Contracts Outline Spring 2012 New

8/2/2019 Contracts Outline Spring 2012 New

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Contracts Outline Spring 2012

Introduction

Contract- an agreement the law will enforce

Sources of Contract LawUCC- sale of goods, which are governed by statuteCommon Lawstate madeRestatements

Under the UCC, a "good" is any tangible thing that is moveable. [UCC 2-105(1)] In addition tomanufactured products, "goods" include:

growing crops or timber, unborn young of animals and other identified things attached to land(other than minerals or the like or structures), regardless of who severs them from the land

provided that they can be removed without causing material harm to the land currencyexchanged as a commodity (as opposed to the medium of payment for a good) minerals or thelike or a structure or its materials to be removed from realty that are to be severed by the seller

The term "goods" does not encompass:

intangible rights such as intellectual propertyinvestment securitiesmoney which is the medium of payment for goodsminerals or the like or a structure or its materials to be removed from realty that are to be severedby the buyer

UCC 2-106(1) defines "sale" as the transfer of title for a price. Contracts that involve bothgoods and services must be evaluated to see which constitutes the primary purpose of thecontract, with the secondary purpose being treated as incidental. If the primary function of thecontract is to provide a service, the UCC does not apply, even if an incidental sale of goodsoccurs.

A "merchant" is one "who deals in goods of the kind or otherwise by his occupation holdshimself out as having knowledge or skill particular to the practices or goods involved in thetransaction" or who employs an agent or broker in such occupation. [UCC 2-104(1)]

Consideration- anything of value promised to another when making a contract and it is requiredthat both parties offer to make the contract binding

General rulea contract will not be enforceable unless it is supported by consideration

Early test for consideration was that it must be a benefit or detrimentModern test is that it is a bargained for exchange


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Restatement 71 (p. 46):(1) To constitute consideration, a performance or a return promise must be bargained for.(2) A performance or return promise is bargained for if it is sought by the promisor in

exchange for his promise and is given by the promisee in exchange for that promise

A promise to make a gift is generally unenforceable, because it lacks the bargain element ofconsideration-Even if the person promising to make a gift requires the promise to meet certainconditions in order to receive the gift, there will still be no consideration-But if the promisor imposes a condition and that will be to his benefit then its ok

Dougherty v Salt

Dougherty (P) was eight years old when his aunt gave him a promissory note for $3000. The noteincluded the words value received and she told him you have always done for me, and I have signedthis note for you. P brought suit against Salt (P), the executrix of his aunts estate for payment on thenote. Was there consideration?

The note was merely a voluntary but unenforceable executory promise. The aunt merely conveyed acharitable gift and no consideration was asked or given in return. The writing alone was not validconsideration. A promise that is given in recognition of some act in the past is not enforceable for lack ofconsideration.

Hammer v Sidway

William E. Story and his nephew, William E. Story II, agreed that the uncle would pay his nephew $5000if the nephew would refrain from drinking, using tobacco, swearing, and playing cards and billiards formoney until he turned 21. When the nephew turned 21 his uncle sent him a letter that indicated that thenephew had earned the $5000 and that he would hold the money with interest until the nephew becamecapable of taking care of it responsibly. The nephew accepted the terms. The uncle died twelve years laterwithout having transferred the funds to his nephew.

Is forbearance from permissible legal conduct sufficient consideration to create a valid and enforceablecontract?

Yes. The mere abstention from a permissible legal conduct is sufficient consideration to make a promisebased on that forbearance a valid contract. Consideration is not measured as a benefit to the promisor.When an offer is ambiguous regarding whether acceptance shall be in the form of performance or anexchange of promises, determining if the offeror was indifferent to whether acceptance be byperformance or promise is accomplished by interpreting the language of the offer under the circumstancesin which it was made. The court held that in this case, the language of the offer made it clear that theuncle sought acceptance by performance and not by a promise to perform.

The court stated that consideration may consist in either a some right, interest, profit, or benefit to oneparty, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. Itis immaterial whether the consideration does in fact benefit the promisee or a third party or is ofsubstantial value to anyone. Refraining from something that one is entitled to do is a sufficient detrimentto create an enforceable contract.


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Baehr v Penn-O-Tex Oil company

The plaintiff Baeher who rented Kemp the filling stations is suing Penn-O-Tex-Oil who sold Kempgasoline took control of his assets when Kemp could not pay. (accounts receivable or signed the leases)The plaintiff was trying to enforce the promise by the defendants agent that they would pay the rent due

Was the plaintiff refraining from bringing suit enough for consideration even though he refrained notbecause of the contract but because of his own personal problems

Although Defendant made a promise, the court does not find there to be an enforceable contract. Plaintiffargues that agreeing not to sue or to delay bringing suit is sufficient consideration. The Court agrees thatthis may be consideration, but under these facts, the Court determined that it is not consideration. TheCourt focuses on the fact that Defendant did not ask Plaintiff to delay in bringing the suit and that it islikely that Plaintiffs delay was motivated by personal convenience.

United States v Meadors

Meadors put signature on paper even though it was not needed and thus there was no benefit or detrimentor bargained for exchange so no contract between them. Her consideration was not needed for them toestablish the contract in the first place

Restatement 2nd 79(b) As long as a legal detriment has been suffered in exchange for thepromise, the court does not inquire into its value in relation to the promise

Batsakis v Demotisis

Demotsis asked Batsakis for money, which she needed to buy food for her family. In exchange, Demotsispromised in writing (in the form of a letter) to give Batsakis $2,000 dollars, plus 8% annual interest, afterthe war, or sooner, if she was able to regain access to her assets in the United States (Demotsis held

property and funds in Texas but had no direct access to them as a result of the war). In the putative letterfrom Demotsis to Batsakis, written in the Greek language, Demotsis stated that she had received $2,000from Batsakis.

Was the consideration enough?

Yes, The appellate court found the consideration legally sufficient and went on to state that the adequacyor inadequacy of the consideration did not bear on the enforceability, since mere inadequacy ofconsideration will not void a contract. Each side got what they bargained for

Sham and nominal consideration: a court may consider that the consideration is a sham or nominal, andthat it is not consideration at all. If the consideration was purely nominal and it is different values such as

5 dollars for 100 dollars there is no consideration at all, because this is just considered a gift

Schnell v Nell

Theresa Schnell, deceased, drafted a will which declared that three people would receive $200 each inexchange for one cent paid to Zachary Schnell, df, and thereafter Zach. would posthumously pay the $200over the course of years, for Theresa his wifes love and attentions while they were married.


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Whether the will represents legally sufficient consideration

The consideration of one cent will not support the promise of Schnell. The mere promise to pay sixhundred dollars for one cent, is an unconscionable contract. The term one cent is ambiguous and lackseven an indeterminate value. There is no way of knowing whether the meaning is a coin possessingmonetary value or a family piece. The consideration of one cent is merely nominal. The will imposed no

obligation upon df to discharge her bequests out of his property, and as she had none of her own, hispromise to discharge them was not legally binding upon him. A moral consideration will not support apromise. The promise was simply one to make a gift. The past services of his wife, and the love andaffection he had borne her are not legal considerations. One - they are past considerations. Two - the factthat he loved his wife and that she had been industrious constituted no consideration for his promise topay money.

Dyer v National by Products

Dyer (P) worked for National (D) when he lost his right foot in a work-related accident. Dyer was given aleave of absence at full pay. After returning to work at the same position he held before the accident Pwas laid off. P sued D for a breach of an oral contract and asserted that he had been given lifetime

employment in exchange for his forbearance from litigating his claim against D for the injury. Plaintiffcould only recover under workers compensation so had no claim

Yes, forbearance from asserting an unfounded legal claim may act as valuable consideration to create anenforceable contract if that claim is asserted in good faith.

74. Settlement of Claims(1) Forbearance to assert or the surrender of a claim or defense which proves tobe invalid is notconsideration unless(a) the claim or defense is in fact doubtful because of uncertainty as to thefacts or the law, or

(b) the forbearing or surrendering party believes that the claim or defense may be fairlydetermined to be valid.

