yort( Stato Schola~p Program the names.
Testlngln New York State contors ere $48.00 torthe SAT ($18.00 New addres.ses, and Olher Jdon1itylng infonnation
Handicappod Students.
1hls section oon\alns ilfonnallon aboot leal Yol1c test lee ptus $30.00 standby loa) and ol oll senlors who reglsterod to take the SAT
dates, foos, and special proceduros that $52.00 for lhe AdWeYemenl Tests {$22.00 prior lo Novemb&f 5, 1~1 . and who are New Procedures lor R1
appty to stud9tlts ....tlo reglsler lo take the New York test loe plus $30.00 standby foo). Y()(f( Slate resldents 01 who attend schoolln
SAT end AchieverMnt Tes1s In New York Studonts who reglstared lo takelhe SAT or New Yor1t $tato. Thls procedure will facilitate Challenges to the
State. These modificatlons have been Achlovomont Tests In New YOfk State and the matching or student files so that scorss
adopted by the Colege Board;, order lo who roquost refu\ds because lhey were for all studenlS who authorizod lheir releaao
Scorlng, Wordlng
comply with the New Yortl. Stata Standardizad absenl trom tho test {see page 7) wiO get a are sentto lhe N6W York Stato Scholarshlp Aspects of Test Q
Tes!ing law as enacted in 1979 ond refund ol $5.00 for the SAT; $9.00 fot lhe Program. lf you do not want your namo and lf you haVG any concem
amended in 1980, 1981, 1983. 1966, and Achlovoment Tem. address rolea5(ld for this purpose, notify Q!.!Ostions on the test yo
1987. Tho .,formation In thls soctlon and on Colloge Board ATP, P.O. Sox 6200. Prince- racy olthe scoring, you
the back cover ts subfed lo cttenge if addl· ton, NJ0&541-6200byNovembor8. 1991 .
tlonal am&ndmonts are passed by the New Reglsterlng lor lhe Tesl Collego Board Tost De..,.
York State legislatura and beoome taw. Al! Educational Tesling Ser
• Uso tho spec\al N&W York Stato Aegrstra-
6Chools and eoUeQe$ in Now Yofk Slata will llon Fom'l endosed in this New Yotk Stato Procedures lor Requesting Your P.O. Box 6656
bu notlfied as promptly as po&aibla of any Princolon, New Jersey (
such changes.
Edition ot the BuNetin. SAT Questions, the Correct
• Check tho calendars on !he back cover and Fur1her inlormatioo on 11
paQB 3to bo oore lhat tho t651 you aro
Answers, and a Copr ol Your inquiries about a test qu
Tesl Dates plannlng to take ls offered on the dato lor Answer Sheet aHet You Have page 7 olthls Bvllctin.
In complianco wiUlthc
whlctt you aro rogi~ering.
Ouring 1991·92, lhe SAT and Achklvomont Taken the Test Standardized Tc,sting La
Tests wiK be onered in Naw York State on the • Be sura you include the oorrect l&e (SAT· denco is maintalned re141
U you take the SAT on any of lhe five datas
folkJwing datas. $18.00; Aehlev&menl Test.s-$22.00). listod below, you may obtain lhe SAT Ques· usad In calculatlng scon
Noo.<emWr 2,1991 SAT and Adllevament Tasla lion-end·Answer SoMca, whk:h in<:ludes the Queslion·and·Answer S
O.O.n'tler7, 1991 'SAT and .AC~~Iovemont Tesl& Releaslng Your Scores following: Copies ot this filo can bt
nomlnal·fee by writing te
Januery25, 1992 SAT andAchievoment Tests • A copy of the quostOOs from the two vecbal
A4Jri4, 1992 SATonly to the New York State and two malhemalical seetkms thal are the
May 2, t992 SAT and~ernent Test$ Scholarshlp Program basls of the SAT scoros lnformatlon Requ
Junae:, 1992 'SAT and AchloYGm&nl To~s
• A lisl or corrosponding oorroct answers
As thls edltlon goes to ¡xoss, the New ol the New York S
• The raw se oras used lo ealcu1ate the
'Notlco York S1ate LegisJoluro ls oonsldering the reportad scores Standardized Tes1
The SAT Ouestion-arxJ.Answer Sorvico discontlnuaüon of tho New York State A provlslon ol thls taw ls
18 oot offored ror lhe December o r June Scholarshtp Program. h is not known H • A tabkt to coovart your raw scoras lo the
College Board :scale !ion conceming tho purp
test dates. Theroforo, studonts who l ake lhese scholanlhips wil be con11noed, or proporty rlghts o f thG 1~
the SATs admlnh>lered on Oecember 7. whelhM SAT soores w~l be a b asls tor • A copy o l yoor aoswor sheet agency lo lho l osl.score
199t, and Juno 6. 1992, wíll not be coosldonillon ror thoso sc:holarMips equlty, proceclures l or re
This service is available only for national
entiHed lo receive a copy of tho test durlng 1991·92. H SAT seoros are admlnistrations ot the SAT on the foUowlng and for reviewing chall01
questions, 8fi8'Wef key, and theJr.answer used, the lntonnaUon providod bok:lw datas: qoastlons, and score intl
shoets. However, .students will be dO:Sef'bos the p~ooedures lhat wm be provlded l o test candida
ontmed 10 rooeiwt a copy of tho answer followed. In !he event that SAT scotos Saturday. November 2, 1991 Reg~ration Fonn or soc
key and lhelr answer shoe\3 through the are not ueed for &ddarship purposos, . Saturday, January25, 1992 infotmalion is fumishod ,
SAT Soo"' V-tion SeJViee. none of !:he lnformolion gNen below wiH Seturday, April 4, 1992 othor ATP pvbticallons n
See "'P~ fot Requas1ing Your be applicable. Filal detalla abol.t tho Saturday, May 2, 1992 tosttakers.
SAT auestkM\s• on this pago for further basls for 1991-92 tiew York Stoto Sunday, May 3, 1992
lnfonnatlon about the SAT C>.Htstion·and· Scholarshlps wil be sen1 in the fall ot
You may otder thls servlce when you
Anaw&r Setvlce, which la offerod follow· 1991 lo all socondary school8 In tho
raglster for 006 ollho above SAT dates or up
YourScores
k'\g flve test dates. See also lnformatlon stale by !he DIYI&Jon of EducationaJ Each time you take an A
• TostWlg ol the Naw York State Education to five months aftet thO to.st date. Beginning
about the Soore Vet16cotion Sorvlco on are edded to your porrm
pago 7 ¡, this 8ull9tin. Oepartment 30 days ottor seotea have beon relaased,
which is st01ed al Educa
mat&ria1s wiQ be sent lo 61udon1s who request
SeMco l or the Col\oge 1
tham and who submil the $10 lee. Your
Check the calendar on 1ho back covo r lor The New Yorlt State Schotarshlp Program this record is sont to yO\I
rnquest mu6l be moda wilhin 120 days o.ftor
reglatmtion deadllnes and othor lnfonnation requlrea ttlal etudente who wl&h to be h'gh schoof codo on the
lhe dale lhat scorea are released. You wHI
abolA thO 1811 otfañr.gs. considored for !he 9Cho1ar3hlp awards oo lhtl receive materials &lghl WHks after we a copy ot your roOord ls 1
basls of tholr SAT acores take thl.8 test bcforo recelve your ordar. school and, if you provld
codes. lo !he colloges at
Fees Novembo( 5 ot lholr fnal hlgh school year. To ordor lhe soiVIoe, ahher fiU In the ovaJ
programs you choos&.
lllo lonow\ng lees are for a ll studenls wtlo The latBSI SAT admill:stration that meets 1hls for tho SAT OU$SiiOI'Hlnd·Am;war Servloa In
deadlino b November 2, 1991. Your ATP scoro ropott
reglsler to t.ake tho SAT or tha Achievemant item 18 on tha Reglstrallon Fonn and include
ThA New York State Sla.ndardlzod Tostlng the approprlato loe or complete lho order · ATP scores; you cannol
Testa~ NewYOik Stete In 1091·92. seloctod scOfeS or l o ha.•
Law requires lhat you·specffically oU1horile Conn on tho baek cover of UsinrJ Your CoiJoge
$17.00 SATTestFM the sondlng of al reporta. Your SAT scoros Planning Repott, a bookJet that you recelvo removed from .y our tOCO!
l.J.JlQ NewYM:S1a\eSATSUrtharot' and other lntormation frorn your ATP record want your test seo red at
wí1h your 8COre re port. (The fee tor thls servloo
118.00 TctaiSATFM(NY&ata) wiUbe &&nt to the New Vcrl State Scholar- Your Scores' oo pago 7.
will be waivad for SAT 1&&-walver reciplonts
ship Program if you authorize the re4ease of who wish lo rec:eive this n rorrnatlon.) You akme determine'
$2f.OO Ac:hltwe11"191'1tTMtfe.
your soorea on the New Yolt( SUrte Scholar· The SAT Ouestkw'l·and-Answer Servloe is
w instítution receives yo
l...1Jig NftfYorkStllllf~TestSormuge'
Collogé Board may use 1
m.oo TotaiAch'-rvt~nl Tttt Fee (NY State) ahlp appQcaUon tonn. To do that, you must ovallabkt onty for rogu!ar admWllstrations of
tion you provide for rese
enswer "'yoaw and &lgn the score ralease the SAT on lhe dates Nstod abova. h doea not
•n...WfdlatoM.lHc:l\_,to.SATardAdi~TIISI statement on page 4 of tt\e scholanohip no lntonnation thtlt can t
lnclude the Tost of Standard WriHen Eng1ish
~nlfiiWYoBStatt.I'IM~~tt~~$111otJCCM~Mlmtof appllcaHoo. New YOftt State Sdlotarshlp ls relea.sed without youn
(TSWE), l:he equating soction of the SAT, the
tltooettoiCI>'I~Ia._thtHfwYoñ:Strtl~
appllcatlon fonns are senl by th& State presenl procodures, you
TnÜ'IOu-.r. Ach'evement Tests, Of an SAT g iven on any
Educatlon Oepartmenlto principal& ol oll hlgh indelinlloty.
ottler dale oral speclal admlnistrallons.
Other fees are ~$1 od on tha back covor. schoob in Now Yort State in GOrty Soptem· ATP SCOfOS nsslst adn
The SAT Score Ver1tlcalkln Servico (seo
Feo waivere u.s.odln New York Ste.te wil bor. lf you follow lho pt"ocodures descñbed asUmating your cunan! r
t>age 7) wil be of'lorod for wery SAT edmlnis-
cxtt~e r the New Yorll: Stato surcharges as well above; lhero ls no too for sending rttports to colloge wortt. Sooros mo
tration excepllho$8 lor...miWthe SAT
as the test lees. the Now York Stala ScholaMip Program. Ouestion-end-Anawer S&tvice 1s avoilablo.
will be sent to institvtlon t

