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Contracts

I. WHAT IS A CONTRACT-an agreement that the law will enforce-written contracts v oral- although the word contract often refers to a writtendocument, a writing is not always necessary to create a contract. An agreement may

be binding on both parties even though it is oral. Some contracts must be in writingunder statute of fraudsA. SOURCES OF CONTRACT LAW- UCC- contract law is essentially common law. Sale of goods usually governed bystatute Article 2 of UCCB. TYPES OF CONTRACTS

1.Bilateral: both sides make promises. A proposes to exchange his promise forBs promise. For example: I promise to pay you 100$ april 15 if you promise nowthat you will walk across the bridge on April 1.2.Unilateral: involves exchange of the offerors promise for the offerees act. Theofferee doesnt make a promise, just simply acts. For example, If you walk across

the bridge I will pay you 100$ when you finish.

II. OFFER AND ACCEPTANCEA. MUTUAL ASSENT

-necessary for an enforceable contract-depends on whether there has been an offer and an acceptance of that offer

1.Defined: If the offeror has clearly manifested a willingness to enter into acontract in such a way that the other party, the offeree, knows that assent is allthat is necessary to cement the deal, and the offeree accepts, the mutual assentexists2. Objective Theory of Contracts: partys intent is deemed to be what a reasonable

person in the position of the other party would think that the first partys objectivemanifestation of intent meant. Was As conduct reasonably indicated to one inBs position that A was making an offer.3. Presumptions: where the evidence is ambiguous about whether the partiesintended to be bound, the court will follow these rules: 1. In a business context,the court will presume the parties intended contract to be legally enforceable 2.But in social and domestic situations presumption will be that legal relations werenot intended4. Intent to put in Writing: if two parties agree either orally or in a brief writingon all points, but decide they will subsequently put their entire agreement into amore formal written document later, the preliminary agreement may or may not

be enforceable. The parties intention controls. Where evidence of intent isambiguous, the court will generally treat a contract as existing as soon as themutual assent is reached, even if no formal document is ever drawn up later.

CONTINENTAL LABORATORIES V SCOTT PAPER-Rule: if either party intends not to be bound in the absence of a fully executeddocument, no binding contract will be formed-To determine whether intent to be bound prior to execution of written document:

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1. whether contract is of class usually found in writing2. whether it is a type needing formal writing for its full expression3. whether it has few or many details4. whether amount is large or small5. whether contract is common or unusual

6. whether all details have been agreed upon or some remain unresolved7. whether the negotiations show a writing was discussed or contemplated

-Existence of a familial relationship may affect ability to create an enforceablecontract. Courts do not get involved with domestic agreements in marriages or livingarrangements within a home. Recently courts have become more involved in disputesarising between unmarried cohabitants and friends.

STEPP V FREEMANRule: in an implied-in-fact contract, assent is demonstrated by the surroundingcircumstances, including the conduct and declarations of the parties

-lottery ticket pool between coworkers. There were unwritten rules about how to be inthe pool that were known for over 5 years. These included reminders of paymentbefore tickets were bought and expressly telling person in charge he did not wish tobe in the pool anymore. Plaintiff was never reminded and never told D that he didntwant to be in pool, D was just mad at P and neglected to remind him.

B. THE OFFER-the manifestation of willingness to enter into a bargain, which justifies anotherperson in understanding that his assent can conclude the bargain.-an offer is something that creates a power of acceptance

1. Offers made in jest are not enforceable2. Preliminary negotiations: if a party solicits bids, this solicitation is not anoffer and cannot be accepted. Its a basis of preliminary negotiations. Forexample, I would like to sell my house for at least 100,000$.

LEEDS V FIRST AMERICAN ALLIED CONNECTICUT CORP-Rule: a court, when determining if intention has been manifested to bind the partiescontractually, inquires whether a reasonable person would conclude, based upon theobjectives manifestation of assent and all of the surrounding circumstances, that theparties intended to be bound by the contract-Leeds contended that an agreement signed by the parties was not a contract becausethere was not yet an agreement as to all the terms of the proposed contract andnegotiations were still in progress

3. Advertisements: most are not offers to sell because they do not containsufficient words of commitment to sell. For example, Mens jackets, $26 each, istoo vague regarding quantity, duration etc. If promise to sell a particular numberof units then it can be an offer. For example, 100 mens jackets $26 a piece, firstcome first served.