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

Generally the promisee must be aware of the promise, for the act performed by him to beconsideration for the promise

Past consideration- if the promise is made in return for detriment previously suffered by the

promisee, there is no bargain and thus no consideration

Pre-Existing duty rule- if a party does or promises to do what he is already legally obligated todo, he has not incurred a detriment for purposes of consideration

UCC has abolished the pre existing duty ruleExceptions

Restatement 89


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New consideration (slight change in duties serves as consideration)UCC 2-209- repeals pre-existing duty rule for sale of goods over $500Agreement to rescind original agreement

Contract modification

Common law- a modification made for the sole benefit of one party is usuallyunenforceable for lack of considerationRestatement 73Performance of a Legal Duty

1) Performance of a legal duty owed to a promisor which is neither doubtfulnor the subject of honest dispute is NOT consideration

2) Exception: similar performance is consideration if it differs from what wasrequired in a way that reflects more than a pretense of a bargaina) For example, if it concerns a delivery and the time is changed for

bargained reason.

UCC 2-209

-an agreement modifying a contract needs no consideration to be binding-subject to general good faith requirement

Under common law, there is some disagreement as to whether a contract that is subject to thestatute of frauds may be modified orally. Jurisdictions also differ as to whether the parties maywaive a contractual requirement that modifications be in writing. Nevertheless, promissoryestoppel may be invoked to enforce an oral modification that is subject to the statute of frauds ifit would be unjust to reinstate the original term(s) where a party materially changes position inreliance on the agreement to modify.

The UCC requires modifications to be in writing where:

Required by a signed agreement between the parties (in order to give effect to any suchrequirement stated on a form supplied by a merchant to a consumer, the consumer must also signthe form)The contract as modified falls within the statute of frauds. [UCC 2-209(2), (3)]

Alaska Packers

Alaska Packers Association (D) hired Domenico (P) for the salmon season and agreed to pay $50 dollarsplus 2 cents for each salmon caught. After arriving at the location and beginning to work the workersdemanded $100. Due to the remote location and brief duration of the salmon season, the companyrepresentative was compelled to agree to the terms. At the end of the salmon season Alaska Packers

refused to pay more than the wage under the original contract.Domenico brought suit to recover the additional $50. He testified that the nets were defective, impairinghis ability to maximize payment based on the number of salmon caught. The court found however that theevidence did not support Domenicos claim regarding the nets and entered judgment for Alaska Packers.Domenico appealed.

Preexisting Duty Rule


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An agreement modifying a contract is not supported by consideration if one of the parties to theagreement does or promises to do something that he is legally obligated to do or refrains or promises torefrain from doing something he is not legally privileged to do.

A party cannot demand additional compensation for what he has already obligated himself to do. The realquestion is a question of law. Domenico agreed in writing to render services to the plaintiff for a stated

compensation. Domenico demanded extra pay in remote waters where the fishing season is very short andwhere it would be impossible to find other workers. Consent by the defendant under such circumstancesis not valid consideration.

A party to a contract who refuses to perform, and coerces a promise from the other party to pay additionalcompensation for doing that which he is legally bound to do, takes an unjustifiable advantage of thenecessities of the other party.

Angel v Murray

Maher (D1) had been providing garbage collection services to the city of Newport since 1946. In 1964 D1and Newport agreed that D1 would receive $137,000 per year in exchange for garbage collection services

for five years. The number of homes from which D1 collected increased unexpectedly by 20% and D1requested an additional $10,000 per year for the remainder of the contract. The City Council acceptedD1s modification of the contract. A group of taxpayers including Angel (P) filed a civil action against D1and Murray (D2), the city treasurer, to compel D1 to repay $20,000 in payments that exceeded theoriginal terms of the contract.

The modern trend is for courts to enforce agreements modifying contracts when unexpected orunanticipated difficulties arise during the course of performance such as the unexpected increase inhouses. Under the doctrine of unanticipated circumstances or conditions parties may increase the amountof compensation provided for in the contract even if no additional consideration is given.

Under the preexisting duty rule, a modification of a contract must be supported by consideration. This

rule is necessary to prevent the hold up game whereby a party to a contract will refuse performanceunless additional consideration is given, under circumstances in which it would be very difficult orimpossible for the other party to cover. Courts will not enforce an agreement that has been procured bycoercion or duress and will hold the parties to their original agreement whether it is profitable orunprofitable. However, this rule of law has not been applied in situations in which one party encountersunanticipated difficulties and the other party, not influenced by duress or coercion, agrees to payadditional compensation for work already required to be performed.

Promises binding without consideration

Most states enforce a promise to pay a past debt, even though no consideration for the promises

is given

A promise to pay for benefits or services one has previously received will generally beenforceable even without consideration.

-Likely where services were requested, or where the services were furnished withoutrequest in an emergency


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Promissory Estoppel- promises, which induce reliance on the part of the promise, will oftenbe enforceable, without consideration

-Promisor should reasonably expect to induce action or forbearance on part of thepromisee- Injustice can be avoided only by enforcement of the promise

-The promisee must actually rely on the promise-reasonably foreseeable to the promisor

A written promise to make a charitable contribution will generally be binding withoutconsideration under the P.E. doctrine

Promissory estoppel has been (by far) the most important and influential section of theRestatement of Contracts (both 1st and 2nd), in 90

What is it? i.e., what doctrinal role does it play?

PE is an alternative basis for enforcing promises

Have been discussing consideration as basis for enforcing promises, and at its coreconsideration requires a BARGAIN

By contrast, the core of PE = RELIANCE

PE only matters, then, when do NOT have a traditional contract enforceable as a bargain

Putting the two together, then, we only care about PE when the parties dont conclude a

bargain, but one party made a promise that we think should be enforced anyway b/c the otherparty relied on it

Even though was thus by definition a gift promise

And we likely have notions of justice that the promisees reliance should have been

reasonably foreseen by the promisor when she made the promise, and the promisee should havejustifiably and reasonably relied on the promiseo In a setting where there is NOT a bargain, and instead was just a gift promise! E.g.,should the fact of no-bargain be weighed on the justice scales of whether we want to enforcethe promise?

i.e., when should we enforce promises to make a gift, because party to whom promise

was made relied on the promise?

Have to be careful to distinguish between (i) the promisees performance of a condition togift promise, on the one hand, and (ii) the promisees detrimental reliance on the promise, on theother

Elements of promissory estoppel:

1. A promise Often courts say must be clear and definite


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2. Promisor reasonably expects promise to induce reliance (action or forbearance) by promisee1st Rest. Adds that reliance must be of a definite and substantial character

3.Promise in fact does induce actual reliance by promisee

Courts also consider factors such as (i) the reasonableness and (ii) justifiability of promiseesreliance, and (iii) under 2nd Rest., the definite and substantial character of the promiseesreliance. In sum, the actual reliance by the promisee must be the sort expected by the promisor.

Used a lot with contractors and sub contractors when making a bid

90. Promise Reasonably Inducing Action or Forbearance (1) A promise which the promisor

should reasonably expect to induce action orforbearance on the part of the promisee or a

third person and which does inducesuch action or forbearance is binding if injustice can beavoided only by enforcementof the promise. The remedy granted for breach may be limited

as justice requires.(2) A charitable subscription or a marriage settlement is binding underSubsection (1)without proof that the promise induced action or forbearance

Offer and Acceptance

Kirksey v Kirskey

Kirksey (D) was the brother of Antillico Kirkseys (P) deceased husband. The defendant offered Kirkseya home on his property and Kirksey accepted. She moved sixty miles and lived in the defendants homefor two years. He later forced her to relocate to a remote location on the property and eventuallydemanded that she leave altogether.

Kirksey sued for breach of contract on the grounds that her costs in relocating to the defendants propertywere sufficient consideration to enforce his promise to provide her with a home. The court entered ajudgment in favor of the plaintiff for $200 and defendant appealed.Contracts uses an objective theory in that it determines a parties intent by what a reasonable person in theposition would think.

Is a gratuitous promise enforceable where a party has reasonably relied on that promise and has sufferedloss and inconvenience?

The court only looked at consideration but now would be ok under promissory estoppel

Ricketts v Scothorn

In May 1891 J. C. Ricketts gave his granddaughter Katie Scothorn a promissory note for $2,000 paymenton demand with 6% interest per annum. The grandfather stated that none of his other grandchildrenworked and she would not have to work either. The promise was not given on condition that she stopworking, nor were there any other stated conditions.

Scothorn left her employment in reliance on Ricketts promise. In September 1892 she obtained a new jobas a bookkeeper with Ricketts knowledge and assistance. Within the next two years he paid one years


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interest on the note and told his daughter that he would like to pay the plaintiff the principal upon sellinghis farm in Ohio.