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464

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Jw~-
rENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

Tho $coro Verirtcation Service is no\ avail- lhey wlll be accompan)ed by a message .lhe grados of s1odents in freshman Engflsh
1iU refoase to the New abkl to students who use ATP Services for explaining lhat they may be less valid courses al 25 colleges show a median
Program the names, Handicapped Studonls. pmdictors of co!Sege academic performance correlalion of +.39. lñe median correlallon
1ontitylng infonnation than are more recent scores. botwoen SAT·mathematical SCOfBS and
ler&d to take tho SAT Th8 report you recelve and tho repons grados in froshman mathemallcs courses at
:1'91 , andwhooreNaw PracedurH lor Reviewing receiv&d by cotleges and your hi{tl school 29 ooUogoo Gtudiod wos ·1.33.
who anend schoolln oontain scoros thal havo been oonverted lo Allhough mos1 validity sludios loeus on the
rocedure wlll facilltate Challenges to the Keying, tho CollfJ99 Board 200 to 800 scale. Tho prediclion ol lreshman grades, other sludios
t mes so that scores Scoring, Wordlng, or Other CoHege Board does not use ~r your raw use other educalional indlca1or&. Wilson
thorizod their ralease SC04"8 « your reportad s.caled score by itsotf (1983) shows lhal ba\h SAT sooros and hlgh
rt< S1ale Scholars.hip Aspecls ol Test Questions or io combinaHon wilh any other informalion school record aro as valid lor predicling long·
wanl your namo and lf you havo any concoms regarding the lo prodlct in any way your f\Aure acadom1c term grade poln1 average as for fro-shman
:is purpose, no1ify quesllons on the test you took or the accu- performance In any postsecondaty lnsti1ution. grade pointaverage. Aslin (1917), Wi11ingham
). Box 6200, Princ&- racy ollhe scoring, you should write to: However, lhe Collego Board doas prov\de and Breland (1982), Manskl and Wise (1983),
November 8. 1991 . as.sistance to JndMOOal colleges and !Jliversi- and other analyses by the ATP Summary
Col~ Board Tost Oevelopmont
EducaUonal Testing ServÑ:-8 ties to help them use ATP scores, high school Reporting SeMce ~on1irm the elfectivenoss
record, and other rotovanl information in of SAT scores. high school grades, and high
lequestlng Your P.O. BoK 6656
Princeton, New Jersey 08541·6656 makfng appropriate admissions and place-- school ra:nk for pred'ding perslsteoce beyond
he Corree! Further intormation on lhe proceduros lor
ment docisions. the treshman year. W~1inglam. lewis,
Margan, and Aamisl (1990) ttnd Chal if !he
~opy ol Your inquiries about a test queslioo is included on prediction is tor Individual course gradS:S
ter You Have · page 7 ollhis Buflcfin. Relationship of Test Scores Jnsload ol freshmon GPA, avcmgo C01Tela-
In comptiance with the Now York State lions aro highor lor SAT scOros than for hlgh
Slandardized Tc,\ting law, a filO of conespon- to Grades in College school record.
donco is maillta!ned relatod lo test queslioos The basic purpose of lhe SATis lo assist
any ot tho fivo dates admissloos officers in evaluating oppllcations
1btain \he SAT Ques· usod In calcu1ating scores for which the SAT
for admisslon lo college. Studlos have shown
:o, whk:h in<:ludes the QoasUon-and-Answer Sorvioo is avaitabkl.
thal tho use of SAT scoros comblnod With lho Relatlonship of SAl Scores
Coplas ol this fife can bo oblainod lor a
nominal·fee by wrl!ing lo \he above address . high schoot reoord (class rank or grado poinl to Family lncome
ms from !he two verbal averago) lncroasos the accuracy of torecasl· Many valid measures ol oducational achieve·
11 sections 1hat are the ing col lego lreshrnan grades over the use of monl aro found to bé conolaled wlth lamlly
lnformatlon Requlrements either SAT scoros or high school record income IBVel. This is a rnflection of tho fact
~ corroct answers ak>ne. FOf al! G65 coUeges tlal have used tho thal studenls trom lamUI&S with average or
ol the New York State College Board's Validily Study SeMce lo flnd above-averago inoome level oflen have
lto calculato the
Standardized Testing Law oul how well SAT soonts a:nd hígh school educational advantagea lhal student& from
A provislon ol thts law is that ce11aln informa· record prodicted freshman grado polnt low-inoome familfos do nol have. A 1976
ur raw scores to the aVorago (GPA), the moOOn oorreletion" for
tion cooceming tho purposos of lho test, study by K. A, White ot lhe UnlverMy of
property Jights ot the test subjoct and test forocostlllg froshman GPAwas +.36 for 1he Colorado found 1hal the avoraga corretation
~rsheot agency to tho I9SI scoros, to-s! faimess and SAT-verbalscote (thal is, for hall lho colloges between ditferent lndicato~ of oducalionaJ
equity, procedures for releaslng score reports studled, the correlation was hlgher than ....36 achiovomont and famlly lncome was .32.
ble only lor national and tor the other hall it was lower), +.35 for
>AT on !he foUowing and for reviewing challeoges aboullest The corretation of SAT G<:oro& and studonl·
questions, and score interprelation is lo bo the SAT-malhematlcal score, +.42 torthe two reported family lnoomo for two rooent years
pmvidod lo test candidatas along with tho sooms combinad,•• and +.48 for high &ehool was found lo be abou1 .23 alld .29, which ls
wember 2 , 1991 Rogístratioo Form or score report. Thls record. When tho two SAT scoros and high consistent wtth general res.oarch finóngs on
nuory 25, 1992 infotmation is lumishod in fhls Bu1181in and in schod r&e:Of"d were combinad to toreeast the roteUonship ot educalional achlevement
ril4,1992 othor ATP publicalions routlnoty providod lo froshman GPA, tho median correlation and famUy income leva!. Alttlotql average
¡y 2, 1992 losttakors. increased to +.55. Willingham, lewis, SAT scores tood to be hWjlor for studenls
· 3, 1992 Margan, and Raml~l (1990) show thal SAT lrom higher·incomo famllies, stuóonts from
scores are moSf usefulln adding lntormatioo evory lncome leve!, as reportad on the
ervioe wflen you YourScores over hlgh s.choo' record for Sludoots in the Studenl Oe5cripliva OuHtionnalre, obtaln
.hove SAT dates or up Each timo you laXe an ATP lesl, !he scores bottom third oflheir lreshman cla6$, where lhe tuR rengo of SAT soores. Furthermore,
test date. Beginning are added lo your pormaoonl ATP record, crtUcol admlsslons decislons are typ'calty many studonls from fow-lncome familtes do
1\le beon fli!leaaed, .....-hich is stored al Educational Tosting modo . well on the test For 80nlors graduatitg io
• s1udonts who request SoMce for the Collogo Board, and a copy of Still groater accuracy In the forecast of 1990. ono·thlrd of the students with reportad
1e $10 lee. Your thi& record is sent to you. 11 you provide your freshman grades can be oblained by !he lamily inoome beJow $20,000 obleined scores
within 120 daya ottor hlgh school codo: on the Rogistratlon Form, additlon ot Achlovement Test soores. Studies above the natlonal average.
1 roleased. You wlll done tor 133 cofloges haV'8 &hown that the
a copy ol your record is senl to your hlgh
we&ks atter we school and. it you providelho appropriate modlan corrolallon would lncrease lo aboul
codos. lo the colloges and scholarship +.58 if Achievement Test scores wero addod Procedures to Ensure
either fUI In lhe ovaJ programs you choo.so. lo hlgh schoo4 r&COfd and SAT sooros.
'ld·Answer Sorvlce Jn Yoor ATP soore roport conlnins al/ your Tho TSWE is used by sorne col~as to Fairness and Equity
llon Form and inclutkt · ATP SCOJes: you cannol choose lo sond only asslst In placlng sll.ldents in awropñate Al new SAT, TSWE, and Achievemenl Test
omp4ete tho ardor setoctod scores or 10 havo cortain scoros course levols in English. Studies of the quostions, as well as completa new edilions
ot Usirt9 Your COf1o9o rmnovud from .your rouord. (11 you do not ofl"<:!ivonoss of tho TSWE $001"0 In proclictlno of tho to&ls, aro rovlowed by many lndlvkiu·
klet that you recelve wanl your test scored at all, see "To Cancel ats, including ETS staff and extemal commM:-
Tho t&e forthi.a seiVIce Your Soores• on page 7.) tees. One of tho purpo&OO of thesa reviews ts
e&-walver recipionls You alone detBflTiine whethttr ony porsoo forMKlQI'elOI~M~~Sns,lucll"
'ConW!JIXlls lhllniii"ICJ to identlfy and eliminare any won:llng or
1 inlormallon.) or lnstitution rec&ives your report. The '*OM...,wtiOhl.to~oWYt~c.-bln&.dldb~h• content lhat mlght be orten•ive Of inappropri·
Kf..Answer Servioo ls Col!ege board may uso scores aod lnforma- or~ . H. aslnlbftaUol'*'lr!llld~~llotlovt~lgll ate for partic\Jiar groupa Of students, such as
1r admlnl.9:trations of Mcnt~ll~lll•hndt~tblhij\onh~~J.tt>t
tion you provtde lor research purposes, bu1 coo~ its.Mitobep0i$Jiroot.Yrt.-lahlgh~""tnt racial or ethnic groups ot atudenta or men or
rtod abovo. 1t does no1 no lntonnalion that can be IOOntlfiod with you c.twxi.nstlcb.~-Mthltv......,....OA...,.,_.Ihl women. In addition. care islaken lo ast.~ura
dard Wrftten Eng1i3h is releasod withoul your conson1. Undor con$110alss.al6tobll'leglliw.Mo1'11Scftmlilq.-..t*'ottrol Chal \he lost as a whole ioctude& reforonces
oction of tho SAT, the llmti111UtllrNifwoJ$,:1hwe~CCNI&Iion, betauW.as
pro !ion! proceduras, your scores are ratained \J~ Ine/Nst:S.I~M"WIOhWSIJllolci!Jt:rN$ISConfiiiSonls
to both men and womon ond in<ividuaJs from
1n SÁT gCven on any indotiniloly. a variory of racial, ethnlc, and cunuml
SUCtO'as•eoel'lld.trt:•I .OO $lrowsp¡wftctposlltw~
admlnistrations. ATP 54:0105 assist admissions offiC4:lrs In 0.00 mdoalts no rrl~p. ar.d-1 .00 ncle*s pt<1«J fltOI· backgrounds. Statistic& are also used lo
:ation Servlco (seo eslimating your curren! readinoss lo do 1"-twrrÑtior"l. iden1ify questlons !hat aro hardof lora group
or every SAT admlnis· colloge worit. $coros more than live y&ars old ol students lo answor oorrectly than woukl be
" Tho!l'lll o JCG~ n ;w•lle'Qilltdstlllsfal11ore:soPIItoll"ltbe:fl
which the SAT will be sen! lo insti1Uiions al your request, but ¡;on>DifJi toidMollr~GPA. oxpoctod lrom tholr performance on !he l$8t.
iorvice ia available.