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LEFKOWITZ V GREATER MINNEAPOLIS SURPLUS STORE INC-Rule: a newspaper advertisement for the sale of an article which is clear, definiteand explicit, and leaves nothing to the negotiation is an offer, acceptance of whichwill create a binding contract-surplus store advertised one fur stole on a first come first serve basis but would not

sell the stole to Lefkowitz who accepted alleged offer

4. Auctions: usually not an offer unless its stated the bids are without reserve

C. ACCEPTANCE-a manifestation of assent to the terms thereof made by the offeree in a mannerinvited or required by the offer-offer can only be accepted by the person in whom the offeror intended to createpower of acceptance

1. offeree must know of an offer: acceptance is usually only valid if the offereeknows of the offer at the time of his alleged acceptance

PRO CD V. ZEIDENBERG-Rule: a buyer accepts goods when, after an opportunity to inspect, he fails to make aneffective rejection-when Zeidenberg bought shrink wrapped software, he was given opportunity to read thelicense at leisure. It splashed across his screen upon installation and made him clickAccept before it would go further. He kept software thus accepting the contract

2. Method of acceptance: offeror is master of his offer and may prescribe themethod by which the offer may be accepted

FUJIMOTO V RIO GRANDE PICKLE CO-Rule: return of an executed contract to offeror is not necessary to make the contractbinding upon the offeror-after signing contracts of employment, Ps did not return executed documents toemployer D. employer never said that offer would only be accepted if returned contract,nor did he give other methods. Therefore it can be inferred that acceptance manifested byfact that employees kept working for over a year and employer had to have taken noticeof this.

3. offer invites either promise or performance: if offer doesnt make clear whetheracceptance is to occur through promise or performance, the offer may be acceptedby either.

a. shipment of goods: If buyer places a purchase order and doesnt specifyhow to accept, the seller may either promise to ship the goods or just shipthem

4. Notice of acceptance of unilateral contract: where an offer looks to aunilateral contract, most courts now hold that the offer must give notice of hisacceptance after he has done the requested act

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5. Acceptance by silence: Generally cannot accept an offer with silence exceptwhen:

a. reason to understand: offeror has given offeree reason to understand thatsilence will constitute acceptance, and offer subjectively intends to bebound

b. benefit of service: offeree who receives benefit of services (not goods)will be held to have accepted a contract 1. if he had a reasonableopportunity to reject them and knew or 2. should have known that theprovider of the services expected to be constitutedc. prior conduct: prior course of dealing makes it reasonable for offereessilence to be construed as assent. For example, seller responds to buyereither by shipping goods or saying we dont have the item usually. If sellernow remains silent in face of an order buyer put in, sellers silence willconstitute an acceptance of the order.d. accepted by dominion: where offeree receives goods and keeps them,this is exercise of dominion is likely to be held an acceptance

DAVIS V JACOBY-Rule: in case of doubt it is presumed that an offer invited the formation of a bilateralrather than a unilateral contract-Whitehead invited the Daviss to help him with his business affairs and to look after hiswife; the Daviss accepted by letter, but before they could move down Whitehead killedhimself

D. TERMINATION OF POWER OF ACCEPTANCE-An offerees power of acceptance may be terminated by:1. rejection or counter offer by offeree:

a. rejection: if offeree rejects offer, then decides he wants it, he has no power toaccept anymore. Exceptions are if offeror says the offer still stands or if offereesays I dont accept now but I will consider the offer further laterb. counteroffer: if offeree makes a counter offer his power to accept original isterminated just as if he had flatly rejected the offer

2. lapse of time: offerors set time limit or a reasonable time3. revocation by offeror: offeror is free to revoke offer at any time before acceptanceis received4. death or incapacity of offeror or offeree

1. Revocation by offeror:

DICKINSON V DODDS-Rule: an offeree may not bind an offeror by accepting a revoked offer, even if therevocation had not been communicated to him prior to acceptance-Dodds attempted to revoke an offer to sell land to Dickinson, but Dickinson agreedto purchase prior to communication of the revocation to him

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MARCHIONDO V. SCHECK-Rule: where an offer invites an offeree to accept by rendering a performance, anoption contract so created is conditional on the offerees completion of theperformance in accordance with the terms of the offer.-Scheck offered to sell realty to a specified prospective buyer and agreed to pay

Marchiondo a brokers commission. Later Scheck revoked the offer. Shortly after therevocation and within the time limit set by the offer, Marchiondo obtained theofferees acceptance.

2. Rejection/Mailbox rule:-acceptance effective upon proper distpatch in mail, unless offeror says otherwise-if rejection sent first then the acceptance will be effective if and only if it isreceived before rejection-if acceptance sent first, acceptance is effective upon dispatch. The subsequentrejection (revocation of acceptance at this point) does not undo the acceptanceeven if it is received before acceptance.

MORRISON V THOELKE-Rule: an acceptance is effective when it is posted even though a subsequent rejectionis actually received before the acceptance-after mailing an acceptance, Morrison informed Thoelke that the offer was beingrejected, the rejection being received before the acceptance.

3. Termination by CounterOffer

LIVINGSTONE V EVANS-Rule: a counter offer is a rejection of the original offer and terminates it-Livingstone submitted a counter offer which Evans rejected. Livingstone thenunsuccessfully attempted to accept original offer. Here, since evans said cannot lowerprice, it meant that he reaffirmed original offer so Livingstone did get power toaccept.

4. Battle of the Forms

-Common law mirror image rule: offerees response operates as an acceptanceonly if it is precise mirror image of the offer. If the response conflicts at all withthe terms of the offer or adds new terms, the purported acceptance is in fact arejection.

