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Case Topic Rule(s) Holding(s)

R70 One who makes a written offer which is


accepted, or who manifests acceptance of the
terms of a writing which he should reasonably
understand to be an offer or proposed
contract, is bound by the contract, though
ignorant of the terms of the writing or of its
proper interpretation; R20: A manifestation of An agreement is valid in the absence of fraud,
Ray v. Eurice Bros. Assent
mutual assent by the parties to an informal duress, or mutual mistake
contract is essential to its formation and the
acts by which such assent is manifested, must
be done with the intent to do those acts, but
neither mental assent to the promises in the
contract nor real or apparent intent that the
promises shall be legally binding, is essential.

R26: If from a promise, or manifestation of


intention, or from the circumstances existing at
the time, the person to whom the promise of No contract exists where there is no expression of
manifestation is addressed knows or has fixed purpose to make a definite offer. [the
Lonergan v. Scolnick Assent
reason to know that the person making it does advertisement and letters answering buyers
not intend it as an expression of his fixed questions were not and offer]
purpose until he has given a further expression
of assent, he has not made an offer.

A binding offer may be implied from the fact Although an advertisment is generally not an offer, a
that deliberately misleading advertising misleading advertisement containing a price offer
Izadi v. Machado Ford Assent
intentionally leads the reader to the conclusion creates a binding contract where the consumer
that one exists. makes an honest offer of acceptance.
R42: An offeree's power of acceptance is
An offer is generally freely revocable and can be
terminated when the offeror takes definite
revoked by the offeror at any time before it has been
Normile v. Miller Assent action inconsistent with an intention to enter
accepted by the offeree [where there is no option
into the proposed contract and the offeree
contract]
acquires reliable information to that effect.

R45: If an offer for a unilateral contract is


made, and part of the consideration requested While a unilateral offer may generally be revoked at
in the offer is given or tendered by the offeree any time prior to acceptance, an offeror may NOT
in response thereto, the offeror is bound by a revoke an offer where the offeree has made
Cook v. Coldwell Banker Assent contract, the duty of immediate performance of substantial performance.There was an implied
which is conditional on the full consideration subsidiary promise that the offer wouldn't be revoked
being given or tendered within the time stated upon commencement of performance, effectively
in the offer, or, if no time is stated therein, creating an option to complete performance.
within a reasonable time.

UCC 2-204: An agreement sufficient to


constitute a contract for sale may be found
even though the moment of its making is
undetermined; 2-204(3): Even though one or
more terms are left open, 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
Because an oral contract was formed prior to any
appropriate remedy; 207(3): Conduct by both
Harlow & Jones, Inc. v. disputed documents under 2-204, the contract was
Assent parties which recognizes the existence of a
Advance Steel Co. breached by refusing shipment under the custom of
contract is sufficient to establish a contract for
the steel industry.
sale although the writings of the parties do not
otherwise establish a contract. In such a case
the terms of the particular contract consist of
those terms on which the writings of the parties
agree, together with any supplementary terms
incorporated under any other provisions of this
Act. 2-504: shipment can be refused only
because of a "material delay."
Despite any perceived benefit it may confer on the
R71(1): To constitute consideration, a
promisee, consideration is sufficient to enforce a
performance or return promise must be
contract where the promisee gives up a legal
bargained for. (3) The performance may
Hamer v. Sidway Consideration freedom of action as required for the fulfillment of
consist of (a) an act other than the promise (b)
the promise of the first. [A waiver of any legal right at
a forbearance or c) The creation, modification,
the request of another party is sufficient
or destruction of a legal relation
consideration for a promise]

R71(2): To constitute consideration, a


performance or return promise must be
bargained for. (2) A performance or return
promise is bargained for if it is sought by the
promisor in exchange for the promise. [doesn't
need to be expressly bargained] 79c: if
The bargain theory of consideration does not require
Pennsy Supply, Inc. v. consideration is met, there is no further need
the parties to expressly bargain over the terms, only
American Ash Recycling Consideration of c) "mutuality of obligation" R73:
that the promise induce the detriment and the
Corp. Performance of a legal duty owed to a
detriment induce the promise.
promisor which is neither doubtful nor the
subject of honest dispute is not consideration;
but a similar performance is consideration if it
differs from what was required by the duty in a
way which reflects more than a pretense of
bargain.