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 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. •

2007-08 SAT TERMS AND CONDI'riONS* ' any

e-m
2007-08 IMPORTANT INFORMATION FOR TEST-TAKERS
• obt~
Cancellation of Seo res info
• refe
Test Security Issues sect
.. The College Board and Educational Testing Service (ETS) strive to test
report scores that accurately reflect the performance of every test-taker. • usin
Accordingly, ETS standards and procedures for administering tests have ing•
two primary goals: give all test-takers equivalent opportunities to dem-
onstrate their abilities, and prevent any test-taker from gaining an ·• con~
unfair advantage over others. To promote these objectives, ETS reserves • leav
the right to cancel any test scores when, in its judgment, a testing • leav
irregularity occurs, there is an apparent discrepancy in a test-taker's tion
identification, a test-taker engages in misconduct or plagiarism, or the
• atte:
score is invalid for another reason. Review of scores by ETS is confiden-
part
tial. When, for any of these reasons, ETS cancels a test score that has
already been reported, it notifies score recipients that the score was • atteJ
canceled, but it does not disclose the reason for cancellation unless of tE
authorized to do so by the test-taker, and in certain group cases. or a
test-
Testing irregularities refer to problems with the administration of a
test. When they occur, they may affect an individual or groups of test- • atte1
takers. Such problems include, without limitation, administrative errors • usin
· (e.g., improper timing, improper seating, defective materials, and defec- cent•
.tive equipment); improper access to test content; and other disruptions • usin,
of test administrations (e.g., natural disasters and other emergencies). cent•
When testing irregularities occur, ETS niay decline to score the test, or
cancel the test score. When it is appropriate to do so, ETS gives affected • failü
test-takers the opportunity to take the test again as soon as possible, cont:
without charge. collt
in ar
Identification Discrepancies. When, in, ETS's or test center person-
· Cheating. Altl:
. nel's judgment, there is a discrepancy in a test-taker's identification, the
· security measm
test-taker may be dismissed from the test center; in addition, ETS may
. any unusual hE
decline to score the test, or cancel the test score.
copying from a1
Misconduct. When ETS or test center personnel find that there is access to test ql
misconduct in connection with a test, the test-taker may be dismissed aids), please cor
from the test center, or ETS may decline to score the test or cancel the 5:30p.m. easter
test score. Repeated minor infractions may result in score cancellation. testsecurity@in
Misconduct includes, but is not limited to, will be held strio
• taking any test questions or essay topics from the testing lnvalid Score1
room, giving them to anyone else, or discussing them with substantial evid
of invalid score~
* Copyright © 2007 The College Board. effect at the time Dalton u. Educational
R~printe d with permission . Please note that Testing Service was decicled. handwriting, ur
th e 2007 Terms and Conditions were not in · ferent parts of

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 iJMENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

NS* · anyone else through any means, includ.ing, but not limited to,
e-mail, text messages, or the Internet
)T-TAKERS
• obtaining improper access to the test, a part of the test, Or
information about the test .
• referring to, looking through, or working on any test, or test
section, other than during the testing period for that test or .
(ETS) strive to test section
· every test-taker. • using any prohibited aids in connection with the test, includ-
;tering tests have ing during breaks
rtunities to dem-
from gaining an • consuming food or drink in the test room
res, ETS reserves • leaving the test room without permission
gment, a testing • leaving the building at any time during the test administra-
in a test-taker' s tion, including during breaks
'lagiarism, or the
• attempting in any manner to remove from the test room ariy
ETS is confiden-
part of a test book or any notes relating to the test
st score that has
:tt the score was • attempting to give or receive assistance. Discussion or sharing
ncellation unless of test content during the test administration, during breaks
ain group cases. or after the test is prohibited. Communication with othef
test-takers in any form during the test administratior1. .
ministration of a
>r groups of test- • attempting to take the test for someone else
inistrative errors • using a telephone or cell phone without permission of the. test
erials, and defec- center staff
other disruptions • using a telephone or cell phone without permission ofthe. test
1er emergencies). center staff
score the test, or
,TS gives affected • failing to follow any of the test administration regulations
· soori · as possible, contained in the SAT Registration Booklet, on ·Www.
collegeboard.com, given by the test supervisor, or specified
in any materials · ·
~st center person-
Cheating. Although tests are administered under strict supervision and
:dentification, the
security measures, testing irregularities may sometimes occur. To report
:ldition, ETS may
any unusual behavior or suspicion of cheating (for example, someone
copying from another test-taker, taking a test for someone else, having
.nd that there is access to test questions befare the exam, or using notes or unauthorized
nay be dismissed aids), please contact us by phone at 609 406-5430 between 7:30a.m. and
test o:r: cancel the 5:30p.m. eastern/New York time, by fax at 609 406-9709, or by e-mail at
core cancellation. testsecuritj@info.collegeboard.org as soon as possible. All information
will be held strictly confidential.
from the testing Invalid Scores. ETS may also cancel scores if it judges .that there is
1ssing them with substantial evidence that they are invalid for any other reason. Evidence
of invalid scores may include, without limitation, plagiarism, discrepant
la/ton u. Educational
~ci d e d .
handwriting, unusual answer patterns, inconsistent performance on dif-
ferent parts of the t est, text that is similar to that in other essays;

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 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. C

paraphrasing of text from published sources, and essays that do hot ed to U.S. resid
reflect the independent composition the test is seeking to measure: . For more inforJ
Befare canceling scores pursuant to this paragraph, ETS notifies the which you are i:
test-taker in writing about its concerns, gives the test-taker an opportu- If you are a e
nity to submit information that addresses the concerns, considers any Kentucky, Mar:
such information submitted, and offers the test-taker a choice of options. nía, Rhode Islru
The options include voluntary score cancellation, a free retest, or arbitra~ outside the Uní
tion in accordance with ETS's standarq Arbitration Agreement. In scholarship and
addition, the test-taker is sent a copy of the booklet Why a,nd .How these states dir
Educational Testing Seruice Questions Test Scores that explains this ship selection.
process in greater detail. (Any test-taker may request a copy of this
booklet at any time.) · You can stop tl
want your score
Note: The retest option is not auailable outside the United States and or live in one e
Canada. The arbitration option is auailable only for tests administered in state scholarsh:
the United States. Program, Atten
by no later thar.
Score Reporting
for Massachuse1
General Information. Each time you take an SAT Program test, the January).
scores are added to your permanent SAT Program record; a copy of this
State Scholar1
record is sent to you. If you provide your high school information at the ·
below, your se•
time of registration, a copy of your record is sent to your high school and
program unless
to the colleges and scholarship programs you choose. Your score report·
(except 7th and
contains the six most recent SAT Reasoning Test and six most rece11:t .
Missouri who te
SAT Subject Test reportable scores; you cannot choose to have certain.
juniors in Penr
scores removed from your record. (If you do not want your test scored at .
between Septerr
all see "Score Cancellation" in Section 3.) The report you receive iuid ·
Washington wh1
th~ reports received by colleges and your high school contain scores that gia, Maryland, r
have been converted to the College Board 200-800 scale for all SAT
the junior year
Program tests except the ELPT"' (English Language Proficiency Test"'), ·
scores are sent f
which is reported on a scale of 901-999 (this test was last administer~d
and Tennessee,
in January 2005 and is no longer offered).
school through J
The College Board does not use either your raw score or your reported Releasing You
scaled score by itself or in combination with any other info;rrnation tq
gram. The Ne'
predict in any way your future academic performance in any postsecond-
York State stud·
. ary institution. However, the College Board does provide assistance to
Honors Scholars
individual colleges and universities to help them use SAT Program test
1
the basis of theil
scores, high school record, and other relevant information in making ·
latest SAT admi
appropriate admission and placement decisions.
The New York S
Test scores ar~ the property of the College Board. The College Board cally authorize 1
may use scores and information you provide for research purposes~ but · information fron
other than as indicated below or unless legally compelled (for example, · you authorize th
subject to a subpoena), no personally identifying information is released scholarship. To
without your consent. release statemer.
Scholarships. Most of the scholarships available from the college and application form
scholarship progTams listed in this SAT R egistration Boohlet are restrict- . pals of all high