2-207. Additional Terms in Acceptance or Confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sentwithin a reasonable time operates as an acceptance even though it states terms additional to ordifferent from those offered or agreed upon, unless acceptance is expressly made conditional onassent to the additional or different terms.(2) The additional terms are to be construed as proposals for addition to the contract. Betweenmerchantssuch terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or

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(c) notification of objection to them has already been given or is given within areasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establisha contract for sale although the writings of the parties do not otherwise establish a contract. Insuch case the terms of the particular contract consist of those terms on which the writings of the

parties agree, together with any supplementary terms incorporated under any other provisions ofthis Act.-UCC rejects mirror image rule and will often lead to a contract being formed eventhough the acceptance diverges form the offer. Wherever possible the UCC tries tofind a contract so as to keep the parties from weasling out1.General: #1 any expression of acceptance or written confirmation will act as anacceptance even though it states terms that are additional or different from thosecontained in the offer2.Acceptance expressly conditional on assent to changes: expression of acceptancedoes not form a contract if it is expressly made conditional on assent to additional ordifferent terms. i.e. I accept provided that you ship tomorrow

3. Additionalterm in acceptance: where offerees response contains an additionalterm consequences depend on whether both parties are merchantsa.at least one party not a merchant: additional term does not prevent offereesresponse from making a contract, but additional term only becomes part ofcontract only if the offeror expressly agrees to itb. both merchants: additional term automatically becomes part of contract as ageneral rule. Unless:

i.materiality: if term materially alters the contract i.e. disclaimer ofwarrantyii. objection: if offeror objects to having additional term become part ofcontract

4.Acceptance silent: if an issue is handled in the first document (offer) but not inthe second, the acceptance will be treated as covering all terms of the offer, notjust those on which the writings agree5.Conflicting Terms in Document: knock out rule6.Response diverges too much to be acceptance: if a purported acceptancediverges greatly from the terms of the offer, it ill not serve as an acceptance at allso no contract7.contract by parties conduct: if 6. Occurs and no contract is created bydivergence of terms, the conduct of parties later on can still cause a contract tooccur according to 2207-38.confirmation of oral contract: if parties reach an oral agreement, a documentsent later by one of them is a confirmation

a. additional terms in confirmation: same as with acceptance..materiallyalters or objection neededb. different terms added probably not a part of original agreement

COMMERCE & INDUSTRY INS. CO V BAYER CORP-Rule: where a contract is formed by the parties conduct, only terms which arecommon to both parties forms become terms of resulting contract

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-explosion and fire destroyed several of Malden Mills buildings at its manufacturingfacility. Subsequently, MM and its property insurers commenced suit againstnumerous defendants, including Bayer. Bayer brought a motion to compel arbitrationin accordance with an arbitration provision in Malden Mills purchase orders. SuperiorCt denied Bayers Motion.

9.Terms to Follow Contracts/Rolling Contracts: buyer, usually consumer, ordersand pays for goods without seeing most of contract terms. Detailed terms arecontained on or in the box and buyer told that if she does not agree with terms thenshe has a certain time to return goods.

a. not formed until receipt approach: 2-207 doesnt apply and that no contractis formed until buyer received goods and keeps them beyond specified timeperiod of return. Keeping the goods is acceptance of terms. (Procd)b. contract formed under 2-207: contract formed at time of order. Buyer isusually considered to be offeror and sell is offeree proposing additional ordifferent terms, and at least where buyer is a consumer those terms never become

part of the contract unless buyer expressly agrees to them

KLOCEK V GATEWAY-Rule: a purchaser does not necessarily accept the standard terms and conditionsagreement, which may include an arbitration clause, located in the packagecontaining a mail order product-P sued Gateway D and HP D alleging that D induced him to purchase a computer bymaking promises of technical support and that HP breached its duty to warn customerthat its product was incompatible with certain computers. There was a 5 day limit toread materials and accept license and return, but since P was not told by salespersonon phone this rule the license cannot be seen as accepted

E. INDEFINITENESS-Generally no contract will be found if the terms of the parties agreement are undulyindefinite. For example if A and B agree that B will buy product from A from time totime. There is no decision about quantity, price, delivery etc. so even if A and Bmeant to have a binding agreement, absence of terms makes their agreement void forindefiniteness.

1. Court supplies missing term: if court concludes parties intended to contract, andcourt believes that it can supply a reasonable value for missing term it willgenerally do so

a. UCC expressly allows court to fill in missing valueb. nonUCC courts follow fill in missing term on reasonable basis

WALKER V KEITH-Rule: where essential terms such as price are not combined in an option contract andno standards are included whereby it may be judicially determined that no contractexists

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-P rented property from D for 10 years with an additional ten year option, rent to befixed mutually by the parties, said rental values to reflect the comparative businessconditions between the periods.