R71: To constitute consideration, a A voluntary promise of an executory gift is


Dougherty v. Salt Consideration performance or return promise must be unenforceable where there is no benefit to the
bargained for. promisor or legal detriment to the promisee.
Mere inadequacy (perceived unfairness) of
R79: no requirement of "equivalence in the
consideration will not void a contract. Where we
Batsakis v. Demotsis Consideration values exchanged" BUT points out that "gross
have a "sufficient" consideration, the court will not
inadequacy of consideration may be relevant."
inquire to its adequacy.
No consideration is present where there is no legal
detriment to the promisee and no benefit to the
Plowman V. Indian Refining
Consideration promissor. There can be no retroactive
Company
consideration. Moral consideration only exists when
it is also a legal consideration
R90: 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 An offer is irrevocable where the offeror has reason
is binding if injustice can be avoided only by to believe that the offeree will rely on the offer,
enforcement of the promise; R45: If an offer for where the offeror does rely on the offer, and where
a unilateral contract is made, and part of the injustice can be avoided no other way. [also where
Pre-Acceptance consideration requested in the offer is given or offeror made no attempt to identify bid as revocable]
Drennan v. Star Paving Co.
Reliance tendered by the offeree in response thereto, Where we have reliance, we can imply the existence
the offeror is bound by a contract, the duty of of a promise i.e. Implied Subsidiary Promise. The
immediate performance of which is conditional use of a bid does not automatically = acceptance.
on the full consideration being given or You need reliance on the implied promise to make it
tendered within the time stated in the offer, or, irrevocable.
if no time is stated therein, within a reasonable
time. Implied Subsidiary Promise created by
reliance to hold the bid offer open--becomes
irrevocable due to reliance.
An option contract to purchase land must be
supported by consideration to be binding. R42:
An offeree's power of acceptance is terminated
when the offeror takes definite action
inconsistent with an intention to enter into the Where there was a recital of purported consideration
proposed contract and the offeree acquires R87-1a, there was no payment for the option
reliable information to that effect. R90 contract and so there was only an offer to sell which
Pre-Acceptance Promissory Estoppel requires that a) the could have been freely revoked by the offeror at any
Berryman v. Kmoch
Reliance promise was made under such circumstances time prior to acceptance. No cause for promissory
that the promisor reasonably expected the estoppel exists where the offeree has no legal
promisee to act in reliance on the promise b) obligation to take any costly actions in reliance upon
the promisee acted as could reasonably be the promise.
expected in relying on the promise c)
enforcement is the only way injustice can be
avoided. R43: Revocation can be revoked
either directly or indirectly.

Bonebrake Test: whether UCC or common


law applies depends upon 1) The language on
the contract (mostly goods or services?) 2) The
1) When the predominant purpose of a contract is
nature of the business of the supplier and 3)
the rendering of services rather than the furnishing
Qualified the intrinsic worth of the materials. R59: a reply
of goods, the UCC is inapplicable and courts must
Princess Cruises, Inc. v. Acceptance- Mirror to an offer which purports to accept it but is
draw on common law doctrine when interpreting the
General Electric Co. Image Rule - Last conditional on the offeror's assent to terms
contract 2) A final document "last shot rule" is
Shot Rule additional or different from those offered is not
controlling if it is a counteroffer and if the other party
an acceptance but a counteroffer. R19: the
manifests assent by performance of payment (R19)
manifestation of assent may be made wholly or
partly by written or spoken words or by other
acts or by failure to act.
2-105: Is it a transaction in goods? 2-104 Is the
seller a merchant? Is there a signed written
assurance the offer will be held open? [can be In this problem the answer rests on the date
held open for the time stated, but not to September 19th. If the revocation came after the
Problem 2-2 Firm Offer exceed 3 mo. under the firm offer rule. If these 19th, the seller is not in breach. If it came before the
conditions are met, the offer cannot be 19th, the seller is in breach. We need to know the
revoked until the end of the 3 mo. period. exact date.
There is no need for consideration under the
firm offer rule UCC 2-205

