Contracts Professor Pat Gudridge Housekeeping Issues: • • • • •

One final exam – essay, open book, all materials allowed. Is not a stickler for being on time since it is an 8a class, come in back if late. Participation will not count towards grade. Strong inferences that you should key in carefully to the things that the Professor feels are key, watch his reactions and responses to see what HE thinks is important. Professor feels that too much attention to individual cases is not helpful and that you cannot assume that the judge is always correct in the case. We will act as if every case in the course is “up for grabs” and we won’t assume that the judge got it right. He does not like supplements because he feels that at the end of the day, there is little that is fully clear in contracts law. Sounds like he wants exam answers that are less formulistic and more philosophical…

Prof asks – what is a contract?
Gives example of sale of drugs – is this enforceable? Response to student who said that a contract must/would be enforceable by the court. We have a concept that agreements should be enforceable by the court as a last resort. Problem of efficient breach. Involves a business contract that will take place over time when it is later in the agreement and the deal is no longer advantageous for one of the parties. • Prof says that we can imagine a regime of promises based on self-interest and that most will keep them because they care about their reputation and ability to contract again but clearly we don’t think this is good enough because we feel that we cannot trust everyone to keep such promises. This is one obvious reason to ensure the court backs such promises. Worry of promise breaking being contagious if there is no enforcement via the court. • Discussion of the importance of relying on formal arrangements. If they are too easy to break because it may not longer be a good deal for one party, it would allow the “out” to be used so frequently there could be no reliance on making an arrangement. Bear in mind this is one view, not the only one. This view says contracts are about being able to predict and rely on arrangements. • Focus of the law is not so much spot transactions but arrangements that require deals / performance over a longer period of time. Contract law deals with conspicuous efforts to make agreements. In other words, we don’t fall into an agreement accidentally. This is one difference between tort law and contract law.

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Discussion of “easy promise making”. We need enforceability so that we can make promises easier but is that necessary a good thing? Gives example of current housing crisis. Discussion of what makes a contract-


• •

Could include such formalities – signatures, seals, various requirements, in writing When evaluating what makes a contract, we will often go back to the theory behind why we believe we need formal enforceable contracts. Initial intention? Why is this weighed so heavily? Is it because they are the most “moral” at this point before they know if the deal will be a good one?

Intro concept in Chapter 4 – Formation of a K requires 2 basic elements: 1. The mutual assent of the parties and 2. Some showing that this assent is the kind that the law will enforce. Next cases deal with the objective theory of assent. Embry v. Hargadine, McKittrick Dry Goods (p 290) Yes K Summary: Alleged verbal agreement between an employee and employer for a renewal of employment contract for 1 year. Different versions of the verbal conversation, employee alleges there was an agreement, employer states he never agreed. Employer stated that he was really just telling him that he needed to go back to work and employee feels that he statement was assuring him that his employment would be renewed for another year. Was there a meeting of the minds??? Court finds a K based on what was stated by the employer and that a reasonable person would have interpreted what was said as a K. Court felt that a reasonable person would have interpreted the employers comments as a K and stresses that a basic rule of contract law is that contracts are based on actual words and deeds, not what one or the other person might have been internally thinking. Class Notes: Think about how you would argue for the employer. Discussed the idea of the Learned Hand formula as applied to this case – not just the reasonable person standard. Burden of adequate precautions. What were the possible risks and harm vs the burden of precautions? Could/ should this test be used to make a determination? Texaco v. Pennzoil (p 295) Summary: This case deals with objective manifestation of intent – i.e., that which is overt and obvious – acts and words and written information. As in the case above the court finds contracts must be based on objective manifestations by deeds and acts. Here Texaco asserted that the court erred by limiting evidence of an agreement to just what took place between the two main parties and excluded other outward manifestations of intent. Here, that they alleged that other evidence consisted of a filing with the SEC and board meeting discussions. Court agreed
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that the SEC filing would be considered an objective outward manifestation of intent and could be considered but that conversations to which Pennzoil was not a party were secret, subjective manifestations that were property excluded. Case discussed the Restatement (Second) of Contracts which states: The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. Lucy v. Zehmer (p 296) Yes K Summary: This case deals with a written agreement to sell a piece of property for a fixed amount. The sellers then claim that it was all a drunken joke and that it was not enforceable even though it had been written and signed by both sellers (husband and wife). Court finds a K and is willing to enforce it, as there was no compelling reason not to enforce it and the buyer clearly had good reason to believe it was an actual offer. Here it seems pretty clear since it was a written agreement (albeit on a scrap pieces of paper) that was signed by all parties and had been written with some care in regards to specific provisions of the sale. Leads into discussion of what an offer really is. Today most business deals are too complex to be so easily viewed as a straightforward offer and acceptance but the concept remains. Restatement (Second) of Contracts §17 Requirement of a Bargain (1) Except as stated in Subsection (2), a formation of a contract requires a bargain in which there has been a manifestation of mutual assent to the exchange and a consideration. (2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts under the rules stated in §§ 82-94. § 18. Manifestation of Mutual Assent Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. § 19. Conduct as Manifestation of Assent

(1) The manifestation of assent may be made wholly or partly by written or

written or spoken words OR by other acts OR by failure to act. (2) The conduct of a party is not effective as manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. (3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating clause. What is an Offer Nebraska Seed Co v. Harsh (p 305) No K
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Class Notes: Why was the judge incorrect with this decision? Could you not say that an offer was made with the letter and accepted with the return letter? What if Harsh had sent the letter to a number of people and someone else had responded first and he sold it to them? (That is likely what happened) One option – this is a straightforward spot transaction. Anther view is that both parties understand that it is a complex agreement with details to be worked out and thus cannot be so easily accepted. Court determines that the letter(s) should not be construed as a K but more as an invitation to bid. If there are not holes and it seems reasonable to the court that a deal was intended – should enforce it. The farmer did not fix a time frame and did not fix an exact amount. Remember two things – we are talking about deals that people make with one another. There were several issues the court found with the letter that they used to justify not viewing it as a contract. Famer sends letter proposing to sell seed for a set amount. Pepsi had been running a promotion in which customers could earn Pepsi points by purchasing and drinking Pepsi and then use those points to buy such promotional items as t-shirts.000.000 odd dollars with a demand for the jet.000 “Pepsi points”. to purchase a military fighter jet worth approximately 23 million dollars with 7. Some subset of these deals count as legally enforceable contract… we are dealing with which ones fit and which do not. Pepsi explained that no reasonable person would have seriously believed that they could buy a jet with Contract Notes Page 4 of 124 . Famer then refuses to sell. The court says the burden is on the recipient to figure out what is really occurring. they made a humorous commercial showing some of the items that could be redeemed for Pepsi points and concluded with a depiction of a teenager buying a Harrier jet (shown at a price of 7. The plaintiff did not see the commercial as a joke and decided he would attempt to obtain the jet. PepsiCo (p 308) No K Summary: In short. jackets.000 Pepsi points) and driving the jet to school. Suggests that intent is subjective. What about the outcome of this case if looked at under the UCC language? 2-204 is a good place to start. Further. the plaintiff in the case was seeking to compel the Pepsi Company to comply with what the plaintiff considered to be a binding contract with offer and acceptance. Seed company interprets the letter as an offer and they accept it for the terms the famer had placed in the letter. You could say that this outcome would be harmful to the market in some respects. bikes.000. In a commercial the Pepsi ran for the promotion. Middle ground might be the example of buying a cell phone that seems like a spot transaction but comes with detailed contract. Leonard v. etc. Pepsi also had an offer that allowed consumers to buy the points themselves at . there is the issue that the famer may have sent the same letter to a number of seed companies – there would have to be further conversation before the company (or any company) would be able to reasonably assume it was a firm offer.10 per point if they did not have enough and thus the plaintiff raised money and eventually sent in a check for some 700.Summary: Action by a company selling and buying seed against a farmer. must first confirm exact details.

There are several contract law theories used in the case: 1.Pepsi points and did not deliver the jet. First Serve” might make the advertisement an offer. but an invitation to the public to come and purchase. (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined. (2) [Power may be had by individual or group] §33 Certainty: 1) Even though a manifestation of intention is intended to be understood as an offer. §26 Preliminary Negotiations: A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. Plaintiff sues Pepsi for performance and defendant Pepsi wins a summary judgment. no offer has been made. Illustration: A clothing merchant. would a reasonable person believe that an offer is seriously being made? If it is clear the offer is not serious. Only exception is if the offer is very explicit and specific and leaves nothing open to negotiation.e. Advertisements are not considered offers as a general rule but as mere invitations to negotiate. Offers have to be judged by a reasonable person standard – i. The addition of the words “Out they go Saturday. Court found the commercial to be a mere advertisement. advertises overcoats of a certain kind for sale at $50. Restatement (Second) of Contracts §22 Mode of Assent: Offer and Acceptance (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. §24 Offer Defined: An offer is the manifestation of willingness to enter into a bargain. it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. 2. so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. not an offer. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. First Come. §29 To Whom An Offer is Addressed (1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance.. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as Contract Notes Page 5 of 124 Perhaps a settlement from Pepsi to avoid . This is not an offer. Class Notes: What is the plaintiff really seeking? negative publicity.

Formation in General: (1) A contract for sale of goods may be made in any manner sufficient to show agreement. (2) An agreement sufficient to constitute a contract for sale may be found even if the moment of its making is undetermined. (3) If a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at the party's option treat the contract as cancelled or the party may fix a reasonable price. In such a case the Contract Notes Page 6 of 124 . a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. an offeror that is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. (2) If the beginning of a requested performance is a reasonable mode of acceptance. Prof feels 2-204 is somewhat a radical notion… §2-206. including offer and acceptance. (4) If. In such a case the price is a reasonable price at the time for delivery if: (a) nothing is said as to price. Offer and Acceptance in Formation of Contract 1) Unless otherwise unambiguously indicated by the language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances: (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods. conduct by both parties which recognizes the existence of a contract. however. (3) Even if one or more terms are left open. Sales Contracts: The UCC §2-204. or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer means a price to be fixed in good faith. §2-305. (b) the price is left to be agreed by the parties and they fail to agree. the parties intend not to be bound unless the price is fixed or agreed and it is not fixed or agreed there is no contract. Open Price Term 1) The parties if they so intend may conclude a contract for sale even if the price is not settled.an acceptance. and the interaction of an electronic agent and an individual. but the shipment of nonconforming goods is not an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. the interaction of electronic agents.

the seller's residence. v. (b) if the seller is required or authorized to send the goods. Unless otherwise agreed (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery. Authority to Ship Under Reservation. Open Time for Payment or Running of Credit. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents. (c) if tender of delivery is agreed to be made by way of documents of title otherwise than by paragraph (b). and (d) if the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period. Inc. Absence of Specified Place for Delivery Unless otherwise agreed (a) the place for delivery of goods is the seller's place of business or if none. the seller may ship them under reservation. §2-310. §2-309. that place is the place for their delivery. Absence of Specific Time Provisions. and (c) documents of title may be delivered through customary banking channels. Ball-Co Manufacturing. Notice of Termination 1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time. the seller's residence. and may tender the documents of title. §2-308.buyer must return any goods already received or if unable to do so must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account. but the buyer may inspect the goods after their arrival before payment is due unless the inspection is inconsistent with the terms of the contract (Section 2-513). Empro Manufacturing Co. (p 319) No K Contract Notes Page 7 of 124 . (2) If the contract provides for successive performances but is indefinite in duration. it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. but (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place. or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none.

The two companies did not reach agreement on security for the note and BallCo starts negotiating with someone else for the sale. Parties may bind themselves in the preliminary negotiation stages but this would happen through clearly written language which is how the intent would be determined. never went to a jury.e. How to distinguish. Texaco v. Here the intent was clearly that there were provisions on both sides that ensured that both parties understood that the letter of intent sent by Empro was conditional and subject to further negotiations before it could be considered a binding contract. Getty breaches and Texaco is felt to have been responsible due to interference with the deal. this is about a deal that falls apart. what is written in the letters. Letter of intent is at issue here. Ball-Co (defendant) decides to sell its assets on the open market and Empro (plaintiff) sends letter of intent that was clearly conditional and made sure that they were not obligated to buy. • Discussion of the differences between Empro case and Texaco case. Too conditional. This is yet another issue of intent (to form an agreement) and again the court recognizes that in order to determine the Contract Notes Page 8 of 124 . in one there was not a K. When Empro learns of this. not in Embro. Letters of agreement were similar in both cases. The court recognizes that intent in this area of law is based on objective manifestations. How do we analyze the letter of intent? Court here says it is of no legal significance. alleging that the letter of intent obligates Ball-Co only to sell to Empro. but the circumstances may show that the agreements are preliminary negotiations. Empro asserts that the binding effect of the letter comes from the parties intent. ○ Jury case in Pennzoil. Getty begins to deal with Texaco and seems to pursue a better deal. Pennzoil (p 323) Yes K – Really a Torts Case Summary: Pennzoil is trying to acquire Getty. Restatement (Second) of Contracts §27 Existence of Contract Where Written Memorial is Contemplated Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof. ○ Case are very different but they show an underlying question – should we just be working with the documents? The UCC suggests that it is not only the documents but also within the background of the statue.. So… do we just take the documents and look at them as freestanding or do we bring in other factors? In Embro it was really only about the documents. ○ In one there was a K. In Embro it was dismissed due to failure to state a claim. We will see these two approaches competing in this course….. Class Notes: Once again. they file suit. i.Summary: This is an issue of preliminary negotiations between two companies that appeared purely conditional which one company then tries to enforce as a binding offer / contract – an argument the court rejects.

K. the two minds must be in agreement at some one time (the time of the acceptance). Texaco (who says there is no deal) is relying on the press release that was sent which did have some language that the agreement was subject to approval and execution and stated that this showed conclusively that an actual enforceable agreement had not yet been reached. Revoking an Offer – once there is an offer. Dickinson tried to accept offer and was refused. Dodds (U. In reading the language. Dodds offered to sell house to Dickinson.intent of the parties. can the offeree still make a binding contract by the acceptance of the offer? Facts: On Wed. Suing for tortious interference. They are suing for what they feel they lost – i. They were both told that the defendant had already sold the property to someone else. the profits they think they lost from not getting to purchase the company.e. Four factors were considered: Class Notes: • Does this case really belong in our contracts book? Three parties involved and Pennzoil was not really a party to the agreement. an agent of the plaintiff and then the plaintiff himself each gave the defendant acceptances as well. the plaintiff went to the defendant's mother-in-law's house (where the defendant was staying) and gave an acceptance to the mother-in-law. Held: An offer does not bind the offeror to hold the offer open until the time that he claimed that he would. 1874 to the plaintiff. not really in contract. the court did not find it so clear as there were also many statements that suggested that the approval was a mere formality and there was an appearance that a deal had been reached. The plaintiff brought an action for specific performance against the defendant. • Constitutional issue in the background. The law is that. Dodds sold to Allan (then Dodds found out). if the offeror sells that property to someone other than the offeree and the offeree somehow receives notice of this transaction. This never reached the defendant as she forgot to give it to him.. When the offeree knows that the offeror has sold the property to someone else then he knows that the offeror has not remained in the same frame of mind to sell it to the offeree. 1876) (p 328) No K Summary: The issue in this case is if while an offer for the sale of property is still open but before it is accepted. On June 11 the plaintiff was informed that the defendant had sold the property to someone else. The offer was said to be open until 9:00 June 12. The next morning. that it was in fact an agreement. On Fri. On Thurs. On hearing this. in order to make a contract. Jury determines that the Memo of Agreement was clear enough that despite the position of Texaco that it was only a negotiation. when or whether it may be revoked… Dickinson v. They are suing in tort. 1874. Contract Notes Page 9 of 124 . they must look at objective manifestations of that intent – words and deeds. • Went to jury in this case. The defendant offered to sell property for 800 pounds on June 10.

Leads to Pound who becomes the Dean of Harvard and then leads to the ALI. which is not considered law. we won’t.Law: Before acceptance. Since that time. § 43 Class Notes: • Court seemed to hinge on the fact that there was no “meeting of the minds” because Dickinson knew that Dodds was already selling to someone else and thus Dodd’s was not in agreement. • We work with the Second Restatement of Contracts (from Corbin). Hugely influential. Developed under the direction of the National Conference of Commissioners on Uniform State Laws. then there is no meeting of minds at time of supposed acceptance. the American Law Institute. it first became U. it has undergone a process of constant revision. Class Notes Jan 20 Discussion of Uniform Commercial Code (UCC). • Why should we not enforce this? Good faith? • This case introduces us to the ritualized process of offer and acceptance. and the American Bar Association (ABA). one of the most important aspects of this course. If Dodd’s had agreed to deal only with Dickinson. • There was a feeling that the law was a mess and that it needed to be better organized. • The Uniform Commercial Code (UCC) is a collection of modernized. • Idea of option contract. UCC is almost identical from state to state. Somewhat analogous to tort law in some ways in that you use a reasonable person standard. Professor seems to stress the fact that it is not so easy to apply sec 43 since it requires a “definite action” inconsistent with the intention to enter into the proposed contract and it may be hard to say what a definite action is. This also let to finding that the law was not consistent. If you follow the process we will consider there to be a deal. Dickinson knew offer was revoked because Dodds sold to Allen.S. • Under UCC/Restatement is Dickinson correctly decided? I say yes – see sec 43. See Restmt. it may have been an option contract and there would have been damages. codified. What is it? Is it the same as the Restatement or is it different? • American Law Institute is the organization responsible for the Restatement. parties free to change – if offer revoked. Volunteers who feel they are helping the law with evolution and clarity. For Thur – will discuss Dickinson and UCC. Restatement (Second) of Contracts §17 Requirement of a Bargain §18 Manifestation of Mutual Assent Contract Notes Page 10 of 124 . It is not clear that offer and acceptance is always a clear concept. if not. law in 1972. • The UCC is law. • Historical discussion of West and the importance of the key note system of organizing cases. No contract. unlike the restatement. and standardized laws that apply to all commercial transactions with the exception of real property.

The Mirror Image Rule basically states that when an offer is accepted. Firm Offers Leads Into What is Acceptance? Offer can be revoked until it is accepted (unless an option) so the issue of mutual assent sometimes depends on whether or not an offeree has accepted. §24 Offer Defined: An offer is the manifestation of willingness to enter into a bargain. (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined. Mirror Image Rule Addresses situations in which the acceptance differs from the offer in some way. but when the potential buyer returned the sales Contract Notes Page 11 of 124 . §25 Option Contracts §35 The Offeree’s Power of Acceptance §36 Methods of Termination of the Power of Acceptance §37 Termination of Power of Acceptance Under Option Contract §42 Revocation by Communication From Offeror Received by Offeree §43 Indirect Communication of Revocation Sales Contracts: The UCC §2-205. any qualification or departure from the original terms invalidates the offer unless agreed to by the party who made it. Horan (p 336) No K Summary: This case deals with the mirror image rule. which the seller accepted. The potential buyer made an offer.§22 Mode of Assent: Offer and Acceptance (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. If there is acceptance or not depends on: • Has the contract performance begun? Before performance. so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. it is easier to contest. Ardente v.

The sellers' refused to agree to sell the listed items or sign the sales contract. The seller decided not to sell to them and the potential buyer brought an action to force them to conclude the deal. • If it were under the U. • Professor speaks to the idea that sometimes lawyers screw up the deal and that sometimes it might be better (if you want the deal to go thru) to leave well enough alone. 2-207. OUTCOME: The court affirmed the judgment of the trial court that granted the sellers' motion for summary judgment in the buyer's action for specific performance of a real estate sales contract. therefore no genuine issue of material fact existed as to whether there was a binding agreement. • Why was there no back and forth negotiation? Perhaps the seller got a better offer and used the new conditions suggested by the potential buyer as a way out.C. etc).C. The court affirmed on appeal." Restatement (Second) of Contracts § 25 (1981). The court ruled that the delivery of the sales contract to the buyer was an offer. Why does the UCC reject the mirror image rule? I think because the UCC is governing everyday business transactions and wants to ensure they go smoothly. which was insufficient to have formed a binding contract. Contract Notes Page 12 of 124 .C.contract. • NOTE – THIS IS A REAL PROPERTY CASE AND THUS WOULD NOT BE COVERED UNDER THE U. the plaintiff would have won the case and the possibility of new terms would not have been a deal-breaker.C. so the buyer filed an action for specific performance of the sales contract. therefore it was a counteroffer that the sellers had not accepted. the court ruled that the trial court had properly held that the buyer's response was a rejection of the sellers' offer. • Idea that certain industries have a goal of straightforward and simplified rules (industry custom) and you may need to know what this is to do a good job if you are involved. they also included a letter that suggested that the sale would be contingent on some new terms (inclusion of furniture. Class Notes: • Shoot the lawyer for the plaintiff??? What should the lawyer have done? Likely accepted clearly and unambiguously and then make a separate inquiry about the other items that were of interest to the buyer. In light of this construction. Lawyer enabled the sellers to get out of the deal. but that the buyer's letter in response was not a definite and equivocal acceptance of that offer because it imposed additional conditions on the offer. but the trial court granted the sellers' motion for summary judgment on the ground that the letter constituted only a conditional acceptance of the sellers' offer to sell the property. An option contract is defined as "a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer. Court found no contract because the acceptance by the potential buyer added new terms and was not an unambiguous acceptance – it suggested it was a conditional acceptance and thus there was no clear offer and acceptance. OVERVIEW: The buyer executed and returned the sellers' sales contract for the purchase of real estate accompanied by a letter that indicated he desired for certain items to have remained a part of the land.

(p 343) YES K Summary: Reward offered for anyone who gets sick while using smoke ball. Typically.• • Quite simply. Not a unilateral contract because there is payment in exchange for the promise that you won’t get sick. Corlies & Tifft (p 358) NO K (No real acceptance communicated) OVERVIEW: The action was for an alleged breach of contract. and plaintiffs Contract Notes Page 13 of 124 . the acceptance must be manifested by an appropriate act. Defendant withdrew his offer the next day. Carlill v. an offeree can provide consideration for the option contract by paying money for the contract or by rendering other performance or forbearance. Defendant (owned building) sent an offer for carpentry work to plaintiff (did construction). woman uses and gets sick. and plaintiff brought suit. an offeror will invite the offeree to accept by actually performing the acts that the offeror is bargaining for. See consideration for more information. but a valid offer to the world. Not a contract with the world. Consideration for the option contract is still required as it is still a form of contract. holding that while there can be an acceptance without the offeror being aware of it. • Unilateral contracts are those that result from acceptance of performance. but did not communicate his acceptance to the defendant. why? • There are 2 ideas in the case. The difference is the mode of acceptance. Class Notes: • There is no clear offer and acceptance in this case. This is an issue dealt with in Carbolic Smoke Ball case below. Acceptance by Correspondence – The Mailbox Rule Basically – acceptance is effective upon dispatch. and plaintiff purchased the necessary materials and started working on them. Carbolic Smoke Ball Co. it is a different type of contract case. The court reversed the judgment for the plaintiff. • There are 2 opinions given. • Simpsons article – history of the smoke ball. Performance is sufficient without notice. • Bilateral contacts are agreements that result from acceptance of a promise. White v. On rare occasion. one is that there was an offer and then acceptance by performance and the other idea is that you can dispense with the need for acceptance (which they did). Acceptance by Performance or “Unilateral” Contracts. Basically an enforceable warranty. an option contract is a type of contract that protects an offeree from an offeror's ability to revoke the contract. The reward is the liquidated damages if they breach and you do get sick.

you can begin at once. W. before commencing the work? In my opinion it was not. to the plaintiff for his assent under his estimate. The defendants were merchants at 32 Dey Street. for fitting up a suit of offices at 57 Broadway. He had a right to act upon this note and commence the job. so changed. On September twenty-eighth the plaintiff left his estimate with the defendants. and that was a binding contract between the parties. Corlies & Co..purchase of the materials and working on them. the plaintiff brought this action for damages for a breach of contract. The court charged the jury as follows: "From the contents of this note which the plaintiff received. and on the next day a second note from the defendants countermanded the same. Restatement (Second) of Contracts Contract Notes Page 14 of 124 . was it his duty to go down to Dey Street (meaning to give notice of assent)." To this defendants excepted. the plaintiff commenced a performance by the purchase of lumber and beginning work. The writer will call again. Facts: The plaintiff was a builder." No reply to this note was ever made by the plaintiff. 32 Dey Street. probably between five and six this P. H. even if he had mentally accepted the offer. Upon an agreement to finish the fitting up of offices 57 Broadway in two weeks from date. and before the countermand was forwarded. were not such as to manifest acceptance to defendant. In September 1865. which he assented to by signing the same and returning it to the defendants. And after receiving the countermand. and they were to consider upon it. OUTCOME: Judgment for the plaintiff reversed and remanded for a new trial because the evidence did not show plaintiff effectively accepted the defendant's offer for a contract. New York city. On the day following the defendants' bookkeeper wrote the plaintiff the following note: “New York. On the same day the defendants made a change in their specifications and sent a copy of the same. and inform the plaintiff of their conclusions. • Llewellyn’s poem seems to suggest that the judge got it wrong and there should have been a contract. For J. Immediately on receipt of the note of September twenty-ninth. and requested him to make an estimate of the cost of doing the work. the defendants furnished the plaintiff with specifications.. M. R. W. September 29th. with his place of business in Fortieth Street. Class Notes: • Is this outcome unfair to the contractor? Why would he not be compensated for the materials or at least perhaps the storage of the materials? Prof says perhaps the court got it right because there were ways the contractor could have protected himself.

The decedent originally. an offer invites acceptance by any means reasonable under the circumstances. an offer is interpreted as inviting the person accepting to accept by promising to perform or by performing. Dissent felt that there was a K and the outcome was unfair and the reasoning of the majority flawed. from the Appellate Division of the Supreme Court in the second judicial department (New York). by performing or not performing a specific act. defendant was rightfully able to withdraw the offer before decedent's act was completed. as the person accepting chooses. plaintiff was required to pay the loan without interest forbearance. §32 Invitation of Promise or Performance .paraphrased. Pattberg (p 362) NO K (offer withdrawn before it became a binding promise) OVERVIEW: Plaintiff executrix sought performance of an agreement concerning a debt with defendant bond owner. The trial court awarded a judgment in favor of plaintiff. the court held that due to the fact that the provisions of the contract were unilateral. Facts: Basically stated. decedent attempted to relinquish the debt in full with a lump sum payment to defendant. Class Notes: • Two competing views here. if not stated in the language or by the circumstances. majority and dissent. or may allow the person accepting to chose the terms of his acceptance.§30 Form of Acceptance Invited – paraphrased. PROCEDURAL POSTURE: Defendant bond owner appealed a decision requiring performance of an agreement in favor of plaintiff executrix. the defendant made a unilateral offer to accept a lump sum payment from the plaintiff and when the plaintiff came to perform. Specifically. offer can invite acceptance by an affirmative written answer. Dissent addresses lack of good faith and uses this as argument. OUTCOME: The court reversed the appellate court on the grounds that that since defendant and the decedent entered into a unilateral contract. Majority seems to say that these are the rules of the game and he was within the rules. Upon final determination. requiring fulfillment of the agreement. defendant was legally entitled to revocation rights before performance was completed. The complaint was dismissed. which provided for a reduced principal if it was paid off early. Litigation ensued when defendant refused to accept the sum. Restatement (Second) of Contracts Contract Notes Page 15 of 124 . asserting that the contract was not binding as a matter of law. paid defendant installments of the principal. Petterson v. the defendant changed his mind after being told that the plaintiff was here to pay and told him he had already sold the debt. Part 2. After several installment periods passed. in case of doubt. the court reversed the appellate court's affirmance of this judgment. As a result.

he delivered the skins in question to an individual who forwarded them to defendant. such an acceptance operates as a promise to fulfill complete performance. before Hammond. Acceptance By Silence Lead in to Hobbs – an offer can be accepted by the promise or performance of an offeree – now the question is can it also be accepted by doing nothing at all? Hobbs v. Silence on the company's part. that the skins were in good condition when received by Harding. The action was initiated when plaintiff was not paid for the eel skins and defendant kept them for some months until they were destroyed. J. Facts: Contract. and the defendant had its usual place of business in Westfield. 1890.350 eelskins sold by the plaintiff to the defendant.§45 Option Contract Created by Part Performance or Tender – paraphrased – when the offer invites the person accepting to accept by performance and does not invite a promissory acceptance. and the balance over twenty-two inches in length each. who upon the same or the following day forwarded them to the defendant. that he had forwarded eelskins to the defendant through said Harding several different Contract Notes Page 16 of 124 . At the trial in the Superior Court. sending them imposed on the company a duty to act about them. the duty of the person offering under any option contract is conditional on the completion or or tender of the invited performance in line with the terms of the offer. The case was before the court on exceptions to an instruction to the jury which stated that plaintiff was warranted in sending the company skins conforming to the requirements. was acceptance in the view of the law and the jury instruction was warranted.. upon an account annexed for one hundred and eight 50/100 dollars. and thus to amount to an acceptance. on February 18. §62 Effect of Performance by Offeree Where Offer Invites Either Performance or Promise – paraphrased – when an offer invites the person accepting to chose between accepting by promise and accepting by performing. 2nd. an option contract is created when the person accepting tenders or begins the invited performance or tenders a beginning of it. the retention of the skins. Massasoit Whip Co. The plaintiff testified that he delivered the skins in question to one Harding of Lynn. coupled with a retention of the skins for an unreasonable time.050 of them being over twenty-seven inches in length each. The court held that conduct importing acceptance. as in previous sales. The court held that it was taken that plaintiff received no notice that defendant declined to accept the skins. the beginning of the performance or a tender of a beginning of it is an acceptance by performance. 2nd. for 2. and even if the offer was not such that the contract was made as soon as skins corresponding to its terms were sent. it appeared in evidence that the plaintiff lived in Saugus. 2. (p 368) Yes K OVERVIEW: Plaintiff testified that. and was engaged in the manufacture of whips. could be found by the jury to warrant plaintiff in assuming that they were accepted.