III.CONSIDERATION

A. BASIC CONCEPTS-as a general rule, a contract will not be enforceable unless it is supported byconsideration. Consideration is supported when1. Detriment: promisee gives up something of value, that is, the promisor makeshis promise in exchange for the promisees giving of value or circumscription ofliberty. Promisee has to do something he doesnt not have to do or refrain fromdoing something that she has a right to do.2. Exchange: promise is given as part of a bargain, that is, the promisor makes hispromise in exchange for promisees giving of value or liberty3. Unenforceable:-Promises to make gifts do not satisfy bargain requirement

-Business situations in which one party has not really promised to do somethingor given anything up, even though he may appear to have done so

HAMER V. SIDWAYRule: forbearance is valuable consideration-D promised to pay 5000 to William Story P if he would forbear in the use ofliquor, tobacco, swearing, or playing cards or billiards for money until he became21 years old

B. SUFFICIENCY-court inquires into sufficiency of consideration but not the adequacy of it.

-sufficiency means that the offered consideration must be something that hasvalue in the eyes of the law-adequacy refers to the quantity of amounts exchanged-the question is that the thing claimed to be sufficient satisfies requirement ofconsideration under any circumstances

C. ILLUSORY PROMISE-not supported by consideration, and is therefore not enforceable. An illusorypromise is a statement which appears to be promising something, but which infact does not commit the promisor to do anything at all-the basic test that determines whether the promise states a limitation upon

promisors future liberty of action is useful in determining whether any promise isillusory-a promise to buy of another person or company all of some commodity or servicethat the promisor may thereafter need or require in his business is not an illusorypromise; and such promise is sufficient consideration for a return promise

1. Implied promises:

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WOOD V. LUCY, LADY DUFF GORDON-Rule: while an express promise may be lacking, the whole writing may beinstinct with an obligation-an implied promise- imperfectly expressed so as toform a valid contract-P in a complicated agreement, received exclusive right for one year, renewable

on a year to year basis if not terminated by 90 days notice, to endorse designswith Ds name and to market all her fashion designs which would received theprofits derived. D broke contract by placing her endorsement on designs withoutPs knowledge.

2.Right to Terminate-if contract allows one or both parties to terminate the agreement at his option,this right of termination might make promise illusory and contract thereforeunenforceable.

a. Unfettered right: if agreement allows one party to terminate by givingnotice at any time, traditional common law view is that the one party has

not furnished consideration. Modern trend is to hold that as long as theterminating party has the obligation to give notice (even if obligation isimplied), this duty of notice furnishes consideration

SYLVAN CREST SAND & GRAVEL V U.S.-Rule: in agreements which seem to reserve the right to cancel at any time, it isreasonable through interpretation to take the position that notice of cancellation isrequired, and even though notice may be given at any time, it constitutes adetriment, hence, valid consideration-P successfully bid on 4 contracts to supply trap rock for an airport. The contracthad printed on it that cancellation by D could be made at any time. When Drefused to accept any more rock, P filed suit claiming breach

MCMICHAEL V PRICE-Rule: a requirements contract will be valid if the buyer realistically anticipatessuch requirements-experienced seller of sand sues supplier of sand for refusing to give him moresand when he promised to buy all the sand he needed from that supplier. Hecannot get it anywhere else as part of the contract. Supplier should haverealistically believed seller would need sand bc he was an experienced seller

D. PAST CONSIDERATION-No good. If promise is made in return for detriment previously suffered bypromise, there is no bargain, and thus no consideration. Thus promise to pay backpre-existing debt, and promises to pay for services already received, usually lackthe bargain element (but may be binding even without consideration).

HAYES V PLANTATIONS STEEL CO-Rule:promise made to employee upon the announcement of his retirement is notenforceable

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-Hayes announced his retirement and management promised him $5,000 annualpension. Management changed, and the payments stopped. A promise made to anemployee upon the announcement of his retirement is not enforceable. (Underpast consideration/performance rule)

MILLS V WYMAN-Rule: a moral obligation is insufficient consideration for a promise-Wymans son became ill and Mills cared for him. When Wyman found out aboutthis he promised to pay Mills all of the expenses he incurred. Not enforceable. Amoral obligation is insufficient as consideration for a promise. (same as above)

E. PREEXISTING DUTY RULE-If a party does or promises to do what he is already legally obligated to do, or ifhe forebears or promises to forbear from doing something which he is not legallyentitled to do, he has not incurred a detriment for purposes of consideration.

1.Modification: if parties to an existing contract agree to modify the

contract for the sole benefit of one of them, the modification will usuallybe unenforceable at common law, for lack of consideration. Usually inconstruction cases.2. Extra duties: if the party who promises to do what he is already boundto do assumes the slightest additional duties, or different duties, hisundertaking of them does constitute the required detriment.3. UCC does not follow this rule and says an agreement modifying acontract needs no consideration to be binding.

HARRIS V WATSON-Rule: where there is pre existing duty to perform work for the wages agreedupon, one cannot demand more wages for the same work-Midway through ships voyage, a seaman claims he will no longer work unlesshis wages are increased. Captain, having no other choice, agrees. Not enforceable.Where there is a pre-existing duty to perform work for the wages agreed upon,one cannot demand more wages in the same work.

LINGENFELDER V WAINWRIGHT BREWERY-Rule: a promise made to induce compliance with a valid contract is notenforceable-P didnt want to build the brewery he had legally contracted to build so Dpromised 5000$ more to finish it. Then D didnt pay P the extra bc there was nocontract. Either way P had to finish building, no extra duties were placed on him.