Ricketts died in June 1894 and the executor of his estate refused payment, claiming that Ricketts promiselacked consideration and was therefore a gratuity and not an enforceable promise. The trial court found infavor of Scothorn and Ricketts estate appealed.

Although a promise given without consideration ordinarily does not create a binding contract, the doctrineof promissory estoppel prevents a promisee from using lack of consideration as a defense to breach ofcontract. Consequently, a promise can be enforced even though it was given without consideration if thepromisee has reasonably relied on the promise to her detriment.Here, the court considered the magnitude of Scothorns good faith reliance on her grandfathers promiseand held that her actions were consistent with that reliance and therefore constituted a sufficientconsideration.

Hayes v Plantation Steel Co

Hayes (P) worked for Plantations Steel Co. (D) from 1947 until 1972. After announcing his retirement,

Hayes discussed a pension plan with an officer and stockholder of Plantations Steel one week before hisretirement date. The pension was based solely on the promise by an officer of the corporation that Hayeswould be taken care of and no formal contract was executed.

The defendant ceased paying the pension after three years and Hayes filed a complaint for breach ofcontract. At trial the judge entered judgment for the plaintiff and ruled that he was entitled to receive thepayments. Plantations Steel appealed.

Must a promise induce reasonable reliance by the promisee in order for promissory estoppel to apply?

Yes. A promise must induce reasonable reliance upon it in order for promissory estoppel to apply. Thedefendants promise was given as a token of appreciation and without consideration from the plaintiff.

The promise did not induce reliance by Hayes because he had decided to retire from his employmentbefore any promise that he would receive a pension was made. The promise did not induce his action orforbearance and Plantations Steels promise did not shape his thinking.

Feinburg v Pffeifer

Feinberg (P) worked for Pfeiffer Co. (D) for 37 years, attaining the positions of bookkeeper, officemanager, and assistant treasurer. In 1947 the Board of Directors adopted a resolution recognizingFeinbergs long and faithful service by increasing her salary from $350 to $400 per month and offeringher $200 per month for life after retirement. The Chairman stated that the resolution had been adopted toprovide her with financial security. Feinberg testified that she would have continued in her positionwhether or not the resolution had been passed by the Board. Feinberg retired a year and a half later andreceived $200 per month for several years. The retirement plan was a major factor in her decision toretire. Several years later a new president of Pfeiffer Co. decided that the payments were mere gratuitiesand notified Feinberg that her payments would be reduced to $100 per month. Feinberg refused to acceptthe reduced amount and Pfeiffer terminated all payments.

Feinberg sued for breach of contract. The trial court found that there was no consideration because thepension had been given for past acts; however, the trial court held that Feinberg was entitled to damages


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because she had justifiably relied on Pfeiffers promise. The trial court awarded Feinberg $5,100 for theamount of pension due plus interest. Pfeiffer appealed.

The appellate court held that there was ample evidence to support the trial courts findings that Feinbergwould not have terminated her employment of she had not known and relied on Pfeiffers promise to payher $200 per month for life, and that Feinberg relied on the continued receipt of the monthly pension.

Consideration may be either a benefit to the promissor or a loss or detriment to the promisee. The courtheld that the doctrine of promissory estoppel supported Feinbergs action. The action that was inducedwas Feinbergs retirement from a lucrative position in reliance on Pfeiffers promise to pay her a pension.Feinberg justifiably relied on Pfeiffers promise by retiring earlier than she planned. The court held that,

by retiring, Feinbergs reliance upon the promise contained in the resolution created an enforceablecontract under the doctrine of promissory estoppel.

Promise for Benefit already received

Look for a promise and a benefit, no unjust enrichment or disproportionate value

86. Promise for Benefit Received

(1) A promise made in recognition of a benefit previously received by thep romisor from thepromisee is binding to the extent necessary to prevent injustice.

(2) A promise is not binding under Subsection (1)(a) if the promisee conferred the benefit as agift or for other reasons the promisor has not been unjustly enriched; or(b) to the extent that itsvalue is disproportionate to the benefit

Drake v Bell

Fixed the wrong house but defendant promised to pay

Mills v Wyman

The defendants son got very sick and was taken in by the plaintiff. The son was in the care of theplaintiff for 15 days until he died, and when the defendant learned of this he promised to repay theplaintiff for his help. The plaintiff sued to recover the promised money, but was nonsuited. The plaintiffappealed

A moral obligation may only form consideration for an express promise in three cases: (1) debts barred bythe statute of limitations, (2) debts incurred by kids, or (3) debts previously discharged by bankruptcy.

The moral obligation of the defendant is not found to be of the kind that can form consideration for anexpress promise. Therefore, the defendants promise to pay the plaintiff was nothing more than a giftpromise in the eyes of the law. In the courts view, society has chosen to leave it up to the defendantsconscience whether to pay back a purely moral debt.

Webb v Mgowin

Webb (P) and McGowin (D) worked at a mill. Webb was releasing a 75-pound block of wood to the floorof the mill below when he noticed McGowin standing where the block would have fallen. Webb fell with


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the block in order to save McGowins life and broke his arm and leg and ripped his heel off, leaving himpermanently disabled and incapable of performing either physical or mental work. McGowin promised to

pay Webb $15 every two weeks for the rest of Webbs life. Webb received the payments until McGowindied eight years later. Webb sued the executors of McGowins estate when the payments stopped. At trial,D obtained a nonsuit against P and P appealed.

Can moral consideration create an enforceable promise if the promisor has received a material benefitconstituting a valid consideration for his promise?

Yes. In this case, the fact that P saved McGowin from death or grievous bodily harm was a materialbenefit to McGowin. Upon receiving this benefit, McGowin became morally bound to compensate P andas such expressly agreed to compensate P. When the promisee cares for, improves and preserves theproperty of the promisor, even without a request to do so, it is sufficient consideration for the subsequentagreement to pay for the service because of the material benefit received directly by the party. Once Psaved McGowin from death or grievous bodily harm and McGowin subsequently agreed to pay him forthe service rendered it became an enforceable contract.

A lot of places do not allow moral consideration

Officious intermeddler - A needless service has led to the formulation of the officiousintermeddler doctrine. It holds that where a person performs labor for another without the lattersrequest or implied consent; he cannot recover therefor except emergency aid.

Nursing Care Services v Dobos

When services were rendered by one party for another which were knowingly and voluntarily accepted,the law presumed that such services were given and received in expectation of being paid for and wouldimply a promise to pay what they were reasonably worth.

Estate of Cleveland v Gorden

Gorden took care of her aunt and paid the majority of her expenses, under the expectation that she wouldbe reimbursed. Her aunt told a companion that Gorden would get everything she had, but her will leftonly furniture to her niece, and the rest to her church. (D was reimbursed)

Holding: A person who pays anothers debt b/c of a moral obligation is not an officious intermeddler andis entitled to reimbursement unless the gift was gratuitous. The presumption that family membersservices are gratuitous can be rebutted by proof of an express agreement to pay for services or by proof ofcircumstances showing that the relative accepting the services knew or should have known that therelative performing them expected compensation or reimbursement.

- Officious intermeddler or volunteer cannot claim restitution.

OFFERS AND ACCEPTANCES

Offer- manifestation of willingness to enter into a bargain

Rest. 24: An offer is the manifestation of willingness to enter into a bargain, so made as to

justify another person in understanding that his assent to that bargain is invited and will

conclude it.


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Lucy v Zehmer

One evening in December 1952 after several drinks, Zehmer (D) wrote a contract on a restaurant bill inwhich he agreed to sell his farm to Lucy (P) for $50,000. Zehmer later insisted that he had beenintoxicated and thought the matter was a joke, not realizing that Lucy had been serious.

Lucy claimed that he was not intoxicated and believed that Zehmer was also sober. Zehmer testified thathe was already high as a Georgia pine when he began drinking with Lucy. He claimed that he wasmerely bluffing to try to get Lucy to admit that he did not actually have $50,000.

Lucy brought suit for specific performance when Zehmer refused to complete the transaction. The trialcourt ruled for Zehmer holding that Lucy had not established a right to specific performance.

In determining whether a party has made a valid offer, the words and actions of the party are interpretedaccording to a reasonable person standard. If the words or other acts of one of the parties have but onereasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning whichhe attaches to his manifestations is known to the other party.