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'ENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

rs that do not ed to U.S. residents or children of employees of the scholarship sponsors.

g to measure. For more information, contact the colleges and scholarship programs in
'S notifies the which you are interested. ·
:eran opportu- lf you are a citizen of the United States and a resident of Illinois,
considers any Kentucky, Maryland, Massachusetts, Missouri, New Jersey, Pennsylva-
oice of options. nia, Rhode Island, or West Virginia but your current mailing address is
;est, or arbitra- outside the United States or you are using an APO/FPO address, contact
A.greement. In scholarship and guidance programs or government-sponsored agencies in
Why and How thes.e states directly for information on how to be included for scholar-
; explains this ship selection.
a copy of this
You can stop the automatic reporting of your test scores. If you do not
want your scores released to the U.S. government or if you attend school
ted States and or live in one of these states and do not want your scores sent to the
:dministered in state scholarship or guidance program, write to College Board SAT
Program, Attention: Confidentiality, P .O. Box 025505, Miami, FL 33102
by no later than the 15th day after the test date, or by January 2, 2008,
for Massachusetts (or by the 15th day after the test date if testing after
¡gram test, the January) .
.; a copy of this State Scholarship Programs. If you are from one of the states listed
lrmation at the below, your scores will be routinely sent to the state's scholarship
1~gh school and
program unless you tell us otherwise. Scores are sent for all test-takers
ur score report (except 7th and 8th graders and Missouri 9th graders) in Kentucky and
:ix most recent Missouri who test between September 1, 2007, and June 30, 2008; for all
;o have certain juniors in P ennsylvania, Illinois, and Washington who take the test
r test scored at between September 1, 2007, and June 30, 2008; and for all seniors in
ou receive and Washington who test between September and December 2007. In Geor-
;ain scores that gia, Maryland, New Jersey, and Rhode Island, scores are sent following
.le for all SAT the junior year and again in the middle of the senior year. In Texas,
ficiency Test'"), scores are sent for all seniors who test in October 2007. In West Virginia
;t administered and Tennessee, scores are sent for all seniors who tested during high
school through J anuary 2008.
~ your reported Releasing Your Scores to the New York State Scholarship Pro-
information to gram. The New York State Scholarship Program requires that New
my postsecond- York State students who wish to be considered for the Robert C. Byrd
le assistance to Honors Scholarships and Regents Scholarships in Cornell University on
r Program test the basis of their SAT scores take this test before November 1, 2007. The
;ion in making latest SAT administration that meet s this deadline is October 6, 2007.
The New York State Standardized T esting Law requires that you specifi-
College Board cally authorize the sending of all reports. Your SAT scores and other
1 purposes, but information from your record will be sent to the Scholarship Program if
d (for example, you authorize the release of your scores at the time that you apply for a
tion is released scholarship. ·To do that, you must answer "yes" and sign the score
release statement on page 4 of the scholarship application. Scholarship
the college and application forros are sent by the State Education Department to princi-
~let are restrict- pals of all high schools in New York State in December or J anuary. If

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 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. ·

you follow these procedures, there is no fee for sending reports to the predictors of
N ew York State Scholarship Program. would be. Thi
The College Board releases to the New York State Scholarship Program lmowledge of t
the names, addresses, and other identifying information of seniors who and scores ma)
registered to take the SAT prior to November 1, 2007, who are New
York State residents, and who apply for scholarship(s). This procedure Special lrtfor
facilitates the matching of student files so that scores for all students YorkStat
who authorized their release are sent to the New York State Scholarship The California
Program. If you do not want your name and address released for this mation concen
purpose, notify College Board SAT Program, NYS Scholarship Program, subject and tes
P. O. Box 025505, Miami, FL 33102. reports, and sc1
Research and Reporting. Your test scores and the background infor- Statistical info
mation you provide about yourself (not including your name, street future grade pe
address, social security number, or email address) may be used in to the adminis1
research or in aggregate reports about groups of students. In sorne of test scores.
cases-for example, if a validity study is done for the college in which
you have enrolled- all your scores and background information may be The New Yod
included in the study even if you did not request that the SAT Program information co:
send your scores to the college. Your individual scores may be reported test-taker and
to your district or state for educational purposes. For more information procedures for ·
about the guidelines on the uses of College Board test scores and related test questions,
data, ask your counselor or visit www.collegeboard.com/research. with the Regist
Procedures for Keeping Scores on File. Your scores are kept indefi- The informatio
nitely, unless you tested before entering the 9th grade. If you test in the furnished in th
7th or 8th grade, your scores are removed from your file at the end of with score rep•
the year that you tested. If you don't want your scores removed, you along with infc
must let us lmow before the end of June of the year you tested. Talent provided in the
Search Program candidates: see "Scores Earned Before High School" in tion Booklet, w
Section 4 for more information. · · students who p:
Your test scores and your responses to the SAT Questionnaire are Scores and S<
maintained on active file by the SAT Program until June, one year after the scores are 1
your class graduates from high school. (If yo u tested after high school, . this record is s
this information is kept on active file for a full year beyond the year in Registration Fo
which you tested.) Mter that time, these data are placed in an arcbival to the colleges ~
file. Test scores can be obtained from the archival file indefinitely. Your seo re rep•
Reporting Scores More Than One Year After Your High School certain scores r
Graduation. Scores are usually archived one year after high school scored at all, se•
graduation or any account activity. To report archived scores provide You alone dete1
your current name and address, sex, date of birth, and the year you your score rep<
tested, along with your name arid address at that time. See back cover you provide fo
for fee information. Scores from tests taken before 1996 are subject to identified with:
additional charges. The fee covers the cost of looking up your scores and The report you
will be charged whether or not scores can be located. high school conr
Official score reports sent to colleges five or more years after a test date 1 200- 800 scale
are accompanied by a message explaining that they may be less valid ' Language Profi,
1
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ENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

reports to the predictors of college academic performance than more recent scores
would be. This message also notifies colleges that for Subject Tests,
rship Program knowledge of the subject may change given additional study in the area,
)f seniors who and ·scores may beco me less valid predictors within a shorter time period.
who are New
,his procedure Special lnformation for Students Testing in California and New
>r all students York State
tte Scholarship The California Education Code requires that you be given certain infor-
leased for this mation concerning the purposes of the tests, property rights of the test
·ship Program, subject and test agency to the test scores, procedures for releasing score
repprts, and score interpretation.
kground infor- Statistieal information related to the use of test scores in predicting
name, stl·eet futurégrade point averages (GPAs) must be provided to test-takers prior
LY be used in to the administration of the test or coinciding with the initial reporting
ents. In sorne of test. scores.
,Uege in which
The New York State Standardized Testing Law requires that certain
nation may be
information concerning the purposes of the test, property rights of the
SAT Program
test-taker and test agency to the test scores, test fairness and equity,
ay be reported
procedures for releasing score reports and for reviewing challenges about
re information
test questions, and score interpretation be provided to test-takers along
~es and related
with the. Registration Form or score report.
;earch.
The information for both California and New York State test-takers is
tre kept indefi-
furnished in the SAT Registration Booklet and in the material included
you test in the
with. score reports. Complete descriptions of the content of the tests,
~ at the end of
. aloJ1g .w:ith information on test preparation and sample questions, are
removed, you
provided in the SAT Preparation Booklet and SAT Subject Tests Prepara-
tested. Talent
. tión Booklet, which are available without charge from school offices for
igh School" in
students who plan to register for these tests.
,stionnaire are Seores .and Score Reports. Each time yo u take an SAT Program test,
one year after the scores are added to your permanent SAT Program record; a copy of
er high school, this record is sent to you. If you provide the appropriate codes on the
md the year in Registration Form, a copy of your record is sent to your high school and
in an archiva! to tlie colleges and scholarship programs you choose.
le indefinitely. Your score report contains all your scores; you cannot choose to have
High School certairi scores removed from your record. (If you do not want your test
er high school scored at all, see Score Cancellation.)
scores provide You alone determine whether or not any person or institution receives
l the year you yout score report. The College Board may use scores and information
See back cover you provide for research purposes, but no information that can be
are subject to identified with you is released without your consent.
'OUr scores and The report you receive and the reports received by colleges and your
high school contain scores that have been converted to the College Board
fter a test date 2oo.:...soo scale for all SAT Program tests except the ELPT (English
y be less valid La:nguage Proficiency Test), which is reported on a scale of 901-999 (no