F. PROMISSORY ESTOPPEL-promises which foreseeably induce reliance on the part of the promise will oftenbe enforceable without consideration-must have actual reliance on promise-promisees reliance must have been reasonably forseeable to promisorbe enforceable without consideration, under this doctrine.

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1. A promise which the promisor should reasonably expect to induceaction or forbearance on the part of the promisee or a third person andwhich does induce such action or forbearance is binding if injusticecan be avoided only by enforcement of the promise.

2. Charitable subscriptions: written promise to make a charitable

donation will generally be binding without consideration underpromissory estoppels. Usually charity doesnt need to showdetrimental reliance. Oral promises to donate will not be enforceableunless there is detrimental reliance.

ALLEGHENY COLLEGE V. NATIONAL CHATAUQUA COUNTY BANK-Rule: acceptance of charitable subscription by the trustee of the charity implies apromise on their part to execute the work contemplated and to carry out thepurposes for which the subscription was made

BRANCO ENTERPRISES V DELTA ROOFING

-Rule: a contract may be effected between a general contractor and asubcontractor based on the general contractors reliance on subcontractors bid forcomponent of the project being bid upon

IV. STATUTE OF FRAUDS-most contracts valid in spite of the fact they are only oral. These are unenforceableunless in writing:A. Executor/Administrator Contracts

-contracts made by an executor or administrator to answer for the debts of a decedentand payable out of executors own personal assets generally must be in writing.B. Suretyship Contracts-

- An accessory agreement by which a person binds himself for another already bound,either in whole or in part, as for his debt, default or miscarriage.C. Made in Consideration of Marriage

-almost never litigated-ex. Oral promises to support other spouses child from previous marriage upon newmarriage. Property promise once married. etcD. Land Transactions

-agreements to buy and sell are within the types of transfers contemplated-generally assumptions, extensions, or modifications of real estate mortgages alsocovered-doesnt usually include leases bc they are short term

E. One Year Provision-if a contract doesnt specifically state a time that is more than one year is not withinthe statute even if the time for contemplation of the contract is very likely to be morethan a year.-ex. Contract to build a commercial building does not state a time for completegreater than a year is not within the statute even if it is likely that it contract to buildwill take longer than a year

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-other courts look at circumstances of contract and its contents, and if its likely to takemore than a year it must be in writing

SATTERFIELD V. MISSOURI DENTAL ASSOCIATION-Rule: an oral agreement not to terminate an employee until the employees date of

retirement is unenforceable-P alleged that D had breached an oral agreement not to terminate her until intendedretirement date, over a year from when she was actually terminated.

EASTERN DENTAL CORP V. ISAAC MASEL-Rule: an oral requirements contract is not enforceable-P entered into oral requirements contract with D. No long term agreement eversigned, only purchase orders and confirmations exchanged. Since transactions werealways over 500$, this contract was not enforceable bc not in writing

THOMSON PRINTING MACHINERY V. BF GOODRICH

-Rule: a failure by a party selling an item in the regular course of business to objectto a memo confirming that sale may result in a waiver of the statute of frauds defense-D failed ot object to a memo from surplus equipment buyer P confirming the sale ofsurplus printer

V. PAROL EVIDENCE-our law presumes that those who have written a contract have integrated into thatwriting all matter, written or oral, that occurred prior to signing the writing and willnot allow in evidence to the contrary-generally assumed to include evidence of oral or written agreements or negotiationsthat are prior to or contemporaneous with a writing intended to be the complete or

partial integration of the parties final agreement.-parol is French word meaning informal-bars introduction of all negotiations or agreements occurring prior to the signing ofthe writing, whether written or oral-Process of interpretation- Determine meeting of agreement is next step, and startingpoint is to look at the written contract

Partial integration: document that is intended to be final but not intended to includeall details. No evidence of prior or contemporaneous agreements or negotiations maybe admitted if they would contradict a term of the writing.Total integration: document that is a final expression of agreement including all

details. No evidence allowed that would contradict or add to the writing. Onlyallowed for interpretation.

A. EXCEPTIONS TO THE RULE1. Fraud, Mistake or other Voidability2. Existence of Condition: if parties orally agree on a condition to theenforcement of the contract, or to the duty of one of them, but this condition is

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then not included in the writing, courts generally allow proof of this conditiondespite the parol evidence rule.3. Collateral Agreements: an oral agreement that is supported by a separateconsideration may be demonstrated even though it occurred prior to what seemsto be a total integration

4. Subsequent transactions: PER never bars evidence that after the signing ofthe writing, the parties orally or in writing agreed to modify or rescind the writing

MITCHELL V LATH-Rule: an oral agreement is permitted to vary from a written contract only if it iscollateral in form, does not contradict express or implied conditions of the writtencontract, and consists of terms which the parties could not reasonably have beenexpected to include in the written contract-P bought land from D pursuant to a full and complete written sales contract. Shesought to compel D to perform on his parol agreement to remove an icehouse onneighboring property

-Had it been that important, it would have been in the written contract.