05 and 300 at . three of which. president of the defendant corporation. that the defendant agreed to pay five cents each for eelskins over twenty-seven inches in length. and that the defendant had never ordered of him skins less than twenty-two inches in length. and two cents each for eelskins over twenty-two inches in length and less than twenty-seven inches. which were received and paid for by the defendant. not fit for use. the defendant's treasurer. the defendant's shipping clerk. On this point the evidence was conflicting. Harding. and did not purchase them in any manner. and received payment therefor from the defendant. testified that he had some correspondence for the plaintiff with the defendant in reference to skins. 1890. and acted for the plaintiff in giving him any information.050 eelskins at . The judge instructed the jury that the plaintiff could not recover for eelskins less than twenty-two inches in length. and worthless. that skins came from Hobbs through Harding on February 19 or 20. and were at once examined by him. were for such use. 1890. Hobbs. 1890. the plaintiff had sent eelskins four or five times by Harding to the defendant." One Pirnie. or notice which he received from the defendant in reference to skins sent or to be sent. and not as his agent. order. that he understood that all skins sent by him were to be in good condition and over twenty-two inches in length. in writing. The plaintiff contended that Harding acted as the agent of the defendant. that the skins remained some months at the defendant's place of business in Westfield. testified that the skins sent on February 18. nor for any of the eelskins if they were in the condition described by the witnesses for the defendant. and were very short.02. and that the defendant received no other skins in the month of February from the plaintiff or from any other person. testified that before February 18. called by the defendant.times in 1888 and 1889. in very bad shape. and the fourth of which. that he knew the defendant used such skins in its business in the manufacture of whips. was as follows: "We send you to-day. and found to be less than twenty-two inches in length. who was called as a witness. but for the plaintiff. showed transactions between the plaintiff and the defendant. Contract Notes Page 17 of 124 . 2. suitable for use in the defendant's business. and in receiving pay therefor. and received February 19 or 20. were examined by them. Four letters were offered in evidence. dated Lynn. and one Gowdy. that the defendant never ordered the skins in question. 1890. and were then destroyed. dated in 1889. but that Harding was not his agent. that the skins sent on February 18. that he acted for the plaintiff in forwarding skins to the defendant. The defendant contended that Harding acted as the plaintiff's agent. for Mr. 1890. upon instructions not excepted to. that the skins were unfit for use. and found to be unfit for use. One Case. signed by Harding and addressed to the defendant. 1890. and the question was submitted to the jury. and that they were held subject to the plaintiff's order. and that Harding took charge of the skins for him and that he received orders through Harding. February 18. and that he never ordered or purchased those in question. and that he notified Harding at once. that Harding was not acting for the defendant. and that no officer or employee of the corporation except himself had authority to order or purchase skins.

on that state of things. • Back to this case – (later Holmes opinion as he became shorter in his opinions) ○ Prof asks how is it that the custom and past practice can result in agreement without a formal agreement. or that they were held subject to his order. it is experience. since they say nothing about it. silence can be taken as acceptance only in certain cases. then. OUTCOME: The judgment was affirmed and the exceptions were overruled. The judge. having reason to suppose that the man who has sent them believes that they are taking them. among other instructions. Because of prior dealings it is reasonable that the offeree should notify the offeror if they do not intent to accept. if they fail to notify. 1. E-COMMERCE AND MUTUAL ASSENT Following cases deal with the issue of assent when it is applied to e-commerce and Internet transactions. Holmes felt the issue could be decided by the jury. also gave the following: "Whether there was any prior contract or not. and the defendant alleged exceptions. Class Notes: • Discussion of Justice Holmes – wrote the Common Law. Restatement (Second) of Contracts §69 Acceptance by Silence or Exercise of Dominion – paraphrased – when there is no reply to an offer. • Becomes the editor of the American Law Review in law school. Who decides what the view of the law is? Jury.The plaintiff denied that he received any notice from the defendant that the skins were not suitable for use. whether they have agreed to take them or not. Topics almost mirror the first year law school curriculum. 3. to lie back and say nothing. you would be warranted in finding for the plaintiff. ○ Bottom line – this is perhaps both an objective (Holmes would have said it is an objective test) and subjective test – if conduct would suggest acceptance in the view of the law – regardless of the subjective state of mind of the parties. When the offeror has stated or given the offeree reason to understand that agreement may be manifested by silence or inaction. if skins are sent to them (the defendants) and they see fit. Series of lectures he turns into a book. Contract Notes Page 18 of 124 . • Life of the law is not logic. Takes the benefit of offer with reasonable opportunity to reject and has reason to know that compensation would be expected. there is an agreement." The jury returned a verdict for the plaintiff. 2.

as there was no requirement on the user to agree to the terms. Click wrap license. a user obtaining the software in question was not made aware that he was entering into a contract. Contract Notes Page 19 of 124 . The court found that the software allowed a user to download and use it without taking any action that plainly manifested assent to the terms of the associated license or indicated an understanding that a contract was being formed. Browser wrap license– online and link to terms but no requirement to view and no requirement of assent by clicking acceptance.S. ß 2510 et seq.C. Unlike the user in the case of "clickwrap" or "shrink-wrap" licenses. Court found no agreement.Specht v. Questionable. The primary purpose of downloading was to obtain a product. Netscape Communications assent to agreement (p 370) NO K. private information on the individual’s computer (who is downloading it) is transmitted to the company. violated the Electronic Communications Privacy Act. made independently of freely offered software and not expressly accepted by a user. OVERVIEW: The users and provider alleged that usage of the vendor's download software transmitted to the vendor and parent private information about the user's file transfer activity on the Internet. The issues in this case become under what circumstances downloading software creates a contract. nevertheless would bind the user to an arbitration clause contained in the license. ß 1030. 18 U.S. not to assent to an agreement. alleged that defendants. if a mandatory arbitration agreement must be enforced. Class Notes: • The issue stemmed from the fact that Netscape was using monitoring software to monitor the people who downloaded the software. OUTCOME: The court denied the vendor's and parent's motion to compel arbitration. When it is downloaded. Shrink wrap license – contained in the packaging of store bourt software.S. The issue was whether an offer of a license agreement. if a K is found.S. Most like this case. The mere act of downloading was not an indication of assent.C. No manifestation of Summary: This case deals with a company that allows users to download software. and the Computer Fraud and Abuse Act. • We seem to go back to the idea of a meeting of the minds in this case.. A secondary issue is. computer users and website provider. (even though we have already begun to reject the meeting of the minds). PROCEDURAL POSTURE: Plaintiffs. 18 U. effecting unlawful electronic surveillance. Has been litigation but seems to be accepted.online but requires an actual manifestation of assent by the act of clicking an acceptance or denial of terms. software vendor and its parent corporation. The vendor and parent moved to compel arbitration and stay the proceedings. Failure to require a user to indicate assent to the vendor's license as a precondition to downloading and using its software was fatal to its argument that a contract was formed.

• Professor asks – if there were no license. a registrar of Internet domain names.Com. There are different expectations. Inc. and operation services. the district court had not abused its discretion in finding that. or direct mail. representing or otherwise suggesting to third parties that defendant's services had the sponsorship. • One of the issues with the development (revision) of the UCC was how to work in the complexity of electronic transactions. changed it and marketed it. or approval of plaintiff. Verio clearly knew (or certainly should have) the guidelines that they could use the information under and violated it repeatedly. Verio. would there be a contract in this case? There could still be an issue – what if someone took the free software. Class Notes: • In this case. appealed from an order of the United States District Court for the Southern District of New York granting the motion of plaintiff. The district court acted within its discretion in concluding that plaintiff showed a likelihood of success on the merits of its contract claim. And. On appeal. • When you think of this case. The Uniform Computer Information Transactions Act (p 386) First uniform contract law designed specifically to deal with the new information economy. different Contract Notes Page 20 of 124 . for a preliminary injunction. Inc. accessing plaintiff's computers by use of automated software programs performing multiple successive queries. and business opportunities. OVERVIEW: The district court's order enjoined defendant from: using plaintiff's trademarks. who was engaged in the business of selling a variety of web site design. and using data obtained from plaintiff's database of contact information of registrants of Internet domain names to solicit the registrants for the sale of web site development services by electronic mail. good will. especially where the district court made no such finding. the court found that it had no reason to assume that plaintiff's conduct should be considered unethical. Here there is recognition that the information economy requires new guidelines in order to function under contract law. OUTCOME: The ruling of the district court was affirmed. Leads into the development of what follows…. endorsement. Regisiter. is it more about identifying property rights? • Professor states that these cases invite you to think about the best way to deal with these types of electronic transactions. (p 379) Yes K PROCEDURAL POSTURE: Defendant. unless specific relief were granted. development. telephone calls. Or. • They assented to the conditions by taking the information. ask yourself why this is in contracts and not torts. defendant's actions would cause plaintiff irreparable harm through loss of reputation. v.

industry practices, and different policies from those governing transactions in goods. With goods, someone buys the goods (i.e. toaster oven) and has exclusive rights to the property. Here when you obtain computer information you may or may not be considered to own it and rarely would you obtain all the rights associated with the information. UCITA is designed to help deal with these issue but, as with UCC and others, must be adopted by state legislatures. Sec 112. Manifesting Assent; Opportunity to Review – goes into the ways that assent can be manifested electronically. Somewhat follows the theme in the Restatement of Contracts § 19(1) that states that manifestation of assent can be by written or spoken language and by acting or failure to act. Important because electronic transactions mostly involve conduct. • Deals with the idea of “authenticating” and manifesting assent. • Provision “G” may be very important – says that the Internet provider itself do not enter into any contractual agreement merely by providing the service or conduit. • Provision “E” also important – says we will be comfortable with inferring assent if there is access to information, either before the deal or while it is still possible. • Notice that it is drafted from 2 points of view, the parties themselves and to “us” as lawyers and judges as those who need to apply them. Discussion of the Uniform Electronic Transactions Act (1999) – UETA. (Is this the same as the UCITA mentioned above???) • Purpose is to remove barriers to electronic commerce by validating and effectuating electronic records and signatures. • It is NOT a general contracting statute. Substantive contract rules remain unaffected. • Also, it is NOT a digital signature statute. If a state has a Digital Signature Law, the UETA is deigned to support and complement that statute. Sec. 14. Automated Transaction – under the UETA, gives rules for how contract formation can occur via electronic agents. • Discussion of how merely going to a website does not imply agreement but for sites that use a “click to agree” there may be agreement. Depends on context of site. Page 390 – Discussion of ABA workgroup on electronic contracting practices, click-thru agreements, and for strategies for avoiding disputes o validity of assent. Recommended guidelines that are designed to develop good working electronic business strategies.

Contract Notes Page 21 of 124

DISCERNING THE AGREEMENT – CHAP 5
After determining mutual assent, you then must determine the terms that are binding on the parties. Can be divided into 3 areas that represent potential problems in practice. • Interpreting the meaning of words used by the parties • Gap-filling, when a situation comes up that is not covered by the parties agreement • Identifying which term is adopted by the parties when the terms of the offer differ from the terms of the acceptance.

Interpreting the Meaning of the Terms
Some problems in this area involve ambiguous terms or vagueness of terms.

Ambiguous Terms
Raffles v. Wichelhaus (p 396) No K (Surprising outcome – hinged on the name of the ship) Summary: Action for breach of contract by buyer of cotton. The agreement listed a ship name that was to carry the cotton but there were two ships of the same name. Facts: Plaintiff was seller, defendant buyer of cotton. The P and D entered into a K for the sale of certain number of bales of cotton arriving by ship from India. The ship was called “Peerless,” however two ships of that name sailed from Bombay. First ship arrived and did not have cotton on it. After the second arrived, the D did not appear, but the P did P filed for breach of K. Issue(s): Whether a mistake as to which ship the cotton is due to arrive upon is a valid defense for failure to perform? Court’s Holding: No

Contract Notes Page 22 of 124

Procedure: Tr ct D filed a motion of demurrer; granted, per curiam judgment for the D. Court Rationale: The moment it appears that two ships called Peerless were about to sail from Bombay there is latent ambiguity, and parol evidence may be given for the purpose of showing that the D meant one Peerless and the P another. That being so there was no consensus between the parties and therefore no binding K. Plaintiff’s Argument: The D’s refused to accept the cotton or pay the P for the bales when they arrived. The identity of the carrying ship was not a true condition of the contract and was only there to protect the D if the ship were lost completely. Defendant’s Argument: A material term of the K was ambiguous and therefore the D’s failure is excused. They say they meant the “other Peerless” (which did not have any cotton on it). DISSENT: The K was for the sale of a number of bales of cotton, which the Pl was ready to deliver. It is immaterial by which ship the cotton was to arrive upon. If the K was for the sale of a ship named the Peerless and two existed, then the question of what was meant or the intention of the parties would be relevant. The P did not have any goods on board the other ship. Intention is of no avail UNLESS stated at the time of the K. The time of sailing is not part of the K. Class Notes: • Very famous case – in every contracts text ever. • Text suggests that a change in price of cotton may have been the reason the D’s tried to use a technicality to avoid performance. Surprisingly, they won! • Judges treated the case as if the identity of the carrying ship was a material term and critical to the contract. • Attempt by P to use the argument that parol evidence was inadmissible lost and the case was quickly lost. • What do we think Holmes would have said about this case? On an objective view, would not one see a contract? Well, Holmes did speak on the case and seemed to somewhat contradicts his usual position although he says not. • What about the idea that the parties were at fault and careless for not being more clear about the terms (i.e. names of ship). • If UCC were applied, the contract would be upheld. Does not need to be “meeting of the minds” just the clear intent that they intended to make a deal. • This case is an example of a “spot transaction” there is no likelihood of an ongoing contractual relationship between the parties. It is a little misleading to say that the court will find no contract since in essence the deal is already done. The court is really saying that the court is taking no position. • Long discussion of what would be a just result in this case? Hard to say – did either or both know that there were multiple ships? Did neither know? If the court did split the difference, would they have somehow been supporting badly planned contracts? • Perhaps the problem is that the judges really could not decide on the best outcome themselves so the easy way was to blame the parties for poorly drafting the agreement.
Contract Notes Page 23 of 124

Discussion of Rawls – that if the background market will allow for an avoidance of the worst-case scenario. Prof asks if we could compare with the smoke ball case – could we consider this a unilateral contract with the buyer obligated to buy regardless of ship? We could consider this a “veil of ignorance” case – they did not know what the outcome would be due to fluctuating market. not knowing that it was actually two separate collections. OVERVIEW: Plaintiff coin collection purchaser filed a complaint against defendant coin collection seller. OUTCOME: The judgment finding that no contract existed for the sale of the coins was upheld because the letter from defendant to plaintiff failed to fulfill Contract Notes Page 24 of 124 . and to specify a quantity. the losses should be accepted. these writings had to be connected either expressly or by the internal evidence of subject matter and occasion. Oswald v Allen (1969) (pp 407) No K – (Did not meet requirements of UCC) Summary: Plaintiff was interested in D’s coin collection and viewed it. Issue: Was a valid contract for the sale of the coins formed? PROCEDURAL POSTURE: Plaintiff appealed an order of the United States district court. Reading of Gilmore essay – seemed to think court got it wrong by considering the ship name an essential term. they can supply the missing term. There was an agreement reached for 50k but the Plaintiff thought it was for all the coins and the D thought it was for only one of the collections. This was a spot transaction. which entered judgment in favor of defendant in an action alleging the existence of a contract for the sale of coin collections. P could not speak English and used a translator to negotiate. not just ship name.• • • • • • • • No industry custom in this case to apply? Also compounded by the lack of on-going relationship. The court below concluded that a contract did not exist since the minds of the parties had not met. There is a school of thought called rational contract analysis and this states that if the court can determine what rational people might have meant. while defendant thought she was selling only a specific coin collection and not the Swiss coins in another collection also. thus usually identified by Captain. The trial court found that plaintiff thought the offer was for all of the Swiss coins. Reading of Simpson – there were many Peerless ships. The letter from defendant to plaintiff failed to fulfill the first and third requirements set forth in the Uniform Commercial Code ß 2-201: to evidence the existence of a contract. Best result might have been to make them take whatever arrives on the first ship? Puts both on equal footing since neither can know what the market will do. Several letters or other writings could be used for the agreed-upon terms but nevertheless. If it were that important to the parties. alleging that a contract had been formed for the sale of a Swiss coin collection. Various communications occurred and eventually D decided not to sell the coins. they can put it in explicitly.

If the same meaning. Rules for which party shall overcome when one of the parties views the terms differently. this is given great weight in interpreting the agreement. §202 RULES IN AID OF INTERPRETATION – words and conduct viewed in light of circumstances and based on the principle purpose of the parties. § 2-208 COURSE OF PERFORMANCE OR PRACTICAL CONSTRUCTION – paraphrased – states that when there is an ongoing business relationship and continuing performance or acceptance happens without objection. • UCC? • This is a genuine spot transaction. Class Notes: • Court follows the rule from Raffles that when terms used to make an agreement are ambiguous and the parties understand them in different ways. the same meaning. that terms of the agreement and trade custom will be construed to be consistent with one another when possible. there is no K. Before you get bent out of shape. you should ask yourself how easy is it to undo the deal? Seems to think this is not a very interesting or significant case. • Court is still talking about a “meeting of the minds” which they say did not occur. says Prof. If the language has a generally accepted meaning. that will be considered in determining the meaning of the agreement. and that performance may be relevant in terms of showing a wavier or modification of the terms. It was very easy to put the 2 parties back as they were.the first and third requirements set forth in the Uniform Commercial Code: to evidence the existence of a contract. §201 WHOSE MEANING PREVAILS – deals with situations in which the parties have attached different meanings to a term. If ongoing business and there continues to be performance and acceptance without objection. Vague Terms (p 411) Contract Notes Page 25 of 124 . Restatement (Second) of Contracts §200 INTERPRETATION OF PROMISE OR AGREEMENT – interpretation of a promise or agreement or a term is the acertainment of its meaning. Writing is interpreted as a whole. it will be used. and to specify a quantity. Sales Contracts: The UCC § 1-205 COURSE OF DEALING AND USAGE OF TRADE – paraphrased – deals with ongoing relationship and how this shows a basis for common understanding of terms and how trade custom can be applied. Technical terms will be given their technical meaning when in a technical area.

a "dress" was not a "dress. The dress retailer claimed the skirt retailer was violating the restrictive covenant by selling matched skirts and blouses because the combination thereby became a dress." the conclusion could have been different. • Court does impose a restriction to indicate that the D cannot sell the two items together and marketing it as a dress. a matched skirt-and-blouse garment. although identical with a two-piece dress of the same material. PROCEDURAL POSTURE: Plaintiff dress retailer brought an action for an injunction to enforce a restrictive covenant in his lease against defendant skirt retailer. One sold actual dresses (P). as the customer wished--and in any case.Weinberg v. The court ordered that the skirt retailer could not compel the purchase of a skirt and blouse combination as a unit. even though the garments he sold tended to resemble the apparel sold by the dress retailer. what are the meanings of the terms used in the leases and is one party breaking the covenant? In order words – is a dress a dress or can a dress be a two-piece dress? OVERVIEW: The dress and skirt retailers operated retail stores in the same building." In the industry there was a long-established division between houses which manufactured dresses. OUTCOME: The court denied the dress retailer's application for an injunction to prevent the skirt retailer from selling skirt and blouse combinations.. P sought injunction but court found that the term dress was very specific in meaning and that it did not apply to the company making the combo outfits out of two separate pieces. Edelstein (p 411) No K – Although not really a contract case? When a dress is not a dress…. and sportswear houses which manufactured skirts and blouses. The court held that no matter how incongruous to the spheres of lexicography and logic. Contract Notes Page 26 of 124 . theoretically. each at an individual price. The court found the language used in the covenant did not require the skirt retailer to ignore the almost universal trends in the sportswear industry. Each of their leases contained covenants restricting what they could sell. More vague terms. Class Notes: • Court states that industry practice and customs of the trade should guide the interpretation of the term “dress”." but clearly forbade the sale of "blouse and skirt combinations. The D was not allowed to sell dresses under a restrictive covenant. Issue: Based on the terms of the covenant. Both businesses were in the trade and should have known the common understanding of the terms. a dress was not a dress. the other (D) skirts and blouse combos that amounted to a dress. and was to permit the purchase by his customers of skirts and blouses separately or together. So. Summary: Disagreement between 2 stores in the same building over the sales of dresses. did not come within the restriction--and so. If the restrictive covenant had not merely employed the generic and ambiguous term of "dress.

• Judges can always fall back upon the burden of proof rule. Frigaliment Importing Co v. Questions of law are for the judge. PROCEDURAL POSTURE: Plaintiff. OVERVIEW: Defendant state sales corporation had two contracts with plaintiff foreign corporation for the sale of "chicken". • This is just pure process. he must research the history of skirts and dresses. After plaintiff received one shipment of stewing chicken and another was stopped. we still don’t know what a chicken is and so the burden falls on the plaintiff to show that their version of chicken was the correct one and they failed to do this. district court held that plaintiff's reliance on the fact that the contract forms contained words with a blank not filled to negate agency was wholly unpersuasive where the clause's purpose was to permit filling in an intermediary's name to whom commission would be payable. a state sales corporation. thus they lost the case. Issue: What is the meaning of the term chicken as applied to the sales contract and is the defendant in breach of the agreement? Court says no. Chicken Case Yes K – No Summary: Argument over the use of the term chicken in a sales contract and if the defendant was providing the type of chicken called for in the agreement. a foreign corporation. the judge is saying he can’t figure it out but the plaintiff has the burden of proof. OUTCOME: Plaintiff foreign corporation's complaint was dismissed where plaintiff did not sustain its burden of persuasion that the contract with defendant state sales corporation used the word "chicken" in the narrower sense and defendant's subjective intent coincided with an objective meaning of "chicken. In this case the court found the plaintiff had not made a compelling case that the defendant was in breach over the use of the term chicken.• Judge is willing to work on this case and try to figure out a fair result. brought an action for breach of the warranty. In essence." which had at least some usage in the trade. • Questions of law v questions of fact. alleging that goods sold should correspond to the description in two contracts with defendant. In order to do this. not rational contract analysis. Breach. Here Judge Friendly treats the issue of “what is Contract Notes Page 27 of 124 . alleging that the goods sold should have corresponded to the description because the chicken was not suitable for broiling and frying. BNS International Sales Corp. In dismissing plaintiff's complaint. Defendant's subjective intent that it could comply with the contracts by delivering stewing chicken coincided with objective meaning of "chicken. and plaintiff did not sustain its burden that "chicken" was used in the narrower rather than in the broader sense. questions of fact for the jury." Class Notes: • At the end of the whole chicken analysis. plaintiff brought a breach of warranty action.

Remington Paper & Power Co. Time arrived when there was to be an agreement on a new price and upon the term of its duration. he also says. not law. there are two versions: ○ Implied in fact – terms the parties have agreed to even if not clear ○ Implied in law – imposed by the law without parties consent 1. In these cases. I don’t know. Appellate Division of the Supreme Courts reverse the order and granted the π’s a motion on the pleadings.” When the court does this. but in no point shall it be higher than the contract price for newsprint charged by the Canadian Export Paper Company to the large consumers. the price of the paper and length of terms for which such price shall apply shall be agreed upon by and between the parties 15 days prior to the expiration of each period for which the price and length of term thereof have previously agreed upon. Of course. then there is no enforceable contract Contract Notes Page 28 of 124 . Agreements to Agree Sun Printing & Publishing Ass’n v. Seller refused to deliver Procedure: Newsprint paper buyer sued a newsprint paper manufacturer/seller for damages for based on sellers repudiation of agreement to agree contract to sell 16000 tons of paper. Seller gave notice to π that the contract was imperfect and disclaimed for future obligation to deliver. Supplying terms when the contract is silent on the issue is sometimes called “gap-filling. ∆) 1000 tons of paper per month from Sep 1919 to Dec 1920 (16000 tons total). So… if all else fails and you can’t see how to apply existing contract law. on the ground that no exclusive option was given to the π under the agreement. For the balance of the period of the agreement. there is a tension between the court trying fix a problem the contractors made and the court recognizing that they are setting a potential precedent for others. and go home! Filling Gaps in the Terms There is a difference between filling in the gaps of a contract and interpreting the terms of a contract. Trial court denied a motion by the π for judgment on the pleadings. treat it as a matter of fact. (p 422) NO K Facts: Sun Printing (buyer. where both parties agreed to agree upon such price at a specified date. basically. ∆ appealed. π appealed.• • chicken” as a matter of fact and he is acting as the fact-finder. language used in the agreement does not sufficiently define the price or terms to create an enforceable obligation Holding: If a buyer and a seller enter into a contract in which the terms pertaining to the price and length of time are indefinite. π) agreed to buy from Remington (seller. and where that price was ascertainable but the duration was not. Buyer claimed that the price was to be ascertained by resort to an established standard (Canadian Export Paper Company to large consumers).

Part performance may remove uncertainty and make the contract enforceable. The buyer is happy to pay the Canadian max price because it would still be lower than the US price. If price alone had been left open for adjustment. 2-305(1) would suggest that there should be an agreement. 2-305(4) would suggest no. EFFECT OF PERFORMANCE OR RELIANCE.Reasoning: Judgment reversed in favor of ∆’s (Cardozo). the result is that this was nothing more than an agreement to agree. seller was not bound as the parties had not reached an agreement as to its obligations demanded. if the intent is not clearly stated then it is obvious-ly an agreement to agree. 2-305. the other was not sufficient. (paraphrased). Notes: • Crane’s dissent: ○ Sounds like Cardozo ○ Wants to interpret the indefinite terms and enforce the contract. Two terms were to be settled: price and duration of price. §204 SUPPLYING AN OMITTED ESSENTIAL TERM – When the parties to a bargain sufficiently defined to be a contract have not agreed to a term that is essential. While the term was unknown the contract was useless. Action in reliance of an agreement may make a contractual remedy appropriate even though uncertainty is not removed. Court cannot see the intent of the parties. Contract Notes Page 29 of 124 . Seller reserved the privilege of doing business its own way. It also looks like there are two radical terms that are indefinite: price (agreement to agree) and time. Terms of the contract may be reasonably certain even though one party may get to choose from a selection of terms. the price payable to the seller would fluctuate. Restatement (Second) of Contracts §34 CERTAINTY AND CHOICE OF TERMS. there might have been reason for the contention that they guy would be viewed as the holder of an option. so that the agreement on a maximum payable this month is not the same as it would be in the future. • 2-203 and 2-204. a term which is reasonable under the circumstances is supplied by the court. Problem is that the price is not ascertainable for the want of the necessity for agreement in respect of the term during which the price is to apply. without one. • Professor seems to suggest that this should have been a deal since there had been performance for some time already and that the UCC would suggest that a deal would be found. he sees the case as indefinite and not as an agreement to agree ○ He says it is obvious they intended to make the deal and he wants to use evidence from the contract and other places to determine a price and length of time that will work and hold them to the contract • Why would the seller breach when they could charge the max Canadian price? Suggests a price disparity between US price and Canadian price. If during the term the price charged by Canadian Export was changed. Cardozo construes the case as an agreement to agree.

This case stands for the concept that not all terms need to be explicitly spelled out in order for the contract to succeed. Radiator Co. 1902. OVERVIEW: In the underlying action. which affirmed a judgment in favor of plaintiff entered upon the report of a referee. affirming a judgment in favor of plaintiff entered upon the report of a referee. The court determined that the parties intentionally left the contract open and indefinite as to the quantity of goods that the plaintiff might order from time to time. v. Can’t read the indefiniteness doctrine that broadly. Illusory Promises New York Central Iron Works Co. entered January 30. The contract was an open one as to the quantity of goods that defendant was to deliver. plaintiff sought to recover damages for the breach of a written executory contract between the parties for the sale and delivery of goods. OUTCOME: The court affirmed the lower court's judgment. The court rejected that argument and affirmed the lower court's judgment. The trial court found for the plaintiff. the issue seemed to be if the terms are enforceable and in order to be. 1. U. and defendant asked that the contract be reformed in this respect. and defendant appealed. (p 429) YES K PRIOR HISTORY: Appeal from a judgment of the Appellate Division of the Supreme Court in the fourth judicial department. Notes: • Court seems to be saying that you can’t take the Sun Printing opinion and use it as an excuse to get out of an obligation. Contract Notes Page 30 of 124 . Defendant construed the contract as calling for only the usual amount of goods and not materially exceeding the quantity delivered in any one year before under a similar contract. defendant argued that a limitation of quantity was necessarily imported into the contract and that it should be construed as containing it. Defendant claimed that there was a mutual mistake in framing the contract.S. Notes: • Good faith analysis seems to come into play again here. When plaintiff ordered significantly more goods than usual.Texaco v. PROCEDURAL POSTURE: Defendant sought review from a judgment of the Appellate Division of the Supreme Court in the fourth judicial department (New York). On appeal. which affirmed a judgment in favor of plaintiff entered upon the report of a referee. the court says that they must be ascertainable to a reasonable degree of certainty. Pennzoil (again) (p 428) Summary: In this portion of the case. defendant refused to provide the additional goods.

this is a bad deal. This is no longer the case and this is captured in the UCC §2-306(1) as referenced in this case. Plaintiff sought injunctive relief requiring specific performance of the contract in spite of an embargo by oil-producing nations that had raised crude oil prices.• • From the seller’s perspective. The buyer seems to be taking advantage of the seller. v. it may not be the place of the court to intervene. U.C. They are taken very seriously – similar to legislative history. Plaintiff contended that it was entitled to specific performance because both parties knew an embargo was imminent. OUTCOME: The court granted permanent injunctive relief to plaintiff and required defendant to specifically perform contract according to its terms. because commercial impracticability was not a defense where there was no evidence that defendant was losing money on the contract. because commercial impracticability was not a defense where there was no evidence that defendant was losing money. What does good faith really mean? Reasonable forseeability? • Are the comments in the UCC law? See comment 2. Gulf Oil Corp. Addresses good faith and reasonableness.C. They may have made a bad deal but does that mean the court should get involved? Eastern Air Lines. the evidence showed that defendant was making a profit and its losses were merely paper losses. Rather.C. Lady Duff Gordon (p 434) Yes K – Mutuality Implied (more good faith issues) Contract Notes Page 31 of 124 . Notes: • At one time requirement contracts were found invalid for lack of definite terms or on lack of mutuality. and they had tied the contract price to domestic postings in an oil publication. Inc. The case seems to be saying that if the contract is clear that the buyer can buy all they want. OVERVIEW: Plaintiff airline brought action alleging that defendant oil company breached a longstanding requirements contract to supply aviation fuel. plaintiff airline sought injunctive relief from the district court (Florida) requiring defendant oil company to specifically perform requirements contract to supply aviation fuel.C. ß 2-615. • Question here is – should the court do something or leave it as it stands? Wood v. (p 431) YES K – Requirement K’s are Enforceable Despite Lack of Definite Terms – see UCC §2-306 PROCEDURAL POSTURE: Alleging breach of contract. The court agreed and granted injunctive relief. ß 2-615. Lucy. despite defendant's assertion of the commercial impracticability doctrine of the Uniform Commercial Code. U. Defendant sought to repudiate the contract by invoking the commercial impracticability doctrine of the Uniform Commercial Code.