The court looks to the objective, outward expression of a person and not to their secret and unexpressedsubjective intent. The test is whether a reasonable person would conclude that the partys words andactions constituted an offer. In this case Zehmers acts and words could be reasonably interpreted by Lucyas an offer to sell his farm. The parties discussed the matter for over forty minutes, addressed the issue ofexamination of title, and both Zehmer and his wife signed the agreement.

Leftowitz v Great Minn Store

An advertisement involving a transaction in goods is an offer when it invites particular action, and when itis clear, definite, and explicit and leaves nothing open for negotiation.

Acceptancemanifestation of assent to the terms thereof made by the offeree in a manner invited orrequired by the offer

35 The Offeree's Power of Acceptance

(1) An offer gives to the offeree a continuing power to complete the manifestation ofmutual assent by acceptance of the offer.

Bilateral contract- a contract in which both sides make promisesUnilateral contractinvolves an exchange of the offerors promise for the offerees act

WHEN is K formed in each case? Bilateralwhen the accepting promise is made (and thus before either party performs) Unilateralonly when full performance has been rendered by the offeree

If neither the offer itself nor the circumstances clearly requires acceptance only by either apromise or a performance, then the offeree can accept by either means

Strong presumption allowing possibility of acceptance by return promise (bilateral) b/cprotects offeree


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Thus, must be CLEAR either from offer or circumstances if only performance is allowed

62. Effect of Performance by Offeree Where Offer Invites Either Performance or

Promise(1) Where an offer invites an offeree to choose between acceptance by promise and

acceptance by performance, the tender or beginning of the invited performance or a tenderof a beginning of it is an acceptance by performance.

(2) Such an acceptance operates as a promise to render complete performancePreliminary negotiations: if a party who desires to contract solicits bids, this solicitation is

not an offer, and cannot be accepted. Instead, it merely serves as a basis for preliminary

negotiations

Advertisements- generally not an offer to sell, but if it contains specific words or commitment,especially a promise to sell a particular number of units, then it may be an offer

-Look for action by the consumer to get the deal

Auctionwhen an item is put up for auction, this is usually not an offer, but rather a solicitation

An offer may be accepted only by a person in whom the offeror intended to create the power ofacceptance

-Offeree must know of the offer-Lets say there is a reward for an act, a person must know of it to claim it

The offeror is the master of his offer.-May prescribe the method by which the offer may be accepted-If the offer does not specify the mode of acceptance, it must be given by a reasonablemethod-Unilateral contract is accepted by full performance of the requested act

Offer invites either promise or performance- if it does not make it clear can do either-UCC 2-206(1)(b), places a purchase order with no mention of how acceptance couldoccur can do either-Accommodation shipment- non-conforming goods, it is a counter offer, which the buyercan accept or deny. Seller will not be found to be in breach

Commmon law mirror image rule- must be an exact mirror of the offer

In other words, to be effective, the purported acceptance must have two traits:1. Definite, unconditional & unequivocal manifestation of assent to offerAND2. Not throw in anything new or different

UCC view- will often lead to ac contract being formed even though the acceptance diverges fromthe offer.

-Battle of the forms UCC 2-207


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-Does not form a contract if it is expressly made conditional on assent toadditional or different terms.-additional terms- if one person is not a merchant, the additional term becomespart of the contract only if the offeror explicity assents to it. If both merchantsthen the additional term automatically becomes a part of the contract unless it

materially alters the contract or the offeror objects to it

Parties conduct can cause to the contract to occur, such as accepting the shipment and sayingnothing

UCC 2-207 changes the mirror image rule:1st: under 2-207(1)Ss acknowledgment CAN = acceptance if is a definite and seasonableexpression of acceptance EVEN IF it states terms additional to or different from those offered

2nd: if K formed by exchange of forms, what about Ss new terms?

Look to 2-207(2)treat as a proposal to be added to K.

If both parties aremerchants, then the proposal becomes part of the K unless:

Material alteration (2-207(2)(b)) Offeror (here, B) said noeither in original offer ((2)(a)) or in response toacknowledgment ((2)(c))A warranty disclaimer usually is considered a material alteration, so S would not get it in, unlessB expressly said Ok, which of course it never would

3rd: If S wants to be certain it gets all its terms (including the disclaimer, here), then S must sayin its response that its acceptance is expressly made conditional on B assenting to Ss terms

And fact B went ahead and performedBs assent to all of Ss terms

In contracts where at least one party is a non-merchant, if the offeree unambiguously accepts butstates additional terms, the terms are construed as mere proposals for modification and the termsof the existing contract are those set forth in the offer.

Where both parties are merchants, the additional terms become part of the contract unless:

the offer expressly limits acceptance to the terms of the offer;they materially alter it; ornotification of objection to them has already been given or is given within a reasonable time afternotice of them is received. [UCC 2-207(2)]

36. Methods of Termination of the Power of Acceptance

(1) An offeree's power of acceptance may be terminated by

(a) rejection or counter-offer by the offeree, or

(b) lapse of time, or(c) revocation by the offeror, or


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(d) death or incapacity of the offeror or offeree

Rejection- must manifest intent not to stop, if the offeree rejects the offer, this will terminate hispower of acceptance

Counter-offer- if the offeree makes a counter offer then the power to accept the originalagreement has been terminated

Lapse of time- can set a time limit or the power of acceptance terminates at the end of areasonable time period

-face to face conversation on the phone the power of acceptance continues only duringthe conversation

Face-to-face offer: power of acceptance lapses when meeting ends and parties depart; i.e., unlesscircumstances suggest otherwise, the presumption is that the offeror expects an answer then andthere.

Mail: Rest. 41(3): Unless otherwise indicated by the language or the circumstances, an offersent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on theday on which the offer is received.

Revocation- the offeror is free to revoke his offer at any time before it is accepted-not effective until it is received by the offeree-manifest intent to take off the table

Death or incapacity- if either parties dies or loses legal capacity to enter into the contract, thepower to accept is terminated. This is so even if the oferee does not learn of the death orincapacity until after he has dispatched the acceptance

Characterization issue: going back to original diagramwhen offeree responds to an offer withanything other than an unequivocal I accept, which of the following three possibilities is themost accurate legal characterization of that response?:1. Acceptance = K now

2. Counter offer = no K now, no power of acceptance in original offeree, power ofacceptance of counter offer in original offeror

3. Neither an acceptance nor a counter offer, but merely an inquiry = no K now, but originalofferee retains power of acceptance

Irrevocable offers-Standard option contract- to keep it open

-common law requires consideration-restatement requires that a signed option contract be made

-Firm offer rule under the UCC 2-205


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-Must be by a merchant, in signed writing, gives excplicit assurance it will be heldopen-Three-month limit

2-205. Firm Offers

An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurancethat it will be held open is not revocable, for lack of consideration, during the time stated or if notime is stated for a reasonable time, but in no event may such period of irrevocability exceedthree months; but any such term of assurance on a form supplied by the offeree must beseparately signed by the offeror.

Past performance or detrimental reliance-Beginning of performance in a unilateral contract (must continue to diligently perform

-Only applies to actual performance not the making of preparations

-An offer, which the offeror should reasonably expect to induce action or

forbearance of substantial character on the part of the offeree before acceptanceand which does not induce such action or forbearance, is binding as an optioncontract to the extent necessary to avoid injustice. Restatment 2nd 87 (2)

-Sub contractors bid to general contractors

Mailbox ruleacceptance is effective upon proper dispatch-Unless otherwise stated in the contract-If lost or delay depends on whether the communication was properly addressed

-If properly addressed it is effective at the time of dispatch-If not properly received, it will be effective upon dispatch only if it is receivedwith in the time in which a properly dispatched acceptance would normally havearrived

1st: an OFFER is only legally operative when it is received by the offeree (i.e., offeree learns ofit)Makes sense b/c the legal effect of an offer is to create a power of acceptance in offeree, whothen must do something to accept, in response to the offer would be nonsensical for an offereeto act in response to something he was unaware of!

2nd: an ACCEPTANCE is only valid when the offeror learns of it IF the offeror so specified inthe offer (remember the master of the offer rule).

3rd: if offer does NOT specifically require that offeror learn of acceptance, then acceptance

takes effect when DISPATCHED this is the so-calledMAILBOX RULE

Thus in above diagram, if everything is the same EXCEPT the offer was silent about

requiring the offeror to learn of the acceptance, then acceptance is effective at instant it is put

in the mailbox, e.g., dispatched K -- this instant

Effect of mailbox ruleofferor may be bound, but not know it!