1-103: An "offer" is made when the offer leads


There was no agreed upon indemnification provision
the offeree to reasonably believe an offer has
as Hercules' purchase order was the offer and
been made. Since UCC does not define offer,
controlling document as Brown's quote consituted
we look to common law: R24: An "offer" is the
only an invitation to negotiate and since by
Qualified manifestation of willingness to enter into a
Brown v. Hercules responding without expressly making the response
Acceptance - 2-207 bargain, so made as to justify another person
conditional upon its own provisions, Brown assented
in understanding that his assent to that bargain
with proposed additions to the contract which were
is invited and will conclude it. Use 2-207 flow
not accepted by Hercules as they had expressly
chart in supplemental materials for the rest of
limited terms of acceptance to its own offer.
the rules

An agreement must be sufficiently definite to


be binding; vagueness or indefiniteness or
uncertainty will render it void unless by their A renewal option provision of a lease or other
conduct or acts supplementing the covenant common law contract requires substantial certainty
Agreements to
Walker v. Keith are sufficient to remove the alleged as to the material terms upon which the minds of a
Agree
uncertainty; merely leaving the terms for future party have met which must include definite terms or
agreement without providing a method for their a definite formula of determining the material terms.
determination, renders the agreement
unenforceable for uncertainty
2-305: an open price term WILL NOT prevent
enforcement of a contract for sale if the parties
INTEND TO BE BOUND by their agreement. If
the parties fail to agree to a price, the court
may enforce a "reasonable price" and if one
party has the power to fix the price, it must do
so "in good faith." This may be done if a) Court fixing prices looks at: 1) An intent to be bound
Agreements to nothing is said as to price; or b) the price is left 2) Whether the court can determine a reasonable
A Look at UCC 2-305 Agree under the to be agreed by the parties and they fail to figure consistent with the parameters of intent; and
UCC agree; or c) the price is to be fixed in terms of 3) Result must be consistent with "good faith" and
some agreed market or other standard as set any reliance/restitution interest
or recorded by a third person or agency and it
is not so set or recorded. 2-305(2) Price must
be set in good faith 2-305(4): However, where
the parties intend NOT TO BE BOUND unless
the price be fixed or agreed and it is not fixed
or agreed, there is no contract.
In letters of intent, the intent of the parties is
controlling; if the parties intended that the
document be contractually binding, that
intention would not be defeated by the mere
recitation in the writing that a more formal
agreement was yet to be drawn; although
letters of intent may be enforceable, such
letters are not nec. enforceable unless the
parties INTEND TO BE BOUND. If no
ambiguity exists in the writing, the parties'
A letter of intent may be an enforceable contract if
intent must be derived by the court as a matter
the language unequivocally manifests an intent to be
of law, solely from the writing itself, but if they
Quake Construction, Inc. v. Agreements to bound. If the language is ambigous, it should go to a
ARE ambiguous or capable of more than one
American Airlines Inc. Agree trier of fact with parole evidence. A letter of intent
interpretation, parole evidence is admissible to
can be enforceable if it is a memorialization of
ascertain the parties' intent.R27 Existence of a
previous agreement.
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;
but the circumstances may show that the
agreements are preliminary negotiations.
At common law, courts will examine several
factors of letters of intent to determine intent:
1) whether the type of agreement involved is
one usually put into writing 2) whether the
agreement contains many or few details 3)
whether the agreement involves a large or
small amount of money 4) whether the
agreement requires a formal writing for the full
Agreements to
Quake Elements expression of the covenants 5) whether the The courts will look for CONDUCT and INTENT
Agree
negotiations indicated that a formal written
document was contemplated at the completion
of the negotiations 6) where in the negotiating
process that process is abandoned 7) the
reasons it is abandoned 8) the extent of the
assurances by the party which no disclaims a
contract 9) other party’s reliance upon the
anticipated transaction
UCC 2-204: An agreement sufficient to
constitute a contract for sale may be found
even though the moment of its making is
undetermined; 2-204(3): Even though one or
more terms are left open, 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 The KEY will be INTENT. There can still be open
appropriate remedy; 207(3): Conduct by both terms which the court can fill in with "gap fillers." The
Quake under UCC; if it Agreements to
parties which recognizes the existence of a more open terms there are in a letter of intent,
were a sale of goods Agree
contract is sufficient to establish a contract for however, the less likely the court is to find a contract.
sale although the writings of the parties do not Actions, then, may still show an intent to be bound.
otherwise establish a contract. In such a case
the terms of the particular contract consist of
those terms on which the writings of the parties
agree, together with any supplementary terms
incorporated under any other provisions of this
Act. 2-504: shipment can be refused only
because of a "material delay."