Facts: Designer (∆) professes herself to be a fashion trendsetter. ∆ employed an agent (π) to create clothing to bear her seal. π was to have the exclusive right, subject to her approval, to put her endorsements on the designs and the exclusive right to license others to market them. π was to receive half of all the profits and revenues from any contracts he made, ∆ would receive the other. Exclusive right was to last one year and then year to year, subject to 90 days termination notice. ∆ placed her endorsement. Procedure: This was an action by an agent against a fashionista for damages on the ground that the ∆ broke the contract by indorsing fabrics, dresses and millinery without his knowledge and withholding the profits. Trial court found in favor of the π. Appellate division of the Supreme court reversed, found in favor of the ∆. π appealed, on the ground that a covenant on the part of the π to use his best efforts to place endorsements must necessarily be implied from the terms of the contract itself Holding: If a designer enters into a contract with an agent, and the agent has the exclusive rights, and there is no mention of the duty owed by the agent, and the agent uses reasonable efforts to get contracts (good faith efforts), then mutuality will be implied-Judgment reversed (Cardozo) Notes: • If you examine this in light of reasonable efforts – good faith and fair dealing – both parties would be better off by the agreement (assuming that Wood is any good at marketing). • This is not a zero sum circumstance (one wins / the other loses), it is a “same boat” case in that they will both succeed or fail together. This distinguishes it from Sun Printing? • Cardozo is saying that there must be a notion of good faith operating in the background otherwise the arragment makes no sense – why would she give him the option if he did nothing? • ∆ claimed the employment contract lacked the elements of a contract because it does not bind the π to anything; but π is bound- he is impliedly bound to make reasonable efforts to place ∆’s endorsements and market her designs. • Law has outgrown this stage of formalism that requires a written promise where every slip is fatal • The whole writing of the contract may be instinct with an obligation, imperfectly expressed; without an implied promise of him to do anything, she would never get anything so why would she enter into this contract unless she acknowledged the implied promise (she is being sneaky) • ∆ had no right to place her own endorsements or market her own designs except thought the π; π is thus entitled to half of what the ∆ made • Lack of mutuality case that introduces the idea of good faith into contracts • Instinct with obligation; a matter of good faith • Back in the day, if a mutuality of obligation was lacking, the contract could not be found • Now, there is an escape from the requisite mutuality of obligation through the theory of implied promise set forth by Cardozo in this case • Cardozo is on the warpath in his campaign to introduce a new method of reading commercial documents
Contract Notes Page 32 of 124

He has now swung a majority of the bench all the way to the holding in Lady Duff

Sales Contracts: The UCC

§ 2-306 Output, Requirements and Exclusive Dealings – UCC 1) A term which measures the quantity by the output of seems to address the good faith is the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

C. IDENTIFYING THE TERMS OF THE AGREEMENT 1. Form Contracts or “Contracts of Adhesion”
These are often written by just one party and unread by the other so they challenge our notion of assent. Sometimes the form used by one party conflicts with the form used by the other party and this can raise the problem of determining which terms govern. Contracts of adhesion are also linked with the doctrine of unconscionability. Carnival Cruise Lines, Inc. v. Shute – Yes K, Forum Selection Clause – (p 445) Facts: P –Wa, D- Fl. Purchase – WA, shipment FL to WA. Choice of forum provision. Passengers on a cruise bought tickets in Washington from travel agent. Tickets expressly were marked that purchase of the tickets subjected the passenger buying them to resolve any dispute (forum selection clause) in court of Florida, where the company had its principle place of business. Passenger went on the cruise and had a slip and fall injury while in international waters. π filed suit in Washington and the ∆ moved to get summary judgment based on the fact that the π would have been required to bring suit in Florida based on the forum selection clause. Intermediate appellate court refused to enforce the forum selection clause and the ∆ appealed to the Supreme Court. Issue: Did the appellate court rightfully refuse to enforce the forum selection clause in the ticket contract? Legal Reasoning: The issue of if the π had knowledge of the clause and notification of the clause was not in dispute – all parties agreed that they knew about it and had advance knowledge of it. Non-issue. The π primary argument was that unlike prior case Bremen, the clause was not a product of negotiation and that enforcement would effectively deprive
Contract Notes Page 33 of 124

them of their day in court. The court rejects this argument for several reasons. • First, the ticket was a standard ticket with the same provisions given to everyone so it is not logical that there would be any negotiation about clauses in a ticket. • Second, the cruse lie had a number of good reasons to have such a clause (special interest in the forum due to the nature of a cruise line, dispelling confusion about where to sue, benefit to passengers in reduced prices by virtue of the fact that the company would not have to expect to defend suits all over the world). • Following this, the court speaks of the judicial fairness test and that the court should look at the clause to see if it appears essentially fair. In this case they felt it did and that there was no bad-faith motive for having the clause nor was their any fraud or misrepresentation of the clause. Some justices dissented. One argument is that it is commonly held that forum selection clauses are not enforceable unless freely bargained for. Holding: The appellate court was incorrect in refusing to enforce the forum selection clause in this case. For the most part, rules of civil procedure are default rules. I.e., rules that come into play when you have not established other governing rules. You can contract around the rules of civil procedure. Notes: Other related terms in forum selection: • Choice of law clause – does not say where suit will be brought but does say what law will govern, i.e. laws of a particular jurisdiction • Consent to jurisdiction clause – consents to suit in a particular place thus waiving challenges to personal jurisdiction • Forum selection clause – limiting the forum to a single location • Arbitration clause – takes dispute out of the judicial system and places them in arbitration process • Cognovit Clause – written authority of a debtor, which allows automatic judgment against him for default with no defense or appeal. Represents outer limits. Caspi v. Microsoft Network (p 453) – Forum selection clause upheld as valid in this case. OVERVIEW: Plaintiff members of defendants' on-line computer service filed suit for breach of contract, common law fraud, and consumer fraud. Before becoming a member of defendants' service, a prospective subscriber was required to agree to the terms of the membership agreement, which contained a forum selection clause. Members were required to click either "I agree" or "I don't agree" to the membership agreement. A potential subscriber could only use defendants' services after clicking "I agree." Affirming the decision of the lower court granting defendant's motion to
Contract Notes Page 34 of 124

Notes: • This was another forum selection clause contract that was upheld. 1. he adopts the writing as an integrated agreement with respect to the terms included in the writing. Restatement (Second) of Contracts §211 STANDARDIZED AGREEMENTS 1) Except as stated in Subsection (3). and because enforcement of the clause would not violate the strong public policy of New Jersey and would not seriously inconvenience trial. • They had a choice to accept or not accept the terms and could have gone elsewhere. where there were several competitors in the provision of on-line services. Which Terms Were Agreed To? Step-Saver Data Systems. Wyse Technology (p 457) Yes there is a K but what are the terms? Court says UCC 2-207 is most relevant. without regard to their knowledge or understanding of the standard terms of the writing. OUTCOME: The judgment of the lower court granting defendants' motion to dismiss plaintiffs' complaint for lack of jurisdiction was affirmed where plaintiffs failed to meet their burden in establishing that the forum selection clause was not valid. • Court found that there was opportunity for adequate notice and there was no bad faith.dismiss the complaint for lack of jurisdiction. Because plaintiffs were not subject to overwhelming bargaining power. still good faith comes into play. • Ask Prof how this squares with the UCC electronic assent stuff we already covered that involved “click” assent. Individual people could be negotiating terms on a case by case basis with something like an internet service…BUT. • In comments it notes that we use these types of forms to facilitate business getting done – they are inevitable. (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term. where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type. the court held that plaintiffs failed to meet any of the exceptions to the general rule that forum selection clauses were prima facie valid and enforceable. Inc. (2) Such a writing is interpreted whereever reasonable as treating alike all those similarly situated. the court agreed that clause was enforceable. Contract Notes Page 35 of 124 . the term is not part of the agreement. v.

the disclaimer of warranty in the license did not constitute a conditional acceptance by appellant of its terms. was not intended as expression of agreement with appellees. Oscar Myer Foods Corp.OVERVIEW: Appellant argued that the box-top license accompanying acquired software. (b) they materially alter it. or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. disclaiming all warranties.C. OUTCOME: The court reversed the district court's directed verdict in favor of appellee software producer and remanded the case. (2) The additional terms are to be construed as proposals for addition to the contract. Notes: • Basically. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer. one never accepted by appellant. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree. and that the license was only delivered later with software order. They are trying to say that the preplaced agreement that comes with each software package would be the controlling agreement between the parties (this would allow them to get out of warranty liability) but the court disagrees and cites 2-207. together with any supplementary terms incorporated under any other provisions of this Act. Sales Contracts: The UCC (BATTLE OF THE FORMS) § 2-207 Additional Terms in Acceptance or Confirmation– 1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon.C. and viewed the license's terms as a proposed addition to the existing contract. unless acceptance is expressly made conditional on assent to the additional or different terms. The court pointed to U. appellees' software producer demonstrated a willingness to supply additional orders. TLS loses. orally and by purchase orders. Consequently. The court also found that no evidence demonstrated any intentional misrepresentation by appellees on issues of software or hardware compatibility. irrespective of the repeated mailings of the license. Notwithstanding this rebuff. No Breach of K (p 470) Contract Notes Page 36 of 124 . The court held that it was error for appellant's warranty claims to be dismissed. the court observed. § 2-207 as controlling. v. Union Carbide Corp. The court concurred. noting that essential elements of the parties' contract were detailed upfront. NOTE – Professor stresses that the UCC purports to be dealing with merchants and it may not always work when dealing with consumer.

Summary: Union Carbide is suing Oscar Myer for back sales taxes on orders made by Oscar Myer under the theory that a clause on the invoice operated an indemnity clause and would make them liable for the back taxes that were later assessed against Union Carbide. OUTCOME: The court affirmed the district court's order granting summary judgment for defendant customer corporation. • 2-207 wants you to look at materiality but Posner seems to rest his argument on surprise. TERMS THAT FOLLOW LATER Contract Notes Page 37 of 124 . Court rejects this argument. So… this is one way you can analyze that the term that UCC is trying to insert would materially altered the deal. Posner is not interested in hardship or industry custom. • Professor stresses that when you analyze 2-207 you have to go through it mechanically and go to section 1 first and analyze before you get to what you see as the controlling provision (2 in this case). May be the most famous currently living American judge. Notes: • Discussion of Judge Posner – was known for having an economic bent. Wrote a book called the Economic Analysis of Law (showing how the law can be applied to economic principles). sees it as materially altering the terms of agreement and does not find that there was assent to the terms under the UCC 2-207. On appeal. There was no breach of contract because the indemnity clause on the back of the invoice was a material alteration in the parties' contract and was therefore unenforceable where the clause was ambiguous and defendant's consent could not be realistically inferred by its silence in the face of a succession of invoices containing the new term. the court affirmed the summary judgment because plaintiff's misreading of the contract was clear enough to have been determined without a trial. OVERVIEW: Plaintiff taxpayer corporation filed a diversity action against defendant customer corporation for breach of contract to recover sales tax it had paid on products it had sold to defendant. Plaintiff claimed that defendant had agreed to indemnify it for all sales tax liability. The district court granted defendant's motion for summary judgment. and held that there was no breach of contract because the indemnity clause on the back of the invoice materially altered the parties' contract and plaintiff taxpayer corporation could not infer consent to the alteration by defendant's silence. • OM had other suppliers so they could have chosen not to work with UCC if they had not lowered the taxes. EXAM TIP!! Most go right to what they see as the controlling provision – this is the wrong method. Very influential work / movement in legal field. • This is a battle of the forms case? Difference between UCC forms and OM forms. 1.

which deals with conduct that shows agreement. Notes: • District court held that the shrink-wrap license was not enforceable because the terms do not appear on the outside of the package. its terms afforded the purchaser an opportunity to review the product and its terms before being bound. • A theory that is proposed here is that both the consumer and the company benefit by enforcement here since it allows them to sell a consumer version and a commercial version and the consumer can thus buy it less expensively. OUTCOME: The court reversed the denial of the injunction since under ordinary contract principles. The trial court denied the injunction. but chose to ignore the license restricting its use to non-commercial purposes. While the terms of the license were included within the package. Judge also rests on common law in contracts instead of the UCC. appellant's license was binding because appellee had the opportunity to review its terms before being bound. Seeking to enforce the license. • This decision is inconsistent with the prior decision in case above.These cases raise the issue of if a party can be said to have assented to terms that they could not examine until some time after a purchase was made… ProCD v. Since the license agreement was a two-party contract. it was not equivalent to the rights of copyright. In this case. On appeal. appellant filed for an injunction. you did not buy a CD. Appellant also chose to discriminate in its pricing of the software between commercial and non-commercial users. you bought data. OVERVIEW: Appellant included a shrink-wrap license in its packaged software. Zeidenberg (p 473) (A shrink-wrap license case…) PROCEDURAL POSTURE: Appellant sought review of the order of the United States District Court for the Western District of Wisconsin. This is overruled because the court felt that Zeidenberg had the opportunity to review the license (in fact he had to once running the software) and he could have decided not to keep the software. judge says 2-207 is irrelevant and rests on 2-204. Prof asks if the UCC even applies in the sense that perhaps this is not a “good” and more of an intellectual property? In other words. the court held that the license was to be treated as an ordinary contract accompanying the sale of products. • Perhaps what you can take away from this series of three cases is that the UCC is not all you can rest on when looking at these types of commercial transactions. Appellee purchased a consumer package of the software. Contract Notes Page 38 of 124 . holding that the license was ineffectual because the terms did not appear on the outside of the package. which declined to issue appellant an injunction on the basis that its license was ineffectual since it was contained within packaged software. • Discussion of how UCC 2-606 applies with acceptance of goods.

They had the computer for 30 days and could have returned it if they did not wish to agree to the arbitration clause… PROCEDURAL POSTURE: Appellant suppliers sought review of an order of the United States District Court for the Northern District of Illinois. Moreover. concluded that they were bound by the arbitration clause. regardless of whether that provision was prominently displayed or the customers were aware of its existence. 9 U. • Discussion of who the arbitration clause benefits. The trial court denied their motion. an arbitration agreement was enforceable save upon such grounds as existed at law or in equity for the revocation of a contract. Gateway 2000 (p 479) Arbitration Clause w sale of computer upheld… Summary: In essence. that provision of the FAA was inconsistent was any requirement that an arbitration clause be afforded prominence. ß 2. which denied the suppliers' motion to compel arbitration. which denied their motion to enforce the arbitration clause contained in the items they shipped to appellee customers because it found that the record was insufficient to find that the customers were given adequate notice of the arbitration clause. which alleged various claims. The trial court was directed to compel arbitration. Contract Notes Page 39 of 124 . Dissatisfied with its performance. computer purchasers sought to sue computer manufacturer on a number of grounds but the literature in the box with the computer indicated that there was an arbitration clause if there was any disagreement.S. they filed an action against the suppliers.C.Hill v. which was vacated and remanded. as there was only 1 form – no battle of the forms. • The lower court did not want to uphold the agreement under the idea that the purchasers were not given adequate notice of the arbitration clause. Said UCC not applicable. OUTCOME: The court vacated the trial court's order. They appealed that decision. the court stated that a contract did not have to be read in order for it to become effective and that the terms inside a box of software were binding on a consumer who subsequently used it. therefore. Under a provision of the FAA.S. because the customers were bound by the arbitration clause contained in the materials shipped to and accepted by them. OVERVIEW: The customers ordered a computer from the suppliers. The court found that rationale was also appropriate to the customers and. P’s used various strategies to suggest that the arbitration agreement was not enforceable but the court on appeal rejected them and enforced the agreement. The suppliers sought enforcement of the arbitration agreement contained in the materials they shipped to the customers. Easterbrook suggests that the consumer does benefit because they get a lower price and lots of free software. Furthermore. Notes: • Another Easterbrook case.

Lastly. ○ Wants to distinguish ProCD because box in ProCD case hinted at license agreement inside where computer box did not. the court denied plaintiff's motion to certify a class because plaintiff was appearing pro se. plaintiff failed to satisfy the diversity jurisdictional amount. motion for verification. Klocek v. a motion for writ of certiorari. defendant computer manufacturer filed a motion to dismiss. defendant's motion was procedurally defective. as it did not address the choice of law issue. Among the plaintiff's four motions was a motion to certify a class. Plaintiff's motions were denied in their entirety. Court on review relies on ProCD and Carnival Cruise as precedent that they could be bound. all of which were rejected: ○ Wanted to limit the holding from ProCD to software ○ Wanted to limit the holding from ProCD to Executory contracts and to licenses in particular – they say the contract was complete when the box arrived at their home. as it was not certain that plaintiff agreed to arbitration. Contract Notes Page 40 of 124 . which it mailed inside its computer box for plaintiff's later perusal. Alternatively. and a motion for sanctions. defendant scanner manufacturer filed a motion to dismiss or in the alternative for stay of proceedings. the court held that the motion was procedurally defective. and plaintiff pro se filed a motion to certify a class. as plaintiff failed to allege minimum jurisdictional amount for diversity jurisdiction purposes. Court rejects. Alternatively. OUTCOME: Defendant computer manufacturer's motion to dismiss denied. and thus. ○ Wants to distinguish ProCD to merchants only. Court rejects this also. Defendant scanner manufacturer's motion to dismiss granted. The scanner manufacturer argued that plaintiff failed to allege the minimum amount in controversy for diversity jurisdiction. The court held that the computer manufacturer had not provided evidence sufficient to support a finding that plaintiff agreed to the arbitration provision contained in its standard terms.• • • P’s claim they did not really read it closely. The computer manufacturer argued that the case should be dismissed because plaintiff had agreed to arbitrate any disputes. P’s had several arguments. The scanner manufacturer's motion to dismiss was granted. was not an adequate representative. as a warranty is a part of continuing performance. Defendants each filed a motion to dismiss. OVERVIEW: Plaintiff pro se brought suit against computer manufacturer and scanner manufacturer on claims arising from purchases of a computer and a scanner. Gateway (p 483) (same situation with Gateway again and an arbitration clause but this time the court analyzes it very differently and finds that the consumer is NOT bound) PROCEDURAL POSTURE: In a suit arising from the sale of defendant manufacturer's computer and co-defendant manufacturer's sale of scanner to plaintiff.

you may assume that there was some disagreement in that area and perhaps the court needs to assist. So. • Perhaps there are 3 ways to analyze these cases – consumer beware and read the print. consumer should not be held to terms that they did not agree to under UCC. ○ Idea of on going relationships as opposed to spot transactions. • Only 5 days this time! • One of the things we see here is that there seems to be an ability of the judges to choose to apply or not apply the statutory language. Course of dealing. ○ If there are areas where there are things unclear or divergences. (Implication of the parol evidence rule is that you should work with the document when you can and not even apply parol evidence) There are three possibilities: ○ One reason to start with the document is that the parties worked it out and knew themselves and their own situation better then anyone so we should leave it alone. and perhaps a 3rd is a fairness analysis under the Carnival framework for a contract of adhesion. The document itself. Course of performance. Chapter 6 – Written Manifestations of Assent A. To answer this question. Interpreting a Writing – The Parol Evidence Rule Questions in these cases is if we can introduce outside evidence to change / supplement / explain. if the contingency came up they gambled that the court would work it out. • Court finds that there is no finding by Gateway that the purchasers assented to be bound by the terms or that the terms were a mandatory condition of the sale. Trade custom. Gives example of economic loss rule with the condo case in which Supreme Court did not allow tort action because there was a contract in place that should have controlled. etc a written contract….. • • • • • Contract Notes Page 41 of 124 . On-going relationships give parties some predictability which is more efficient.Notes: • Here the court says that UCC does apply (2-207) and that it is not necessary for a battle of the forms to exist to apply the provisions. we must ask – what else we must work with? • • Are there statutes? Are they binding or default rules? (Remember UCC is default) What about common law? May or may not control depending on circumstances.

and the trial court admitted oral testimony to prove the verbal warranty over the vendor's objection that such testimony was incompetent to prove a verbal warranty. it was conclusively presumed that the whole engagement of the parties. • One of the core issues in contracts is that the real problems come up in contracts that take place over time (even if a short time) and are not spot transactions. the court reversed the trial court's order. could be added by parol evidence. and the manner and extent of the undertaking. as the contract appeared complete on its face. no new term. OVERVIEW: The vendor brought an action to recover the purchase money from the purchaser. Because the parties deliberately put their engagements into writing in such terms as to create a legal obligation. holding that it erred in admitting parol evidence of a warranty. which refused a new trial in his action against defendant purchaser for the purchase money. forming a mere incident to or part of the contract of sale.Thompson v. Why? Perhaps because things change over time and this creates issues with enforcing the contract. The purchaser pleaded that the vendor had breached a warranty of the quality of the logs. The court below allowed the parol evidence and the P appeals. Furthermore. after admitting evidence of a breach of a verbal warranty alleged to have been made at the time of the sale over the vendor's objection. Libbey (p 488) (P is selling logs to D. General rule: Parol contemporaneous evidence was inadmissible to contradict or vary the terms of a valid written instrument.) Facts: Seller/Plaintiff was selling logs to the D. They had a written agreement. Notes: • Professor says the critical nature of the American flavored contract is that – it is written down. because the contract of sale was in writing. PROCEDURAL POSTURE: Plaintiff vendor appealed from an order of the District Court for Dakota County (Minnesota). without any uncertainty as to the object or extent of such engagement. which refused the vendor a new trial in his action against the purchaser to recover the purchase money. D claims a verbal warranty was given. Parol evidence not allowed. The D later claimed that there was a verbal warranty given that was not in the written agreement. That is one reason this chapter is so significant. was reduced to writing. Contract Notes Page 42 of 124 . OUTCOME: The court reversed the trial court's order. There was nothing on its face to indicate that the contract was a mere informal and incomplete memorandum. Upon the vendor's appeal. • Prof asks if this case and the following case are inconsistent? They seem to be – one disallows parol evidence and the second allows it? • Would the UCC have made the case come out differently? UCC sometimes applied warranties even when none are expressed. On appeal the court concluded that the court below should not have allowed the parol evidence since the written agreement seemed to be complete.

We are concerned with the ones that are. the trial court admitted evidence concerning the parties' intent to limit the contract to the single subject of land. At trial. OVERVIEW: The purchaser (P) bought land on which stood a hotel operated by a tenant. and that the parol evidence rule did not apply. that it related to land only. Two different areas of law. which entered judgment in favor of plaintiff purchaser in the purchaser's replevin action to obtain possession of hotel furniture. This is why the judge could make a determination. (2) The trial court's conclusion that the contract was intended to cover but one subject was sound. Could not be about both unless the document specifically addresses it this way and here it does not. • Perhaps one distinction is that the land is property and furniture are goods. and. parol evidence on the question of intent was properly received for the information of the trial court. 1. the trial court was authorized to permit parol proof as to what the sale embraced. possession of which was surrendered to the purchaser with the hotel. the court held that: (1) The contract by itself did not conclusively establish whether the parties intended to exclude every subject of sale except land. He was very influential in this area. and (3) Once the trial court determined that the contract was complete. you are out of luck. as well as evidence that the sale of the hotel included the furniture.Brown v. The contract of sale made no mention of the hotel furniture owned by the seller (D). He suggests a number of ideas that apply when a contract may not have included all the parts of the transaction. Did the writing address the issue at all? And 2. He gives ways that you can analyze it. OUTCOME: The court affirmed the trial court's judgment Notes: • Prof agrees that the two judges in these two cases would clearly come out differently. Was the writing meant to be definitive? If so and did not include. The seller subsequently removed the furniture from the hotel. If it is not meant to be definitive. Real prop and personal prop are different. • Is there a justification for why the cases are different and is one right and one wrong? • Wigmore is discussed and his theories on evidence. Professor begins talking about contracts in general this morning – not all agreements will be enforceable. Contract Notes Page 43 of 124 . On appeal from a judgment in favor of the purchaser. Oliver (p 489) (Purchaser of hotel claims that parol evidence can show that furniture was agreed upon to be included in the sale although the agreement does not mention it and is for land sale only) PROCEDURAL POSTURE: Defendant seller appealed from a decision of the Mitchell District Court (Kansas). thus. and the purchaser filed a replevin action. things are not resolved and you have to look to outside evidence.

Says the third resource is to look to the law – i. trade custom. Remember that the UCC provides default rules when parties were not clear so they may not ever apply if the parties were explicit and clear. we might also look at plain and simple economics of the deal. Are there any legal expectations in the background? (There is no real “hierarchy” here of importance but if you can see conflicts it gives you rich material to write an excellent exam answer…) Restatement (Second) of Contracts §209 INTEGRATED AGREEMENTS (1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement. it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression. Do we know anything about trade practice or custom? 3. etc. There is an argument that the UCC is there because we expect that contracts will have problems and need the involvement of the law to address. Independent of the things mentioned so far. Sometimes this may help you make a determination of what is sensible in addressing the conflict. What do I know about the deal and how it was meant to happen? 2. we are simply looking at how the law would address the issue. (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule. economics. (2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement.• • • • • • • One element to look at is the party’s intentions but that does not work well because the parties may not have considered the issue that is now in controversy at the time of making the contract. On an exam – ask three things. §210 COMPLETELY AND PARTIALLY INTEGRATED AGREEMENTS (1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.. Contract Notes Page 44 of 124 . 1. (3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement. However.e. (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule. How do businesses in this trade usually handle things? If none of the above work. what does the law expect in the situation? Here we are not talking about intent of parties. you can also look at background information to lend further insight into what the parties were trying to do. you also have trade custom / industry practice to look at and this sometimes also sheds light.

and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement .§213 EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS (PAROL EVIDENCE RULE) (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. Sales Contracts: The UCC Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior 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 (Section 2-208). Was it standard meaning or should external evidence be allowed to show it might have had another meaning? PROCEDURAL POSTURE: Defendant contractor appealed from a judgment of the Superior Court of the City and County of San Francisco (California). (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration. Pacific Gas & Electric Co v. G W Thomas Drayage & Rigging (p 494) (Question of what the indemnity clause in the contract was meant to cover. regardless Contract Notes Page 45 of 124 § 2-202 FINAL WRITTEN EXPRESSION: PAROL OR EXTRINSIC EVIDENCE . or (b) such a term as in the circumstances might naturally be omitted from the writing. holding that an indemnity clause covered damages to all property. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. (3) §214 §216 CONSISTENT ADDITIONAL TERMS (1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. So – one question to ask is if the agreement is intended to be a complete and exclusive agreement. I it the last word? If so – no parole evidence problem.