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A rejection of an offer by the offeree is effective when received by the offeror. If an offereedispatches more than one response to an offer, regardless of whether the rejection is sent beforeor after the acceptance, if the rejection is received later than when the acceptance wasdispatched, a contract is formed since an acceptance is effective upon dispatch but a rejection iseffective upon receipt. Nevertheless, estoppel may operate to bar enforcement of such a contract

where the offeror receives the rejection before the acceptance, and acts in reliance on suchrejection.

54. Acceptance by Performance; Necessity of Notification to Offeror(1) Where an offer invites an offeree to accept by rendering a performance, no notification isnecessary to make such an acceptance effective unless the offer requests such a notification.

(2) If an offeree who accepts by rendering a performance has reason to know that the offeror hasno adequate means of learning of the performance with reasonable promptness and certainty, thecontractual duty of the offeror is discharged unless

(a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or

(b) the offeror learns of the performance within a reasonable time, or(c) the offer indicates that notification of acceptance is not required.

The offeror is entitled to notice of the acceptance. Thus, even if the offeree effectively accepts anoffer and a contract is formed, failure by the offeree to notify the offeror of the acceptance withina reasonable time may preclude the offerer from enforcing the contract. [Restatement 54 and 56]

Under common law, where an offer invites acceptance by performance, no notice is required tomake the acceptance effective, unless the offeror so specifies. However, if the offeree has reasonto know that the offeror has no adequate means of learning of the performance with reasonablepromptness and certainty, the offeror's contractual duty will be discharged unless:

the offeree exercises reasonable diligence to notify the offeror of acceptance; orthe offeror learns of the performance within a reasonable time; orthe offer indicates that notification of the acceptance is not necessary.

In transactions for the sale of goods, where commencement of performance is a reasonable modeof acceptance, if the offeror is not notified of acceptance within a reasonable time, he may treatthe offer as having lapsed prior to acceptance. [UCC 2-206(2)]

Where the offeree accepts by promise, the offeree must exercise reasonable diligence to notifythe offeror of the acceptance or ensure that the offeror seasonably receives the acceptance.[Restatement 56]

A number of approaches are applied to communications that are intended as an acceptance butsent after the offer expires:

1) the communication may qualify as a counter-offer;


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2) the offeror may waive the lateness and honor the acceptance;

3) if the acceptance is nevertheless sent within a reasonable time, albeit after the offer's statedexpiration, the acceptance is valid and results in the formation of a contract if the offeror doesnot reject it within a reasonable time;

4) in transactions governed by the CISG, if the acceptance is late because of a delay intransmission that is apparent from the circumstances, a contract is formed unless the offerorinforms the offeree that the acceptance is too late.

Good faith dealingUCC 1-304- every contract or duty within this act imposes an obligation ofgood faith in its performance or enforcement

-a party is required to behave in a way that is consistent with the other partys reasonableexpectation about how the contract will work

Misunderstandingprevents the meeting of the minds theory

Problems in todays society1. Uncertain commitment to the deal2. Vague terms3. Missing terms4. Terms left for future resolution

Raffles v Wichlehaus

Raffles (P) contracted to sell 125 bales of Surat cotton to Wichelhaus (D). The goods were to be shippedfrom Bombay to Liverpool, England on the ship Peerless. Neither party was aware that there were twoships names Peerless carrying cotton from Bombay to Liverpool, one arriving in October and the otherin December.

Wichelhaus thought he had purchased the cotton arriving on the October ship, but Raffles sent his cottonon December ship. Wichelhaus refused to accept delivery of the cotton arriving on the December ship andRaffles brought this lawsuit for breach of contract.

If there is no contract there no is meeting of the minds (consensus adidem). Both parties must intend toagree on the same thing.

No contract will be formed if the parties each have a different subjective belief about a term ofthe contract, the term is a material one, and neither party knows or has reason to know of themisunderstanding

-If one party knows or should know that he has a different understanding as to themeaning of an ambiguous term than the other, a contract will be formed on the term asunderstood by the other innocent party


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Ifthe offerees failure to read or understand the offer is due to his own negligence, he is boundby the terms of the contract as stated in the offer

Mistake- a belief that is not in accord with the facts-Must be a basic assumption on what the contract was made

-Must have material effect on the agreed exchange of performance-]The adversely-affected party must not be the on whom the contract has implicitlyimposed the risk

Mutual mistakemistake by both parties

Unilateralif only party has the mistaken belief

Existing fact- must be a present existing fact, not an erroneous belief about what will happen inthe futureMarket conditions will generally not be basic ones, so the mistaken party will not be able to

avoid the contract

Seller will almost always bear the risk that valuable oil and gas deposits will be found on theland

Unilateral mistake-More difficult for the mistaken party to avoid the contract than in the mutual mistakesituation. The mistaken party must make the same three showings plus-Unconscionaility-The other party had reason to know of the mistake, or it was the other parties fault

20 Effect of Misunderstanding

(1) There is no manifestation of mutual assent to an exchange if the parties attach materiallydifferent meanings to their manifestations and

(a) neither party knows or has reason to know the meaning attached by the other; or(b) each party knows or each party has reason to know the meaning attached by the other.

(2) The manifestations of the parties are operative in accordance with the meaning attached tothem by one of the parties if

(a) that party does not know of any different meaning attached by the other, and the otherknows the meaning attached by the first party; or

(b) that party has no reason to know of any different meaning attached by the other, and theother has reason to know the meaning attached by the first party

The Restatement test for relief: 152 When Mistake of Both Parties Makes a Contract Voidable

(1) Where a mistake of both parties at the time a contract was made as to a basic assumption onwhich the contract was made has a material effect on the agreed exchange of performances, the


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contract is voidable by the adversely affected party unless he bears the risk of the mistake underthe rule stated in 154.

And thus also have to consult 154: 154 When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or

(b) he is aware, at the time the contract is made, that he has only limited knowledge with respectto the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(c) the risk is allocated to him by the court on the ground that it is reasonable in thecircumstances to do so.

Wood v Boyton

Facts: Wood (P) sold a gem for $1 to Boynton (D), a jeweler. Both parties believed the stone to be topazat the time of the sale. Boynton later learned that the stone was a diamond worth $700. Boynton declinedWoods offer to buy back the gem for $1.10 and Wood sued for its return. At trial the court directed averdict in favor of Boynton and Wood appealed.

Is a party to a contract entitled to rescission if both parties were mutually mistaken regarding the value ofthe items sold and the seller has not committed fraud?

No. A contract made where there is mutual mistake regarding the nature and value of the items soldcannot be rescinded without fraud. The only way P can rescind the sale is by showing that there was some

fraud by D in procuring the sale, or that the seller made a mistake by delivering an article that was not thearticle sold. The latter amounts to a mistake in fact as to the identity of the article sold. Except for thesetwo cases, there can be no rescission of a contract for sale based on mutual mistake.

In this case, both parties were ignorant of the true value of the gem. There was no mistake regarding theidentity of the item sold and delivered to D. P made a bad bargain and that alone is not grounds forrescission of the contract.

The court held that inadequacy of price as evidence of fraud depends upon the facts known to the partiesat the time the sale was made. When this sale was made, the value of the thing sold was open toinvestigation by both parties. Neither party knew its intrinsic value and believed that the price paid wasadequate.

Sherwood v Walker

Sherwood (P) contracted to purchase a cow from Walker (D). Walker showed Sherwood a cow, Rose 2dof Aberlone, which he believed to be barren. Sherwood agreed to purchase the cow for $80. If the cowhad been fertile it would have been worth $750 to $1000. Walker later discovered that the cow was withcalf and refused to complete the transaction.


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Sherwood brought suit and took possession of the cow via a writ of replevin. At trial, Walker showed thatat the time of the sale both parties had believed the cow to be barren and both knew that the value of afertile cow was much higher than that of a barren cow. The judge instructed the jury that it wasimmaterial whether the cow was barren. The jury returned a verdict in favor of Sherwood and Walkerappealed.

Can a mutual mistake regarding the substance of the subject matter of a contract render a contractunenforceable?

There is no contract if there is a difference or misapprehension as to the substance of the thing bargainedfor, or if the thing actually delivered or received is different in substance from the thing bargained for andintended to be sold. However, if there is merely a difference as to some quality or accident, even thoughthe mistake may have been the actuating motive of either or both of the parties, the contract remainsbinding. The only difficulty in such a case is to determine if the mistake is as to the substance of thewhole contract. Under prior law it has been held that when a horse is bought under the belief that he issound, and both the buyer and seller have this honest belief, the purchaser must stand by his bargain andpay the full price unless there was a warranty.