471
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL. t

lopger administered). The College Board does not use either your raw particular grot:
sconi or your reported scaled score by itself or in combination with any women. Asses;
other information to predict in any way your future academic perform- references to n
ance in any postsecondary institution. However, the College Board does and cultural l
provide assistance to individual colleges and universities to help them questions that
use SAT Program test scores, high school record, and other relevant than would be
information in making appropriate admission and placement decisions. Relationship
Test scores are· the property of the College Board. The College Board SAT scores an<
may 'use scores and information you provide for research purposes, but found to be ah
other than as indicated below or unless legally cpmpelled (for example, findings on tl
subject toa subpoena), no personally identifying information is released income level. 1
without your consent. dents from hig
Predicting College Grades. The basic purpose of the SAT is to reported on tht
provide information to college admissions staff that will help them to Furthermore, J
evahiate a student's application. Results of research conducted using test. For seni<
· data from 26 colleges show that SAT test scores, in combination with a reported famil~
student's high school grade point average, predict college freshman GPA national avera~
moré accurately than either SAT scores or high school GPA alone. Releasing Yo·
For all college freshmen in the study (N= 110,468), the predictive gram. The N1
validity of an optimally weighted combination of SAT scores and high York State stu
sc~o61 record is .65. The correlation between the critical reading score H9pors Schola1
and freshman GPA is .50; between the math score and freshman GPA is .the basis of the
.52; ·between combined critical reading and math scores and freshman latest SAT adn
· GPA is .55; and between high school GPA and freshman GPA is .58. The NewYork
Typically, the correlation for high school GPA is slightly higher than for cally authorize
combined SAT scores. information frc
The combination of scores and high school GPA raised the correlation you authorize 1
· .10 over scores alone, and .07 over high school record. For males, the scholarship. T1
correlation between the combination of scores and high school GPA with release statem1
. "freshinan GPA is .63, an increase of .09 over scores alone and .07 over application fon
high school GPA. For females, the correlation between the combination pals of all higl:
of scores and high school GPA with freshman GPA is .68, an increase of you follow the!
.07 óver scores alone and .09 over high school GPA. Néw York Statt
All correlations are adjusted for restriction of range so that the full The College Bo
range of scores and high school GPA are the same as for the national the names, adc
college-bound seniors cohort. See how to request SAT Answer-Reporting registered to t;
Services at http://www.collegeboard.com/student/testing/sat/reg/services. York State res
html. In addition, students who took the SAT in California in December facilitates the
2007 can review the test questions .under secure conditions at the ETS who authorizec
Western Field Office in Concord by calling 925 808-2000. Program. If yo
Procedures to Ensure Fairness and Equity. All new SAT Program purpose, notify
test questions and complete new editions of the tests are reviewed by by November 1
niany individuals, including committees whose members are drawn from
all regions of the United States. These reviews help identify and elimi-
nate any wording or content that might be offensive or inappropriate for

472

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íENTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

ither your raw particular g1·oups of students, such as racial or ethnic groups or men or
.ation with any women. Assessment staff ensure that the test as a whole includes
:lemic perform- references to men and women and individuals from varied racial, ethnic,
ege Board does and cultural backgrounds. Statistical procedures are used to identify
3 to help them questions that are harder for a group of students to answer correctly
other relevant than would be expected from their performance on the test.
nent decisions: Relationship of SAT Scores to Family mcome. The correlation of
College Board SAT scores and student reported family income for two recent years was
1 purposes, but found to be about .23 and .29, which is consistent with general research
d (for example, findings on the relationship of educational achievement and family
tion is released income level. Although average SAT scores tend to be higher for stu-
dents from higher-income families, students from every income level, as
the SAT is to reported on the SAT Questionnaire, obtain the full range of SAT scores.
1 help them to Furthermore, many students from low-income families do well on the
mducted using test. For seniors graduating in 2000, one-third of the students with
bination with a reported family income at or below $30,000 obtained scores above the
freshman GPA national average.
>Ol GPA alone. Releasing Your Scores to the New York State Scholarship Pro-
the predictíve gram. The New York State Scholarship Program requires that New
cores and high York State students who wish to be considered for the Robert C. Byrd
1 reading score Honors Scholarships and Regents Scholarships in Cornell University on
eshman GPA is the basis of their SAT scores take this test before November 1, 2007. The
: and freshman latest SAT administration that meets this deadline is October 14, 2007. ·
an GPA is .58. The New York State Standardized Testing Law requires that you speci-fi~ .
higher than for cally authorize the sending of all reports. Your SAT scores and other
information from your record will be sent to the Scholarship Progiai:n if
the correlation you authorize the release of your scores at the time that you apply for a ·
For males, the scholarship. To do that, you must answer "yes" and sign the score .
~hool GPA with release statement on page 4 of the scholarship application. Scholarship ·
1e and .07 over application forms are sent by the State Education Department to princi-
he combination pals of all high schools in New York ptate in December or January. If ·
;, an increase of you follow these procedures, there is no fee for sending reports to the
New York State Scholarship Program.
o that the full Th<;) College Board releases to the New York State Scholarship Program
'or the national the names, addresses, and othe:r; identifying information of seniors who ·
swer-Reporting registered to take the SAT prior to November 1, 2007, who are New
sat/reg/services. York State residents, and who apply for scholarship(s). This procedure
tia in December facilita tes the matching of student files so that scores for all students ·
ons at the ETS who authorized .their release are sent to the New York State Scholarship
Prog1·am. If you do not want your name and address released for this
v SAT Prog1·am purpose, notify College Board SAT Program, P.O. Box, Miami, FL 33102,
tte reviewed by by November 1, 2007.
are drawn from
ntify and elimi-
tappropriaté for
1
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 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.

BORAT RELEASE* befo re, and ndjudi·

York, und~r the In
STANDARD CONSENT AOREEMENT

This is an ngreemcnt betweon Springlond l'ilms (the "Producer'') ond the underslgrted pnrticipnnt (the
"Pmicipant"). ln exchnngc for the Producer's obligation to pay 11 partlcipotion fee in the amount of
s.J...aJL (receipt of whlch is acknowledged by the Pnr:ticipant) and the opponunily for the Participant to
appeor in a motion picture, the Participan! ogrees as follows: .
sign Jbovc
1. Thc Participan! agrees lo be tilmed and nudiolllped by the Producer for a documenlllry·
style film (the "Film"). ltls understood thot tllt.! Producer hopes lo reach n young adult oudicncc by Daled: 1 'l O/
using entcrtoining conlent and formats. (date lo~
2. The Participan! ngrees that ony rights thatthe Porticipant moy hove in the Film or the
l'articiplll1t'.l contribulion to the Film are hereby asslgned to tho Producer, ond thottho Producer shall be
c:<chuively entitlcd to use, orlo assign or liccnse lo othc.rs thc rlgblto use, !he Film ond any reeorded
matcrialthot includes the Pilnicipant witholll reslrlctlon in any media lhroughoulthe universe in pcrpetuity Description: Sh
:~nd without iinbility to the Porticipant, and lhe l'articipnnt hereby grants ony consents rcquired for those
purposes. Tite Pnnicipanl also a~rees lo allow the Producer, nnd any of its nssignces or licensces, to use Hair,_-'--- -
the Parti~ipont's contribution, photogrnpl\, film footage, nnd blogrnphical mnterlol in connctlion nol only
wilh the Film, but 31so in any ~dvetlising. murketing or publiclty for the Film nnd in connection wlth uny Oth~r _ _ __
nn~illory products woeiatcd with thc l'ilm.

J. Tite l'articipont undcrstands tholthe Producer and i!J liSsign.:es or licensees are relying upon
tl\ls consent ngrcemenl in spending time, money and cffort on the Film 3.0d the P3rticipant•s· pnnicipatino Nume: _ _........_.'-
in it, and thot 1he consentngreement, for this and other .re.lSons, shnll be irrevocable.
1
•l. Thc Participnnt specilically, but without limitation, walves, and 31Jrees not to bring alnny time in Address: __6._.=_
the futurc, any claims agolnsl the Produccr, or ngainst any ofits assignees or licensees or aoyono
nssocillled witl\ t11e rllrn, that include assertions of (a) intiingement ofrights of publlcity or Phone Numoor:
ntisnpproprimion (such as :my nllegedly improper or unauthorized use oftllc Participont'3 namc or
likeness or imnge), (b) ~am~ges caused by ~~cts ofOod" (such liS, but not limited to, injuries l"rom Social Securily Nur
1to.1urol disaster,;), (e) dnmoges cnused by neiS ofterrorism or war, (d) intrusion (such liS nny allegedly
o!Tc•uivc bchnvior or questioning or any invnsion of privacy). (e) fa! se light (such liS any allegcdly
falsc or misleading portraynl ofthe Participan!), (f) inllfctlon ofemotionat distresS {whethcr alleeedly
intentionol or negligent), (g) tresp11ss (lo propetty or pcrson), (h) breach ofony nllegcd conlrnct
(whether the alleged contrae! is verbal or in writing), (1) allegedly deccpttvo business or trade
pnctlces; Ol copyrichl or trademnrk infringement, (k) dcfamation (such ns any allcgedly ti:tlsc
statements mnde on the ~ilm), (1) violnlions of Section 43(a) of tho Lanham Act (such as nllegedly
false or mlslellding statcments or suggestions n.bout !he Participan! In relntion to lhe Film or the l'llm
in relotion lo thc Participnnt), (m) prima faclo IOtt (such 115 alloged intentlannl hnrm to lhc Panicipant),
(n) lbud (such as any nlleged deccptlon or surprillc nboutthe Film or thls conscnt agreement), (o)
lmoch of3llegcd mornl rights, ar (p) tortious or wrongful interference wlth nny contracts or business
1>fthc Participont, or ony claim nrising out oftlte Panicipant's viewlng of nny sexunlly-orientcd
materials or nctivities.

5. This is the entire agrcemenl belwcen the Participan! and tlto Producer or anyone clse in relntíon
to the Film, nnd lhe Panlcipnnt ack.nowledges thot in entering into it, tho Pnnicipant is not relying upon
any pro mises or stntements mnde by anyone nboutthe nnture ofthe Film or tite identiry of nny other · ·
Pnrticip•nts or pmons involved in the Film.

6. Although thc Pnrticipnnt .agrces not to bring any claim in connection with the Film or its
production, if any cloim nevcnheless is mnde, the Participan! agrecs thalany such claim must be brought

* This agreement underlies a lawsuit for hhstan . The a greem ent is appended to a
fraud, rescission , and negligent infliction of Movie Defendant's Special Motion. to Strike
emotional distress (among other claims) Plaintiffs' Complaint. 'l'he case was dis- .
brought by two men who appear ed in the missed on F ebruary 23, 2007 . . We thank
movie Borat: Cultural Learning of Am.erica Olivier Taillieu, E sq. for providing this ma-
f"or· Mahe Benef"it Glorious Nation of Kaza· terial.