Modernized the California Supreme Court. OUTCOME: The court reversed the judgment. should not be modified by parol evidence – the terms must first be determined (by parol evidence) before you can determine if the parol evidence is being offered for a prohibited purpose. The court reversed the judgment. He seems to feel that you have to allow evidence of the meaning of the words even when they may appear to be plain and clear." This term is most commonly used to describe a decision or act that a judge decides upon without having been asked by either party. holding that looking only at the plain meaning of contractual language ignored the possibility that the parties had contrary intentions. Connecticut General Life Insurance Co. • Ask yourself – does Traynor REALLY destroy the parol evidence rule in this case? Prof feels not really and Kozinski exaggerates the impact. • Turns out this is a very important case in that it is later cited as holding that no matter how clear the K. in plaintiff utility company's action to recover damages to property under the indemnity clause. Relying on the plain meaning of the contract language. Trident Center v. promising to indemnify plaintiff for all property damage. PROCEDURAL POSTURE: Plaintiff appealed a decision from the United States District Court for the Central District of California that dismissed plaintiff's complaint and. It is this broad holding that comes into play in the very next case below. Here the K appears complete and clear but CA law still allows parol evidence to be introduced. • Traynor here is saying that parol evidence must be allowed because otherwise the judge’s linguistic interpretation of the plain meaning will be the only one and it may not always be correct. OVERVIEW: Defendant contractor appealed from a judgment for plaintiff utility company in an action to collect damages under an indemnity clause of a contract. This view is vehemently disagreed with in the following case…. Defendant argued that the parties intended that defendant would indemnify plaintiff only for damage to the property of third parties.). if clear. sua sponte (Latin for "on its own will or motion. (p 497) Another case about the parol evidence rule. Defendant contracted to repair plaintiff's steam turbine. • What is Traynor’s approach? That even though the essential terms. in California. holding that parol evidence was admissible to ascertain the true intent of the contractual parties even where the writing seemed clear and unambiguous Notes: • Opinion written by Roger Traynor – very important judge who was very influential. Defendant appealed. sanctioned plaintiff for the filing of a frivolous lawsuit. The court therefore held that parol evidence was admissible to ascertain the true intent of the contractual parties even where the writing seemed clear and unambiguous. parol evidence will be allowed to evaluate how clear the K really is. the trial court concluded that defendant was liable. Contract Notes Page 46 of 124 .of ownership. The turbine was damaged during repairs.

that plaintiff had an option of prepaying a loan if only it was willing to incur the prepayment fee. 10 years certain. the lower court should have granted it an opportunity to prove that the contract language did not accurately reflect the parties' intentions. even seemingly unambiguous contracts were subject to modification by parol or extrinsic evidence. the chancellor allowed reformation of the annuity provisions of a life insurance policy on the basis of mistake. the correct descriptive information was inserted on the wrong policy form. A. the default clause would have swallowed the clause prohibiting plaintiff from prepaying. Bailey (p 507) (Insurance policy is placed on the incorrect form resulting in incorrect written terms. Windsor County (Vermont). OVERVIEW: The insured submitted an application to an agent of the insurer for a life insurance policy. thus. The plan requested in the application was one insuring the defendant's life for $ 5000. argued plaintiff. Kozinski seems to feel that the parties themselves knew best what they intended. under California law. The court rejected the argument that the contract was ambiguous. He feels that Traynor did a very poor thing by setting a precedent that parol evidence should always be allowed. Issue here seems to be that there are some conflicting provisions in the K. Thus. with an annuity at age 65 for $ 500 a year for the balance of his life. PROCEDURAL POSTURE: Defendant insured appealed the decree of the Chancery Court. However. Whether to accelerate repayment of the loan in the event of default was entirely defendant's decision. extrinsic evidence was admissible. The court also reversed the award of sanctions Notes: • • • There is a conflict between what judge Kozinski feels in this opinion and what Judge Traynor wrote in the opinion preceding (above). REFORMING A WRITING – MISTAKES IN INTEGRATION (p 506) The Travelers Insurance Co. When the application was accepted and the policy prepared. v. The proffered interpretation would have resulted in a contradiction between two clauses of the contract. OUTCOME: The court reversed the judgment below and remanded the case for reinstatement of the complaint on the grounds that California did not follow the traditional rule that barred extrinsic evidence in the case of unambiguous integrated contracts. in favor of plaintiff insurance company. The printed portion of Contract Notes Page 47 of 124 .OVERVIEW: Plaintiff contended that the language of a contract was ambiguous and. Plaintiff also argued that under California law. court allows evidence of the mistake and allows for change of the written K).

but produced an annuity obligation to pay $ 500 a month for life. Here. REQUIRING A WRITING – THE STATUTE OF FRAUDS (p 509) If you are dealing with situation that does not include a writing – you must ask if it would be a statute of frauds issue… This section deals with the dual problems of under and over enforcement of contracts and how this has swung back and forth.e. reform the writing to express the agreement. If not. at one party’s request. and a subsequent erroneous rendition of the terms of the agreement in a material particular. it is only fair to allow the mistake to be corrected. the party penalized by the error was entitled to reformation. 100 months certain. to refuse to enforce a valid contract). Notes: • • • Party asking for the reformation has the duty to prove beyond a reasonable doubt the true agreement that was intended. Basically they are looking to see if the other party would have been harmed in some way as a result of the error. Restatement (Second) of Contracts §155 Where a written memorial fails to express the agreement because of a mistake of both parties as to its contents or effect. Court disagrees. WHEN MISTAKE OF BOTH PARTIES AS TO WRITTEN EXPRESSION JUSTIFIES REFORMATION C. to enforce a contract when there really was not one). despite negligence of the drafter. Contract Notes Page 48 of 124 . the party penalized by the error is entitled to reformation if there has been no prejudicial change of position by the other party while ignorant of the mistake. holding that where there had been established beyond a reasonable doubt a specific contractual agreement between parties. OUTCOME: The court affirmed the decree. the D claims that the change should not occur because the mistake was a result of the negligence and inattention of the plaintiff. Could basically holds that when it has been established beyond a reasonable doubt that the contract was in error on a material term. Over enforcement is the erroneous enforcement of an alleged exercise of assent that in fact never occurred (i. Here the insured was not prejudiced by the existence of the error.the form used yielded the correct life insurance contract. The court affirmed the grant of reformation. court may. expect to the extent that the rights of third parties may be unfairly affected. • Under enforcement is the failure of the legal system to enforce a legitimate • exercise of assent (i. if there had been no prejudicial change of position by the other party while ignorant of the mistake.e.

Coe (p 511) (P’s are promised a house to live in and other things if they move to TX to farm on the D’s land. (b) a contract for the sale of securities (Uniform Commercial Code ß 8-319). which was entered in favor of defendant lessor in the lessees' action for damages against the lessor regarding his alleged breach of a parol contract between the parties for the lease of his farm in Texas. (2) The following classes of contracts. to the extent of enforcement by way of action or defense beyond $ 5. THE STATUTE AND ITS EXCEPTIONS Boone v. (b) a contract to answer for the duty of another (the suretyship provision). forbidding enforcement unless there is a written memorandum or an applicable exception: (a) a contract of an executor or administrator to answer for a duty of his decedent (the executor administrator provision). (c) a contract for the sale of personal property not otherwise covered. the lessor would furnish them with a house and the necessary materials to live on and cultivate the lessor's farm Contract Notes Page 49 of 124 . They sue for damages but court finds it is not an enforceable contract. (e) a contract that is not to be performed within one year from the making thereof (the one-year provision). which were traditionally subject to the Statute of Frauds. 1. (3) In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party. are now governed by Statute of Frauds provisions of the Uniform Commercial Code: (a) a contract for the sale of goods for the price of $ 500 or more (Uniform Commercial Code ß 2-201). OVERVIEW: The parties' agreement provided that if the lessees would leave their homes and businesses in Kentucky. (c) a contract made upon consideration of marriage (the marriage provision). (5) In many states other classes of contracts are subject to a requirement of a writing. but that the statute does not alter the effect of any payment of principal or interest. (4) Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged.Restatement (Second) of Contracts §110 CLASSES OF CONTRACTS COVERED (1) The following classes of contracts are subject to a statute. (d) a contract for the sale of an interest in land (the land contract provision). The lessor's demurrer to the lessees' petition was sustained.000 in amount or value of remedy (Uniform Commercial Code ß 1-206). They do so and the D does not allow them to farm or to take possession of the house. commonly called the Statute of Frauds.) PROCEDURAL POSTURE: Plaintiff lessees sought review of a judgment from the Monroe Circuit Court (Kentucky). and the petition was dismissed.

commencing from the date the lessees arrived in Texas. (3) When a transfer of an interest in land has been made. has Contract Notes Page 50 of 124 ACTION IN RELIANCE. OUTCOME: The court affirmed the circuit court's judgment in favor of the lessor in the lessees' action against him to recover damages for the lessor's alleged breach of a parol contract between the parties for the lease of a farm. the agreement was unenforceable under the Kentucky statute of frauds and thus. but when they arrived in Texas. there was no implied obligation on the lessor's part to pay for such loss. (4) Statutes in most states except from the land contract and one-year provisions of the Statute of Frauds short-term leases and contracts to lease. irrespective of the person to whom the transfer is to be made. and the circuit court entered judgment in favor of the lessor. ceases to be within it unless the promised price is itself in whole or in part an interest in land. OR PAY FOR AN INTEREST IN LAND §129 A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement. and the court affirmed. The lessees brought an action for damages. if originally within the Statute of Frauds. The court determined that the lessees merely sustained a loss and that as the lessor received no benefit. the lessor failed to have the house and materials ready and refused to grant the lessees access to the farm. the lessor had the legal right to decline to carry it out. in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought. holding that because the lease was for a longer term than one year from the making thereof and was not in writing. a promise to pay the price. SPECIFIC PERFORMANCE . BUY. • This case hinged on the fact that the actions of the P did not convey any benefit to the D.in Texas for the period of one year. usually for a term not longer than one year. The lessees agreed. if you have to point to an agreement to get your argument before the court – if it is not in writing – the Statute of Frauds would apply. Restatement (Second) of Contracts (1) A promise to transfer to any person any interest in land is within the Statute of Frauds. §125 CONTRACT TO TRANSFER. Hutchinson was against the weight of authority and was thus overruled. The court concluded that a contrary rule espoused in McDaniel v. (2) A promise to buy any interest in land is within the Statute of Frauds. they are trying to recover damages – Prof asks – should this not take it out of the statute of frauds? • Why is this not a promissory estoppel case? • Court is saying that even of you are not arguing breach of contract. The lessees appealed. Notes: • The plaintiffs are not trying to enforce the lease.

20 Ala.so changed his position that injustice can be avoided only by specific enforcement. in action for breach of an oral contract under Alabama law. Defendant denied that it entered into a five-year contract and argued that. The court held that plaintiff was not entitled to recover for breach of the executory portion of the contract. Notes: • Riley feels he has a 5-year deal. plaintiff's claim was barred by the statute of frauds. Capital Airlines. §130 (1) Where any promise in a contract cannot be fully performed within a year from the time the contract is made. Plaintiff contended that he was given a five-year contract to supply water methanol to defendant for use in turbo-prop jet aircraft. alleged that defendant airline breached a five-year contract to supply water methanol to defendant for use in turbo-prop jet aircraft. OUTCOME: The court held that plaintiff was not entitled to recover for breach of the executory portion of its contract with defendant. In its conclusions of law. • Discussion of the idea of restitution and unjust enrichment. Airline says they are treating it as a series of spot transactions. there WAS a benefit to the D based on the purchase of the equipment by the P. Riley v. the one-year provision of the Statute does not prevent enforcement of the promises of other parties. • Prof asks why in this case he is able to recover his expenses for setting up the equipment. OVERVIEW: Plaintiff proprietorship sued defendant airline for breach of an alleged oral contract. but the executory portion of the fiveyear contract fell within the statute of frauds and was unenforceable. In essence there is an implied obligation to compensate when someone benefits from what the other party has done. but was entitled to compensation for losses incurred in purchasing equipment to perform the contract. CONTRACT NOT TO BE PERFORMED WITHIN A YEAR Contract Notes Page 51 of 124 . but was entitled to compensation for losses incurred in purchasing equipment to perform the contract. Code ß 3. the court held that each delivery under the oral contract fell outside the statute of frauds and was enforceable. (2) When one party to a contract has completed his performance. all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance. How is this different from the prior case? – In this case. even when there is no formal contract to enforce… perhaps in some cases. (p 515) PROCEDURAL POSTURE: Plaintiff. Inc. the courts may be willing to enforce. if there was a contract. when you can show unjust enrichment.

the following circumstances are significant: (a) the availability and adequacy of other remedies. it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (d) the reasonableness of the action or forbearance. testimony or otherwise in court that a contract for sale was made.Sales Contracts: The UCC § 2-201 1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise. (b) the definite and substantial character of the action or forbearance in relation to the remedy sought. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. or the making and terms are otherwise established by clear and convincing evidence. The remedy granted for breach is to be limited as justice requires. (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents. or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. particularly cancellation and restitution. or (b) if the party against whom enforcement is sought admits in his pleading. 2-606). (2) In determining whether injustice can be avoided only by enforcement of the promise. before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer. STATUTE OF FRAUDS §139 ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. Contract Notes Page 52 of 124 . Restatement (Second) of Contracts FORMAL REQUIREMENTS. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller. but the contract is not enforceable under this provision beyond the quantity of goods admitted. has made either a substantial beginning of their manufacture or commitments for their procurement.

Acts undertaken in contemplation of eventual performance of the contract did not constitute part performance to remove the operation of the statute of frauds. There was no writing. • Could the court have identified the terms and price from the writings that did exist? Yes. The buyers appealed the grant of summary judgment and the refusal to alter or amend the judgment. §143 The Statute of Frauds does not make an unenforceable contract inadmissible in evidence for any purpose other than its enforcement in violation of the Statute. the sellers were not estopped to deny the validity of the contract.(e) the extent to which the action or forbearance was foreseeable by the promisor. which took it out of the statute of frauds. which granted appellee sellers motion for summary judgment in an action brought by the buyers to obtain either specific performance of an alleged contract with the sellers for the sale of land. a lawful object. or damages for breach of such contract. There was no evidence that any consideration moved from the buyers to the sellers. SATISFYING THE REQUIREMENTS OF A WRITING Schwedes v. therefore. The deal was in process verbally with some actions being taken on both sides but no payment being made and no consideration given. and consideration. enforceable contract and they could not obtain specific performance. A mere oral promise to pay was not sufficient consideration to support a contractual obligation. or note binding the buyers. enforceable contract for the sale of the land and that they were entitled to specific performance because they had partially performed the contract. OVERVIEW: The buyers claimed that there was a valid. promissory estoppel was inapplicable. The court affirmed the grant of summary judgment to the sellers. Romain (p 520) P were attempting to buy property from D’s. OUTCOME: The order granting summary judgment was affirmed Notes: • What do we learn from this case? What does it add? • The problem in this case is not that there were no writings because there were. their consent. Not a pure statute of frauds case as a result. It is not as easy to enforce a very complex transaction? Contract Notes Page 53 of 124 . There was no evidence upon which the buyers could establish a valid. UNENFORCEABLE CONTRACT AS EVIDENCE 1. PROCEDURAL POSTURE: Appellant buyers sought review of an order of the District Court of Flathead County (Montana). Sellers sell to someone else and first buyers sue. Court says no contract. • Prof says to remember that again. memorandum. clearly they could have. this is not a spot transaction so it is a complex transaction. Where a case was clearly within the statute of frauds. The four essential elements of a contract were legally capable parties.

they might be bound. They consider it an oral promise to pay with no consideration. What do you make of the conduct of the lawyer and realtor? In many ways this case is more about the actions of the intermediaries. Discussion of principle / agent in agency law. PROCEDURAL POSTURE: Plaintiff brought an action for specific performance by a soft drink corporation to enforce an alleged contract to sell plaintiff a jet as advertised in a commercial. Court considers it an oral agreement missing the required elements for an enforceable contract. Defendant filed a motion for summary judgment. seller. Should the buyers consider them trusted intermediaries? Apparently not. The buyers don’t send the $ based on the attorneys advice and the sellers then sell to someone else for more money. Contract Notes Page 54 of 124 . If you consider this. lawyer. ○ Conflict of interest? The atty was hired by the realtors but were assisting the buyers. buyer.• • • • • • • • • • Could you consider it tortious interference? An agreement to agree? Agreement that is complete all but for tiny details and we enforce it. Who did the realtors work for? Seemed to be several conflicts of interest. Court says promissory estoppel does not apply here. the Schwedes might not have been reasonable to think that he was representing their interests. wouldn’t that imply they have the authority to act as your agent? Ask Prof. Realtor. P’s claim there was partial performance on both seller and buyer side but court rejects this argument and calls them acts in contemplation of eventual performance. Here the deal was in process with the sellers hiring an attorney to help with the transaction. Here is seems more like an agreement to agree. Prof says this is a dangerous case to have in our book – it is really a four party deal. Issue is always if the agent can bind the principle. PepsiCo (again) (p 524) This is the PepsiCo / jet case again and this time the court does an analysis under the NY statute of frauds and says there is no writing to support a binding contract. Says that you can’t just look at this as a contract case. as the case would fall within the statue of frauds. ○ Leonard v. Or…. In agency law the crucial question often is – what is the scope of the authority of the agent? Another related concept is parent authority where we look at the situation from the perspective of a 3rd party. There was no deposit. What about consideration? Does it exist in this case? Court says no. Court says 4 elements of K are: ○ Legally capable parties ○ Consent ○ Lawful object ○ Consideration Real estate deals are different – ordinary contract rules don’t always apply. Attorney had no power to bind sellers? Why? If you hire an atty. If the Schwedes reasonably thought the atty was acting on behalf of the seller. Nothing in writing to make it binding on the seller.

a reasonable person could tell that no offer was intended and the alleged contract was void because it was for goods in excess of $ 500. • P was trying to assert that the order form made the transaction valid. OUTCOME: The court granted summary judgment in favor of defendant. Plaintiff then sued for breach of contract.2 Contract Notes Page 55 of 124 SCOPE OF REPRESENTATION . The ad stated that one could accumulate "points" by purchasing its products and exchange them for merchandise with the product logo on it. ○ Undersigned writing must on its face refer to the same transaction as that set forth in the one that was signed. a high school aged student was shown landing a Harrier Jet at school with a subtitle that indicated the cost of the jet was 7. The court stated that advertisements were not contracts or offers to sell. Defendant filed a motion for summary judgment. none of which was met here. At the end of the ad. The terms of the promotion indicated that additional points could be purchased for ten cents.000 points.000. Court says there is no writing that shows a transaction. Defendant refused and sent a letter to plaintiff explaining that the jet was not an item for purchase and referred him to the promotional brochure for the rules. but rather invitations to negotiate. with the assistance of several friends.00 and not in writing Notes: • Here we are looking at it from a statute of frauds perspective. accumulated enough money to "buy" the Harrier Jet and sent a check to the defendant. • Court cites to a case in which gives two threshold tests for a valid writing. The court found that no contract existed between the parties because under an objective standard. demanding the jet. The court noted that offers made in jest were not contracts where a reasonable person could see that no serious offer was intended. The court granted the motion.OVERVIEW: Plaintiff saw an advertisement for a promotion that defendant soft drink corporation was sponsoring for its products. ○ Signed writing relied on must by itself establish a contractual relationship between the parties (here court says commercial is not a writing and the order form does not have D’s signature). Restatement (Second) of Contracts §131 GENERAL REQUIREMENTS OF A MEMORANDUM §133 MEMORANDUM NOT MADE AS SUCH Discussion of American Bar Association Model Rules of Professional Conduct (2002) (p 526) RULE 1. Plaintiff.

OUTCOME: Additional arguments rejected because defendant corporation's license agreement was a written agreement. and the agreement was not unconscionable. PROCEDURAL POSTURE: Intervenor filed additional arguments in support of plaintiff class' opposition to the arbitration clause contained in defendant corporation's licensing agreement in plaintiffs' action alleging trespass to property and privacy. that the arbitration clause should be read narrowly to preclude enforcement in plaintiffs' action. Intervenor filed additional arguments in support of plaintiffs' opposition to arbitration. Also claimed it could not be printed or saved. SATISFYING THE REQUIREMENT OF A SIGNATURE Contract Notes Page 56 of 124 . Court rejects this argument. holding that defendant's license agreement was a written agreement.1 RULE 4.should this argue against using the FAA and simply assuming the FAA would apply? 1. Court disagrees and enforces. that even a narrow reading of the agreement did not preclude enforcement. Notes: • P is upset over spyware. It was another “Click to agree” electronic forms that came with downloading software. Defendant moved to stay and enforce arbitration under the arbitration clause contained in its licensing agreement. and that the arbitration provision was unenforceable because it was unconscionable. P’s contended that since the statute required writing and this was electronic – it was not enforceable.RULE 1. claiming that the license agreement did not constitute a writing. P claims that it is not enforceable because the FAA requires a “writing” and here it is all electronic. even a narrow reading of the agreement did not preclude enforcement of arbitration regarding plaintiff class' action.6 CONFIDENTIALLY OF INFORMATION RULE 1. The court rejected intervenor's additional arguments. OVERVIEW: Plaintiff class brought an action against defendant corporation alleging trespass to property and privacy regarding plaintiffs use of defendant's computer network.3 TRUTHFULNESS IN STATEMENTS TO OTHERS DEALING WITH UNREPRESENTED PERSON In re REALNETWORKS (p 530) Here we are dealing with if the court should find an arbitration and forum selection clause enforceable. • There is a statutory construction issue here – since the FAA existed before the prevalence of electronic signatures and agreements . They want to sue but there is a forum selection clause and an arbitration agreement.16 DECLINING OR TERMINATING REPRESENTATION RULE 4. The court ordered arbitration pursuant to the arbitration clause. and the agreement was not unconscionable.

The purchaser did not object within 10 days after the seller sent an acknowledgement of the oral modification. (p 533) PROCEDURAL POSTURE: Plaintiff seller appealed an order of the United States District Court for the Northern District of Illinois. the seller manufactured a great many packets of powder in advance of receiving formal purchase orders from the purchaser. Although purchase orders could not be modified without the purchaser's written consent. • Here the key issue seems to be another “writing” issue and if emails qualify as writings under the statute of frauds. it would so advise the seller. Prof asks §101 General Rule of Validity if these would help or Uniform Electronic Transactions Act (1999) change §9 Attribution and Effect of Electronic Record and Electronic Signature anything Uniform Computer Information Act (2001) in Cloud? § Determining Attribution Contract Notes Page 57 of 124 E-SIGN ACT (p 537) . Mistakenly believing that the purchaser's market was expanding. OVERVIEW: The purchaser acquired a powder made by the seller for use in a toy sold by the purchaser. emails and other correspondence between the seller and the purchaser indicated that the purchaser wanted an increased quantity. In other words. which entered judgment after a bench trial in favor of defendant purchaser in an action for breach of contract. Hasbro. the seller was reasonable in believing that if the purchaser did not want to be committed to buying the additional quantity. The purchaser's statute of frauds defense failed. Could set their own standard higher than the UCC default rules. and in any event. thereby waiving the requirement that modifications be in writing. Inc. v. the seller sued the purchaser. OUTCOME: The court reversed the judgment for the purchaser and remanded for a calculation of the seller's damages Notes: • Another Posner case.Cloud Corp. the written agreement itself may spell out “no parole evidence” or such. The court held that there was a valid modification of the quantity specifications in purchase orders submitted by the purchaser. The purchaser refused to accept delivery of these excess packets or to pay for them. Contending that this refusal was a breach of contract. • Here the emails were sent before the Act came into being so could we consider the electronic writings to be enough? • Judge also discusses the idea that you could have a contractual statute of frauds provision. Eastern Division. • Prof starts comparing Schwedes vs this case.

(p 541) Insurance company won’t pay claim. TRANSFERRING RIGHTS OR DUTIES TO THIRD PARTIES Standard contract thinking involved two parties but now we address multiparty contract issues. Discussion of problem of agency. If you have a contractual relationship between A and B. to dispossess himself of an identified interest. If the transfer is less than absolute. PROCEDURAL POSTURE: Plaintiff health care facility sought review of a decision of the Circuit Court of the City of Richmond (Virginia). An assignment is a transfer. and to vest indefeasible title in the transferee. Therefore. 1. the obligee must have intended. then pursued its claim against the insurer on the theory that the insurer was the insured's assignee. each was revocable. The Prudential Insurance Co. or some part thereof. how does C come in? One way to think of this is based on Roman slavery. which granted defendant insurer's motion for summary judgment in a suit to recover the amount of the insured's medical bills. so neither was an assignment. the health care facility relied upon two documents drafted by the insurer and signed by the insured that authorized the insurer to make payments on the insured's behalf. but a transfer is not necessarily an assignment. the documents appointed the insurer as the agent and granted it authority in the nature of a power of attorney to make such payments. The reviewing court upheld the grant of summary judgment. the health care facility could not bring the instant suit. Master/servant concept. Assignment of Contractual Rights Kelly Health Care v. The person acting as the agent becomes subject to the will of the original agent. it is not an assignment. at the time of the transfer. Two key concepts: • Assignment of rights – obligee’s transfer of a contract right • Delegation of duties – empowering another to perform the duty • Can also be a full transfer of contract that includes both of the above. As proof of assignment. This was a concept offered by Holmes which was rejected by others due to its use of the slavery analogy. Contract Notes Page 58 of 124 . Here. How does one person become responsible or acts in the place of another. OVERVIEW: The health care facility first earned a default judgment against the insured.CHAPTER 7 – MULTIPARTY TRANSACTIONS A. As such.

• Spouse gets ill. • Difference between an assignment and agency is that an agency is dealing with people and an assignment is dealing with • Could we simply assign the benefits to Kelly as a one-time transaction? • We are dealing with a drafting problem – are their “magic” words that you can use to resolve? Restatement (Second) of Contracts ß 317 Assignment of a Right (1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance. • Prof asks if this is a failure of lawyering. (2) A contractual right can be assigned unless (a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor. • Issue here is agency is revocable. or materially reduce its value to him. or (b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy. In re Nance (p 544) Contract Notes Page 59 of 124 .e. • Kelly relies on standard forms that require the patient to pay anything that their insurance company does not pay. which designates Kelly to get payments directly from the insurance company.OUTCOME: The judgment was affirmed. • They seem to rely on the second document. needs health care from Kelly Health Care. This is a basic agency agreement. If they pay Kelly. I.. Kelly acts as agent for patient to collect the insurance payments. or materially increase the burden or risk imposed on him by his contract. or materially impair his chance of obtaining return performance. or (c) assignment is validly precluded by contract. • Insurance Co refuses to pay. They were trying to authorize the insur company to pay the healthcare provider directly – not to assign all the rights of the insured to the healthcare company…. the patient could come back and also require payment. It is a contract of adhesion that is supposed to have worked for the benefit of both Kelly and Green. Notes: • Need to look at Restatement 317 for this case. A transfer is not an assignment – it is something less. They are concerned that they will have to pay twice. • Could we have just called the form an assignment of benefits? • The court held that it was an authorization rather then a assignment.

Contract Notes Page 60 of 124 . OUTCOME: The court reversed the district court's decision. It was found on appeal that the assignment was for wages already earned and thus the back did have a valid assignment. the court held that the demand note. even if it had. Laws Ann. The court also held that the bankrupt's retention of the funds unreasonable and done deliberately and intentionally in knowing disregard of the rights of the bank.PROCEDURAL POSTURE: A bankruptcy judge determined that appellee bankrupt had converted property of appellant bank and that the debt was non-dischargeable under ß 17(a)(2) of the Bankruptcy Act. ch. 154. Question we are asking is: can this be done? First thing we spoke about was assignment. Laws Ann. ß 3. ch. Our ordinary assumption is that we have A and B and they have mutual responsibilities and obligations to one another. We learned we pay attention to form and language. expressly listed the trust instrument as collateral security. The bank filed an appeal. standing alone. his actions did not amount to a willful and malicious conversion. Now… a 3rd party (C) enters the picture and one or the other wants to introduce the 3rd party into the arrangement. • The banks lawyers find a way to circumvent the statute so that they could be paid. which consolidated all prior indebtedness into one instrument. Another discussion of a contract. • At the end of the day – the bank wins. OVERVIEW: The bank argued that the district court erred in ruling that the bankrupt's assignment of his claim to deferred income was invalid for failing to comply with the conditions set forth in Mass. The United States District Court for the District of Massachusetts held that the debt was dischargeable because the assignment of deferred income was invalid under Mass. The court found that the exemption from assignment in ß 3 of wages to be earned in the future did not apply to income the bankrupt had already earned but the receipt of which has been postponed past the usual payment cycle. Notes: • He could not have assigned future earnings under the statute. An assignment is not accomplished except under specific circumstances.S.S.C. Gen. and that. ß 35(a)(2). The bank got an assignment but it was not a valid assignment – or at least this was the arguent. codified at 11 U. ß 3. The court found that the assignment of contract was plainly invalid as an assignment for future wages and that the trust instrument. The bankrupt alleged that the debt was dischargeable because the bank never received an assignment from him. Therefore the transfer of these rights is judged as a transfer of property rights. Gen. could not be construed as an assignment. You label something as property because you want to have control and have rights to it. However. 154. Assignment makes us think of property – contract rights = property rights.