The court held that in this case the mistake went to the whole substance of the agreement. This mistakewas not about the mere quality of the cow but to its very nature, i.e. a fertile cow as opposed to a barrencow.

Defenses and Remedies

Avoidancetreats the contact as if it has never been made, and attempts to return each party tothe position he was in just before the contract was signed. Also restitution will be ordered whereeach party will return what they got

Reliance damages might also be awarded

Indefiniteness- no contract will be found if the terms of the parties agreement are undulyindefinite, the absence of terms makes their agreement void

-Courts can supply a reasonable value for its missing terms

UCC expressly allows the court to fill in terms for price, place for delivery, time for shipment,time for payment, as long as the parties have intended to make the contract UCC 2-204(3)

Supply terms in contracts if too indefinite

33. Certainty

(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot beaccepted so as to form a contract unless the terms of the contract are reasonably certain.

(2) The terms of a contract are reasonably certain if they provide a basis for determining theexistence of a breach and for giving an appropriate remedy.


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(3) The fact that one or more terms of a proposed bargain are left open or uncertain may showthat a manifestation of intention is not intended to be understood as an offer or as an acceptance

UCC 2-204(3) does not fail if the parties intended to make a contract, and there is a reasonablycertain basis for giving an appropriate remedy

Necessary terms1. parties to the contract2. subject matter of the contract3. time for performance4. price

Sun Printing and Publishing v Remington

Plaintiff is a newspaper company who contracted to buy 16,000 tons of paper from Defendant, a papermill. The written contract stated that the price and term would be fixed for a short while, and then later tobe agreed upon nlt 15 days prior the end of the term in effect, but in no case was the price to be higher

than a standard market price. After the preset term had expired, and the next price and term was to benegotiated, the Defendant claimed the contract was incomplete, and refused to make any deliveries at anyprice. Plaintiff sued for breach of contract.

The majority reasoned that the contract was expressly written to allow both price and term to benegotiable, and so the court would have been "revising" the contract if it attempted to "construe" it to areasonable market price and some fixed term that was not negotiated by the parties (B.S.). Further, thecourt purposefully disregarded the motive of the D in his refusal to deliver (more B.S.), and stated that theP had not stated sufficient cause of action because he did not allege that the D "arbitrarily refused" tonegotiate.

Parol Evidence Rule

Limits the extent to which a party may establish that discussions or writings prior to the signedwritten contract should be taken as part of the agreement

Integration- intended to be the final expression of the agreement-partialintended to be final but that is not intended to include all details of the parties-totalincludes all details of the agreement

When partial integration, no evidence of prior or contemporaneous agreements or negotiations(oral or written) may be admitted which would contradict the writing

When total integration, no evidence may be admitted which would either contradict or add to thewriting

If a supplement is signed at the same time, it is treated as part of the writing, and will not besubject to the parol evidence rule

-never bars consideration of subsequent oral agreements.-unless the written document contains a no oral modification clause


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What the PER does NOT do:As to each of the followingWHY wouldnt the PER apply?1. does not exclude SUBSEQUENT agreements

2. does not exclude evidence as to what the writing MEANS, i.e., goes to interpretation

3. does not exclude evidence that the writing is UNENFORCEABLE, e.g., was procured byfraud, or mistake, or duress, etc.

4. does not decide threshold question of whether the writing is integrated, and if so, whether iscomplete or partial

5. does not exclude IMPLIED termse.g., course of performance, course of dealing, usage oftrade

UCC 2-202 very similar to the parol evidence rule

2-202. Final Written Expression: Parol or Extrinsic Evidence.

Terms with respect to which the confirmatory memoranda of the parties agree or which areotherwise set forth in a writing intended by the parties as a final expression of their agreementwith respect to such terms as are included therein may not be contradicted by evidence of anyprior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) by course of dealing or usage of trade (Section 1-205) or by course of performance (Section2-208); and(b) by evidence of consistent additional terms unless the court finds the writing to have beenintended also as a complete and exclusive statement of the terms of the agreement .

The judge decides whether the writing was intended as an integration, if so whether theintegration is partial or total, and whether particular evidence would supplement the terms of acomplete integratioin

How to determine if total or partial

Four corners rule- looks soley at the documentCorbin view- these questions are to be answered by looking at all available evidence, includingtestimony, to determine the actual intention of the parties

Parol evidence rule does not apply to illegality, fraud, duress, mistake, lack of consideration, orany other fact that would make the contract void or voidable

If the parties orally agree on a condition to the enforceability of the of the contract, or to the dutyof one of them, but this condition is then not included in the writing, courts generally allow proofof the condition


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Collateral agreements- an oral agreement that is supported by separate consideration may bedemonstrated, even though it occurred prior to what seems to be a total integration

Lee v Seagrams

The Pl/ee, Lees owned 50% interest in a wholesale liquor distributorship. Seagram is a distiller ofalcoholic beverages. The Lees carried numerous Seagram brands and a large portion of sales weregenerated by Seagram lines. The Lees and other owners wanted to sell their interests. Mr. Lee discussedthis with Yogman VP of Seagram. Lee offered to sell but conditioned the offer on Seagrams agreementto relocate Mr. Lee and sons in a new distributorship of their own in a different city. Evidence supportsthis as having been done. A mo. later another representative began negotiations, the purchase of theassets was consummated pursuant to a written agreement. The promise to relocate was not reduced towriting.

Whether the oral promise to provide another distributorship would be an expectable term of the contractfor the sale of assets by Capital, in which the Pls only have a 50% interest, considering the history of theirrelationship with Seagram?

In customary business practices, oral agreements can be treated as separate and independent of the writtenagreement. Collateral agreements such as shareholder employment, survive the closing of a corporatedeal, are often set forth in separate agreements. An agreement to obtain a new distributorship for certainpersons, not parties to the contract, would not ordinarily be integrated into an instrument for the sale ofcorporate assets. There was a close relationship of confidence and friendship between Mr. Lee andYogman, whose authority to bind Seagram has not been questioned. The written agreement does notcontain the customary integration clause. There are no contradictions of the terms of the sales agreement.The writing dealt w/ the sale of corporate assets, the oral w/ the relocation of the Lees. The oral does notvary or contradict the money consideration recited in the contract as flowing to the selling corp.

Interpretation of evidence

Extrinsic evidence- if a term is ambiguous extrinsic evidence must be allowed-done by jury-look at pre contract negotiations-expert witnesses-past dealings

If the term is unambiguous as decided by the judge then he says what the term is

Judge can determine existence of ambiguity by three approaches-four corners

-plain meaning-liberal rule

Four cornersmay not consult any extrinsic evidence whatsoever, can only look within the fourcorners itself

Plain meaning- will not hear evidence about the parties preliminary negotiations, however willhear evidence about the circumstances, or context surrounding the making of that agreement


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-Would hear testimony what it usually means in contracts

Liberal rule- evidence of the parties statements during their pre-contract negotiations isadmissible for the limited purpose of letting the trial judge determine whether the term isambiguous

An ambiguous term will be construed against the person who drafted the contract

Course of performancethe way the parties had conducting themselves in performing theparticular contract at hand

Course of dealingrefers to how the parties have acted with respect to past contractsUsage of traderegularity of observance in a place, vocation or trade as to justify an expectationthat it will be observed with respect to the transaction in question (UCC 1-205)

-Particular term in a certain region, or certain industry would be admissible

Are not affected by the parol evidence rule unless they contradict the express terms of a contractUCC 1-303 e.

Ranking

The express terms of an agreement and any applicable course of performance, course of dealing,or usage of trade must be construed whenever reasonable as consistent with each other. If such aconstruction is unreasonable: (1) express terms prevail over course of performance, course ofdealing, and usage of trade; (2) course of performance prevails over course of dealing and usageof trade; and (3) course of dealing prevails over usage of trade.