474 1

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ENTS SEL. CONTRACTS & STANDARD FORM AGREEMEN TS

befare, and ndjudicated by, only a competen! coun locnted in thc St~te of New York nnd County ofNew
York,unddr 1he lnws ofthe Stnte ofNew York.

ticipnnt (the
amount of
1he Parlicipant 10
Springland Films

[pie. sign ~bove linc and print name below} ay:iJM~--

lmentary·
1dicncc by Dated: !oJza=/o S
[date t$) be filie in by Pariicipunt] (picase sign nbove line and prim name below)

n orthe
Jducer shall be
.ny recorded Oescription: Shirt._ _ _ _ _ _ _ __ Height_ _ __ Age _ _
·ene in perpctuity
liired for those _ _ _ _ _ _ _ _ _ __
censces, lo use
l·l~ir
Se:< _ _
1ection nol only Omer____________________________ ________
eclion whh uny

: n:lying upon
t's pnnicipaliun
1 \ ,<..,<ti
Nume: -~·~·~--L~·~~~ú~~·~>~;.~-----------~·-·-·------------
Address: 6-
((--($> 1 • , 1 ~~O . r ,.._ ,. 1
my time 'in -~--~·~~---~ -~~~~0~ ----~--
30)'01ltl
or Phone Numbe1·: -------~¡y
=------------------------
nameor ,._ -~.

:ies rrom Social Security Number._~------~~~-----------------------

1y allegedly
allcgcdly
.er allegedly
1trnct
ndc
alse
1llegcdly
orthc l'ilm
Panicipant),
ent), (o)
or business
:mcd

e el se in rclotion
rclying upon
"any other

1ilm or its
IUSt be brought

is appended to a
al Motion to Strike
l'he case was dis-
:, 2007. We thank
providing th is ma-

475
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.

GOOGLE TERMS OF SERVICE*

Google~· 1Google Terms of Service junited States

L-----------------------~

Google Terms of Service*

About Google
Welcome to Googlel
Privacy Highlights
1. Your relatlonshlp with Google
Privacy Policy

Privacy FAQ 1.1 Your use of Google's products, software, services and
web sitas (referred to collectively as the "Services" in this
Terms of Service document and excluding any services provided to yo u by
Google under a separata written agreement) is subject to
Terms of Service Hlghlights the terms of a legal agreement between yo u and Google.
"Google" means Google lnc., whose principal place of
More privacy info: business is at 1600 Amphitheatre Parkway , Mountain
• Desktop View, CA 94043, United States. This document explains
•Gmail how the agreement is made up, and sets out so me of the
• Groups terms of that agreement.
• Orkut
• Personalizad Homepage 1.2 Unless otherwise ·agreed in writing with Google, your
• Personalized Search agreement with Google will always include, ata mínimum,
•Store the terms and conditions set out in this document. These
• Talk are referred to below as the "Universal Terms".
• Toolbar
• Web Accelerator 1.3 Your agreement with Google will also include the
terms of any Legal No tices applicable to tha Services, in
Find on this s11e: addition to the Universal Terms. All of these are referred to
below as the "Additional Terms". Wlere Additional Terms
apply toa Service, .these will be accessible for you to read
either within, or through your use of, that Service.

1.4 The Universal Terms, together with the Additional

Terrns, forrn a legally binding agreement between you and
Google in relation to your use of the Services. lt is
importan! that you take the time toread them carefully .
Collectively, this legal agreement is referred to below as
the "Terms".

1.5 lf there is any contradiction between what the

Additional Terms say and what the Universal Terms say,
then the Additional Terms shall take precedence in relation
to that Service.

* Reprinted with the permission of Goo-

gle.

476
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ENTS ·. SEL. CONTRACTS & STANDARD FORM AGREEMENTS

'*
J
2. Acce pling the Term s

2.1 In arder ta use the Services, ya u must first agree ta the

Terms. Yau may not use the Services if yo u do nat accept
the Terms_

2.2 Yau can acceptthe Terms by :

(A) clicking to accept or agree ta the Tenms,

where this option is made available to yo u
by Google in the user interface for any
Service; or

(B) by actually using the Services. In this

case, you understand and agree that Goog le
wi\1 treat yaur use of the Services as
acceptance of the Terms fram that paint
vicesand
onwards.
s" in this
) yo u by
2.3 You may not use the Services and may not accept the
ubject to
Terms if (a) you are not of legal age to forma binding
Google.
contract with Google, or (b) you are a person barred from
tce of
receiving the Services under the laws of the United S tates
ntain
or other countries including the country in which yo u are
>Xplains
residen! or from which ya u use the Services.
ne of the
2.4 Befare yo u continua, you should print off or save a
local copy of the Universal Terms for your records.
¡le . your
minimum.
3. language of the Terms
t These
3.1 \Mlere Google has provided you with a translation of
the Eng\ish language version af the Tenns, then you agree
.the
that the translation is provided for your convenience only
vices. in and that the English language versions of the Terms wil\
referred to govem your relationship with Google.
tal Tenms
)U toread
3.2 11 there is any contradiction between what the English
language version of the Terms says and what a translation
says, then the Eng\ish language version shal\ take
tional precedence.
·n you and
is 4. Provision of the Services by Google
relul\y _
e low as
4.1 Google has subsidiarias and affiliated legal entities
around the world ("Subsidiarias and Affiliates")_

e
rms say,
, in relatian

477

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SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.

Google Tcnns ofService

Sometimes, these companies will be providing the

Services to you on behalf of Google itself. You
acknowledge and agree that Subsidiarias and Affiliates will
be entitled to provide the Services to you.

4.2 Google is constantiy innovating in order to provide tha

best possibla exparianca for its users. You acknowledge
and agree that tha form and natura of the Services which ·
Googla provides may changa from time to time without
prior notice to you.

4.3 As part of this continuing innovation, yo u acknowledge

and agrea that Googla may stop (permanen~y or
temporarily) providing the Services (or any features within
the Services) lo yo u or·to users ganerally at Google's so le
discretion, without prior notice to you . You may stop using
the Services al any time . You do not need lo specifically
inform Google when you stop using the Services.

4.4 You acknowledge and agree that if Google disables

access lo your account, you may be prevented from
accessing the Services, your account details or any files or
other content which is contained in your account.

4.5 You acknowledge and agree thatwhile Google may

not currently ha ve set a fixed upper limit on the number of
transmissions you may se nd or receive through the
Services or on the amount of storage space used for the
provision of any Service, such fixed upper limits may be
set by Google at any time, at Google's discretion.

5. U se of the Servlces by you

5.1 In order to access ce rtain Servi ces, you may be

required to provide information about yourself (such as
identification or contact details) as part ofthe registration
process for the Service, or as part of your continuad use of
the Services. You agree that any registration information
you give lo Google will always be accurate, correct and up
to date.

5.2 Yo u agree to use the Services only for purposes that

are permitted by (a) the Terms and (b) any applicable law,
regulation or gene rally accepted practicas or guidelines in
the relevant jurisdictions (including any laws regarding the
export of data or software to and from the United States or
other releva ni countries ).

478

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'!JNTS SEL. CONTRACTS & STANDARD FORM AGREEMENTS

Google Tmnso>f Servic:e

1 the 5.3 You agree not to access (or attempt lo access) any of
1 the Servicas by any means othar than through tha
Affiliates will interface that is provided by Google, unless you ha va been
specifically allowed todo so in a separata agreement with
Google. You specifically agree not to access (or attempt to
provide the access) any of the Services through any automated
<nowledge means (including use of scripts or web crawlers) and shall
ticeswhich ensure that you comply with the instructions set out in any
e without robots.txt file present on the Services.

5.4 You agree that you will not engage in any activity that
1cknowledge interferes with or disrupts the Services (or the servers and
'or networks which are connected to the Services).
1tures within
ioogle's sole 5.5 Unless you have been specifically pennitted to do so in
y stop using a separata agreemant with Google, you agree that you will
;pecifically not reproduce , duplicate, copy, sell, !rada or resell the
:es. Services for any purposa.

a disables 5.6 You agrea that you are solely responsible for (and that
d from Google has no responsibility to you orto any third party
Jr any files or for) any breach of your obligations under the Tenns and
Jnt. for the consequences (including any loss or damage which
Google may suffar) of any such breach.
Jogle may
1e number of 6. Your passwords and account security
;¡h the
1sed for the 6.1 You agree and understand thatyou are responsible for
tits may be maintaining the confidentiality of passwords associated
tion. wilh any accounl you use lo access the Sa\Vices.

6.2 Accordingly, yo u agree thal you will be solely

responsible to Google for all aclivilies that occur under
1ay be your account.
f (such as
registralion 6 .3 lf yo u become aware of any unaulhorized use of your
1tinuad use of password or of your accounl, you agree lo nolify Google
info1111alion immediately at http://www.google.com/supportlaccounls/
arree! and ~p bin/answer.py?answer=48601 .

7. Privacy and your personal information

wposes that
pplicable law,
guidalines in 7.1 For informalion aboul Google's data protection
regarding the practicas, please read Google's privacy policy at !:!l!QJL
1ited States or www.google.com/privacy.htrnl. This policy explains how

479
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.

Google Tcrms ofScrvice

Oo.,!f.leTmns:.:"fS

Google treats your personal information, and protects your

privacy. when yo u use the Services.

7.2 Yo u agree to the use of your data in accordance with

Google's privacy policies.

8. Content in the Services

8.1 Yo u understand that all information (such as data files.

written text, computar software , music, audio files or other
sounds, photographs, videos or other images) which you
may have access toas part of. orthrough your use of, the
Services are the sole responsibility of the person from
which such content originated. All such information is
referred to below as the "Content".

8.2 Yo u should be aware that Content presentad to yo u as

part of the Services. including but not limited lo
advertisements in the Services and sponsored Content
within the Services may be protected by intellectual
property rights which are owned by the sponsors or
advertisers who provide that Content to Google (or by
other persons or companies on their behalf). You may not
modify, rent, lease, loan, sell, distribute or create
derivativa works basad on this Content (either in whole or
in part) unless you have been specifically told that you
may do so by Google or by the owners of that Content, in
a separata agreement.