Must really look like property or a commodity. Perhaps we think that it is the substance of the deal that matters? If this is how we feel. Delegation is treated differently. If we think of K’s as long-term relationships. Delegation of Contractual Duties Now moving from assignment of rights to delegation of duties. Eastern Division. Delegation of duty is more like passing a contagious disease – you have passed it on but not gotten rid of it yourself. Sally Beauty Co. Best is then bought out by Sally Beauty and Nexxus cancels the K. the person originally bound will remain subject to that duty (a) unless that person is released by the other party or (b) until the duty is discharged by rendering of performance. v. an assignment of a right to payment expected to arise out of an existing employment or other continuing business relationship is effective in the same way as an assignment of an existing right. why not assign rights. How do we resolve the tension? You have to pay very close attention to how you do the assignment. So… even after a delegation is made. the substance of the deal may be more relevant then the relationship between parties. Nexxus is claiming that the K was not assignable. So… what about delegation? Does this make any difference in how we view? Restatement (Second) of Contracts ß 321 Assignment of Future Rights (1) Except as otherwise provided by statute. Nexxus has K with Best Barber in which Best would be exclusive distributor. that granted summary judgment for defendant hair products Contract Notes Page 61 of 124 . Basically they seem to be saying that even though you can delegate a duty – it does not remove the original obligation from the person who entered into it. Prof calls assignment “pimping”. we might think assignments are problematic. 1. They use this example: Passing a football is like assignment of rights – you hand it off to someone else. PROCEDURAL POSTURE: Plaintiff successor appealed the decision of the United States District Court for the Northern District of Illinois. Nexxus Products Co.If we think of K’s as relationships we might think the idea of assignment is not a good one. In other words. (553) Delegation case. (2) Except as otherwise provided by statute and as stated in Subsection (1). a purported assignment of a right expected to arise under a contract not in existence operates only as a promise to assign the right when it arises and as a power to enforce it.

governed by the Uniform Commercial Code. On its motion. who is owned by a competitor. Code Ann. the court relied upon different grounds. but on a different theory than that relied on by the district court. upon its ruling that an exclusive distributorship contract between defendant and plaintiff's predecessor was one for personal services and therefore not assignable. Plaintiff was a wholly-owned subsidiary of a major competitor of defendant in the hair products market. • If you apply the provision under UCC 2-210 (5). • Dissent (Posner) feels Nexxus should not be allowed out of the deal. • Judge in the case uses 2-210 which allows delegation except where the delegated performance would be unsatisfactory to the obligee. that is. because plaintiff was a subsidiary of defendant's competitor and defendant could not be compelled to accept a bargain it did not contract for. Under that provision. OVERVIEW: Defendant hair products company cancelled the exclusive contract it had with its regional distributor when the distributor was acquired by and merged into plaintiff successor. and the distributor could not delegate its performance thereunder. which is bought out by Sally Beauty. & Com. Notes: • Nexxus has the deal with Best Barber. In affirming. you lost the judgment of the person you trusted to look after your interests. ß 2-210(a) (1968). Posner makes a compelling argument.company in contract action. and ruled that the contract should be treated as a sale of goods contract. Talks about the Sherman Anti-Trust laws. • There is no term in the K that would allow them an out. even upon merger. the contract was not assignable without defendant's consent. However. Nexxus cancels the K saying it was not assignable or at least not assignable to Sally Beauty. if you see the K about relationships. because plaintiff was a wholly-owned subsidiary of defendant's direct competitor. which was not assignable without defendant's consent. • If you think this is only about commodities. performance by a party other than the original distributor. under the Uniform Commercial Code. Contract Notes Page 62 of 124 . • If we think of K’s as property rights you can see in this case why this could be a problem. Plaintiff appealed. Posner feels that Nexxus should use the remedy of demanding assurances of due performance and not to cancel the K. you can add to the agreement with a expanded understanding which would allow you to identify if there might be a future breach. Plaintiff sued defendant for breach of contract. Feels like there is no evidence that Nexxus would hurt by the deal. OUTCOME: Summary judgment for defendant was affirmed. Bus. • Nexxus is obviously concerned that the Sally Co won’t market Nexxus products properly. defendant was granted summary judgment on the grounds that the distributorship contract was one for personal services and therefore not assignable from the distributor to plaintiff. Tex. Nexxus could be hurt. The distributorship contract was to be treated like a contract for the sale of goods. The new owner would not hurt a product line that he now owns.

Sales Contracts: The UCC § 2-210 RIGHTS. or impair materially his chance of obtaining return performance. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach. Complicated area of law. most K’s are negotiated through agents. MANIFESTING AUTHORITY ASSENT THROUGH AN AGENT: TYPES OF In the real world. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise. A. it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract. This means you have to learn under which circumstances agents are allowed to bind the “principle” (person the represent) to a K. Restatement Second of Agency defines: Contract Notes Page 63 of 124 . ASSIGNMENT OF (1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. (2) Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party. DELEGATION OF PERFORMANCE. or increase materially the burden or risk imposed on him by his contract. (4) An assignment of ''the contract'' or of ''all my rights under the contract'' or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary. (3) Unless the circumstances indicate the contrary a prohibition of assignment of ''the contract'' is to be construed as barring only the delegation to the assignee of the assignor's performance. (5) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (Section 2-609).

The atty winds up making an agreement on behalf of D. the D’s have an atty acting as an agent helping to resolve the matter of the prior mortgage on the property. v. The court held that there was no implied authority to reach an agreement binding on the partnership. the corporation filed a foreclosure action against the partnership. the court concluded that summary judgment was improper. the court determined that the partnership's counsel had permission or authority to enter into the disputed settlement agreement. apparent authority is looked at…. New England Educational Training Service. However. OUTCOME: The court reversed and remanded the trial court's decision granting summary judgment to the corporation Notes: • Conflict over pre-existing mortgage. Inc. the court found no evidence that the partnership's counsel was expressly authorized to agree to the amount of the settlement. D retains an atty to help them negotiate.§1 AGENCY. • They try to work it out but fail. The P is trying to hold the D to the agreement and the D is taking the position (a position Contract Notes Page 64 of 124 . which the D’s claim was not within his authority. (3) The one who is to act is the agent. AGENT (1) Agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control. The trial court granted summary judgment to the corporation on the basis of a settlement agreement the trial court found was made by the parties' attorneys and enforceable against the partnership. Also. PROCEDURAL POSTURE: The Bennington Superior Court (Vermont) granted plaintiff corporation's motion for summary judgment in its action to enforce a settlement agreement with defendant partnership. The partnership appealed. Silver Street (p 559) In this case. After the corporation acquired the parcel. The atty has general authority to negotiate but not to bind the D to a deal. and consent by the other so to act. Therefore. OVERVIEW: The partnership was the record owner of a parcel of real estate encumbered by a mortgage in favor of the corporation. (2) The one for whom action is to be taken is the principal. The P owned mortgage. the court held that there was no apparent authority to reach a binding settlement agreement. PRINCIPLE. • Key issue in this case is the fact that the atty winds up making a settlement agreement but he has no authority to do so. it notified the partnership about the outstanding encumbrance. On appeal. When the parties were unable to settle the dispute. In case below – implied vs. The D bought a property that had a pre-existing mortgage on it that they were unaware of at the time.

Defendant offered no proof to dispute that presumption. OUTCOME: Court reversed order granting new trial based on errors of law and reinstated the jury verdict because plaintiff assumed the one who answered the telephone was an agent of defendant's and had apparent authority to bind defendant on the assignment of insurance. Plaintiff had called defendant to discuss the policy and spoke with person who answered regarding the policy. • Here the court says the apparent authority rested on a number of factors: ○ The business invited the public to use the phone to conduct business with the company. Plaintiff assumed defendant had assigned the policy. and where defendant permitted an employee to answer the telephone. P also relies on the idea of apparent authority. After a jury returned a verdict for plaintiff. Owner. Next case again we consider diff between implied and apparent authority. Contract Notes Page 65 of 124 . ○ Business had an employee to answer the phone. the court granted defendant a new trial for errors of law. Agency §8 that defines apparent authority. this case hinged on the idea of apparent authority. Unlike the last case – here the court found that such apparent authority was reasonable. that such person was acting for defendant with authority.• • also accepted by the court) that the atty had a general authority to negotiate but could not bind the D to a specific amount / agreement w/o their express consent. The court defines as authority that does not come from the principal expressly but from the apparent conduct of the principal that makes the 3rd party feel they can reasonably rely on the agent’s authority. the plaintiff. The court held that where defendant invited the public to call its telephone number to transact business with it. Court rejects this argument. Here court finds apparent authority did exist. Northland Insurance Co. Defendant insurer would not cover the damages. Notes: • At the end of the day. Plaintiff contacted defendant insurer to inquire about an assignment of insurance coverage to plaintiff. The court held that the lower court erred in not admitting the testimony regarding the phone call. Brother in law calls insurance co to make sure all is fine and is told it is by anon woman who answers phone at insur agency. OVERVIEW: Owner sold his automobile to his brother-in-law. Atty had authority to make 10k offer but not 60k. the court held that defendant's agent had authority to act and make the assignment of the insurance policy. Gives brother in law insur info. as well as there is no evidence to support that this happened in this case. Reversing the grant of a new trial. Guy buys car and insures for 2 years – then sells to brother in law. They rely on the Restatement. was involved in an automobile accident with the insured vehicle. Why? Sauber v. (p 563) Car insurance case. who had reserved the right to use the vehicle.

Issue hinges on the apparent authority of the agent to have agreed to the deal. Such evidence is not conclusive but establishes a presumption that must be rebutted by the D. The lower court entered a verdict for the realtor and the investment consultant and denied the company's motion for a new trial or judgment n.o. which was communicated to the realtor by the company's financial consultant. Week later realtor is told the deal is not accepted but sues for commission.• Such a person purported to act with authority for the company. the third of which came close to the original terms. not the agent” in other words. ○ ○ Another apparent authority case? Jennings v.o. one of which was acceptable.v. it does not matter what the agent says or does when considering apparent authority but what the principle says or does. Realtor brought three offers. The court reversed and held that the company was entitled to judgment n. The realtor presented three offers to the company. realtor and investment consultant. represented by its vice-president. constituted acceptance of the offer. Notes: • Court finds there was no apparent authority and no reasonable person would have believe there to be. The realtor alleged that the vice-president's initial statement that the executive committee had approved the third offer. asked the realtor to solicit offers for a sale and leaseback of the company's property and promised a commission if an offer was accepted. Pittsburgh Mercantile Co.v. (p 567) Case involved a real estate deal. an extraordinary transaction. and denied the company's motions for new trial and judgment n. OVERVIEW: The company. although the realtor was told within a week by the vice-president directly that the offer had been rejected. in an action of assumpsit against the company to recover a real estate brokerage commission on a sale and leaseback of all of the company's real property.v. which entered a verdict for appellees. because the evidence was insufficient to establish that the vice-president had apparent authority to accept an offer for the sale and leaseback of the company's property. The company refused to pay the realtor's bill for the commission. Person calling had a right to assume the person they were speaking with had the authority to act. PROCEDURAL POSTURE: Appellant company challenged the decision of the Court of Common Pleas of Allegheny County (Pennsylvania).o. Key statement seems to be “authority emanates from the actions of the principle. which entered a judgment in favor of the realtor and the investment consultant in their action to recover a commission from the company on the sale and leaseback of the company's real property. Contract Notes Page 66 of 124 . OUTCOME: The court reversed the verdict of the lower court.

• In general. Husband states he will follow her wishes even though it was not expressly in the will. The other side of this is that when the contract has clearly been made to benefit a 3rd party. The trial court found for respondent. the judgment was affirmed. rule has been that privity of contract is needed between a plaintiff and defendant in order to bring an action on the contract. the trial court found that the right of a third party to recover upon a contract made by other parties for the third party's benefit was determined by the circumstances of the particular case. Contract cannot be enforced against a 3rd party. He fails to do so and the niece sues and wins. From the perspective of the agent. was entitled to recover under the terms of the contract Notes: • Here the court is suggesting that she was a clear beneficiary. The court determined that the facts of the case did show that as a matter of equity. four cases where a beneficiary has the right to sue on a contract made for his benefit. respondent was entitled to recover the property that the decedent uncle had contracted with the decedent aunt to deliver to respondent. OVERVIEW: Respondent brought suit in contract to recover property that her late aunt contracted with her late uncle to deliver. respondent. On review. OUTCOME: The judgment for respondent was affirmed because the circumstances of the particular case demonstrated that as a matter of equity. • Why is this not a statute of frauds case? • In NY. Restatement 3rd says to not try to distinguish between apparent and implied authority and just look at implied authority. thus it cannot be enforced by him. Key word used is manifestation. they can sue. PROCEDURAL POSTURE: Appellants sought review from a judgment of the Appellate Division of the Supreme Court in the third judicial department (New York) affirming a judgment in favor of respondent in an action to enforce the terms of a contract. Ranson (p 571) Wife wants to leave house to niece but this is not in the will. Restatement (Second) of Contracts Contract Notes Page 67 of 124 . did it look like (based on what the principle had done or said) that is was reasonable to assume the agent had the authority? Prof likes this one!! (He generally is very skeptical of the restatements) THIRD PARTY BENEFICIARIES Intended Beneficiaries Seaver v.• Prof asks the difference between implied authority and apparent authority. Therefore. as a third party beneficiary to the contract.

e. Russell (p 575) Employee is injured and breaks leg and back. Sacred Heart hospital provides treatment and then seeks benefits from the WC insurance company as a third party beneficiary. i. Rev. Distinguishing Intended from Incidental Beneficiaries An incidental beneficiary is a beneficiary who is not an intended beneficiary.289(4). defendants split the financial responsibility for defendant worker's care. OVERVIEW: Defendant insurer challenged the trial court's refusal to grant its motion for a directed verdict after a jury found defendant liable for reimbursing plaintiff hospital for the cost of medical care provided to defendant injured worker. Stat. he and defendant insurer had entered into a worker's compensation disputed claim settlement agreement under Or. plaintiff had already provided something of value to defendant worker. denying defendant's motion for directed verdict as to plaintiff hospital's claim for payment of medical services plaintiff provided to defendant injured worker. In the agreement.ß 302 Intended and Incidental Beneficiaries (1) Unless otherwise agreed between promisor and promisee. The jury found that plaintiff was a third-party beneficiary to a worker's compensation disputed claim agreement to which defendants were parties. Sisters of St. defendant insurer being responsible for defendant worker's past but not future medical bills. the state's highest court held that by the time defendants' settlement agreement was signed. The court affirmed the trial court's denial of defendant insurer's motion for directed verdict. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary. ß 656. Contract Notes Page 68 of 124 . and Hospital Services v. making plaintiff a creditor beneficiary of the agreement as long as defendants intended to benefit plaintiff.. Health. medical treatment. On appeal. a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary. or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. Joseph of Peace. Not long after defendant worker's accident. The court held that they had. The jury found that defendant insurer was obligated to reimburse plaintiff because plaintiff was a third-party beneficiary to that agreement. PROCEDURAL POSTURE: Defendant insurer sought review of a decision from the Lane County Circuit Court (Oregon).

the Sisters win at the Supreme Court level. Why is that not a winning argument? The way the deal is put together is that Aetna has inserted themselves into the deal with Russell and the Sisters and so now. Bad p/r. Restatement (Second) of Contracts ß 315 Effect of a Promise of Incidental Benefit An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee. at best. • If anything favors the hospital. based on the agreement. What is the actual agreement? Do the Sisters have to sue Russell directly and then Russell would have to sue Aetna? Says this is the wrong reading of the agreement. Netscape (again) (p 581) Court won’t compel arbitration with someone who is. Prof thinks this would be the best argument Aetna could use. Aetna is far more then a spectator. an incidental party to the argangment. • Ultimately. • Prof asks if the lawyers botched the job. The terms “intended” or “incidental”. Must read the language together as a whole to make a determination. it is the fact that Aetna had language that stated that they would resolve the claims directly…. Notes: • Aetna did not want it to go to court – moved for a directed verdict. Aetna is saying that they are responsible for resolving the claim. ○ Incidental Beneficiary: not intended ○ Intended Beneficiary: • Crucial learning here is that 3rd party beneficiary claims are defined by reading the agreement to see how the 3rd party shows up and how it appears it is intended to work.this goes against the idea that Aetna is uninvolved.OUTCOME: The court affirmed the trial court's denial of a directed verdict in favor of defendant insurer after a jury found defendant liable for paying plaintiff hospital for defendant injured worker's past medical bills because plaintiff was a third-party beneficiary of a worker's compensation disputed claim settlement agreement signed by two defendants. • Hospital is trying to use settlement to get paid. If Etna was trying to protect themselves from having to pay a third party. They don’t want Russell to get a judgment because then there is no longer anything to contest. shouldn’t they (Aetna and attorneys) have put something in the K? • Discussion of what paragraph 2 really means. Contract Notes Page 69 of 124 . they get their jury trial and directed verdict is overturned. Specht v. etc are conclusory labels you can attach if you want after your analysis but do not start there – must read the agreement in its entirety.

e. in this county. Historical version dealt more with moral considerations and preexisting duties. The History In modern contract law.. example of father needing a coat and if I am his son and I promise to get him one – would have been enforceable under the idea of moral duty) MORAL CONSIDERATION (p 640) Discusses the idea that a pre-existing moral obligation to perform a particular act was considered to be a good reason for enforcing a commitment to do so…. The plaintiff then lived at Hartford.e. there was a rise in assumpsit in common law courts to enforce promises. which is key in modern K law. the defendant.e. what consideration was bargained for. Best synonym for the historical view of consideration is “motive”. the father is not found to have a duty to pay the bills for the son’s medical care. • • • • • • Because no debt was involved. Wyman (p 640) In this case. 1821. This case seems at odds with this idea of moral consideration? Perhaps because the son was an adult and there was no duty of $ support? This case limits the idea of moral consideration. PRIOR HISTORY: This was an action of assumpsit brought to recover a compensation for the board. Offer and acceptance. nursing. I owe someone $10 and then make a promise to pay him the $10) ○ May come under the idea of a moral obligation – some pre-existing moral duty and then the promise is made (i.. that a promise (in order to be enforceable) must be supported in some way (i. Mills v.. what promises should be enforced and which should not? Until Statute of Frauds. Levi Contract Notes Page 70 of 124 . from the 5th to the 20th of February.. ○ May come under the idea of an already existing obligation (i. in Connecticut. even after promising to do so. which we still follow. They recognized the concept.CHAPTER 9 – THE DOCTRINE OF CONSIDERATION A.e. son of the defendant. &c. formality of the promise was irrelevant. at Shrewsbury. did not really factor into the historical view. consideration has become identified with the bargain theory of consideration – i. What factors the promisor considered when promising which motivated or moved him to promise.e. No consideration for the promise. consideration) and that an unsupported promise would not be enforceable. Some restrictions were imposed and some promises would not be enforced by the court for a variety of reasons. I. of Levi Wyman. The extension of promissory liability in the common law required new boundary markers and this is how we discuss the history of consideration.

after all the expenses had been incurred. before whom the cause was tried in the Court of Common Pleas. Watson – Mills v. Without consideration. and defendant was not legally obligated to support his son in any way. DISPOSITION: Judgment entered for costs for the defendant. directed a nonsuit. and Howe J. and being poor and in distress. nursing. nursing.Wyman. the court limits the idea that moral consideration is enough to make a promise enforceable. and had long ceased to be a member of his father's family. any debt he incurred created no obligation upon defendant. A moral consideration might be enough if it is backed by a legal obligation such as a father to a minor child. Plaintiff's complaint was dismissed for lack of consideration. Thus. defendant's promise founded upon such a debt had no legally binding force. and care to defendant's adult son for a two week period after he returned from a voyage at sea poor. defendant wrote a letter promising to pay plaintiff for his expenses. The kindness and services provided for defendant's son were not bestowed at defendant's request. the defendant wrote a letter to the plaintiff. promising to pay him such expenses. was about 25 years of age. To this direction the plaintiff filed exceptions. The fact that he promised to do so in writing is found to not be enough by the court. except what grew out of the relation which subsisted between Levi Wyman and the defendant. Notes: • Here. Wyman Reconsidered (644) Contract Notes Page 71 of 124 . He was on his return from a voyage at sea. Here the son was an adult and there was no obligation on the part of the father to pay the expenses. We (court) looks for bargaining. OVERVIEW: Plaintiff provided board. in distress. After plaintiff had finished caring for defendant's son. When defendant did not pay as he promised. The supreme court affirmed because there was no consideration for defendant's promise to pay plaintiff's expenses. plaintiff sued. and sick. Geoffrey R.. thinking this not sufficient to support the action. and being suddenly taken sick at Hartford. because defendant's son was an adult who was responsible for his own debts. PROCEDURAL POSTURE: Plaintiff good Samaritan appealed the decision of a court of common pleas (Massachusetts) issuing a judgment in favor of defendant parent in plaintiff's assumpsit action to cover compensation for the board. There was no consideration for this promise. Plaintiff appealed. and care of defendant's son. • Courts seem to feel that material benefit should be enforceable but moral obligations are not. was relieved by the plaintiff in the manner and to the extent above stated. On the 24th of February. at the time when the services were rendered. OUTCOME: The court affirmed the judgment because defendant's promise to pay expenses incurred for the care of his adult son was not supported by consideration because the services provided for defendant's son were not bestowed at defendant's request and defendant was not legally obligated to support his son in any way.

McGowin Here these was sufficient legal consideration to enforce an agreement. Webb v McGowin (again) (p 652) Supreme Court of Alabama offers opinion (?) on the ruling on Webb – wants to make a key distinction in the holding of the case: They distinguish a case in which there is some moral obligation of the promisor unsupported by any consideration or material benefit and one in which such a benefit did occur. to enforce the promise and to continue to receive payments. the executors of the deceased promisor's estate.This is just further discussion on the background of the above case. On appeal. the court reversed. A number of interesting facts come out including that the court had stated that the son had died. OVERVIEW: The plaintiff was permanently injured while saving the promisor's life. holding that the contract was enforceable because the injury to the plaintiff was sufficient legal consideration for the promisor's agreement to pay. The latter is what happened in this case…. when he had not. In other words. The promisee sustained loss and the promisor got a significant benefit – that being his life and health were saved by the actions of the promisee. Butler County (Alabama). the court does not want to be misunderstood as supporting a contract on the basis of a moral obligation w/o some other legally recognized idea of consideration… Restatement (Second) of Contracts ß 86 Promise for Benefit Received Contract Notes Page 72 of 124 . OUTCOME: The court reversed and remanded the case holding that the contract was enforceable because the injury to the plaintiff in saving the promisor's life was sufficient legal consideration to enforce the promise to pay. The court granted defendants' demurrer to the complaint. The promisor agreed to pay plaintiff a monetary amount every two weeks during the remainder of plaintiff's life. Notes: • Court here says the promise was enforceable as it was more then just a moral obligation. The promisor complied with this agreement up to the time of his death. Plaintiff brought a complaint against defendants. even after the death of the promisor. PROCEDURAL POSTURE: Plaintiff appealed from a judgment of the Circuit Court. which sustained the defendants' demurrers to plaintiff's action for unpaid installments on an alleged contract made when plaintiff was permanently injured while saving promisor's life. Webb v.

that they should have the wages of the two who had deserted equally divided among them. where that learned Held: Judge held. exorbitant claims would be set up on all such occasions. and utterly void. 72. with whom the agreement had been made at Cronstadt. if he could not procure two other hands at Gottenburgh. crews are often thinned greatly by death and desertion. Watson. In West India voyages. Overview: This was an action for seaman's wages. that this agreement was contrary to public policy.e. and the principal question in the cause was. By the ship's articles. whether he was entitled to a higher rate of wages? In the course of the voyage two of the men deserted and the captain having in vain attempted to supply their places at Cronstadt. This was found impossible. Myrick (p 656) Was the seaman due additional wages? No. This ground was strongly taken by Lord Kenyon in Harris v.(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. that no action would lie at the suit of a sailor on a promise of a captain to pay him extra wages. there entered into an agreement with the rest of the crew. and if a promise of advanced wages were valid. A. in consideration of his doing more than Contract Notes Page 73 of 124 . and the ship was worked back to London by the plaintiff and eight more of the original crew. Garrow for the defendant insisted. Cas. the plaintiff was to be paid at the rate of £5 a month. Peak. or (b) to the extent that its value is disproportionate to the benefit. CONTRACT MODIFICATION AND THE PREEXISTING DUTY RULE (P 656) Issue here is – are promises to modify a pre-existing contract duty enforceable? • We are looking at changes to the deal in mid-stream. on a voyage from London to the Baltic and back. executed before the commencement of the voyage. enforce it?) Stilk v. They were promised the wages of the two missing seamen…they did the job they were originally contracted to do. When should we allow this (i. (2) A promise is not binding under Subsection (1) (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched.

libelants demanded higher wages than were provided for in the contract. but why should they be deprived of the compensation he voluntarily offers them in perfect security for their extra labour during the remainder of the voyage? Lord Ellenborough: I think Harris v. alleging that appellant had contracted to pay them higher wages. Here. and that the plaintiff can only recover at the rate of £5 a month. The mariners were not to be permitted on any sudden danger to force concessions from the captain.the ordinary share of duty in navigating the ship. contra. Watson was rightly decided. Here again the court does not PRIOR HISTORY: Appeal from the District Court of the United States for the Northern District of California. without looking to the policy of this agreement. fishermen.[1] Notes: • Deal was not honored. and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port. and their agreeing to do so might have been a sufficient consideration for the promise of an advance of wages. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. and when the captain could not be supposed to be under any constraint or apprehension. when there was no danger or pressing emergency. be the true principle on which the decision is to be supported. Verdict accordingly. sailors would in many cases suffer a ship to sink unless the captain would accede to any extravagant demand they might think proper to make. brought suit against appellant. Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage. A supervisor for appellant Contract Notes Page 74 of 124 . distinguished this case from Harris v. that if such a promise could be enforced. the case would have been quite different. as the agreement here was made on shore. in a case where libelants. But the desertion of a part of the crew is to be considered an emergency of the voyage as much as their death. PROCEDURAL POSTURE: Appellant company challenged the judgment of the District Court of the United States for the Northern District of California. Watson. Therefore. and his Lordship said. Alaska Packers Assn v. but I doubt whether the ground of public policy. contracted with appellant company to sail from San Francisco to Alaska and work for appellant during the fishing season. Domenico (p 658) allow the change. They had sold all their services till the voyage should be completed. or if the captain had capriciously discharged the two men who were wanting. If they had been at liberty to quit the vessel at Cronstadt. I think it is void for want of consideration. upon which Lord Kenyon is stated to have proceeded. the others might not have been compellable to take the whole duty upon themselves. the agreement is void for want of consideration. OVERVIEW: Libelants. court says they were bound by their original contract and there was a lack of consideration for the new bargain. fishermen. libelants stated that they would not work unless they were paid additional wages. I say. When the ship arrived in Alaska. The Attorney-General.

judgment for the defendant on the complaint and for the plaintiff on the counterclaim. The sub-contractor filed a counterclaim. Also. The court held that when parties did what they were already contractually obligated to do. Brian Construction and Development Co. The general contractor entered into another contract with the sub-contractor. The court held that the later contract was not supported by adequate consideration because it was based solely on libelants' agreement to render the exact services that they were already obligated to perform. which included debris removal. v. but no one gave the contractor the written authorization to spend the additional money required for removing the debris. they could not demand additional compensation. appellant denied the validity of the later contract. the agent did not have the authority to renegotiate the original contract. The general contractor sought review of the judgment for the sub-contractor. It was an oral agreement that the sub-contractor did not confirm in writing. but then stopped and refused to finish the job. They had agreed to work for both a flat fee as well as a “commission” on the amount of fish caught. Here the PRIOR HISTORY: Action for damages for breach of contract. • Court found that the fisherman were holding the company hostage and had unfairly used their bargaining position.. Judgment was entered in favor of the sub-contractor on the general contractor's claim and for the general contractor on the sub-contractor's counterclaim. they should be paid more. the case was tried to the court. J. and appeal by the plaintiff to this court. Notes: • Here the fisherman felt that due to the inadequacy of the nets. The sub-contractor began to work for a few weeks. PROCEDURAL POSTURE: Plaintiff general contractor filed suit against defendant sub-contractor in the Superior Court of Hartford County (Connecticut). the sub-contractor discovered substantial debris that was unanticipated by the parties. OUTCOME: The court held that the contract was not supported by adequate consideration because it was based solely on libelants' agreement to render the exact services that they were already obligated to perform. OVERVIEW: The general contractor agreed to construct a post office and the sub-contractor agreed to do the excavation work. As a result. brought to the Superior Court in Hartford County. the general contractor undertook the work himself and incurred substantial damages.agreed to the demand and executed an altered contract. Evidence did not seems to support the net theory. One of the general contractor's Contract Notes Page 75 of 124 . Longo. All parties agreed that removal of the debris was necessary. Brighenti (P 666) court does allow the enforcement of the midstream change. compelled by the remote location and difficulty of finding replacement workers. where the defendant filed a counterclaim. While doing the work. When libelants returned to San Francisco.

(it is not really taught as a part of this course) If a business is insolvent then the transfers must be equal. Court is asking. it helps to be able to see what each party stood to gain and to lose. Is the consideration enough? Courts don’t generally look at this… • Fraudulent TRANSFER ACT – Prof feels this is a very important issue. and remanded the matter with direction to enter judgment in favor of the general contractor. OUTCOME: The court overruled the trial court's entry of judgment in favor of the sub-contractor on the complaint filed by the general contractor. can we say that they renegotiated in good faith after new details came out…. Restatement (Second) of Contracts ß 89 Modification of Executory Contract A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in the view of the circumstances not anticipated by the parties when the contract was made. the subsequent oral agreement was binding as a new. • Could we say that if the modification looks like a negotiated compromise. So… the idea that the court does not look at the adequacy of consideration is not always true – it is not true under the Fraudulent Transfer Act. you should enforce it? • Posner (on page 672) says that consideration is not really the issue in these cases – look at duress. under the circumstances.claims on appeal was that the oral agreement was valid and obligated the sub-contractor to remove the debris. Also comes up in the idea of adequacy of consideration – ie. Once when you enter into the deal and again if we attempt to modify. • What to take away from these cases: ○ Question of consideration shows up twice. What is the difference here? • Here. • Prof says that K’s are an example of private law-making…. distinct contract. why did you make this promise? What was your stake / interest? Comes up in the moral promise issue we discussed. Notes: • Here the court does allow a mid-stream change in the contract. or Contract Notes Page 76 of 124 . which was supported by valid consideration. and the sub-contractor's actions constituted a breach of contract. • More discussion of consideration. The court held that. We want to see what the parties have at stake. • One of the reasons consideration is important is that we are seeing the issue in conflict (or we would not be involved) and in order to help see the contract and analyze it.

or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. AND WAIVER (1) An agreement modifying a contract within this Article needs no consideration to be binding… (still a good faith requirement although no consideration needs to be present to modify a sales contract – remember here we are just talking about sale of goods under the UCC) Contract Notes Page 77 of 124 . RESCISSION. Sales Contracts: The UCC § 2-209 MODIFICATION.(b) to the extent provided by statute.