The offer was found to be from the company Buyers accepted sellers offer by keeping the product
here and was accepted when when the past thirty days thus forming a binding contract. The
Brower v. Gateway Electric Contracting
consumer kept the product past 30 days. UCC arbitration clause is valid and binding but the means
207(2): are unconscionable since it is financially prohibitive.

R90: A promise which the promisor should


reasonably expect to induce action or When a person detrimentally relies on a promise for
forbearance of a definite and substantial which the promissor should have expected to induce
Greiner v. Greiner Reliance character on the part of the promisee and action or forebearance and which does induce
which does induce such action or forbearance action or forbearance is binding if injustice can be
is binding if injustice can be avoided only by avoided in no other way
enforcement of the promise
R90: A promise which the promisor should
Reasoning: the court finds an implied promise
reasonably expect to induce action or
through conduct to uphold the public policy of
forbearance of a definite and substantial
protecting children. Newman relied on the promise
Wright v. Newman Reliance character on the part of the promisee and
by refraining from identifying and seeking support
which does induce such action or forbearance
from the true father. The court reasons the facts
is binding if injustice can be avoided only by
according to R90 to come to the desired conclusion
enforcement of the promise

R90(2):HAS NOT BEEN ADOPTED.


Charitable Subscription: an oral or written
promise to do certain acts or to give real or
Because consideration or reliance was present, the
Reliance - personal property to a charity or for a
King v. Trustees of Boston charitable pledge was correctly submitted to the jury
Charitable charitable purpose. RULE: a party must
University for fact-finding and so BU has reliance claim to the
Subscription establish that there was a promise to give
papers.
some property to a charitable institution and
that the promise was supported by
consideration or reliance.

Here, the court protects an otherwise unenforceable


promise. The element foreseeability is missing from
R90: A promise which the promisor should
the holding of promissory estoppel. The controversy
reasonably expect to induce action or
is over at-will employment and the idea that there
forbearance of a definite and substantial
can be no reliance where an employee can be fired
Katz v. Danny Dare, Inc. Reliance character on the part of the promisee and
for any reason. This court, however, finds reliance.
which does induce such action or forbearance
The case is distinguished from Pitts (p 242) since
is binding if injustice can be avoided only by
Pitts was made a promise AFTER he resigned. Katz
enforcement of the promise
was offered the payments in order to resign and
therefore BEFORE resigning. He relied upon it.
can negate an express contract, we cannot
move to an implied in law contract.This is not a
real contract, but a fictitious contract. 2. The
law may imply a contract where one has been
"unjustly enriched." 3. To be unjustly enriched,
a party must have a) recevied a benefit b) with
no bargained for exchange c) but where the
person has knowledge of the benefit d) where
the enriched party has accepted or retained
the benefit e) and where the provider seeks
payment and f) where the circumstances are
such that it would be inequitable for the
Here, the court finds an implied in law contract. Pelo
defendant to retain the benefit without paying
was unjustly enriched because, even though he did
fair value for it. 4. The act must not be
not consent (or consented under duress), he met the
"officious" which is the conferring of a benefit
Credit Bureau Enterprises, Restitution [Unjust exception under Rest. 116 d and possibly b. As
upon another that is an interferrence in their
Inc. v. Pelo Enrichment] being suicidal the action may have prevented bodily
affairs and is not justified by the
harm and as he was mentally impaired, his consent
circumstances. There are exceptions to this
was immaterial to unjust enrichment. The hospital,
and Credit Bureau Inc is one of these
then, did not act officiously.
exceptions. According the the Rest. of
Restitution Sec. 116, unjust enrichment can be
found where there is no consent when a) they
acted inofficiously with the intent to charge; b)
the things or services rendered were nec. to
prevent the other from suffering serious bodily
harm or pain c) the person supplying them had
no reason to know the other would not consent
to receiving them, if mentally competent; and
d) it was impossible for the other to give
consent or, because of extreme youth or
mental impairment, the other's consent would
Because female contributed both property and
services to the relationship claiming she was never
compensated for her contributions, and male,
Restitution [Unjust
Watts v. Watts See rules above in CBE v. Pelo knowing his cohabiter expected to share in the
Enrichment]
property accumulated, accepted such services, male
could be found to be unjustly enriched. The facts are
sufficient for a cause of action in unjust enrichment.
The law of promissory restitution allows
contracts based on past consideration to be
H1: If a person was subject to a legal obligation that
revived through implied or express conduct in
has become unenforceable either because of
certain instances. R82: A promise to pay a
passage of time, such as the statute of limitations, or
debt barred by the statute of limitations can be
for some other reason, a subsequent promise to
express or it may be implied from the conduct
honor or revive the legal obligation will be
of the obligor. R83: same for bankruptcy, but it
Promissory enforceable at law. Otherwise, H2: a promise
Mills v. Wyman cannot be implied it must be express. / There
Restitution created on past consideration creates a moral
are three instances where past consideration
obligation which is insufficient to support
can be revived: 1) bankruptcy 2) the debt of a
enforcement. Here, Wyman did not have a pre-
minor and 3) a debt barred by the statute of
existing legal duty to pay. His promise came after
limitations. Reviving a debt in bankruptcy must
the services were rendered. Also, there was no
be express while reviving the debt of a minor
benefit to Wyman himself, only to his son.
or a debt barred by the statute of limitations
may be express or implied.