Would it matter what KIND of extrinsic evidence was offered? Thus for example, would(should) a court deal differently with a partys argument that apparently plain K language had adifferent meaning due to the following?: rank them in order of importance The course of performance under this very K

A prior course of dealing between the parties on similar types of Ks

A usage of trade

Pre-K negotiations between the parties

What someone supposedly said

Chicken Case

BNS International Sales Corp. (D) entered into two contracts to sell chicken to Frigaliment (P). When theinitial shipment arrived in Switzerland, Frigaliment found that the heavier birds were stewing chickens orfowl, not young chickens suitable for broiling and frying. BNS International believed that any type ofchicken would meet the contract specifications regarding weight and quantity, including stewingchickens. Frigaliment on the other hand believed that chicken meant a young chicken. Frigaliment


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brought this lawsuit for breach of warranty on the grounds that BNS International delivered goods thatdid not meet the specifications of the contract.

Does a party who seeks to interpret a contracts ordinary terms in a narrower sense than is used ineveryday trade have the burden of proof to establish that meaning?

Is parol evidence admissible to show the meaning of an ambiguous term and its usage in a contract?

The court held that the making of a contract depends not on the agreement of two minds in one intention,but on the agreement of two sets of external signsnot on theparties having meant the same thing buton their having said the same thing. The word chicken standing alone is an ambiguous word. The courtmust first turn to whether the contract itself offers any aid to its interpretation.

BNS International notes that the contract called not simply for chicken but for US Fresh Frozen Chicken,Grade A, Government Inspected. It contends therefore that the contract incorporated by reference theDepartment of Agricultures regulations, which favor its interpretation.

Regarding the parol evidence issue, the court first examined the negotiations. The communications

between Frigaliment and BNS International were in German but they used the English word for chicken.When asked what kind of chickens it wanted, BNS International replied any chickens. Frigalimentclaimed that this was done because it understood chicken to mean young chicken whereas the Germanword Huhn included both broilers and stewing chicken, and that BNS International would haveunderstood the distinction because its officers were thoroughly conversant with German

Implied terms

SOURCES of implied terms:

Presumed intent of parties, based on circumstances

Usage of trade / Course of dealing / Course of performance

these are VERY important

Will apply unless expressly negated

Parties justified in assuming theyll apply to their K

Gap fillers, i.e., off-the-rack default terms-Allows parties to use these default terms by doing nothing

If this is what theyd want anyway, no need to mention in K-Can be changed by agreement of parties

-Common examplesthe 2-300s in UCC Article 2

Mandatory rules-Required by statutory law or public policy-These cannot be varied by agreement


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Woods v Lucy

Lady Duff-Gordon (D) contracted to give Wood (P) an exclusive right to market and license all of herdesigns and to endorse designs with her name. The exclusive contract required that they split all profitsfrom Woods sales evenly but there was no express clause that stated that he would perform. Lucy placedendorsements on clothes without Woods knowledge and in violation of the contract and Wood sued.

The trial court denied Lady Duff-Gordons motion for a judgment on the pleadings. The intermediateappellate court reversed on the grounds that the contract lacked mutuality because Wood never promisedto do anything. Wood appealed the dismissal of the complaint.

1) May a promise to use reasonable efforts be implied from the entire circumstances of a contract? 2) Canan implied promise to use best efforts be considered valuable consideration? 3) Can the duty of good faithcompensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by theparties?

1) Yes. A promise to use reasonable efforts may be implied from the entire circumstances of a contract. 2)

Yes. An implied promise to use best efforts in contract performance can be considered valuableconsideration. 3) The duty of good faith can compensate for vagueness in an agreement to avoidinvalidation of a contract clearly intended by the parties.

A contract may lack an explicit promise to further its goals. The acceptance of the exclusive agencymeant that Wood had accepted the duties of that agency. Because Lady Duff-Gordons sole compensationwas a split of the profits, there would be no efficacy to the transaction unless there was an impliedpromise to use best efforts.

The court held that it was clear from the terms and recitals and duties under the contract that both partiesintended to do what was reasonably necessary to make it a success so that would be profits to divide.Woods promise to pay Lady Duff-Gordon one-half of the profits and revenues resulting from the

exclusive agency and to render accounts monthly demonstrated that he had some obligations under thecontract, and there was a promise to use reasonable efforts to bring profits and revenues into existence.

Duty of GOOD FAITH

MANDATORY -- parties are not free to contract out of this duty!See, e.g., UCC 1-302. Variation by Agreement.

(a) Except as otherwise provided in subsection (b) or elsewhere in the Uniform CommercialCode, the effect of provisions of the Uniform Commercial Code may be varied by agreement.

(b) The obligations of good faith, diligence, reasonableness, and care prescribed by the UniformCommercial Code may not be disclaimed by agreement. The parties, by agreement, maydetermine the standards by which the performance of those obligations is to be measured if thosestandards are not manifestly unreasonable.

Bloor v Falstaff


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Investors Funding Corporation (IFC) owned Ballantine brewery. Falstaff Brewing Corp. (D) bought therights to Ballantines trademarks and other property for $4 million, plus a royalty of fifty cents for eachbarrel of beer sold. Under the contract Falstaff was to use best efforts to promote and maintain a highvolume of sales, and the contract contained a liquidated damages clause to take effect if Falstaff ceased todistribute Ballantine products.

Falstaff lost $22 million distributing Ballantine products over three years and a new brewer (PaulKalmanovitz) took control of the enterprise. The new management made drastic changes to the marketingstrategy for Ballantine products and profit took priority over sales volume. Ballantine sales fell sharplybut the operation became profitable.

Bloor (P), the reorganization trustee for Ballantine, sued in diversity for breach of contract for failing touse best efforts to maintain sales volume. Bloor asserted that the liquidated damages clause had beentriggered. The trial court held that Falstaff was liable for breach of contract and awarded damages, butdismissed the claim for damages under the liquidated damages clause. Both parties appealed.

A best efforts clause imposes an obligation to act with good faith in light of ones own capabilities. Theparty meets the obligations under a best efforts contract by performing as well as the average prudent

comparable business person.

While the best efforts clause required Falstaff to treat the Ballantine brands as well as its own, it does notfollow that it required no more. For its own brands, Falstaff was free to decide for itself how to maximizeprofit even if it meant a serious loss in volume. The same was not true for its obligation regardingBallantine. The royalty of $.50 a barrel on sales was an essential part of the purchase price. Citing Woodv. Lucy, Lady Duff-Gordon, the court held that even without the best efforts clause Falstaff would havebeen bound to make a good faith effort to achieve substantial sales of Ballantine products.

The contract imposed an added obligation to use best efforts to promote and maintain a High volume ofsales. Falstaff was not required to spend itself into bankruptcy to promote the sales of Ballantine products,but the contract did prevent the company from emphasizing profit without fair consideration of the effect

on volume of sales. The plaintiff was not obliged to show what Falstaff should do to maintain a highvolume of sales. It was sufficient to show that it simply didnt care about Ballantines sales volume andwas content to allow it to plummet as long as it was best for Falstaffs profits. The burden then shifted toFalstaff to prove there was nothing significant it could have done to promote Ballantine sales that wouldnot have been financially disastrous.

Regarding plaintiffs appeal of the trial courts denial of damages under the liquidated damages clause,the court held that changing to a system whereby beer was sold from the brewery directly to wholesalerswas not a substantial discontinuance of distribution because distribution included transport of beer onthe trucks of the wholesalers.

Conditions

An event, which must occur before a particular performance is due, is called a condition to thatperformance.

Express- explicity agree that a duty is conditional upon the happening of some eventConstructive- condition of a duty because the court so determines


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If duty to consideration is failed other party does not have to perform while if promise can suefor breach

Strict compliance is ordinarily required but avoid if forfeiture would result

Can have both -- a "promissory condition"The effect of a promissory condition is that if it is not satisfied, the obligor is both (1) relieved ofhis own duty to perform and (2) entitled to sue for breach the obligee's duty.

Which is itcondition or promise?

Depends on intent of parties

Thus if language is clear, is given effect

o IF is a big word indicating a condition!

Some types of contractual situations are normally treated as conditions (e.g., financing,

insurance claims)

Courts reluctant to find that ambiguous language creates a condition, because the effect

of nonoccurrence of a condition may cause a forfeiture - obligee gets nothing.