Plaintiff contended that the grounds asserted by defendant did not constitute defenses. Also. Here the bank tries to say that no consideration was needed because the mortgage fell under the UWOA but they did not show what language would prove the express intent to be bound. Notes: • The D signed a promissory note. Using the common law of assignments. as assignee. OUTCOME: Judgment opened because defendant's allegations in his verified motion were sufficient to state a valid defense to plaintiff's enforcement of a promissory note. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF PITTSTON v. defendant filed a motion to open the judgment entered against him by confession in the Court of Common Pleas of Buck County (Pennsylvania) contending he had a valid defense to plaintiff FDIC's action to enforce a promissory note. REGGIE (p 713) This is another case on UWOA. PROCEDURAL POSTURE: After the case was removed to the United States District Court. Federal Deposit Insurance Corp v. The court concluded that defendant's claim that the note was made as an accommodation and his contentions that the assignment was invalid due to the illegality of the takeover were both valid defenses to the note and required opening of the judgment. Defendant then moved to open the judgment alleging several defenses. Must be expressly stated – never inferred. The state's department of banking took over the bank and plaintiff received the promissory note via an assignment from the state's receiver. consideration is not needed in written agreement if the party states in writing that he intents to be bound. court says that even if they had shown that it met UWOA and thus no Contract Notes Page 78 of 124 . The D is claiming that there was no consideration for his promissory note. but were counterclaims for which the judgment could not be opened. Bank loses. took the note subject to any defenses that defendant had against the bank. Barness (p 712) Issue here seems to be what is called for in the Uniform Written Obligations Act and if an express intention to be bound has to be stated very clearly… under the UWOA. This may not be true if you consider that his note would help the bank and he was a shareholder in the bank. clearly thinking it was only a formality and would not be enforced. OVERVIEW: Defendant executed a non-negotiable promissory note to a federally insured bank payable on demand. The case was removed from state court to federal district court on plaintiff's motion. The bank becomes insolvent and now the issue of the promissory note comes up. the court found plaintiff.CHAPTER 10 – THE INTENTION TO BE LEGALLY BOUND ENFORCEABILITY….

OVERVIEW: Appellant sureties claimed that a mortgage with appellee bank was unenforceable because it was induced by fraud or misrepresentation and was not supported by consideration. and appellants were induced to finance a nonexistent debt. it still could be challenged under another area – fraud or duress. The mortgage was part of a refinancing of an alleged deficiency which resulted from a foreclosure of a related property. and appellee could not have legally foreclosed on appellants' home. The trial court held that the parol evidence rule precluded consideration of the issues of fraud and misrepresentation and granted summary judgment in favor of appellee. from liability on the mortgage when it applied the proceeds of a foreclosure to an unrelated debt. the court vacated the order and remanded. The mortgage on which appellee sought to foreclose was unenforceable for lack of consideration because appellee violated its duties toward appellants and discharged them. Therefore.consideration needed. Appellants owed no debt to appellee after the sale of the property. LACK OF INTENTION TO BE LEGALLY BOUND In the prior section. which granted summary judgment in favor of appellee bank in an action to determine whether appellee had a duty to apply the proceeds of a related foreclosure in such a way as to avoid foreclosing on appellants' home. PROCEDURAL POSTURE: Appellant sureties sought review of an order of the Court of Common Pleas of Luzerne County (Pennsylvania). it is very rigid rule and must be explicit. Now we look at the possibility of avoiding enforcement. OUTCOME: The court vacated the order of the trial court granting summary judgment in favor of appellee bank and remanded the case to the trial court because factual issues in the claims of appellant sureties remained to be resolved Notes: • If you are going to use the statute. On appeal. the issue was when and how to enforce nonbargained for commitments by using formalities to manifest an intention to be legally bound (remember the UWOA above). by disclaiming the intention to be legally bound. there was no consideration underlying the mortgage. The court held that factual issues remained to be resolved and that parol evidence was admissible to establish suretyship. as sureties. even for bargained for commitments. See Restatement of Contracts §21 which states “a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract…” Contract Notes Page 79 of 124 .

In a motion to reconsider. reserved the right to modify its handbook.Ferrera v. Michael Mullins. by implication. PRIOR HISTORY: Appeal from the District Court of the City and County of Denver. 90CV12698 DISPOSITION: JUDGMENT AFFIRMED IN PART. the court held that the error. P. Court rejects this notion because the handbook contained a disclaimer. the trial court reviewed a copy of an earlier issued handbook but affirmed its entry of summary judgment. Civ. PROCEDURAL POSTURE: Plaintiff employee appealed the order from the District Court of Boulder County (Colorado). Why? Because the managers acted and believed that the termination requirements in the handbook were mandatory AND the disclaimer was there but not overly conspicuous.C. Honorable R. Colorado Farm Bureau Mutual Insur… (p 715) Here. Judge. The court further concluded that the employer. a right that was exercised by later issuing a revised handbook and that nothing in the later handbook constituted a contract that limited the employer's right to discharge employees. AND CAUSE REMANDED WITH DIRECTIONS PROCEDURAL POSTURE: Plaintiff employee appealed the judgment of the District Court of the City and County of Denver (Colorado) which entered a jury verdict in favor of defendant employer concluding that plaintiff did not prove willful age discrimination as the basis for his constructive discharge Contract Notes Page 80 of 124 . R. Nielsen (p 714) Here a terminated employee is making the (unsuccessful) argument that an employee handbook equates to a contract with the employee. No. The employee brought an action for wrongful discharge from employment under implied contract and promissory estoppel theories based on the employee handbook. On the employer's motion. OVERVIEW: After almost seven years of employment. if any. that resulted from the trial court's earlier entry of judgment was harmless under Colo. the trial court entered summary judgment in favor of the employer. the employer fired an employee after concluding that she had falsified her time card for a second time. REVERSED IN PART. which entered summary judgment in favor of defendant employer on the employee's claim that she was wrongfully discharged from employment. On appeal. disclaimers in the employee handbook do not insulate the employer for liability. 61 because the employee had an adequate opportunity to show why judgment should not have been entered. A. Evenson v. The court held that the handbook could not constitute a contract because it contained a disclaimer. OUTCOME: The court affirmed the judgment of the trial court that held that the record established as a matter of law that the employer made no promise in its handbook upon which an employee could base an implied contract or promissory estoppel claim.

and reversed the dismissal of the breach of implied contract claim. holding that the jury was improperly instructed.S. challenged the order of the 212th District Court of Galveston County (Texas). violated the student's constitutional rights of procedural and substantive due process and equal protection. as plaintiff was not misled by defendant. OVERVIEW: Plaintiff employee.S. ß 629 et seq. but affirmed the judgment that the "basic" ADEA claim was barred by the statute of limitati Eiland v.under the Age Discrimination in Employment Act. and the error was not harmless. and reversed the dismissal of the claim of breach of employment contract. The court also held that. directing appellants to award appellee student his medical degree and declaring invalid appellant college's determination to dismiss student for poor academic performance. in light of the limited role allowed to the trial court in reviewing academic decisions of educational institutions. Contract Notes Page 81 of 124 . holding that a factual dispute existed as to whether disciplinary procedures in the employee manual were mandatory. The district court dismissed the implied employment contract claim. ß 629 et seq. Court rejects as there was a clear and express disclaimer. appellants' defense of sovereign immunity had been waived by appellants' failure to plead it as an affirmative defense.C. state medical college and its officials. regarding the student's contract claim. PROCEDURAL POSTURE: Appellants. however. The jury found in favor of defendant. OVERVIEW: Trial court held that academic dismissal of appellee student by appellants.. OUTCOME: The court reversed the judgment in favor of defendant employer and against plaintiff employee on his claim of "willful" violation of the Age Discrimination in Employment Act (ADEA). The court affirmed that the general ADEA claim was barred by the two-year statute of limitations. On appeal. by constructively discharging him and that defendant breached an implied contract of employment. claiming that defendant discriminated against him both generally and willfully under the Age Discrimination in Employment Act (ADEA). filed suit against defendant employer. the court held that no contract arose out of appellant college's catalogue.S. and that plaintiff's jury instruction was correct as he was placed in a worse position under either choice offered to him by defendant.C. the court reversed the judgment against plaintiff on his claim of willful violation of the ADEA. On appeal. Wolf (p 717) Here student challenges med school under the idea that the school brochure constituted a contract. the court reversed and held that. holding that the jury was improperly instructed. dismissed his breach of implied contract claim. as well as a de novo review of trial record. It ruled that the general ADEA claim was barred by the two-year limitations period. and awarded costs to defendant. state medical college and its officials.S. 29 U. appellant college and its officials did not exceed their authority in dismissing the student for academic reasons. as well as a contract between the student and appellant college created by the college catalog. 29 U. The court reversed the dismissal of the breach of contract claim.

OUTCOME: The court dissolved the injunction against appellants, state medical college and its officials, reversed the trial court's judgment, and rendered judgment against appellee student in his action to compel appellants to award him a medical degree. Appellants' academic dismissal of student did not violate due process or equal protection, and no contract existed between the parties preventing academic dismissal.

PROMISSORY CONTRACT

ESTOPPEL

AS

AN

ALTERNATIVE

TO

BREACH

OF

Hoffman v. Red Owl Stores, Inc. (p 752) The key issue here is that the parties had an agreement and the D took many steps in reliance on this agreement. When the P changed the agreement a number of times and thus made the agreement fail, the D made a case for promissory estoppel, under the theory that he changed his position in reliance of the promise and was harmed by this financially. Court agrees on most of the damages. PROCEDURAL POSTURE: Defendants appealed a judgment from the Circuit Court for Outagamie County (Wisconsin) in favor of plaintiffs, who had been induced to sell their grocery store, fixtures, and inventory based on an agreement that defendants would establish them in a new store. OVERVIEW: Defendants promised plaintiffs that for a sum of money, they would establish a new grocery store for them. After plaintiffs sold their present grocery store and paid for the new lot, defendants continuously increased the price the parties had originally agreed upon. Consequently, plaintiffs were induced to sell the store's fixtures and inventory on the promise that they would be in their new store in a few months. The deal never went through and plaintiffs sued defendants. Judgment was entered in favor of plaintiffs, and defendants appealed. On appeal, the court had to determine whether it should recognize causes of actions grounded on promissory estoppel. The court endorsed and adopted the doctrine of promissory estoppel and affirmed the judgment. The court concluded that injustice would result if plaintiffs were not granted some relief where defendants failed to keep their promises, which had induced plaintiffs to act to their detriment. OUTCOME: The court affirmed the lower court's decision, limiting plaintiffs to taxing two-thirds of their costs, because the court concluded that injustice would result if plaintiffs were not granted relief where defendants' failed to keep their promises, which had induced plaintiffs to act to their detriment Notes: • Case is about an agreement / promise that caused the D to rely on the promise and make a number of financial moves that he was harmed by when the deal did not happen. • The Court here does find that there is a cause of action grounded in promissory estoppel and that there are damages to the D.
Contract Notes Page 82 of 124

• • • • • • •

D’s argument seems to be that there were terms of the agreement that had not all been worked out and thus this should prevent the doctrine of promissory estoppel from being applied. Court disagrees. The Restatement sec 90 does not require that the promise giving rise to the cause of action be so comprehensive. Court then discussed how damages are calculated in such an action: ○ Only as much as the court determines is required to prevent injustice. Not mechanical or rile of thumb. ○ Does not mean specific performance or damages for breach. Really only addresses how much the P changed his position in reliance of the promise and seeks to put him back on even footing. Prof asks if this case is wrongly decided and if so, how you would argue the other side. How does it compare to Blatt? There could have been an agency issue here but it was not raised. Is this an agreement to agree? The agent was very sure the deal would go thru and represented it as such… should they have warned him that the deal might not happen? Note that the third person is added in the new Restatement 90 below. Prof asks if this case is like Pepsico? Best argument for Hoffman might be the Restatement Fraud provisions…. ** N E W ** Restatement (Second) of Contracts Sec 90 on Promissory Estoppel A promise, which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited, as justice requires. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

** O L D ** Restatement of Contracts (One) Sec 90 on Promissory Estoppel A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Contract Notes Page 83 of 124

Restatement (Second) of Contracts ß 90 Promise Reasonably Inducing Action or Forbearance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Restatement (Second) of Torts ß 526 Conditions Under Which Misrepresentation is Fraudulent

ort and contract is that it must be a lie in tort (Scienter)

A misrepresentation is fraudulent if the maker (a) Knows or believes that the matter is not as he represents it to be, (b) Does not have the confidence in the accuracy of his representation that he states or implies, or (c) Knows that he does not have the basis for his representation that he states or implies. § 530 Misrepresentation of Intention (1) A representation of the maker's own intention to do or not to do a particular thing is fraudulent if he does not have that intention. (2) A representation of the intention of a third person is fraudulent under the conditions stated in § 526.

ESTABLISHING THE ELEMENTS OF PROMISSORY ESTOPPEL (P 771) (Note – the doctrine of promissory estoppel implies a contract in law when none exists in fact….) 1. PROMISE
Blatt v. University of Southern California (p 772) Law school grad is not admitted to Order of the Coif and sues for declarative and injunctive relief. Court considers a promissory estoppel claim but finds that it is not appropriate in this case. P cannot show that he was made clear promises that he relied upon to his detriment. PROCEDURAL POSTURE: Plaintiff law school graduate appealed from the Superior Court of Los Angeles County (California) which dismissed plaintiff's complaint for injunctive and declaratory relief and that sought to compel plaintiff's admission to the Order of the Coif, a national honorary legal society. Plaintiff argued that his compliant set forth a justiciable issue and that it sufficiently alleged a breach of contract and promissory estoppel.

Contract Notes Page 84 of 124

(p 775) This case involved the attempt by agents of an insurance Co to enforce a promise made to pay them certain bonuses. Plaintiff contended that his compliant set forth a justiciable issue and that it sufficiently alleged a breach of contract and promissory estoppel. a national honorary legal society. Reserve Life Insurance Co. and did not affect plaintiff's basic right to earn a living. Spooner v. Plaintiff was not entitled to judicial review of the Order's membership selection policies. in an action for breach of contract involving performance bonuses. The promise to pay bonuses was illusory because the limitation regarding withholding bonuses made performance of the promise optional or discretionary on the part of Contract Notes Page 85 of 124 . You could say that both the Order and Blatt have an economic stake. appealed a judgment from the Superior Court for King County (Washington) in favor of plaintiffs. which created no binding obligation on defendant to pay bonuses. There was no allegation that plaintiff was promised that he would in fact be admitted to the Order if he graduated in the top 10 percent of his class. Apparently there was some issue with his participation in law review and if this were required for a night student. OVERVIEW: Defendant distributed a bulletin outlining a bonus program subject to certain conditions and a provision that defendant could withhold any bonuses with or without notice. OUTCOME: The court affirmed a trial court decision that dismissed plaintiff law school graduate's complaint that sought injunctive relief and to compel plaintiff's admission to the Order of the Coif. there was no proof that such promises or representations induced action on plaintiff's part. Membership in the Order did not give a member the right to practice. Court cannot enforce an illusory promise… PROCEDURAL POSTURE: Defendant. Plaintiff did not establish that the Order engaged in arbitrary or discriminatory actions. Plaintiff did not set forth a justiciable issue. The court affirmed the trial court decision. Notes: • He is passed over for membership and lower ranked students admitted. The agents fail as the court finds that the promise was illusory. The court held that the bulletin did not create an enforceable contract for the payment of bonuses because the limitation in the bulletin created an illusory promise. Although plaintiff met the Order's admission requirements. Plaintiff's complaint did not sufficiently allege a breach of contract or promissory estoppel. an insurance company. did not signify qualifications for any specialized field of practice. a national honorary legal society. agents employed by defendant.OVERVIEW: Plaintiff law school graduate challenged a trial court decision that dismissed plaintiff's complaint that sought injunctive and declaratory relief and to compel plaintiff's admission to the Order of the Coif (Order). The court reversed the judgment in favor of plaintiffs in an action for breach of contract involving performance bonuses. • Prof asks if this is really an intellectual property case – the Order is creating a reputation that has an economic value to the members.

the court held that the corporation's use of hyperbole to gain an advantage did not amount to a promise. Court sides with the town under the theory of promissory estoppel but is overturned on appeal. When the trial court determined that the corporation was bound by promissory estoppel and enjoined the corporation from moving its production. Ann. it is entirely discretionary or optional (seems to be the case here) Ypsilanti v. unjust enrichment. Notes: • There was a clear disclaimer with the promise. clear. (bonus is voluntary and may not occur) • Court states that in order to enforce promissory estoppel. If there is action only on a supposed promise. there must be a real promise made. the corporation sought review. there is no claim. PROCEDURAL POSTURE: Defendant corporation challenged a judgment from the Washtenaw Circuit Court (Michigan). which found that the corporation was bound to plaintiff governments by promissory estoppel and enjoined the corporation from transferring some of its production from a local plant to another facility. the governments filed an action against the corporation for breach of contract. • Court defines an illusory promise as: ○ So indefinite that it cannot be enforced or ○ Because of provisions in the promise. The court therefore reversed with instructions to enter a judgment dismissing the case. General Motors (p 779) General Motors got a tax break from the township to run a factory but then plan to close and move the factory during the period in which they are still getting the tax break. making the promise illusory and creating no enforceable contract or obligation for the payment of bonuses. When the corporation announced that it intended to move its production to another facility. which enjoined the corporation from moving its production from a local plant to another Contract Notes Page 86 of 124 . the court reversed and found that an actual. and misrepresentation. OUTCOME: The court reversed because a promise by defendant to pay its agents performance bonuses was subject to a limitation that reserved the right to withhold the bonuses. Stat. ß 7. and definite promise was required to show promissory estoppel. pursuant to Mich. promissory estoppel. The court further found that the corporation was required to give representations regarding employment in order to receive a tax abatement. On appeal. Comp.defendant. Finally. The court reasoned that the corporation's solicitation of a tax abatement did not constitute a promise.800(9)(2)(e)). OUTCOME: The court reversed the decision of the trial court. OVERVIEW: The corporation was given a tax abatement for a number of years after establishing that it would create jobs.559(2)(e) (Mich. Town brings action against GM as a result. Laws ß 207.

and could have pointed out that this would not be an enforceable promise. REASONABLE RELIANCE Case Sometimes the reliance on the promise will be found to be unreasonable as in the below case…. PROCEDURAL POSTURE: Defendant promisor's estate challenged the Court of Appeals (Tennessee) order. it will have to be under promissory estoppel. • Main question from this section is – does the idea of promissory estoppel have any utility? I think it does – it is a fairness test 1. He then dies and the estate denies liability for this promise. Notes: • Court says Act 198 does not create an enforceable contract. seeking to enforce a promise to pay a home mortgage obligation in connection with plaintiff's divorce settlement. • Economic necessity might be a defense but GM does not raise it here – court says they are just moving the production from one plant to another – not stopping it. he promises to pay off the mortgage of his girlfriends mother so that she could get a divorce. unlike in Red Owl. • D claims that the promise was conditional (favorable market demand) and thus was illusory and not enforceable. Plaintiff showed that decedent's promise had induced her to incur a $ 39. Vernon Presley (p 792) Before Elvis dies. plaintiff's reliance on the promise after defendant Contract Notes Page 87 of 124 . • Prof says there are several arguments that can be made here: ○ Yipsilanti has lawyers. The court reversed. Hoffman in Red Owl did not have this benefit. • If there is to be a claim. Trial Court rejects this argument. This removed the element of detrimental reliance from the case. Thus. but the agreement was not binding on her or her husband until approved by the divorce court. reversing a judgment in its favor in plaintiff promisee's action to enforce a promise to pay mortgage indebtedness. the injunction is overturned. ruling that plaintiff had failed to prove the detrimental reliance and resultant loss.facility after finding that the corporation was bound to the governments under the doctrine of promissory estoppel. It alleged that plaintiff failed to establish detrimental reliance requisite to a claim of promissory estoppel.587 mortgage as part of a divorce settlement agreement. • On appeal. Alden v. This is based on legislative intent. The appellate court reversed a judgment in favor of defendant on the grounds of promissory estoppel and defendant sought review. Defendant denied liability for decedent's gratuitous promise to pay the mortgage before the agreement received court approval. which were necessary to promissory estoppel. OVERVIEW: Plaintiff promisee filed an action against defendant promisor's estate. court finds no promise had been made.

the promissory estoppel claim fails since the estate denied liability and the property settlement agreement was not binding until approved by the court.denied liability was not reasonably justified and any loss incurred did not result from her justifiable reliance.she should have told the court what happened and tried to see if they would change the settlement agreement. Cowles Media Co. plaintiff's continued reliance on the promise was not reasonably justified and her loss was not due to justifiable reliance. INJUSTICE OF NON-ENFORCEMENT Cohen v. PROCEDURAL POSTURE: Plaintiff individual news source appealed from a judgment of the court of appeals (Minnesota). • Offered Alden’s mother’s divorce – also said he would pay for the mortgage of her house . No fraud claim as the reported had every intention of keeping the promise at the time given and no promissory estoppel claim due to unique circumstances in this case…. news source claimed that reporters broke promises of anonymity. • The court asked if she “relied” – no final hearing on the divorce a the time Elvis died – what you should have known was that settlement you negotiated wasn’t good until the court adjudicated – because she refiled the law suit – not reasonable reliance. She could not show detrimental reliance on the promise. dismissing news source's fraudulent misrepresentation action and allowing a breach of contract claim. should have known that this might not happen. This is overturned and the promissory estoppel verdict for damages is awarded…. She did not tell them thinking this would help her enforce the promise. OUTCOME: The court reversed the judgment of the appellate court and ruled that plaintiff promisee had failed to establish the detrimental reliance and resultant loss necessary for promissory estoppel in her action to enforce a promise against defendant promisor's estate. • Ultimately. Contract Notes Page 88 of 124 . (p 796) At the end of the day – the reporter loses until it goes the Supreme Court. Notes: • Court says this was not a gift because it was never delivered. • The opinion is there to remind you that with respect to reliance you have to show that you really did change position because of the promise and not because of some independent judgment on your own part • Remember to be sensitive about reliance – did they change position b/c of the promise? 3. After defendant denied liability for the decedent's promise. There was no detrimental reliance.but before he could Elvis died • Mother tried to get the money from the estate and the estate said no – the mother says “but he promised” • Court says that they were not harmed by their relationship – they benefitted.

and reversed the court of appeals' allowance of the breach of contract claim.000” Reporters didn’t tell Cohen that the newspaper had a policy about not keeping sources secret Was his reliance unreasonable if he did not ask about whether the newspaper would honor the promise made by the reporters? Why didn’t he just deliver is anonymously to the newspaper? ○ If he wanted to be sure that the newspaper ran the story – better chance if he met with them in person You would think that all these parties must know they are running some kind of risk – MN Supreme Court ducked the had issues (promise and reliance) and decided to talk about injustice – it was in the public interest to know about the candidate’s back ground.seems to work when you have a simple transaction So what happens if we have a genuinely complicated transaction where parties know it is complicated – should promissory estoppel apply in those cases (like in Hoffman) • • • • • • • • • Contract Notes Page 89 of 124 . I put myself as risk. News source was fired from his job right after the story was published. The trial court found that the First Amendment did not bar news source's breach of contract and fraudulent misrepresentation claims. OUTCOME: The court affirmed the court of appeals' dismissal of the claim based on fraudulent misrepresentation. On further appeal. but also interest of the public to know who leaked the info USSC court says the first amendment does not allow lic to violate well established state law of promissory estoppel as long as it is law you would apply generally – then you can go ahead and enforce it So it goes back to the MN supreme court – so they rule for Cohen and he gets his money Sometimes we can think of these cases as very close to fraud cases But want to ask when does this idea actually work? . I lost my job – that’s unjust I want $200. and the use of a promissory estoppel theory violated newspapers' First Amendment rights. The appellate court affirmed as to the breach of contract claim but dismissed the misrepresentation claim. News source had given the reporter public court records that involved one of the candidates based upon a promise of anonymity. the court held newspapers' breach of reporter's promise of anonymity to news source was not legally enforceable. Contract law was ill fit for a promise of news source confidentiality. you broke the promise.OVERVIEW: News source sued newspapers after a reporter broke his promise to keep his name out of a political news story. neither under a breach of contract claim or under the doctrine of promissory estoppel. • • Notes: Gov race in MN in the 1990’s – political operative got a hold of papers with damaging info about candidate – gave to newspaper and asked newspaper to promise that they would not use his name But newspaper find out his name independently from another source – so they publish the story with Cohen’s name -he sues the newspaper under promissory estoppel – “I relied on your promise.

but are you sure that it does? Or maybe injustice is the key issue? Maybe it would be appalling if Red Owl gets away with this so we force it into promissory estoppel Why wasn’t this a contracts case (Rather than a promissory estoppel case) so that we could bring to bear our usual mechanisms to determine whether or not to enforce the contract? What we are doing is searching for norms – searching for prejudices.but there is a promise and reliance we will invoke the notion of estoppel and will enforce (strong reading of Restatement §90)  But then we have to ask the question what do we mean by a promise? What do we mean by action and forbearance? Why do we have injustice as a third element? (because if there is a promise and detrimental reliance on the promise that causes harm – there is an idea of injustice that transcends the formula of K law)  Behind the puzzles there is a suspicion that promissory estoppel doesn’t work when we are working with complicated transactions (Red Owl. starting points (Raffles)  Maybe we don’t want to generalize the fact that promises should be kept – if so what do we have to work with – exchange structure  So what about the idea of good faith and fair dealing? (Chapter 12) Contract Notes Page 90 of 124 .• • Does promissory estoppel work at all? – the court thinks it does. predictions. Ypsilanti)  Contract law is mostly interested in intricate deals. values. contracts may not look quite like commitments – but bets. that we can bring to bear in addressing what are otherwise ambiguous or complicated cases Consideration – has an important but also puzzling – restricts the ordinary range of contract law to arrangements that have that structure – judges are happy to makes sense of and legally enforcing  Consideration case law doesn’t do very much to explain why – just tells you what to start with –  Efforts to fill that gap have largely focused on notions of intention or promise ○ We’ve looked at cases where people were clearly making promises and signify that they meant for the promises to be legally binding (in different ways) and then we looked at other group where we weren’t so focused on the intention but on the consequences of promises making – relied to their detriment (Promissory estoppel)  The difficulty is that promissory estoppel Restatement §90 and case law turn out to raise difficult questions  What constitutes a promise?  Alternately we might say even if you don’t have consideration . business deals – promissory estoppel doesn’t look like it is very helpful – doesn’t give us a lot to work ○ Might suggest dangerous thought – maybe the notion that promises should be kept is not fundamental part of contract law?  Contract law doesn’t start with notion that promise should be kept – promise is too simple a notion.

problem is the tenants not sure how much money they can make in their retail – so charge a trivial rent plus % of gross sales  Makes sense. The court held that: (1) although the parties' promise was lacking. can we say more and learn more? . (3) the tenant could not avoid liability Contract Notes Page 91 of 124 . but obviously creates a risk that the tenant.Performance and Breach (Chapter 12) Good Faith and Fair Dealing  UCC 1-203 structure already insists that there is an obligation of good faith  Restatement says the same thing ○ Restatement (Second) §205 Duty of Good Faith and Fair Dealing .Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement  What do we mean by good faith?  UCC defines good faith (1-201(19)) and 2-103)– honesty ○ In the case of merchants – honesty and fair trade practices  The question is. suitable for retail space. enter in to a lease. (2) by the tenant's agreement he had promised to use reasonable efforts to bring profits into existence. if the business is successful. Levy (p 817) Tenant has lease and has to pay a percentage of his profits as part of lease. PROCEDURAL POSTURE: In an original action defendant lessee filed a motion to dismiss plaintiff assignee's complaint for a failure to state facts sufficient to constitute a cause of action. OVERVIEW: The tenant promised to pay rental in part measured by a percentage of gross receipts of the business. The assignee had filed actions to recover for the alleged breach of a leasehold agreement assigned to the assignee by the original lessor and also charged the lessee and defendant tenant with a conspiracy to reduce the gross income of a business conducted on the leased premises. Court finds that the tenant had an implied obligation of fair dealing. The assignee alleged that the lessee and the tenant. open up stores near by  The landlord will say you are cheating – take them to court and involve good faith and fair dealing Goldberg v. may not want to share the profits  Ultimately business circumstances change – tenant may think of other uses for the property or may want to relocate the business. The assignee claimed that the lessee and the tenant had negligently or willfully permitted the business to become mismanaged and negligently or willfully diverted the proper channels of trade from the business to another store. although obligated to do so. the whole writing was "instinct with an obligation" imperfectly expressed (think Wood v Lady Duff). P claims that the tenant deliberately or willfully mismanaged and diverted business so that income would fall – then they get out of the lease. had failed and refused to act in a fair and proper manner with relation to their obligations under the terms of the lease.the answer is yes  The notion of good faith and fair dealing is important to master – it is a basic working principle  Common problem in cases (that start to address this) – someone owns a building.

how do we figure out good faith? – the court says “sole purpose” . or from those floors and that those sales. and (4) because the tenant occupied the premises with the knowledge and consent of the landlord and the assignor there was a presumption that the lease was assigned to the one in occupation. The trial court found in favor of the lessor. OVERVIEW: The lessee. the court denied the lessee's motion. except as to the first cause of action pleaded against the tenant. The lessor argued that it was owed additional rent in the form of the sales percentage from the fur sales. OUTCOME: The court denied the lessee's motion to dismiss the assignee's complaint for the failure to state facts sufficient to constitute the cause of action. Notes:  Court says there is a promise to use reasonable efforts to bring in profit  Levy opened up the other store to get out of having to pay the % to land lord – if that was the only reason then in violation of the contract  Δ would argue that they are not acting in bad faith – just acting in the own interest – maybe other store was better location. which operated a woman's retail clothing store. The appellate court modified the judgment in favor of the lessor to include the sales percentage only on sales that were referred by sales persons on the first three floors. you could have put this in the contract if you didn’t want us to open another store  How do we resolve this. Both parties appealed. The Appellate Division of the Supreme Court in the First Judicial District (New York) affirmed the judgment but lowered the amount of damages awarded.under the lease by abandoning the premises or by the diversion of business to another store that he operated in the same vicinity.they have taken a long step to marginalize the duty of good faith Mutual Life Insurance v. Tailored Woman p. which was dismissed for insufficiency.818 Tenant moved fur sales to another floor that had a flat rent rate instead of a percentage rate…Nothing in the lease forbade what they did… PROCEDURAL POSTURE: Plaintiff lessor brought an action against defendant lessee for the payment of additional rent. pursuant to the lease on the first three floors. Accordingly. in. The court held that sales referred from the lower three floors were sales on. OUTCOME: The court affirmed the judgment from the appellate court. the court held that there was nothing in either lease to forbid the lessee from moving its fur department to the fifth floor. The lessee subsequently moved its fur department to the fifth floor and reconstructed the interior elevators to operate on the first through third and fifth floors. better building. which modified the judgment from the trial court in favor of the lessor to require the Contract Notes Page 92 of 124 . entered into an agreement to lease the first three floors of the lessor's building for a flat rent plus a percentage of sales. The parties later agreed to lease a portion of the fifth floor under a flat rate rent. On appeal. should have been included in the sales percentage rent for the first three floors.