Exception to above rules: Material Benefit


Where the promisee cares for, improves, and
Promissory Rule - where the service was an extreme
preserves the property of the promisor, though done
Restitution: The benefit such as saving life or limb, the court
Webb v. McGowin without his request, it is sufficient consideration for
Material Benefit may imply a "constructive request" for those
the promisor's subsequent agreement to pay for the
Rule services which can be "revived" upon a later
service because of the material benefit received.
promise to pay.

The SOF does not require the memorandum to


consist of only one document. It may be pieced
To satisfy the S.O.F., we ask 1) Is the subject together out of separate writings that are connected
matter within the statute of frauds? 2) Is there to each other either expressly or through other
any written memoranda? 3) Is it signed?; The evidence. At least one MUST be signed. The signed
S.O.F. does NOT create a K. It is an and signed writings must clearly refer to the same
Crabtree v. Elizabeth Arden General Principles:
affirmative defense. See UCC 2-201 There subject matter or transaction. The writing that
Sales Corp. Statute of Frauds
must be a legislative statute to invoke the establishes the contractual relationship between the
SOF. If the affirmative defense fails, the party parties must be signed by the D, while the unsigend
would still need to show the existence of a document must refer tothe same transaction as that
valid contract. set forth in the in the one that was signed. The SOF
runs from the time the contract was made and not
from the time that performance begins.
R139: 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 SOF if injustice can be avoided only by
The doctrine of promissory estoppel can be invoked
enforcement of the promise.; This is different
to enforce an oral contract that falls within the
Alaska Democratic Party v. General Principles: than R90 in that it places a higher burden on
statute of frauds in regard to a promise for
Rice Statute of Frauds the P to present clear and convincing evidence
employment when the employee can show clear and
of reliance on the promise. 2(c): the extent to
convincing evidence of the promise and its terms.
which the action or forebearance corroborates
evidence of the making and terms of the
promise, or the making and terms are
otherwise established by clear and convincing
evidence. 139 gives a list of significant factors
limiting the court's discretionary power.
Requirements of 2-201(1): a) there must be
evidence for a K for a sale of goods b) must be
memorandum signed by the party to be
charged (def.) c) must state a quantity. An
open price term will NOT negate the SOF. 2-
201 applies to the SALE not transaction of
goods. Must have a price of $500 or more. Where a partial payment is made concerning only
Terms may be omitted. 2-201(1) provides a ONE UNIT, it is enough to validate the entire K.
liberal defintion of a memorandum. It could be Multiple units: absent proof the $ was for all units, it
simply someone's inititals or a signed will only cover the goods as far as the paid amount
letterhead, perhaps an automoatic signature takes you.
SOF under UCC
Buffaloe v. Hart on an email. It only needs to persuade the 1) The court reject's buyer's check
UCC 2-201
court that a K has been formed. 2-201(3): To as satisfaction of statute of frauds because it is not
qualify for part performance, the seller must signed by the party to be charged. 2) The jury found
deliver the goods and have them accepted by sufficient evidence of acceptance by partial
the buyer. Acceptance must be voluntary and performance by the Harts and this was sufficient to
unconditional and may be inferred from the form a K, taking it out of the S.O.F.
buyer's conduct in taking physical possession
of the goods or some part of them. The official
comment explains the buyer is required to
deliver "something" that is accepted by the
seller as such performance. This can be
money or a check.