8.3 Google reserves the right (but shall have no obligation)

to pre-screen. review, flag, filler, modify, refuse or remove
any or all Content from any Service . For sorne of the
Services, Google may provide tools to filler out explicit
sexual content. These tools include the SafeSearch
preference settings (see http://www.google.com/help/
customize.html#safe). In addition, there are commercially
available services and software to limit access to material
that you may find objectionable .

8.4 You understand that by using the Services you may be

exposed to Content that you may find offensive, indecent
or objectionabl~nd that, in this respect, you use the
Services at your own risk.

8.5 Yo u agree that you are solely responsible for (and that .
Google has no responsibility to you orto any third party
for) any Content that you ere ate, transmit or display while

480

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 íJNTS SEL. CONTRACTS & STANDARD FÓRM AGREEMENTS

Goo.>gle Tenn s ofSenic e

Jrotects your using the Services and for the consequences of your
actions (including any loss or damage which Google may
suffer) by doing so.
dance with
9. Proprietary rlghts

9.1 Yo u acknowledge and agree that Google (or Google's

licensors) own alllegal right, title and interest in and to the
. as data files, Services, including any intellectual property rights which
files or other subsist in the Services (whether !hose rights happen to be
JWhich you registered or not, and wherever in the world those rights
1r use of, the may exist). Yo u further acknowledge that the Services
;on from may contain information which is designated confidential
1abon is by Google and that you shall not disclose such information
without Google's prior written consent.

ted to you as 9.2 Unless yo u have agreed otherwise in writing with

:o Google, nothing in the Terms gives yo u a right to use any
j Content of Google 's trade na mes, trade marks, service marks,
ectual lagos, domain names, and other distinctive brand features.
.ors or
¡le (or by 9.3 lf yo u have been given an explicit right to use any of
'(o u may not these brand features in a separata written agreement with
~ate Google, then you agree that your use of such features
rin whole or shall be in compliance with that agreement, any applicable
1 that you provisions of the Terms, and Google's brand feature use
t Content, in guidelines as updated from time to time . These guidelines
can be viewed online at http://www.google .com/
permissions/guidelines.btml (or such other URL as Google
no obligation) m ay pro vide for this purpose from time to time).
:;e or remove
e ofthe 9.4 Other than the limitad license set forth in Section 11,
ut explicit Google acknowledges and agrees that it obtains no right,
3earch tille or interest from you (or your licensors) under these
~m/help/
Terms in orto any Content that yo u submit, post, transmit
:ommercially or display on, or through:the Services, including any
;s to materia 1 intellectual property rights which subsist in that Canten!
(whether those rights happen to be registered or not, and
wherever in the world !hose rights may exist). Unless you
's you may be have agreed oiherwise in writing with Google, you agree
ve, indecent that you are responsible for protecting and enforcing those
' use the rights and that Google has no obligation to do so on your
behalf.

' for (and that 9.5 Yo u agree that you shall not remove, obscura, or alter
third party any proprietary rights notices (including copyright and
display while trade mark notices) which may be affixed to or contained

481
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.

Googlc Tenns ofSmice Ch:!gltTeous ofS

within the Services.

9.6 Unless you have been expressly authorized to do so in

writing by Google, you agree that in using the Services,
you will not use any trade mark, se rvice mark, trade name,
lago of any company or organization in a way that is likely
or intended to cause confusion about the owner or
authorized user of such marks, na mes or lagos.

10. U cense from Google

10.1 Google gives you a personal, wortdwide, royalty-free,

non-assignable and non-exclusive licence to use the
software provided to you by Google as part of the Services
as provided to you by Google (referred to as the
"Software " below). This licence is for the sole purpose of
enabling you to use and enjoy the benefit of the Services
as provided by Google, in the manner perrnitted by the
Terrns.

10.2 You may not (and you may not permit anyone else to)
copy, modify, create a derivativa work of, reversa
enginee r, decompile or otherwise attempt to extrae! the
source code of the Software or any pa rt thereof, unless
this is expressly perrnitted or required by law, or unless
you have been specifically told that yo u may do so by
Google, in writing.

10.3 Unless Googie has given yo u specific written

permission to do so, you may not assign (or grant a sub-
licence of) your rights lo use the Software, grant a security
interest in or over your rights to use the Software, or
otherwise transfer any part of your rights to use the
Software .

11 . Content licence from you

11 .1 You retain C()PYright and any othe r rights you already

hold in Content Which you submit, postor display on or
lhrough, the Services. By submitting, posting or displaying
lhe conte nt you give Google a perpetua!, irrevoca ble,
worldwide, royalty-free, and non-exclusive licence lo
reproduce, adapt, _modify, lranslate, publish, publicly
perform , publicly display and distribute any Content which
you submit, postor display on or through, the Services.
This licence is for the sole purpose of enabling Google lo
display, distribute-and promote the Services and may be

j·

482

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GooglcTcrn~rofScrvi~e

revoked for ce rtain Service s as defined in the Additional

Terms of those Services.

j todo so in
11.2 You agree that this licence includes a right for Google
)ervices,
to make such Content available to other companies,
trade name,
organizations or individuals with whom Google has
hat is likely
relationships for the provision of syndicated services, and
•r or
to use such Content in connection with the provision of
those services.

11 .3 You understand that Google, in performing the

required technical steps to previda the Services to our
royalty-free, users, may (a) transmit or distribute your Content over
se the various public networks and in various media; and (b)
the Services make such changas to your Contentas are necessary to
\9 conform and adapt that Content to the technical
>urpose of requirements of connecting networks, devices, servi~s or
e Services media. You agree that this licence shall permit Google to
•d by the 1
take these actions.
1
¡·
11.4 You confirm and warrant to Google that you have all
yone el se to) the rights, power and authority necessary to grant the
rse 1 above licence .
xtract the
>f. unless
12. Software u pdates
or unless
lo so by
12.1 The Software which you use may automatically
download and instan updates from time to time from
Google. These updates are designad to improve, enhance
itten
and further develop the Services and may take the form of
rant a sub-
bug fixes, enhanced functions, new software modules and
\nt a security
completely new versions. You agree to receive such
are, or
updates (and permit Google to deliver these to you) as
;ethe
part of your use of the Services.

13. Endlng your relatlonship with Google

13.1 The Terms will continua to apply until terminated by

; you already
either you or Google as set out below.
>la y on or
or displaying
1ocable, 13.2 lf you want to terminate your legal agreement with
:mee to Google, you may do so by (a) notifying Google at any time
>Ublicly and (b) closing your accounts for all of the Services which
ontent which you use, where Google has made this option available to
Services. you . Your notice should be sent, in writing, to Google's
.g Google to address which is set out at the beginning of these Terms .
md may be

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SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.

1-3.3 Google may at any time, termínate its legal

agreement with you if:

(A) yo u ha ve breached any provision of the

Terms (or have acted in manner which
clearly shows that you do not inte nd to, or
are unable to comply with the provisions of
the Terms); or

(B) Google is required to do so by law (for

example, where the provision of the
Services to you is, or becomes, unlawful); or

(C) the partner with whom Google offered

the Services to you has terminated its
relationship with Google or ceased to offer
the Services to you; or

(D) Google is transitioning to no longer

providing the Services to users in the
country in which you are residen! or from
which you use !he service ; or

(E) !he provision of !he Services to you by

Google is, in Google's opinion, no longar
commercia lly viable.

13.4 Nothing in this Section sha ll affect Google's rights

regarding provision of Services under Section 4 of the
Terms.

13.5 When these Terms cometo an end , all of the iegal

rights, obligations and liabilities that you and Google have
benefited from, been subject to (or which have accrued
ovar time whilst the Terms have been in force) or which
are expressed to continua indefinitely, shall be unaffected
by this cessation, and the provisions of paragraph 20.7
shall continua to apply to such rights, obligations and
liabilities indefinitely.

14. EXCLUSION OF WARRANTIES

14.1 NOTHING IN THESE TERMS, INCLUDING

SECTIONS 14 ANO 15, SHALL EXCLUDE OR LIMIT
GOOGLE'S WARRANTY OR LIABILITY FOR LOSSES
WHICH MAY NOT BE LAWFULL Y EXCLUDED OR
LIMITED BY APPLICABLE LAW SOME JURISDICTIONS

484
"-''NT::> SEL. CONTRACTS & STANDARD FORM AGREEMENTS

DO NOT ALLOWTHE EXCLUSION OF CERTAIN

al
WARRANTIES OR CONDITIONS OR THE LIMITATION
OR EXCLUSION OF LIABILITY FOR LOSS OR DAMAGE
CAUSED BY NEGLIGENCE, BREACH OF CONTRACT
fthe OR BREACH OF IMPLIED TERMS, OR INCIDENTAL OR
CONSEQUENTIAL DAMAGES. ACCORDINGL Y, ONL Y
or THE LIMITATIONS WHICH ARE LAWFUL IN YOUR
,s of JURISDICTION WILL APPL Y TO YOU AND OUR
LIABILITY WILL BE LIMITED TO THE MAXIMUM
EXTENT PERMITTED BY LAW.
:tor
14.2 YOU EXPRESSL Y UNDERSTAND AND AGREE
ul); or THAT YOUR USE OF THE SERVICES IS AT YOUR
SOLE RISK ANO THAT THE SERVICES ARE PROVIDED
·ed "AS IS" ANO "AS AVAILABLE."