Accordingly. so fur sales should count for the first floor Court split on the issue – majority says that the landlord didn’t put restriction on moving any part of the business to the 5th floor So even if there is a duty of good faith – there are also express terms of the contract  Dissent – they just shouldn’t be able to do this Landlord’s lawyer blew it – this is what we should learn from the case – lawyer should have caught the difference in the contracts and added a clause that would have covered this (lawyerly malpractice) Case also raises the problem that if we can predict the moves. The court held that the parties' lease.  TW takes over another floor (5th floor) that becomes available – want a     different deal. Appellant landlords did not produce evidence demonstrating that an implied Contract Notes Page 93 of 124 . OVERVIEW: Appellant landlords sought review of the trial court's decision in favor of appellee tenant determining that the parties' lease did not include an implied covenant requiring appellee to continue to operate a supermarket business on the demised premises. then what about the duty of good faith? How can we makes sense of the duty of good faith and TW’s goal to maximize profit Notes:   Stop and Shop v. just a flat rate (versus lease for other floors that includes a % lease) Then more the furs to the 5th floor – so then the gross % drops on the lower floors (but lease never said anything about furs. OUTCOME: The trial court's decision in favor of appellee tenant was affirmed. or engage in the supermarket business on those premises. keep the premises open. There was nothing in the record which implied a covenant to operate the supermarket business beyond that time when--based upon the business judgment of appellee--the business should cease. the court held that the terms of the lease did not prevent appellee from opening competing stores adjacent to or near the demised premises. In addition. the trial court's decision was affirmed. There did not appear to be bad faith. Ganem p.25 percent of all gross sales above a set amount.lessee to pay as rent a percentage of fur sales on an upper floor which were referred by clerks on the lower three floors. Appellants did not demonstrate that a reasonable person in their position could be justified in understanding that an implied covenant was intended by the parties to the lease. did not impliedly incorporate a covenant that appellee would continue to operate a supermarket business on the leased premises. They kept paying min rent. just women’s clothing) LL argues that to get to the 5th floor have to come through the first floor and ask for the furs. whereby appellee promised to pay a fixed annual rent together with a further rent of 1. PROCEDURAL POSTURE: Appellant landlords challenged the decision by the superior court (Massachusetts) in favor of appellee tenant ruling that the parties' lease did not expressly or impliedly require appellee to use the demised premises for any particular purpose. 824 No implied covenant to keep the grocery store open. Appellants argued that the lease included an implied covenant to continue the supermarket operations.

River Valley Cookies p. Notes:  Similar lease – Stop and Shop decides they would be better off if they opened independent shops – but don’t want to break the lease – so they close up and continue to pay the min rent (no extra profit going to the landlord)  Have they breached a duty of good faith? . So… if there were great inequality over time. notwithstanding defects in the injunction order because plaintiff could have been held in contempt for violating the injunction.811 PROCEDURAL POSTURE: Plaintiff franchiser appealed a judgment of a United States district court.courts don’t think so – say the min rent is enough. which denied its motion for a negative preliminary injunction in its trademark infringement suit and granted an affirmative preliminary injunction sought by defendant franchisees. holding that (1) it had jurisdiction. preliminary injunctions.  Idea seems to be that you could ague both sides of these cases – you could also say that just because you can do something does not mean that you should. (3) The likelihood of success on the merits was low because defendants' proper course was to sue for breach of contract and to seek to enjoin termination rather than to violate trademark law and then seek such relief once they were caught. upon termination of franchise by plaintiff. and plaintiff appealed. The court reversed. (2) Defendants failed to establish a probability of irreparable harm if relief denied to them. lease left open this possibility  This looks like a case in which good faith might have done the work?  Prof speaks of the idea that we want background rules that will influence how business is done outside of the courtroom. OVERVIEW: Plaintiff franchiser sued defendant franchisees for trademark infringement after defendants. and defendants sought to compel plaintiffs to provide needed raw materials. This would be good essay material. The district court abused its discretion inasmuch as defendants failed to establish probability of harm. requiring appellee to continue to operate a supermarket on the demised premises. inter alia. continued to market their product under plaintiff's label. In addition. the affirmative injunction required undue judicial supervision. they are in the business of making money. nothing in the lease prevented appellee from beginning competing supermarkets adjacent to or near the leased premises. the affirmative injunction required undue judicial Contract Notes Page 94 of 124 . was contained within the parties' lease agreement. defendants counterclaimed.covenant. Both sides sought. arguing that their franchise had been wrongly terminated. Additionally. would you not want a rule that would push the parties into renegotiating? Prof suggests that perhaps this is the reason that the UCC provisions are so unclear – they should just alert you to the idea of good faith. The federal district court held for defendants. The Original Great American Chocolate Chip Company v. Plaintiffs sought to bar further trademark use. OUTCOME: The court reversed the judgment for defendant franchisees.

Posner said – no altruism is required – you don’t have to sacrifice to help the other party.that is bad faith  But where we can explain your behavior as responding to some independent opportunity not bad faith. Really does not tell you much.supervision. After all. not to be “reasonable. it just does not work that way. but sometimes you are trying to extract more money where there is no substantial other business reasons and that is the only thing you are doing . Puts all parties on notice that this is a concept lurking in the background. good faith is very hard to define.” but to avoid taking advantage of gaps in a contract in order to exploit the vulnerabilities that arise when contractual performance is sequential rather than simultaneous  Contract law imposes a duty not to be reasonable but not to avoid taking advantage of gaps  Here Posner is outlining a standard approach to good faith – not bad faith  We can id bad faith and the key term is “gaps in contracts” – moves. Prof says that one view of the UCC on good faith is that it is pretty useless. responses within the life of the contract that aren’t clear or addressed  Suppose that I see the gaps and simply decide that I can extract some advantage = bad faith  Sometimes you are trying to profit because you have an independent business transaction. acts. this may be the easy case for good faith. it does not proceed on the philosophy that I am my brother’s keeper…Contract law imposes a duty. they would not have entered into the K unless each thought they would benefit. Final Discussion from Prof on Good Faith: • • • • • At the end of the day. He suggests that most cases are not that clear. More likely view is that the UCC is intended to be general because it is supposed to work indirectly – not as a clear rule. May be very helpful to courts from a regulatory fashion. contract law does not require parties to behave altruistically toward each other. and proper analysis revealed that defendants were unlikely to prevail on the merits Notes:  Posner opinion  There is no blanket duty of good faith. Says when we see a fact pattern in which one party is clearly benefitting and one clearly losing. Contract Notes Page 95 of 124 .

finding that there was no manifest error in law or fact in the first trial. now to explain the diff between a implied warranty of fitness for a particular purpose (UCC 2-315) and implied warranty of merchantability (UCC 2-314(2)) They bought systems which worked but would not run particular software program. But does it really? • We know there are courts who will say that the expressed terms of the contract make the duty of good faith and fair dealing besides the point . After problems developed. The court held that neither defendant could be liable for implied or express warranties where plaintiff used goods for the purposes for which they were not intended or where there were express warranty limitations. Inc. • Does this mean that the parties have extricated good faith from the contract or can they interpret the meaning of good faith and fair dealing within the contract? – UCC allows for that • We might think that warranty is nothing but a good faith and fair dealing problem • Might say in the absence of warranties is this good faith performance to give someone a faulty product? . v. Contract Notes Page 96 of 124 . Wise (p 832) Here we see this case again. OVERVIEW: Plaintiff sold computer terminals comprised of defendant's hardware and separate defendant's software.WARRANTIES – EXPRESSED AND IMPLIED (p 831) Why did the editor of the book put the material of warranties and good faith in separate sections? • Idea of good faith cannot be eliminated – seems to apply here in warranty also. Plaintiff argued that the court's granting of a directed verdict for one defendant during the trial prejudiced the case against the remaining defendant. The court granted summary judgment for defendant on a number of claims and the remainder of the claims were denied by either a directed verdict or a jury verdict. The court determined that plaintiff failed to substantiate the misrepresentation.but instead of arguing about that we talk about express and implied warranties • Through express warranty can we restrict implied warranty and are there any limits on all of this? • What we are talking about is whether the contract works out to be “unfair” from the perspective of one of the parties • Two types of warranties supplied by the UCC by default:  Implied Warranty of Merchantability  Implied Warranty of Fitness for a Particular Purpose Implied Warranties of Merchantability for a Particular Purpose Step-Saver Data Systems. The court denied a retrial. The court found plaintiff's argument was unjustified as it could make a determination at any point and properly limited the discussion regarding the directed verdict to the jury so as not to prejudice the case. plaintiff sought damages pursuant to Uniform Commercial Code ß 2-200 et seq. Plaintiff sought retrial.

rely upon the seller’s skill or judgment. (3) Unless excluded or modified (Section 2--316) other implied warranties may arise from course of dealing or usage of trade. (c) are fit for the ordinary purposes for which goods of that description are used. holding that the verdict in the case did not result in a miscarriage of justice. are of fair average quality within the description. a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. quality and quantity within each unit and among all units involved. UCC SECTION 2-314.OUTCOME: The court denied plaintiff's motion for a new trial. in fact. (e) are adequately contained. of even kind. as there was neither a manifest error of law. etc. nor a manifest error of fact. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. • Here the court says the goods were fit for regular use so there was no vio of a warranty of merchantability and because the requirements for implied warranty for a particular purpose were not met here. (d) run. IMPLIED WARRANTY: MERCHANTABILITY. and (f) conform to the promise or affirmations of fact made on the container or label if any. IMPLIED WARRANTY: FITNESS FOR PARTICULAR PURPOSE Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the Contract Notes Page 97 of 124 . USAGE OF TRADE (1) Unless excluded or modified (Section 2--316). Notes: • Remember that the implied warranty for a particular purpose (UCC 2-315) is a more narrow view and must meet certain specific requirements: (Prof says this is an objective test – should they have known) ○ Seller must have reason to know the buyers particular purpose ○ Seller must have reason to know that the buyer is relying on the sellers skill or judgment to furnish appropriate goods ○ The buyer must. UCC SECTION 2-315. that does not apply. (b) in the case of fungible goods. packaged. and labeled as the agreement may require. within the variations permitted by the agreement. • Implied warranty of merchantability is more broad (UCC 2-314) and says the goods have to be fit for ordinary purposes. (2) Goods to be merchantable must be at least such as: (a) pass without objection in the trade under the contract description.

there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.seller's skill or judgment to select or furnish suitable goods. Contract Notes Page 98 of 124 .

Express Warranties • • Very common Entail a promise to make good for losses within their scope. The court ruled that the findings of fraud and implied warranties were not supported by substantial evidence. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. Class Notes: • Here court said the sellers comments were puffery. including the award of punitive damages and attorney fees. As to the seller's representations that did qualify as express warranties. it negated the award of damages and attorney fees. even if they were not foreseen. and the court reversed. Express warranties by the seller are created as follows: a. OVERVIEW: The case arose from commercial transactions over a period of 18 months between appellant seller and appellee buyer in which buyer purchased paper copying machines from seller. the court found that the district court failed to make the further finding that they became a part of the basis of the bargain. which entered judgment in favor of appellee buyer in the buyer's action claiming breach of express and implied warranties and fraud. 1. v. PROCEDURAL POSTURE: Appellant seller challenged the order of the United States District Court for the Southern District of Indiana. The court held that most of the seller's statements did not create express warranties and were mere statements of opinion or puffery. OUTCOME: The court reversed the judgment for the buyer in his action against the seller for breach of warranties and fraud. Express Warranties by Affirmation. Royal Business Machines. Sample. Promise. The buyer filed suit claiming breach of warranties and fraud. Contract Notes Page 99 of 124 . The seller appealed the district court's order entering judgment for the buyer. As the court reversed the judgment for the buyer. Inc. Description. and the seller filed his own action to enforce the financing agreements. UCC ß 2-313. Lorraine Corp. and the district court erred in determining that the buyer made a timely revocation of acceptance of some of the merchandise. Deals with if any express warranties were breached and if any express warranties were created – hinges on the difference between “puffery” about the product and factual assertions about the product that it would be reasonable to rely on.

Ziff-Davis Publishing Co. the dismissal of plaintiff purchaser's breach of express warranty claim in its contract action arising from its purchase of defendant sellers' consumer magazine businesses. with costs. The court ruled that the required reliance element was established because plaintiff's purchase of the magazine businesses from defendants was based on defendants' express warranty as to the profitability of the businesses. EXAM CASE – Compare this case to the Rogath handout…. The court affirmed the remainder of the dismissal. First Judicial District (New York) that affirmed an order of the Supreme Court. CBS. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. even though plaintiff questioned the accuracy of the financial information. Inc. dismissing its claim for breach of an express warranty in plaintiff's contract action arising from its purchase of defendant sellers' consumer magazine businesses. New York County. but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. (p 841) Central issue is in this case was an alleged express warranty based on the seller giving estimates of profitability of the business. It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty. OVERVIEW: Plaintiff purchaser challenged the dismissal of its claim for breach of express warranty for failure to plead reliance in its contract action arising from its purchase of defendant sellers' consumer magazine businesses. Dismissal of the remainder of the action was affirmed. v. PROCEDURAL POSTURE: Plaintiff purchaser sought review of an order of the Appellate Division of the Supreme Court. The court concluding that the reliance element in an express warranty action required plaintiff to plead that it relied on the express warranty as being a part of the bargain between the parties. which defendants warranted to be true. OUTCOME: The court modified. Buyer expressed doubt over the accuracy of the estimates but seller reassured. c. 1. Class Notes: Contract Notes Page 100 of 124 . Question is if the doubts of the buyer show that there was not the necessary reliance on the assertions by the seller to meet the requirements for a warranty. not that it believed the truth of the warranted information.b. ruling that plaintiff properly pleaded reliance on defendants' express warranty as to the profitability of the businesses. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. The court modified the dismissal to eliminate the warranty claim from the dismissal.

PROCEDURAL POSTURE: Appellant buyer challenged the judgment. they may expressly disclaim a warranty for fitness for a particular use or merchantability. in ordinary commercial usage. ß 1345. in favor of appellee seller in the buyer's action for breach of warranty. Additionally. OVERVIEW: In response to the buyer's argument that he was entitled to revocation of his acceptance of the car and to rescission of his contract to buy the car. fraud. But. Ohio Rev. does that mean Royal is wrong? Express Disclaimers of Warranty Remember that the law of contracts will often supply certain warranties when the parties are silent but parties may also contract around these “default” rules. so sad. I would disagree – it is a car and would be used for a regular purpose no matter who was driving it.03. CBS still wins the case. The court found that the buyer produced no evidence on any conduct on the part of the seller that was a violation of Ohio's Consumer Practices Act. Miller (p 849) Car is sold “as is” with writing to that specific effect. entered in Findlay Municipal Court (Ohio). In other words. Schneider v. the court identified the elements of common law fraud and misrepresentation and determined that there was no evidence of any statements or conduct on the part of the seller that could be construed as fraud or misrepresentation. Dissent says no – there was not reliance on the promise and w/o reliance there can not be an express promise. Class Notes: • Would this case be about a warranty for merchantability or fitness for a particular purpose? The plaintiff is claiming it should be fitness for a particular purpose. Finally. and rescission of a contract for the sale and purchase of a used automobile. as the dealer knew he was buying it for his son. Prof asks – if ziff is right. the court noted that the contract's integration clause effectively waived any implied warranties. Contract Notes Page 101 of 124 .• • • • The key issue here was the CBS did not really believe the representations made by Ziff and so this challenges the idea of reliance on the promise that would be needed for an express warranty to have been created. Court finds no warranty as it was sold “as is” and nothing to support fraud or misrepresentation. OUTCOME: The buyer's assignments of error were overruled and the judgment of the municipal court was affirmed. the court observed that the contract clearly included a statement that the car was sold "as is" and that such a phrase was understood to mean. Why? Court found that they did buy the magazines and they “purchased the promise”. that the buyer took the entire risk as to the quality of the car. too bad. Buyer finds out later frame is rusted and wants a refund. Code Ann.

(might help where there are 2 documents and they have to be interpreted in relation to one another) (2) Subject to subsection (3). all implied warranties are excluded by expressions like "as is". in a consumer contract evidenced by a record. (4) Remedies for breach of warranty may be limited in accordance with Sections 2718 and 2-719. and. is set forth conspicuously in the record.• • If there were no disclaimer – would the general warranty of merchantability help the plaintiff? Maybe or maybe not – dealer could argue that this is a 22 year old car and for its age. except as otherwise provided in the contract. Prof speaks of warrantiesContract Notes Page 102 of 124 (1) Words or conduct relevant to the creation of an express warranty and words or . Subject to subsection (3). but subject to Section 2-202. (3) Notwithstanding subsection (2): (a) unless the circumstances indicate otherwise. and state "The seller undertakes no responsibility for the quality of the goods except as otherwise provided in this contract." and in any other contract the language is sufficient if it states. and (c) an implied warranty may also be excluded or modified by course of dealing or course of performance or usage of trade." and in any other contract the language must mention merchantability and in case of a record must be conspicuous. negation or limitation is inoperative to the extent that such construction is unreasonable. to exclude or modify the implied warranty of merchantability or any part of it in a consumer contract the language must be in a record. that "There are no warranties that extend beyond the description on the face hereof. Language to exclude all implied warranties of fitness in a consumer contract must state "The seller assumes no responsibility that the goods will be fit for any particular purpose for which you may be buying these goods. EXCLUSION OR MODIFICATION OF WARRANTIES conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other." Language that satisfies the requirements of this subsection for the exclusion or modification of a warranty in a consumer contract also satisfies the requirements for any other contract. be conspicuous. "with all faults" or other language that in common understanding calls the buyer's attention to the exclusion of warranties. You could also argue that it would not be reasonable to imply that a 22 year old car would be fit for driving. Perhaps some possible recovery in tort? Fraud? UCC SECTION 2-316. perhaps it is only fit for parts. makes plain that there is no implied warranty. the exclusion must be in a record and be conspicuous. it was fair average condition. to exclude or modify the implied warranty of fitness. for example. and (b) if the buyer before entering into the contract has examined the goods or the sample or model as fully as desired or has refused to examine the goods after a demand by the seller there is no implied warranty with regard to defects that an examination in the circumstances should have revealed to the buyer.

– When you encounter a warranty issue. ask• • • Is there an express warranty? Is there an implied warranty under the UCC? Is there is disclaimer and what counts as a disclaimer? If none of these – are there any other remedies available? Prof feels the Ziff case is perhaps the most important – shows you that warranty can be thought of – how things really are. Contract Notes Page 103 of 124 . We might say that warranties can only handle how things are. This case was about “things as they might be” not things as they were. operating in the background • and disclaimers.Three types – • express – by parties themselves • implied – from the UCC.

Recission. we don’t have to comply with our promises if you don’t We might think of conditions as little bombs that we place in contracts that we might or might not want to trigger – conditions = dangers. It may be a performance that has been promised or a fact as to which there is no promise… Basic exchange model.g.the other ones are just opportunities if we need to get out of the deal. we will make it quite easy for both parties to makes changes if the parties agree ○ If there is an easy way to adjust what is going on ○ Instead of blowing up the deal – UCC allows you to renegotiate ○ (e. an act of a third party. Such a fact may be an act of one of the two contracting parties.209 Modification. the fact that those other conditions are there even though they don’t matter to us. and Waiver (p.Conditions (Chapter 13)  Paragraphs from Arthur Corbin (grandfather of legal realism) at the beginning of the chapter ○ Terminology of conditions ○ “In its proper sense the word “condition” means some operative fact subsequent to acceptance and prior to discharge. but also your job to set the traps that might make it possible to get your client out of a promise Perhaps the most important document in this chapter is UCC §2. hazards to parties who think they have an arrangement The chapter is about showing the problem and to introduce some vocabulary that judges use to treat a condition as pertinent or irrelevant Conditions invite opportunism. invites the chance of taking advantage of someone else when you would rather not go thru your end of the deal As a lawyer it is your job to make it possible for people to coordinate their behavior. coordinating activities with an eye on each other – it is because we can do this that we can do something that makes us both better off When we set this up we are conditioning are behavior on what someone else does – b/c our promises are conditional is how we get consideration Notion of condition is basic to our ideas about what legally enforceable contracts are Inevitably we expect to find conditions in the contracts The problem – once we recognize that arrangements are conditional. risks.what makes courts enforce contracts has to do with the exchange relationship (if/then is the simplest form) ○ Reason that is critical b/c we think of contracts as arrangements in which people try to organize their behavior with respect to each other. 855) ○ Basically says you don’t need lawyers to play games with conditions. an acceleration clause in a loan – condition is a way to keep the debtor in line and paying what and when they said they would)            Contract Notes Page 104 of 124 . why not multiply the conditions? We may want each other to do lots of different things – but might be the case that really only some of those things are actually important to us . consideration . a fact upon which the rights and duties of the parties depend. or any other fact of our physical world.

we bargain in the backdrop of what our legal options might be Conditions precedent – you’ve got to do this before I’m bound (fire insur example – house must burn before insur company has to pay) Conditions subsequent – I’m bound. 862) Howard v. interview neighbors. Federal Crop Insurance Corp. Policy has a provision that the insurance company gets to inspect before paying the claim – here they cant do that.g. other party as a result is no worse off (e. Tobacco crop destroyed by rain – farmer claims under insurance Problem – farmer cleared the dead crops and there was a condition in the contract that you can’t make the claim until the insurance co makes an inspection – so they say we don’t have to pay . They try to get out of payment to farmer by claiming it is a condition precedent.argument in the case is whether this was a promise or a condition ○ Breach of promise means the farmer gets nothing ○ Or might conclude that there were other ways for the ins. they are express) but can be implied Constructed condition .sometimes the court just say we are going to treat this as a condition – (judicial reading) The main point – conditions need not be “obvious” or in the text Conditions are often distinguished from promises by judges – if a clause/term in a contract is recognized as a condition precedent. Court below ruled for insur company. Howard v. a Promise.Conditions don’t have to be explicit (if they are. p. etc… ○ Turns out that there is a state statute that requires farmers to clear out crops quickly ○ Judges decide if it is a condition or promise ○ One of the games judges play (risk that lawyers run) is that the judges will say that it is a promise not a condition ○ ○ Contract Notes Page 105 of 124 . Federal Crop Insurance Corp.      If we are trying to motivate and structure deals by use of conditions – then maybe they are good ○ Have to remember that the conditions are relevant in the litigation phase. 862 Famer makes claim for lost crops but plows over field. look at price of tobacco and incentive to collect on a claim. but I cease to be bound if you don’t do something (fire insur example – I still have to file the claim or they don’t have to pay) Explicit and Implied . or Both? Frequently you will say that particular condition didn’t really matter. p. you have to prove you did what you were supposed to do first to enforce the obligation ○ What Events are Conditions? Is the Event a Condition. on review court says that it would not be enough to rule out payment to the farmer – may be more in line with a promise then a condition. company to figure out whether or not there was a tobacco crop destroyed. but also they may be important to negotiations .

Erwin (p.Chirchella v.○ ○ How do we distinguish – very case specific. but to fail to meet conditions is bad Is the Event a Condition. ad hoc way – judge trying to figure out how important the problem is In this regime it’s sometimes okay to break promises.866) Chirchella v. The court below and on appeal reject this argument and rue that the buyers are entitled to specific performance.866) Case about a sale of house. or Neither? Sometimes circumstances are everything (e. but I’m also constructing a new one – so put some kind of clause in the contract to take into account when I have to move out ○ Court reads the problem as a condition – what one party wants is an opportunity to get out if thing aren’t going well with the new house ○ Real estate wouldn’t work if we made it so easy to put in conditions to get out of selling – real estate people hostile to making one sell contingent on another ○ Judges say don’t try to put in conditions. In no way was the language clear enough to operated as a condition. The new home never happens and thus the seller tyies to say that the language above counstituted a condition precedent. a Promise. we’re not likely to recognize them ○ Always remember that real estate plays by its own rules Another game you can play with conditions is to argue they are really a promise. Seller puts in language that the closing will happen “coincide with settlement of new home”. it doesn’t count ○  Contract Notes Page 106 of 124 . Erwin p. but then issue of breach of promise – another way to do it is to argue that yes there was a condition but you waived it.g. I’m selling my house.

The owner says no – will only give you $4k and if you want. haul. Thus. A dispute arose over the terms of the contract.Duress (Chapter 16) (Obtaining Assent by Improper Means – Defenses) In general. The court ruled that the dispute was between the parties to the contract and no monies were being withheld from nor was a threat made to withhold monies from third parties that would cause defendant in error much duress and financial embarrassment. and deliver logs. Major legal mind. Duress consists of any wrongful act which overcomes the free will of a party. However. Contract Notes Page 107 of 124 . The trial court ruled in favor of defendant in error based upon his claim of duress. wrote book on con law and other subjects. even though he disagrees with the mount. take it or leave it. The plaintiff accepts the payment seemingly under duress as he is in difficult financial straights and cannot do without the payment. • Court seems to find no duress as the reason he took the lower payment was due to his own $ difficulty and this was not the fault of the defendant. no duress would have existed. • Subjective standard is used to determine if free will was overcome. which ruled in favor of defendant in error contracting party on his action to recover compensation under the logging contract entered into by the parties. and defendant in error claimed to have accepted a sum that plaintiffs in error offered to pay for the disputed claim under duress. Notes: • Long discussion of Coley – incredible mind. OVERVIEW: The parties entered into a contract to cut. the court found no duress of goods existed. Seemed concerned that they could set bad precedent by allowing his personal situation to influence how duress is viewed. Defendant in error accepted a payment offered by plaintiffs in error because of his financial embarrassment at the time. OUTCOME: The court reversed and remanded the case for a new trial. or into modifying it. Headley (p 1000) Guy who cut lumber comes to collect the debt. The logger’s personal difficulties were not caused by the actions of the defendant. Court on appeal finds no duress. the court reversed and remanded for a new trial. PROCEDURAL POSTURE: Plaintiffs in error contracting parties appealed a decision of a Michigan trial court. which was around $6k. The man is owed one amount and the company who owes it to him basically says they won’t pay that amount and offer a lower amount. you can sue me. Professor says the restatements in this area are “disappointing” and don’t help much. • Seems like duress to me – or at least bad faith. Hackley v. Defendant in error admitted that had it not been for his financial embarrassment. the defense of duress is available if the D can show that he was unfairly coerced into entering into the K.

which found for appellee subcontractor in appellant contractor's claim for economic duress. PROCEDURAL POSTURE: Appeal from the Appellate Division of the Supreme Court in the First Judicial Department (New York). Appellant agreed after being unable to find substitute contractors and facing stiff penalties if it failed to complete the contract requiring the parts. Appellant was clearly faced with an emergency situation and deprived of free will. Appellant subcontracted for parts with appellee. they threaten to stop delivering parts under the first K unless they were given a substantial price increase on the parts from the first K AND that they be given the second K as well. (p 1004) Contractor gets govt contract and subcontracts out for parts from Austin. Notes: • So why is this case different then the above? • You could say that in the first case. Appellant had no other suppliers who could definitely deliver the required parts and thus met its burden to prove it could not obtain the parts elsewhere. Loral Corp. The work out a deal. OUTCOME: The court reversed the appellate court's decision.Austin Instrument v. finding that appellant made out a classic case of duress because appellant was deprived of free will and had to accept appellee's price increases when it faced substantial penalties and was left with no other supplier to obtain the parts it needed. Appellant faced substantial penalties if it did not complete its underlying contract and faced losing future business. • Another issue this seems to raise is that you had better be careful renegotiating the terms of a K if you are a supplier and the other party Contract Notes Page 108 of 124 . In response. After the contract began. Thinks it was not duress. appellee refused to deliver parts unless appellant agreed to price increases. Contractor (Loral) then gets second govt K. conflicts in testimony – says there were other suppliers and suggests that Austin was not acting in bad faith. The Loral Co feels it has no choice other then to accept as they are under a time commitment and have no other available supplier. Austin bids but is told they must be the lowest bidder to get the deal. Appellant was reasonable in waiting until after appellee's last delivery to sue given appellee's conduct. Dissent. OVERVIEW: Appellant sought review of appellate court's decision for appellee in appellant's suit to recover damages for economic duress. the duress was caused by the personal problems of one of the contracting parties while here the problem the contractor had was known and foreseeable to the subcontractor – had nothing to do with personal issues. The court reversed and held that appellant made out classic case of economic duress.

the contract is voidable by the victim. claiming it was the product of duress. because of duress. They say duress is due to the fact that. that due to rising material costs. (2) A threat is improper if the resulting exchange is not on fair terms. and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat. They send a new PO with the new price and the buyer accepts this. (b) what is threatened is a criminal prosecution. that they had a govt contract and there were no other available suppliers. Notes: • Court distinguishes this case from Loral above. Restatement (Second) ß 175 When Duress by Threat Makes a Contract Voidable (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative. v. Restatement (Second) ß 176 When a Threat Is Improper (1) A threat is improper if (a) what is threatened is a crime or a tort.S. Here the P (seller) tells the D (buyer) after agreeing on a price for equipment. Could claim that they only assented U. the issue arises if a modification in price of the K was something agreed on by both parties or if it was done under duress. Court rejects the duress argument here as there was no protest about the price increase and it does not appear that the company relied on the lower price in making its bid to the govt. Here. or the threat itself would be a crime or a tort if it resulted in obtaining property.is under a time requirement. the buyer refuses to pay the new increased price. or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient. Progressive Enterprises (p 1008) Again. When it comes time to pay. the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. there was no protest about the increase and no evidence to show that it really contained the elements of duress. Remember my observation from above – if we are too liberal with the doctrine. any time a renegotiation occurs in a supply contract. (c) what is threatened is the use of civil process and the threat is made in bad faith. like in the case above. (2) If a party's manifestation of assent is induced by one who is not a party to the transaction. Contract Notes Page 109 of 124 . seemingly without protest. it could result in a claim of duress and clearly this is in opposition to the UCC which allows for modification of the contract see UCC 2-209. they will have to charge more then what was originally agreed.