BETACO INC V CESSNA AIRCRAFT-Rule: absent an ambiguity, the intent of the parties is to be determined from the faceof the contract, without resort to extrinsic evidence-P contracted to buy a new jet airplane advertised to have a greater range than itspredecessor, but later became convinced that it would not have a greater range andcanceled the purchase, alleging breach of express warranty

B. INTERPRETATION1. Modern View: most courts today allow parties to introduce extrinsic evidenceto aid in the interpretation of a contract, even if the writing is an integration.However, courts vary on the details of how and when extrinsic evidence isallowed in connection with a question of interpretation

a. Extrinsic Evidence in case of Ambiguous terms: all courts agree that is aterm is found by trial court to be ambiguous extrinsic evidence must beallowed. Jury decides. Evidence allowed is extremely broadb. Unambiguous Terms: judge decide what term means and instructs jury.Jury does not here any extrinsic evidence.c. How Judge determines existence of ambiguity:

i. Four Corners: no extrinsic evidence what so ever. Solely lookat the written agreement. Court will not consider any evidenceabout surrounding negotiations, context around making theagreement. Very few courts use this.ii. Plain meaning: court will not hear evidence about thepreliminary negotiations, but will hear about the circumstances orcontext surrounding the making of agreementiii. liberal rule: evidence of pretrial negotiations is admissible

EICHENGREEN V ROLLINS

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-Rule: parol evidence rule excludes extrinsic evidence where a letter operating as acomplete integration of the parties agreements exists-P brought suit alleging breach of contract and negligence against D resulting from afire on his property.

PACIFIC GAS & ELECTRIC V. GW THOMAS DRYAGE & RIGGING CO-Rule: test of admissibility of extrinsic evidence to explain the meaning of a writteninstrument is not whether it appears to the court to be plain and unambiguous on itsface but whether the offered evidence is relevant to prove a meaning to which thelanguage of the instrument is reasonable susceptible

-D contracted to repair P steam turbine and to perform work at its own risk andexpense and to indemnify P against all loss and damage. D also agreed not to procureless than 50,000 insurance to cover liability for injury to property. But when theturbine rotor was damaged, P claimed it was covered under that policy, while D saidit was only to cover injury to third persons

NANKULI PAVING & ROCK V. SHELL OIL-Rule: under UCC, an agreement goes beyond the written words to mean the bargainof the parties in fact, as found in their language or by implication from othercircumstances, including courses of dealing, usage of trade, and course ofperformance-P entered into long term supply contracts with D to buy asphalt and objected when Draised price from $44 to $76

3. To interpret the ambiguous terms judge will use: (espec in sales contractsUCC)a. COURSE OF PERFORMANCE: refers to the way parties have conductedthemselves in performing the particular contract at hand.b. COURSE OF DEALING: refers to how parties have acted with respect to pastcontractsc. TRADE USAGE: any practice or method of dealing having such regularity ofobservance in a place, vocation, or trade as to justify an expectation that it will beobserved with respect to a particular term in a certain region, or in certainindustry, would be admissible

OPTION CONTRACT:

- An option contract is also known as a firm offer or an irrevocable offer. An option contract isdefined as an offer which cannot be revoked prior to a certain stated time. Option contracts can

be made if:1) the option is coupled with consideration,2) the option is in writing, or3) a person accepts a unilateral contract by beginning performance,R.2d 45. R.2d 87.

- For non-merchants the option must be in writing and signed by the offeror and state validpurported consideration, however the consideration could be nominal. R.2d 87.

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-For merchants the option must be in writing and signed by the offeror, however noconsideration is even necessary. UCC 2-205.-Option contracts are not revoked by a counter-offer or rejection, however the offeror may havean estoppel defense if he reasonably relied upon a rejection. R.2d 37.-Partial performance of a unilateral contract creates an option contract that must stay open for

time deemed reasonably necessary to completely perform. R.2d 45. Partial performance of abilateral contract creates an actual contract.-The majority rule is that Promissory Estoppel is only valid for actual contracts or optioncontracts. Baird. However there is a minority that in certain situations (specificallyconstruction) a revocable offer may invoke Promissory Estoppel if the offeree reasonably reliedupon it. Drennan; R.2d 87(2).

REQUIREMENTS CONTRACT:Agreement pursuant to which one party agrees to purchase all his required goods orservices from the other party exclusively for a specified period of timePARTIAL PERFORMANCE:

Offerors duty of performance under an option contract so created is conditional onofferees completion of performance in accordance with terms of that offer. In such acase the offerees part performance furnishes the acceptance and consideration for abinding contract upon offerees full performance. Right to revoke depends on whetherofferee had partially performed before received revocation notice

RESTATEMENTS

ACCEPTANCE OF OFFER DEFINED; ACCEPTANCE OF PERFORMACE;ACCEPTANCE BY PROMISE

1. Acceptance of an offer is a manifestation of assent to the terms thereof madeby the offeree in a manner invited or required by the offer

2. Acceptance by performance requires that at least part of what the offerrequests be performed or tendered and includes acceptance by a performancewhich operates as a return promise (unilateral K)