>ffer 14.31N PARTICULAR, GOOGLE, ITS SUBSIDIARlES

AND AFFILIATES, ANO ITS LICENSORS DO NOT
REPRESENT OR WARRANT TO YOU THAT:

(A) YOUR USE OF THE SERVICES WILL

>m MEET YOUR REQUIREMENTS,

(B) YOUR USE OF THE SERVICES WILL

1 by BE UNINTERRUPTED, TI MELY, SE CURE
1er OR FREE FROM ERROR,

(C) ANY INFORMATION OBTAINED BY

le's rights YOU AS A RESUL T OF YOUR USE OF
,4 ofthe THE SERVICES WILL BE ACCURATE OR
RELIABLE, ANO

>f the legal (D) THAT DEFECTS IN THE OPERATION

Google have OR FUNCTIONALITY OF ANY SOFTWARE
e accrued PROVIDED TO -YOU AS PART OF THE
!) or which SERVICES WILL BE CORRECTED .
e unaffected
¡raph 20.7
14.4 ANY MATERIAL DOWINLOADED OR OTHERWISE
ons and OBTAINED THROUGH THE USE OF THE Si::RVICES IS
DONE AT YOUR OWN DISCRETION AND RISK ANO
THAT YOU WILL BE SOLELY RESPONSIBLE FOR ANY
DAMAGE TO YOUR COMPUTER SYSTEM OR OTHER
DEVICE OR LOSS OF DATA THAT RESULTS FROM
ING THE DOWNLOAD OF ANY SUCH MATERIAL.
>R LIMIT
~ LOSSES 14.5 NO ADVICE OR INFORMATION, WHETHER ORAL
ED OR OR WRITTEN , OBTAINED BY YOU FROM GOOGLE OR
~ISDICTIONS

485
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS SEL.
00C'ISie Tenn1 Clf Servke

THROUGH OR FROM THE SERVICES SHALL CREATE

ANYWARRANTY NOT EXPRESSLY STATED IN THE
TERMS.

14.6 GOOGLE FURTHER EXPRESSLY DISCLAIMS ALL

WARRANTIES ANO CONDITIONS OF ANY KIND,
WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO THE IMPLIED WARRANTIES ANO
CONDITIONS OF MERCHANTABILITY. FITNESS FOR A
PARTICULAR PURPOSE ANO NON-INFRINGEMENT.

15. LIMITATION OF LIABILITY

15.1 SUBJECT TO OVERALL PROVISION IN

PARAGRAPH 14.1 ABOVE , YOU EXPRESSLY
UNDERSTAND ANO AGREE THAT GOOGLE, ITS
SUBSIDIARlES ANO AFFILIATES, ANO ITS LICENSORS
SHALL NOT BE LIABLE TO YOU FOR:

(A)ANY DIRECT, INDIRECT, INCIDENTAL,

SPECIAL CONSEQUENTIAL OR
EXEMPLARY DAMAGES WHICH MAY BE
INCURRED BY YOU, HOWEVER CAUSE O
AND UNDER ANY THEORY OF LIABILITY ..
THIS SHALL INCLUDE, BUT NOT BE
LIMITE OTO, ANY LOSS OF PROFIT
(WHETHER INCURRED DIRECTLY OR
INDIRECTLY), ANY LOSS OF GOODWILL
OR BUSINESS REPUTATION, ANY LOSS
OF DATA SUFFERED, COST OF
PROCUREMENT OF SUBSTITUTE
GOODS OR SERVICES, OR OTHER
INTANGIBLE LOSS;

(B) ANY LOSS OR DAMAGE WHICH MAY

BE INCURRED BY YOU , INCLUDING BUT
NOT LIMITED TO LOSS OR DAMAGE AS
ARESULT OF:

(1) ANY RELIANCE PLACEO

BYYOU ONTHE
COMPLETENESS,
ACCURACY OR EXISTENCE
OF ANY ADVERTISING, OR
AS A RESULT OF ANY
RELATIONSHIP OR
TRANSACTION BETWEEN

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.L CREATE
J IN THE YOU ANO ANY ADVERTISER
OR S PON SOR WHOSE
ADVERTISING APPEARS ON
THE SERVICES;
:LAIMS ALL
"ND,
·ING, BUT (11} ANY CHANGES WHICH
ESAND GOOGLE MAY MAKE TO
IESS FORA THE SERVICES, OR FOR
3EMENT. ANY PERMANENT OR
TEMPORARY CESSATION IN
THE PROVISION OF THE
SERVICES (OR ANY
FEATURES WlTHIN THE
1 SERVICES};
_y
:::, ITS
(111) THE DELETION OF,
LICENSORS
CORRUPTION OF, OR
FAILURE TO STORE, ANY
CONTENT AND OTHER
\ITAL, COMMUNICATIONS DATA
MAINTAINED OR
fBE TRANSMITTED BY OR
JSED THROUGH YOUR USE OF
LITY .. THE SERVICES;

(111} YOUR FAILURE TO

>R PROVIDE G.OOGLE WITH
NILL ACCU.RATE ACCOUNT
.O SS
INFORMATION;

· (IV} YOUR FAILURE TO

KEEP YOUR PASSWORD
OR ACCOUNT DETAILS
SECUREAND
MAY CONFIDENTIAL;
;BUT
:::As
15.2 THE LIMITATIONS ON GOOGLE'S LIABILITY TO
YOU IN PARAGRAPH 15.1 ABOVE SHALL APPL Y
WHETHER OR NOT GOOGLE HAS BEEN ADVISED OF
OR SHOULD 'HAVE BEEN AWARE OF THE
POSSIBILITY OF ANY SUCH LOSSES ARISING .

16. Copyright and trade mar k poli eles

16.1 11 is Google 's policy to respond to notices of alleged

copyright infringement that comply with applicable
international intellectual property law (including, in the

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SEL. CONTRACTS & STANDARD FORM AGREEMENTS SE

Goo~l e Tennt o rSen.i..:e

United States, the Digital Millennium Copyright Act) and to

terminating the accounts of repeat infringers. Details of
Google's policy can be found at http:/Jwww.google .com/
dmca.html.

16.2 Google operates a trade mark complaints procedure

in respect of Google's advertising business, details of
which can be found at http://www.google.com/
tm complaint.html.

17. Advertlsements

17.1 Sorne of the Services are supported by advertising

revenue and may display advertisements and promotions.
These advertisements may be targeted to the content of
information stored on the Services. queries made through
the Services or other information.

17.2 The manner, mode and extent of advertising by

Google on the Services are subject to change without
specific notice lo you .

17.3 In consideration for Google granting you access to

and use of the Services, you agree that Google may place
such advertising on the Services.

18. Other content

18.1 The Sei'Vices may include hyperlinks to other web

sites or content or resources . Google may have no control
over any web sites or resources which are provided by
companies or persons other than Google.

18.2 You acknowledge and agree that Google is not

respon ibl for ""' AVAil<l hility of any such externa! sites or
resources, and does not endorse any advertising, products
or other materials on or available from such web si tes or
resourees.

18.3 You acknowledge and agree that Google is not liable

for any loss or damage which may be incurred by yo u as a
result of the availability of !hose externa! sites or
resources, oras a result of any reliance placad by you on
the completeness, accuracy or existence of any
advertising, products or other materials on, or available
from, such ·web ·sitas or resources.

1·.

488
'ENTS .SEL. CONTRACTS & STANDARD FORM AGREEMENTS

ht Act) and to
19. Changes to the Terms
Details of
Jogle.com/
19.1 Google may make changes to the Universal Terms or
Additional Terms from time to time. 1/'vhen these changes
are made, Google will make a new copy of the Universal
ts procedure Terms available at http://www.google.com/accounts!TOS?
ietails of
Joc=us&hl=en and any new Additional Terms will be made
Ji. available to you from within, or through, the affected ·
Services.

19.2 You understand and agree that if you use the

Services after the date on which the Universal Terms or
advertising Additional Terms have changed , Google will treat your use
:l promotions. as acceptance of the updated Universal Terms or
3 content of Additional Terms.
nade through
20. General legal terms

ising by 20.1 Sometimes when yo u use the Services, yo u may (as

ewithout a result of, or through your use of the Services) use a
service or download a piece of software, or purchase
goods, which are provided by another person or company.
J access to Your use ofthese other services, software orgoods may
gle may place be subject lo separate terms between you and the
campan y or person concerned. lf so, the Terms do not
affect your legal relationship with these other cornpanies
or individuals.

other web 20.2 The Terms constitute the whole legal agreement
3ve no control between you and Google and govern your use of the
rovided by Services (but excluding any services which Google may
provide to you under a separata written agreement). and
completely replace any prior agreements between you and
Google in relation lo the Services.
le is not
<terna! sites or
ising, products 20.3 You agree that Google may provide you with notices,
web si tes or including those regarding changes to the Terms, by email,
regular mail, or postings on the Services.

¡le is not liable 20.4 You agree that if Google does not exercise or enforce
ed by yo u as a any legal right or remedy which is .contained in \he Terms
!Sor (or which Google has the benefit of under any applicable
:ed by you on Jaw), this will not be taken to be a formal waiver of
any Google's rights and that those rights or remedies will still
)r available be available to Google.

489
 SEL. CONTRACTS & STANDARD FORM AGREEMENTS

O.x,g le T enn:'l of Scrvi.:t.'

20.5 lf any court of law, having the jurisdiction to decide on

this matter, rules that any provision of these Terms is
invalid. then that provision will be removed from the Terms
without affecting the rest of the Terms. The remaining
provisions of the Terms will continua to be va lid and
enforceable.

20.6 You acknowledge and agree that each member of the

group of companies of which Google is the paren! sha ll be
third party beneficiarias to the Terms and that such other
companies shall be en@ed to directly enforce, and rely
upon, any provision of the Terms which confers a benefit
on (or rights in favor of) them. Other than this, no other
person or company shall be third party beneficiarias to the
Terms .

20.7 The Terms, and your relationship with Google under

the Terms, shall be governed by the laws of the State of
California without regard to its conflict of laws provisions.
You and Google agree to submit to the exclusive
jurisdiction of the courts located within the county of Santa
Clara, California to resolve any legal matter arising from
the Terms. Notwithstanding this, you agree that Google
sha ll still be allowed to apply for injunctive remedies (oran
equivalen! type of urgen! legal relief) in any jurisdiction.

April 16, 2007

(1;,'200l Google- Home - About Google - Privacy Policy - Terms of Service

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