Bloomfield School District (p 1012) Teacher is arrested for homosexual conduct and submits resignation.(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat. Finally. Notes: • Court uses the idea of undue influence here. Court finds that there were elements of undue influence. and undue influence and was given at a time when he lacked capacity to make a valid contract. Undue Influence (Obtaining Assent by Improper Means – Defenses) Odorizzi v. Says the following factors tend to show undue influence. the court held that mistake was not plead because the complaint failed to disclose any facts that suggested consent was obtained through a mistake of fact or law. They say no fraud. PROCEDURAL POSTURE: Plaintiff teacher appealed the judgment of the Superior Court of Los Angeles County (California). The court held that duress or menace was not pled because any damage to the teacher's reputation through the initiation of suspension and dismissal proceedings was incidental. OVERVIEW: The teacher contended that his resignation was invalid because obtained through duress. fraud. Charges are later dismissed and he seeks to regain his job but school refuses to reinstate him. Furthermore. OUTCOME: The court reversed the judgment of the trial court. According to the court. The court also held that fraud was not pled because the teacher's complaint failed to assert the elements of knowledge of falsity. mistake. intent to induce reliance. no duress. the court held that the pleading did set out a claim that the teacher's consent to the transaction had been obtained through the use of undue influence. especially when multiple factors present at once as was the case here: ○ Undue influence = persuasion which tends to be coercive in nature – high pressure to such an extent that it becomes coercive ○ Discussion of the transaction at an unusual or inappropriate time ○ Consummation of the transaction at an unusual place ○ Insistent demand that the deal be finished immediately ○ Extreme emphasis on the untoward consequences of delay ○ The use of multiple persuaders on one side and a single person on the other Contract Notes Page 110 of 124 . or (c) what is threatened is otherwise a use of power for illegitimate ends. no mistake but undue influence. which dismissed the teacher's complaint that sought declaratory relief and rescission of an employment resignation allegedly submitted under undue influence. it was possible that the teacher's exhaustion and emotional turmoil wholly incapacitated him from exercising his judgment and that he was overly persuaded into signing his resignation document. He claims that he was forced to resign under duress. and justifiable reliance.

the contract is voidable by the victim. the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction. undue influence arguments are rarely winning and ultimately did not win this one. (2) If a party's manifestation of assent is induced by undue influence by the other party. (3) If a party's manifestation of assent is induced by one who is not a party to the transaction. Here we are focusing on process. ○ ○ Restatement (Second) ß 177 When Undue Influence Makes a Contract Voidable (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare. Contract Notes Page 111 of 124 . Duress = threat or implied threat. Here you have employer and employee – more influence. Undue influence is different.• • • • Absence of third-party advisors Statements that there is no time for consultation with third parties Foot notes to case say that despite all the above.

Again. process of entering the K ○ Substantive – clause or K itself • May involve excessive price. perhaps one of the reasons the provisions in this area are vague is because the court wants flexibility and just need to put the parties on notice that these are issues THEY should be considering in their negotiating. is that this case established that the court. (p 1025) Case dealt with a clause in the K that basically kept all items able to be repossessed by the company despite how much may have been paid. BUT – the paradox is that in order to have rules – you have to know what they are. • Remedies: ○ Refusal to enforce ○ Reformation ○ Refusal to enforce the entire K (rare) Williams v. arbitration agreements in employment K’s. duress. • Usually only consumers can claim. if it chose. could invalidate a K under the idea of unconscionability. etc are all important concepts but that they do not tell the whole story and are hard to define. how can you consider it in your contract dealings? Can you opt out of duress rules?? If a court finds that a K or clause is so unfair as to be “unconscionable” the court may decline to enforce that K or clause – see UCC 2-302 • No real definition. limiting remedies. expensive arbitration. they lumped it all together. Walker-Thomas Furniture Co. We have come to the conclusion that we wont come up with certain terms that we can clearly define. just look to see if it is extremely one-sided. court does not generally enforce if it is a businessperson. Leading case on unconscionability. If you don’t really know what it is. They also sold her expensive items knowing she could not pay for them. In other words.e.Unconscionability (Obtaining Assent by Improper Means – Defenses) (p 1024) Professor speaks to the fact that good faith. which affirmed a ruling from the court of general sessions in favor of appellee furniture company in a contract case involving the issue of unconscionability. • Can be procedural or substantive ○ Procedural – induced to enter the K with no meaningful choice – i. The bottomline here. Contract Notes Page 112 of 124 . the courts don’t want to be involved in every contract. PROCEDURAL POSTURE: Appellant buyers contested a judgment from the District of Columbia Court of Appeals. After all. however. Idea underlying that the market will regulate itself? Remember that K law provides default rules – parties can work out what is most important in advance based on good advice and knowing the general lay of the legal land of contracts.

Notes: • Skelly Wright case. ○ Problem for the seller is that they run the risk of default and lack of payment. How did he get here? Was threat of assignation where he was (LA) because of his involvement in desegregation. communication of the terms. ○ One way the seller compensates for the risk is by charging a higher price. that neither the trial court nor the appellate court made findings on the possible unconscionability of the contracts. and the district court granted judgment in favor of the company. ○ Clearly we can see the business model here and understand why they are doing things this way. clearly they will not accept routine cases. Even though the Supreme Court is there. ○ What if it turned out that the furniture was of poor quality and fell apart. OUTCOME: The court remanded the case. gross inequality of bargaining power. They appoint him to the DC circuit to get him out of the area. because the record was insufficient for the court to decide the issue as a matter of law. Code Ann. On appeal. the court reviewed the contract to consider the contract's terms in light of the general commercial background and the commercial needs of the particular trade or case.C. • DC circuit court played the role of the highest appeal court in the district. The buyers defaulted on payments that were due to the company. the cases were remanded to the trial court for further proceedings. stating that the court could refuse to enforce a contract that it found to be unconscionable at the time it was made. If there were a dispute – one of the buyer’s remedies might be to stop paying.OVERVIEW: The buyers entered into installment contracts with the furniture company for the sale of furniture. so. ○ The sellers considered this to be more akin to a single lease for all the items together – you could not pay off one thing until you paid off everything. ß 2-302 (Supp. Here if they did that they would lose everything. • This case: ○ These were poor people buying furniture on credit. They want to get him out of LA. the buyers contended that their contracts with the company were unenforceable due to unconscionability. Could say there are some benefits on both sides. however. The court noted. 1965) of the Uniform Commercial Code and that a court had authority to refuse to enforce a contract found to be unconscionable at the time it was made. Skelly Wright says that it is not automatically unconscionable based on what we know but the Contract Notes Page 113 of 124 . After noting both that Congress had enacted D. ○ At the end of the day. ○ Things to consider – lack of choice.

Court rejects the arguments. the court may refuse to enforce the contract. • Prof seems to think that this really does not tell us anything since they just keep repeating the term unconscionable without making what it actually is more clear. UCC SECTION 2-302. and effect to aid the court in making the determination. UNCONSCIONABLE CONTRACT OR TERM (1) If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made. Contract Notes Page 114 of 124 . Appellant alleged that appellee negligently omitted appellant's business phone number from appellee's phone book. or may enforce the remainder of the contract without the unconscionable term. Judges have responsibilities to look out for these hidden issues. Restatement (Second) ß 208 Unconscionable Contract or Term If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract. (2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable. 2 of the Sedgwick District Court. Southwestern Bell Telephone Co. Wille v. or it may enforce the remainder of the contract without the unconscionable term. or may so limit the application of any unconscionable term as to avoid any unconscionable result. OVERVIEW: Appellant sought to recover damages from appellee after appellee failed to print appellant's phone number in its published phone book as agreed. or it may so limit the application of any unconscionable term as to avoid any unconscionable result. purpose. and because of the circumstances of its execution. which granted summary judgment in favor of appellee in a breach of contract claim by appellant.court should consider all of these things and should be further reviewed by the court. They have a clause which limits their liability in case of errors to the cost of the advertising. Kansas. Equal protection lurking in the background. (p 1033) Telephone company screws up and does not list certain business numbers of the plaintiff. This is outside of pure K law. the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting. ○ Seems to suggest that “extreme” is the key idea… maybe a hint of constitutional law here? Court should not make itself a part of enforcing it if it is extreme… seems to treat poor people more harshly. Appellant asserted that the contract between the parties was unconscionable because of the parties' unequal bargaining position and the form of the contract. Plaintiff claims that the clause makes the K unconscionable and that there was unequal bargaining power. PROCEDURAL POSTURE: Appellant sought review of a decision by Division No.

others don’t Court here seems to be fine with the fact that there is no class action remedy. the court held that the clause was not unconscionable and affirmed the grant of summary judgment in favor of appellee. The court also noted that appellee was not a part of the telephone company by which public services were rendered. He was in the business. Some cases seem to suggest that you have to show issues with both prongs. You know what you were getting into. The court held that even if the bargaining power was unequal. finding that the contract clause limiting its liability for errors was not unconscionable. appellee's liability for errors was limited to the cost of the advertisement. They did not bury it in small print and it did not appear deliberately hidden.  You could say that there were benefits to a class of customers in both cases. the clause limiting liability was clear. • You want to ask yourself how the anal in this case is different then Carnival Cruise?  Here. it was not found to be so. you have 2 business people. • The court could take out a provision that was clearly one-sided or hidden. easy to read – the procedural side seems fine. Contract Notes Page 115 of 124 .Under the contract. Court disagrees. Court rejects all of them. Accordingly. T-Mobile (p 1037) Here we have another arbitration clause but in this case the court finds that is was unconscionable. in this case. there it was a business and a private person. • Different anal for contracts of adhesion v unconsionability? How is the anal different? In re Realnetworks (p 1036) Same case as before – claim that an arbitration agreement contained in the contract was unconscionable. Notes: • The business owner was familiar with these types of contracts – he was not a novice. • Plaintiff is making a number of claims – all designed to prove that an arbitration clause was unconscionable. P’s are challenging practice of charging $200 early term fee and selling locked handsets. • • • Gatton v. which would hinder its ability to limit liability by contract. Furthermore. D’s are seeking to enforce the arbitration agreement. It is not that an arbitration clause could not be unconscionable (it could) but here. appellee did not use any deceptive practice to induce appellant to sign the contract. Easy to find. OUTCOME: The court affirmed the grant of summary judgment in favor of appellee. but that was not the case here. the clause was not hidden. • There is an interplay here between substance and process.

Applying a sliding scale analysis. • A Code is an organized collection of general propositions. ß 1670. and thus no procedural unconscionability. • D’s claim that there were other providers – so consumers had a choice and could have signed with some other company. Why? Because Discover case – could cheat customers out of many small sums of money and it would never be worth litigating unless you could do it as a class action. cellular telephone service subscribers. • “A constitution is not a code” from Marshall in McCullough v Maryland– could apply this to restatement and UCC in some ways. OVERVIEW: The provider argued that there was no surprise. • Bottom line – process and substance will overlap and unconsionabiity cases will overlap with contract of adhesion cases. Court says that degree of consumer choice in the market is one factor but not a controlling one. denied the provider's motion to compel arbitration under the service agreements. Perhaps that is the difference between this and the Ill case. despite the availability of market alternatives. Code. the court found that the evidence of substantive unconscionability was strong enough to tip the scale and render the arbitration provision unconscionable under Civ.5. in the arbitration agreement and class action waiver contained in its service agreements. A class action waiver was unconscionable under California law when the waiver was found in a consumer contract of adhesion in a setting in which disputes predictably involved small amounts of damages and when it was alleged that the party with the superior bargaining power had carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money. The Superior Court of Alameda County. challenged defendant provider's practices of charging a termination fee and of selling locked handsets that a subscriber could not use when switching carriers. California. Contract Notes Page 116 of 124 . To be unenforceable. a K must be both procedurally and substantively unconscionable but not to the same degree and a a lot of oppression on one side can off-set a little on the other side. • Court says that you must use a sliding scale. Courts were not obligated to enforce highly unfair provisions that undermined important public policies simply because there was some degree of consumer choice in the market. OUTCOME: The court affirmed the trial court's order denying the motion to compel arbitration Notes: • Trial court said that the elements of unconscionablity were not particularly strong but held that prior precedent made arbitration clauses that forbade class actions or class arbitrations against public policy. The reviewing court agreed that there was no surprise but held that the adhesive nature of the service agreement established a minimal degree of procedural unconscionability.PROCEDURAL POSTURE: Plaintiffs. The provider brought consolidated appeals. • This might be an easy case in California due to the Code.

The carrier admitted to the breach. This was an action by a miller against a common carrier for lost profits. there can be no liability for lost profit. the damages were too remote. The carrier was supposed to deliver the shaft to the third party within two days. Prof says this basic rule conflicts with another basic rule.Final Cases – Winding Down . Miller contracted with a carrier to send the old shaft to a third party with whom the miller had contracted to take a mold of the old shaft and make a new one. but claimed that the lost profits were not part of the damage for which they could be held liable. What if the damage provision is very very high – will courts enforce? Likely no – court does not enforce punitive damages. based on a breach of a promise to carry the crankshaft to the third party within two days. the proximate. Here the court finds that it was not reasonably foreseeable that the mill would lose business based on delay of the carrier. What damages are appropriate? Rule from this case becomes only the damages that were reasonably foreseeable. and not the remote.  Contract Notes Page 117 of 124 . Liquidated damages clauses are fine but not punitive damages. Facts: A miller needed a new crankshaft for his mill. and the miller lost profits and money from paying his workers. cause is regarded) -Must divide the loss  Most important case in the chapter – Fundamental to K remedies  Stands for basic propositions – what do you get (in damages) when there is a  breach? Court says that unless you brought the consequences to their attention. Held: If special consequences resulting from a breach of contract are not expressed when the parties enter into the contract at the time the contract was made. you cannot collect – UNLESS they were reasonably foreseeable…. Baxendale (p 93) Key issue here is the forseeability of damages. but it failed to do so (Miller told the carrier’s clerk to make a note to hasten delivery).DAMAGES Remoteness or Forseeability of Harm Hadley v. In one way this is in line with Hadley. Rationale: The damages one party should receive in respect of a breach of contract should be such as may fairly and reasonably considered arising naturally from the breach or such as may reasonably be supposed to have been in the contemplation of both parties The principle to be deduced from the authorities on the subject is embodied in the maxim: “In jure non remota causa sed proxima spectatur” (in law. You can contract in advance for what the penalties for breach would be. Miller did not receive a new shaft for several days.

why shouldn’t you be responsible for the provable consequences for your breach? What should Hadley be able to get in damages? . this is my only shaft What are the issues that we might reasonably expect the parties to address? In a big deal we expect that the deal will be pretty thoroughly lawyered before the deal is done – this one is a spot transaction. but the Δ offered 25 but the Π said not this cost me 300 The puzzle – I would understand a rule that says b/c we can’t predict what you are out. when – transaction is not structured to get more details like what happens if this is late. then we will judge the reasonableness of the obligation that the Π wants to enforce – this sort of obligation is disproportionate Companies like this do a lot of business and able to charge relatively little b/c the y have so many customers – can we say since they are making so much money that when they do make a mistake they should have to pay the damages (why is that a loser argument?) What is the nature of the arrangement in which the parties entered? .you walk in and ask how much. if there is a breach why don’t you get lost profits if you can prove them? If that’s what you want then you should propose a warranty or additional term – if that’s what we are saying that there are no background promises or warranties. then you could collect But there is no reason for the law to impose lost profits every time something goes wrong – lost profits may be a risk that the Π’s are willing to take to ship items or Δ’s would have to increase prices Easy reading of the case .Its so easy for you to negotiate the separate deal – you can’t get lost profits unless you do that Contract Notes Page 118 of 124 . In the business world. therefore all we owe you is your money back – but they offer 25 and jury awards 50 Is this just a torts case for negligence? – aren’t damages supposed to be foreseeable? In contract (where negligence isn’t the point).the cost of shipping." The rule of the case stands for placing the risk of loss on the party in the best position to handle it. that’s the way its organized and that’s the way both parties treat it Not mandatory that it be treated that way – judge said Π could have come in and said this is a special deal. explain why they needed it on time – to negotiate Suppose that you insist to pay more to make a special deal – then you could recover on that Coase theorem case – no lost profits unless you specifically negotiate the proposition in detail. (Wikep) The conventional wisdom is often just fine (see above) – but why does it make sense? – people are operating under the assumption that you are going to do what you say. Therefore. there is no reason to suspect that courier companies would have superior knowledge of milling operations and the likely losses.                 the court stated: "the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract. denying compensation if the courier is not informed avoids shifting the costs of loss reduction and prevention. whereas the mill owner likely has a better chance to estimate and hence avoid loss (say by having a spare or agreement with other cooperating businesses that use cranks and shafts).

which. was unpaid contract price minus costs that plaintiff saved by not having to complete contract. contending assertion of lien on bagged product that it refused to ship to defendant's customers. and claimed liquidated damages. good faith and fair dealing. as defendant made no effort to prove loss in form of reduced profits. sometimes a breach might be the best thing for all parties and with a penalty clause. The court held that damages on counterclaim had to be refigured as well. then we might say the judges should say what they are thinking (so not a remedies case. Posner gives some pro’s and con’s of them. Defendant counterclaimed for value of bagged product. shouldn’t the risk lie with the Π who wants to get thinks shipped All of these are what judges think are the sensible terms of the arrangement – judges starting with the transaction/exchange to figure what is going on. could you have had a second shaft?. this may not allow this to happen. (p 173) This case addresses the idea that the common law does not like penalty clauses in contracts. However. the victim of breach was entitled to common law damages. OVERVIEW: Plaintiff brought suit following demand of contract payment and defendant's refusal. what are the obligations?) illustrative of the fact that questions about remedies frequently are about what we understand the terms of the contract to be – judged by notions of exchange. fact that damage formula was invalid did not deprive plaintiff of remedy. subject of contract. Carborundum Co. how complicated a transaction is it? Ultimately working towards what makes sense? The remedy question –get to what are the terms of the deal If the judges are supposed enforce the contract as the parties put it together. In other words. Eastern Division. court held that it was apparent from face of contract that damages provided for by "liquidated damages" clause were grossly disproportionate to any probable loss and penalized some breaches much more heavily that others regardless of relative cost.          What if the company says there are no special deals – and Π pays the price because you have no alternative (would be a contract of adhesion) – should the Π be able to recover? Turns into question of what are reasonable contract terms? For business what should be the legal obligation given what makes sense – working backwards to what the judge thinks makes sense Therefore we ask – could you have negotiated special deal?. etc… Are all the remedies cases like this or are there propositions that we need to know about remedies? Damages for Breach of Contract Lake River Corp. v. The main argument against them seem to be that they might discourage efficient and well as inefficient breaches of contract. On appeal. when plaintiff impounded it and additional cost of serving customers affected by impounding. which gave judgment for both parties in case brought by plaintiff for liquidated damages. in this case. PROCEDURAL POSTURE: Defendant appealed and plaintiff cross-appealed from decision of the United States District Court for the Northern District of Illinois. Contract Notes Page 119 of 124 .

think bargaining problem Figuring out if there was a breach might use notions of good faith – but once there is a breach – you get expectation damages or reliance damages Sometimes if you act in bad faith – that is really a tort action • • Lumley v Wagner (p 216) Summary: Case about opera singer. At least may make them think more as they are negotiating the deal. • • Notes: Posner opinion Need to think about these cases in the background of the conditions material ○ Coase theorem – why don’t you put in what damages will be if you breach the contract ○ Courts draw distinction between liquidated damages – say we will enforce that – but if it looks like a penalty we won’t enforce it . Order to make someone do something or to stop doing something. Why can’t we put in penalty clauses?  If you breach the contract a pound of flesh – as a deterrence. The deal is a plan of performance so in some way. How do we tell the difference? • If the damages greatly exceed a reasonable estimate of what the damages would normally be for breach – it is a penalty. and remanded. to know the likely damages for breach could be very helpful. Leading case on specific performance in the area of personal service contracts. • Discussion about specific performance. plaintiff was entitled to common law damages for breach of contract.OUTCOME: Affirmed in part.need to ask 2 questions  1.  One answer – we know that most disputes that arise with respect to arrangements are negotiated not litigated – we are concerned at least in part about the bargaining dynamic – penalty clause might skew the bargaining power – makes bargaining a farce in this context  Maybe the court wants to provoke negotiation by not clearly defining what is a penalty and what is liquidated damages? (relate it back to conditions and promises and back to some of the exam cases like ALCOA or Peevyhouse – might raise related issues) . as defendant made no effort to prove reduced profits. reversed in part. on grounds that parties' damages were to be redetermined in accordance with opinion. what’s wrong that?  We want the parties to be able to bargain – this impacts bargaining. Contract Notes Page 120 of 124 .  2. and defendant's damages had to be refigured.

damn. The P wants the full value / cost of the work that was to have been done and wasn’t. but the court can enforce making her not sing elsewhere during this time. Tricky question is that if you order her not to perform elsewhere and she decides. The court found that the evidence was properly excluded because such evidence was not within the scope of the pleadings. OUTCOME: Petition for rehearing denied because plaintiffs were not entitled to change their theory of recovery on appeal. garland Coal Mining Co. OVERVIEW: Plaintiffs brought suit against defendant mining company. the D’s entered evidence of the worth of the land before and after the work and want that to be considered as a measurement of damages…in other words. Court applies this rule here. because a party could not change its theory of recovery on appeal. (p 934) Defendant agree that they breached a provision of the contract requiring them to do restoration work to the land of the P’s after coal mining. Parties cant negotiate the quality of personal service contracts – too hard to judge and too hard to specify damages. Notes: Contract Notes Page 121 of 124 . But.• • • • • Prof says she cannot be ordered to sing – why? Clearly you could not get what you want from this approach – you cannot make her sing artistically if she chooses not to. PROCEDURAL POSTURE: In a petition for rehearing. but included other lands as well. No specific performance orders for personal service contracts. We may not be able to make her sing. “Cost of performance rule” v the “value rule”. I guess I will go ahead and perform – you still cant be sure she will do a good job. therefore denying plaintiffs their "day in court. Performance and Breach Peevyhouse v. plaintiffs challenged a ruling of the trial court (Oklahoma). if you think this is true – why not order them to sing in the first place? Courts don’t want to be in the middle of these types of cases. as it is too hard to know if they would be performed. Plaintiffs raised certain questions not presented in the original briefs on appeal. The argument is over the amount of damages. The court also found that plaintiffs' appellate position came too late. alleging breach of contract and property damage. Plaintiffs argued that the trial court improperly excluded evidence as to the total value of the premises concerned." Plaintiffs' argument arose by reason of the fact that plaintiffs' farm consisted not merely of the acres covered by the coal mining lease. One school of thought is that the persons own reputation will make them perform well. they are claiming that because even if the work were to be done that the land value would only be slightly greater – this is the better way to measure the loss to the P. arguing that the court erred in excluding evidence on a factual issue not raised by plaintiffs before appeal.

Wouldn’t this allow for someone who wishes to avoid their legal responsibility to get off the hook much cheaper if they could prove what they contracted to do would not make economic sense in the big picture?? Court does say that if the main point of the K was the restoration work then the value rule would not be appropriate. whose place is it to say that this is inefficient. Dissent: ○ Breach was not in good faith – was willful.contract of adhesion. he may recover damages based on the rental value of the property or on interest on the value of the property. ○ Defendant’s got all the benefits of the K and now screwed over the P. Cost of performance rule vs the value rule. (I agree this makes economic sense if you are looking at the bigger picture but why should the P’s be barred from recovering what they had legitimately had a right to under the K? Seems unfair to absolve the breaching party of the responsibility just because we are looking at the value of the land… what does Guddy say about this?) Court here says that the main purpose of the K was the mining of the coal and that the special provisions of the K pertaining to remedial work were incidental to the main objective…. Restatement §348 Alternatives to Loss in value or Performance (1) If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty. He also seems to felt that the coal company planned to breach all along – thus they did not really have to calculate the cost into the deal if they were planning to breach all along. Which should be applied? P’s argue that the measure of damages is what it will cost them to obtain performance of the work that was not done by the D’s. doesn’t this case have to be right? Prof seems to think this is a quasi.• • • • • • • • • • Prof asks if you think Walker Thomas is right. All are agreed that the D’s defaulted and failed to live up to the agreement for the restoration work. D’s argue the measure of damages is the cost of performance but limited to the total difference in the market value before and after the work was performed. he may recover damages based on (a) the diminution in the market price of the property caused by the breach. ○ The provisions were important as the landowners would not have agreed to the deal without the restoration piece – seems to argue the idea that the restoration was just incidental. (says who?) Idea seems to be not to order damages that would involve “unreasonable economic waste” but to me – they are not ordering damages from the sky – they are enforcing a specific provision to do specific work – again. (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty. Idea of relative economic benefit. or Contract Notes Page 122 of 124 .

Defendant knew of the agreement prior to its own purchase offer and tortiously induced a breach of that agreement. The court held that the jury assessment of 3 billion dollars was excessive in that it went beyond the amount needed to punish and deter future conduct. there was no jury misconduct. Other Remedies and Causes of Action Texaco v. Punitive damages of three billion dollars constituted a confiscation assets rather than punishment for past action. Defendant received due process in the handling of its motion for new trial. (3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach. Notes: • Elements for this type of action: (tortious K interference) ○ That they know there is a K and they interfere anyway – must prove they knew Contract Notes Page 123 of 124 . The court denied all but one point of error. OUTCOME: The court issued an order to plaintiff oil company to file a punitive damages remittitur of two billion dollars. the injured party may recover damages based on the value of the conditional right at the time of breach. Failure to file the remittitur would lead to reversal and remand of the judgment. On the remaining points of error the court held that the evidence supported the jury finding that a binding agreement existed between plaintiff and a third oil company for the purchase of the third company. OVERVIEW: Defendant oil company brought 90 points of error in its appeal of a judgment entered against it for tortious interference with a contract. The jury charge correctly stated the law and explanatory instructions were proper to enable the jury to render a verdict. Pennzoil (p 275) PROCEDURAL POSTURE: Defendant oil company appealed a judgment from the 151st District Court of Harris County (Texas). which awarded compensatory and punitive damages to plaintiff oil company for defendant's tortious interference with a contract between plaintiff and a third oil company. Further. If plaintiff failed to file the remittitur. Plaintiff oil company was directed to file a remittitur of 2 billion dollars. The judgment would then be reformed to show one billion dollars in punitive damages and would be affirmed as reformed.(b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him. A retired judge was properly appointed to complete the trial when the original judge fell ill and defendant was not denied a fair trial. the judgment would be reversed and remanded.

not contracts There is one great idea – the notion of unjust enrichment – means you benefited at my expense and therefore you ought to share the benefits with me Intuitive. how much? Mary Poppins did a lot to help the family – should she sue? No. changed position that benefited Party B – if we decide Party B should share. she was just a volunteer – that’s what we call her in restitution  People think they can do good by interfering then should not be entitled to restitution – no one asks for help  Some how there has to be some acquiesces or knowledge by the beneficiaries to give rise Contract Notes Page 124 of 124 . Most famous tortious interference with business relations case of all time Need to know a little bit about restitution – tort law. natural sense of justice Can imagine some complicated cases – have to figure out if Party A incurred some expense. • • • • Texaco is appealing a judgment that gave Pennzoil damages for Texaco’s tortious interference with a contract between Pennzoil and Getty businesses.○ • • • They must take an active part in interfering with that K by persuading breach by offering better terms or other incentives.

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