If a contract makes one partys duty to perform expressly conditional on that partys beingsatisfied with the others performance, the court twill usually presume that an objective standardof reasonable satisfaction was met

-If subjective then the intent of the parties controls (paintings)

Constructive conditions

-Where each party makes one or more promises to the other, each partys substantialperformance of his promise is generally a constructive condition to the performance ofany subsequent duties by the other party

Order of performance-when the performance of one party requires a period of time, and the other does not theperformance requiring time must ordinarily occur first (services)-when both can occur at the same time, each party must conditionally offer performanceto the other UCC 2-507

Some ways to escape a condition

1. Excuseddisproportionate forfeiture

2. Waiver

3. Estoppel

Jacobs and Young v Kent


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Jacob & Young ("Plaintiff") built a country residence for Kent ("Defendant") at a cost of upwards of$77,000, and now sues to recover a balance of $3,483.46, remaining unpaid. The work of constructionceased in June, 1914, and the Defendant then began to occupy the dwelling. There was no complaint ofdefective performance until March, 1915. One of the specifications for the plumbing work provides thatAll wrought-iron pipe must be well galvanized, lap welded pipe of the grade known as standard pipe ofReading manufacture. The Defendant learned in March, 1915, that some of the pipe, instead of being

made by Reading, was the product of other factories. The Plaintiff was accordingly directed by thearchitect to do the work anew (start over again). Obedience to the order meant more than the substitutionof other pipe. It meant the demolition at great expense of substantial parts of the completed structure. ThePlaintiff left the work untouched, and asked for a certificate that the final payment was due. Refusal of thecertificate was followed by this suit.

Other than different brands, the pipes that Plaintiff installed and one that Defendant wanted had no othermaterial differences in quality. Also, there was no evidence of fraud or bad faith on the part of Plaintiff.

Issue: Whether Plaintiff is owned money for substantial performance?

The court reasoned about what is important and trivial, when it comes to not following the exact terms of

the contract. The court held in this case that the measure of the allowance is not the cost of replacement,which would be great, but the difference in value, which would be either nominal or nothing. The courtalso made an analogy by stating Specifications call, let us say, for a foundation built of granite quarriedin Vermont. On the completion of the building, the owner learns that though the blunder of asubcontractor part of the foundation has been built of granite of the same quality quarried in NewHampshire. The measure of allowances is not the cost of reconstruction. Furthermore, when the defect isinsignificant, the court will find that there was substantial performance and excuse the breach of using thesame type and quality of pipe which parties had agreed were the same except for the brand name. Themeasure of damages is not the cost to rip out the old pipe and install a new one, but the difference invalue, which in this case is zero.

Substantial Performance

-if one party fails to substantially perform, the other partys remaining duties are not dueIf they can easily be cured, the other partys duty to give a return performance is merelysuspended; the defaulter then has a chance to cure his defective performance.

If on the other hand, the defect is so substantial that it cannot be cured within a reasonable time,or if the defaulter fails to take advantage of a chance to cure, the other party is then completelydischarged


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Factors regarding materiality

-The more the non breaching party is deprived of the benefit he reasonably expected themore likely the breach was material-The greater the part of the performance, which has been rendered, the less likely it is thata breach will be deemed material-Likeliness of a cure-A willful breach is more likely to be regarded as material than breach caused by

negligence-The more delay the more material

Apply to facts -- in the case, regarding the contractors obligation to install Reading pipe, and therelation of that promise to the owners promise to pay, how apply:

1. the purpose to be served

2. the desire to be gratified

3. the excuse for deviation from the letter

4. the cruelty of enforced adherence

A modern reformulation of the balancing test of materiality:


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Restatement 2nd 241 Circumstances Significant in Determining Whether a Failure Is Material

In determining whether a failure to render or to offer performance is material, the followingcircumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonablyexpected;(b) the extent to which the injured party can be adequately compensated for the part of thatbenefit of which he will be deprived;(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;(d) the likelihood that the party failing to perform or to offer to perform will cure his failure,taking account of all the circumstances including any reasonable assurances;(e) the extent to which the behavior of the party failing to perform or to offer to performcomports with standards of good faith and fair dealing.

PARTIAL OR TOTAL BREACH?

The 2nd important question (on which we will spend less time) is whether a breach is partial ortotal

WHY DOES IT MATTER?As we just learned, if a party commits a material breach (i.e., does not substantially perform),then in addition to having a remedy for breach, the aggrieved party can withhold its ownperformance

Butis that withholding of performance only a temporary suspension, or can the aggrieved

party say forget the whole thing, CANCEL the K, and walk away?

Or does the breacher still have the right to try to CURE the defective performance and thus

render substantial performance (and thereby trigger the other partys duty to perform under the

K)?

If aggrieved party has a right to cancel the whole K due to the breach, we call that a TOTALbreach.

Otherwise, if is only allowed to suspend their own performance, but not cancel the whole K yet,leaving a possibility that the breacher can cure, call that a PARTIAL breach

Really just conclusory labels to justify the all-things-considered calculus of whether should allowaggrieved canceling the whole K yet.

Strong presumption give the breacher a chance to cure

Policy favors keeping deals alive, if possible Minimize litigation Reduce dead-weight loss to society


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UCC 2-601 Perfect tender rule (as long as not multiple installments)

-if the goods or tender of delivery fail in any respect to conform to the contract, the buyermay reject the whole, accept the whole, accept any commercial units and reject the rest-Usually only is substantial

Reject must be done in a reasonable time after the goods are deliveredMust not be preceded by acceptance

-reasonable inspection-timely rejection-buyer does any act inconsistent with the sellers ownership

Revoking must make a stronger showing of non-conformity then a rejection

Cure: both buyers right to reject and his right to revoke are subject to the sellers right to cure thenon-conformity

-Can get additional time if he reasonably thought that either: the goods, would beacceptable or the buyer would be satisfied with a money allowance

Excuse of considerations

Hindrance- where one partys duty is conditional on an event, and that same partys wrongfullconduct prevents the occurrence of the condition, it is excused

Waiver

Anticpatory repudiation

Two ways to repudiate:1. Statement: unequivocal -> wont or cant perform

2. Action: render unable to perform

Right to adequate assurance of performance-if a party makes it clear, even before hisperformance is due, that he cannot or will not perform he is said to have anticipatorily repudiatedthe contract.

A repudiators time to retract ends as soon as the other party: sues for breach, changes herposition materially in reliance on repudiation, or states that she regards it as final (UCC 2-611)

If a partys conduct or words do not constitute an out right repudiation, but merely suggest thatthe party may not perform, the other party may demand assurances from the first partyUCC 2-609 (1)

Mitigation is required- UCC 2-610-can insist on performance for a commercially reasonable time


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Unilateral obligation to pay moneydoes not owe any performance at the time of the repudiation

UCC damages for repudiation- the difference between the market price at the time when thebuyer learned of the breach and the contract price, together with incidental damages and

consequential damages UCC 2-713

Statute of Frauds

Statute of Frauds ANALYSIS:

Step 1: is the K within the Statute of Frauds? i.e., is it one of the types or classes of K that are covered by the St/F?

Some contracts are unenforceable unless they are in writing-A contract to answer for the debt or duty to another (main purpose must be for other)

-A contract made upon consideration of marriage (just marriage then engagement)-A contract for the sale of an interest in land-A contract that cannot be performed within one year of its making-Under UCC, a contract for the sale of goods for a price of 500 or more 2-201

Step 2: if yes to # 1, did the party against whom enforcement is sought sign a sufficientwriting memorializing the K?

1st: for everything other than sale of goods KsMyth: the contract itself has to be in writing.Reality: there just has to be some written record, signed by the party against whom enforcementis sought, that(i) identifies the subject matter of the K;(ii) shows that a K was agreed to; and(iii) has the material terms

2nd: satisfying the St/F in a Sale of Goods K

Much more lenient than general St/F requirements for a memorandum:

UCC 2-201(1): unless there is some writing sufficient to indicate that a contract for sale hasbeen made between the parties and signed by the party against whom enforcement is sought orby his authorized agent or broker. A writing is not insufficient because it omits or incorrectlystates a term agreed upon but the contract is not enforceable under this paragraph beyond thequantity of goods shown in such writing.

Thus, does NOT have to state all essential termsONLY quantityAs Comment 1 states:


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1. The required writing need not contain all the material terms of the contract and suchmaterial terms as are stated need not be precisely stated. All that is required is that the writingafford a basis for believing that the offered oral evidence rests on a real transaction. ... The onlyterm which must appear is the quantity term which need not be accurately stated but recovery islimited to the amount stated. The price, time and place of payment or delivery, the general

quality of the goods, or any particular warranties may all be omitted.Only three definite and invariable requirements as to the memorandum are made by thi

Documents

Contracts Outline Spring 2012 New