3. Acceptance by a promise requires that the offeree complete every actessential to the making of a promise. (bilateral K)

ACCEPTANCE BY SILENCE OR EXERCISE OF DOMINION1. Where an offeree fails to reply to an offer, his silence and inaction operate as

an acceptance in the following cases only

a. Where an offeree takes the benefit of services with reasonableopportunity to reject them and reason to know that they were offeredwith the expectation of compensation

b. Where the offeror has stated or given the offeree reason to understandthat assent may be manifested by silence or inaction and the offeree inremaining silent and inactive intends to accept the offer

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c. Where because of previous dealings or otherwise, it is reasonable thatthe offeree should notify the offeror only if he does not intend toaccept

2. An offeree who does any act inconsistent with the offerors ownership ofoffered property is bound in accordance with the offered terms unless theyare manifestly unreasonable. But if the act is wrongful as against the offerorit is an acceptance only if ratified by him

METHODS OF TERMINATION OF THE POWER OF ACCEPTANCE1. An offerees power of acceptance may be terminated by

a. Rejection or counter offer by offeree orb. Lapse of time orc. Revocation by offeror ord. Death or incapacity by the offeror or offeree

2. In addition, an offerees power of acceptance is terminated by the non

occurrence of any condition of acceptance under the terms of the offerREJECTION

1. An offerees power of acceptance is terminated by his rejection of the offer,unless the offeror has manifested a contrary intention

2. A manifestation of intention not to accept an offer is a rejection unless theofferee manifests an intention to take it under further advisement

REQUIREMENT OF EXCHANCE; TYPES OF EXCHANGE1. To constitute consideration, a performance or a return promise must be

bargained for2. 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 inexchange for that promise

3. The performance may consist ofa. An act other than a promise

b. A forbearancec. The creation, modification or destruction of a legal relation

4. The performance or return promise may be given to the promisor or to someother person. It may be given by the promisee or some other person.

ILLUSORY AND ALTERNATIVE PROMISES

1. A promise or apparent promise is not consideration if by its terms thepromisor or purported promisor reserves a choice of alternative performanceunless

a. Each of the alternative performances would have been consideration ifit alone had been bargained for; or

b. One of the alternative performances would have been considerationand there is or appears to the parties to be a substantial possibility that

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before the promisor exercises his choice events may eliminate thealternative which would not have been consideration

PROMISE FOR BENEFIT RECEIVED1. A promise made in recognition of a benefit previously received by the

promisor from the promisee is binding to the extent necessary to preventinjustice

2. A promise is not binding under subsection 1a. If the promisee conferred the benefit as a gift or for other reasons the

promisor has not been unjustly enriched; orb. To the extent that its value is disproportionate to the benefit

PROMISE REASONABLY INDUCING DEFINITE AND SUBSTANTIALRELIANCE

A promise which the promisor should reasonably expect to induce action orforbearance of a definite or substantial character on the part of the promisee

and which does induce such action or forbearance is binding if injustice canbe avoided only by enforcement of the promise

PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE1. A promise which the promisor should reasonably expect to induce action or

forbearance on the part of promisee or a third person and which does inducesuch action or forbearance is binding if injustice can only be avoided by theenforcement of the promise. The remedy granted for breach may be limitedas justice requires.

2. A charitable subscription or marriage settlement is biding under subsection 1without proof that promise induced action or forbearance

EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS(PAROL EVIDENCE RULE)

1. A binding integrated agreement discharges prior agreements to the extentthat it is inconsistent with them

2. A binding completely integrated agreement discharges prior agreements tothe extent that they are within its scope

INTERPRETATION OF INTEGRATED AGREEMENT1. 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 chapter2. A question of interpretation of an integrated agreement is to be determined

by the trier of face if it depends on the credibility of extrinsic evidence or ona choice among reasonable inferences to be drawn from extrinsic evidence.Otherwise a question of interpretation of an integrated agreement is to bedetermined as a question of law

RULES OF AID IN INTERPRETATION

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1. Words and other conduct are interpreted in the light of all the circumstances,and if the principal purpose of the parties is ascertainable it is given greatweight

2. A writing is interpreted as a whole, and all writings that are part of sametransaction are interpreted together

3. Unless a different intention is manifesteda. Here language has a generally prevailing meaning, it is interpreted in

accordance with that meaningb. Technical terms and words of art are given their technical meaning

when used in a transaction within their technical field4. Where an agreement involves repeated occasions of performance by either

party with knowledge of the nature of the performance and opportunity forobjection to it by the other, any course of performance accepted oracquiesced in without objection is given great weight in the interpretation of

the agreement5. Wherever reasonable, the manifestations of intention of the parties to a

promise or agreement are interpreted as consistent with each other and withany relevant course of performance, course of dealing, or usage of trade.

STANDARD OF PREFERENCE IN INTERPRETATIONIn the interpretation of a promise or agreement or term thereof, the following

standards of preference are generally applicable:a. In interpretation which gives a reasonable, lawful, and effetice

meaning to all the terms is preferred to an interpretation which leavesa part unreasonable, unlawful or of no effect

b. Express terms are given greater weight than course of performance,course of dealing, or usage of trade, and course of dealing is givengreater weight than usage of trade;

c. Specific terms and exact terms are given greater weight than generallanguage;

d. Separately negotiated or added terms are given greater weight thanstandardized terms or other terms not separately negotiated

INTERPRETATION AGAINST THE DRAFTSMANIn choosing among the reasonable meanings of promise or agreement or a

term thereof, that meaning is generally preferred which operates against the partwho supplies the words or from whom a writing otherwise proceedsFAVORING THE PUBLIC

In choosing among the reasonable meanings of a promise or agreement or aterm, a meaning that serves the public interest is generally preferred

Common law:

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Mirror image ruleCounteroffer is rejection

UCC: requires courts look to usage of trade, course of dealing and course ofperformance to evaluate construction of a contract

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UCC STATUTES

Is this a K for the Sale of Goods?

2-105(1) Defining Goods

o All things moveable.o Includes unborn livestock and growing crops.

Is the K between Merchants?

2-104(1) Defining a Merchant

One who has knowledge and skill about the goods being transacted

One who regularly participates in these types of transactions.Is there offer and acceptance?

o 2-204 Formation in General

(1) Contract can be made in any way that will show agreement. Conduct by bothparties will show recognition of the existence of the K.

(2) Even if the parties cannot establish the moment at which the K was formed- anagreement sufficient to constitute a K may still be found.

o 2-206 Offer and Acceptance in a Formation of a Contract

(1)(a) Its an offer if it invites acceptance.

(1)(b) Acceptance can be by promise or shipment. If they are non-conforming goodsshipment will not constitute an acceptance if the seller seasonably notifies the buyerthat the shipment is offered only as an accommodation to the buyer. Corinthian

(2) If the beginning of performance is a reasonable mode of acceptance and theofferor is notified within a reasonable time.

Is this a K to keep the offer open?

2-205 Firm Offers

Merchant making offer. Signed writing saying offer will be held open.

Reasonable time.

Enforceable without consideration.Are there additional/different terms?

2-207 Additional Terms in Acceptance

If there is definite(clear on the main terms) orseasonable expression of acceptanceor written confirmation it will operate as acceptance-even if it states terms additionalor different from those offered- UNLESS it is expressly conditioned on acceptingthe additional or different terms.

[If there is acceptance, go to 2. If there is not acceptance then go to 3.]

(2) Once acceptance is established-what are the terms?o Additional terms are to be construed as proposals. If K is between merchants

the terms become part of the contract UNLESS:

Offer expressly limits acceptance to the terms.

Terms materially alter K

There is notification and objection within a reasonable time afternotice of them is received.

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(3) If there is conduct by both parties there is a K. The terms that conflict will bedropped and if there are gap fillers for those terms provided in the UCC they will beput into the K.

Leonard Pevar Co. v. Evans Products Co: (Breach of warranty. Warranty disclaimeron back of acknowledgment form.) No acceptance bc it is conditional on accepting

new terms. But there is a contract by conduct. Go to UCC for warranty gap filler. Textile Unlimited v. BMH: (Offer on order form. accepts by sending invoice.

Arbitration clause.) No acceptance bc it is conditional on accepting new terms.Contract by conduct- no gap filler in UCC for arbitration so the terms are simplydropped and case goes to court.

Are there any missing terms?

2-305 Open Price Term

Can have a K for sale without price. Reasonable price at time of delivery if:o Nothing is said as to price

o Price is left to be agreed and they fail to agree

o Agreed to be market price and is not set or recorded.

Must have good faith.

If the price is not fixed bc of the fault of one party, the other party may treat the K ascancelled or himself set a reasonable price.

If the parties do not intend to be bound without fixed price the buyer must returngoods or pay their reasonable value at the time of delivery.

Is there Consideration?Is this a Input/Output or Exclusive dealing contract?

o 2-306 Output, Requirements and Exclusive Dealings (Mutual Obligation)

Output and Requirement Ks are enforceable if:o ACTUAL output or requirements.

o

Duty of good faith.o Cannot be unreasonably disproportionate. (compare to any estimates or prior

use)

Exclusive Dealings is lawful when seller uses best efforts to supply the goods andbuyer uses best efforts to promote their sale.

Does it fall within the Statute of Frauds?o 2-201 Statute of Frauds

Except otherwise provided in the K.

$500 or more

Writing sufficient to indicate K.

Signed by the party against whom K would be enforced.

Writing wont fail just because its not complete or has mistake.o BUT, must have quantity.

(2) Exception:o Btwn merchants- one sends a confirmation.

Other party receives confirmation and doesnt object within 10 days.S/F satisfied.

(3) Exception:

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o (a)Specially manufactured goods.

Not suitable for sale to others.

No repudiation.o (b) Testimony or admissions in court.

o (c) Payment has been made or goods have been received or accepted.

D.F. Activities v. Brown

Is this a modification to an existing K?

2-209 Modification (Pre-Existing Duty)

Doesnt need consideration as long as there is good faith.