If the elements of 2-201(2) are satisfied, then
the signature of the recipient is not required on
any document to satisfy the SOF. Elements: 1)
There must be an oral K that has been
confirmed in writing within a reasonable time
after formation. The writing must a) show the The seller would argue that the failure to respond to
existence of a K; b) must be signed by the the writing is evidence that a K was formed. This is
sender; and c) must show a quantity of goods. persuasive, but not conclusive. They would still have
2) Confirmation must be received by the other the burden of proof that an oral K was formed prior
party and they must have reason to know its to the written document. Under this exception, a
Exception to the SOF
UCC 2-201(2) contents. 3) The recipient does not provide a written response is required to prevent the loss of
between merchants only
written objection within 10 days which should SOF as a defense. In common law, however,
deny the existence of a K. There is no mailbox responding could be detrimental. A court may find
rule here. It must arrive within 10 days. Note: that a written response denying the existence of a K
an offer or an indication that negotiations are is a "sufficient writing" signed by the party to be
still underway will NOT suffice. Note: The charged. See Note 4 on Pg 313 after Crabtree.
merchant exception DOES NOT mean that a K
was formed. It removes the SOF as a defense
from the other party. The other party can still
argue that no K was formed on which the
writing was to be based.

There is NO merchant's exception in realty for If the realty is the predominant factor, they should
SOF under UCC the SOF. If the goods are predominant here, likely not respond as responding could satisfy the
Problem 4-2
UCC 2-201 they must send a written objection within 10 statute of frauds as a signed memorandum from
days pursuant to the above rules. them as the party to be bound.
1. Partial Performance under 2-201(3): To
qualify for part performance, the seller must
deliver the goods and have them accepted by
the buyer. Acceptance must be voluntary and 2. The "admissions" exception: An in-court
unconditional and may be inferred from the admission that a K is enforceable 3. The "special
buyer's conduct in taking physical possession manufacture" exception: goods so specially
of the goods or some part of them. The official manufactured that they cannot be resold.
Exceptions to the SOF UCC 2-201(3) comment explains the buyer is required to 4.Promissory Estoppel: Majority rule is that, like
deliver "something" that is accepted by the R139 under common law, 2-201 can be excepted by
seller as such performance. This can be promissory estoppel by way of 1-103. A strong
money or a check. Where a partial payment is minority disagrees and states that because it is not
made concerning only ONE UNIT, it is enough listed as an exception in 2-201, it is not applicable.
to validate the entire K. Multiple units: absent
proof the $ was for all units, it will only cover
the goods as far as the paid amount takes you.
R201: (1) Where the parties have attached the
same meaning to a promise or agreement or a
term thereof, it is interpreted in accordance
with that meaning.
(2) Where the parties have attached different
meanings to a promise or agreement or a term
The court uses an objective approach but oddly
thereof, it is interpreted in accordance with the
uses a "modified objective approach" which mixes
meaning attached by one of them if at the time
R201(2)(a) and (b) stating that "where one party
the agreement was made
knows or has reason to know what the other party
(a) that party did not know of any different
means by certain language and the other party does
Joyner v. Adams Interpretation meaning attached by the other, and the other
not know or have reason to know of the meaning
knew the meaning attached by the first party;
attached to the disputed language by the first party,
or
the court will enforce the K in accordance with the
(b) that party had no reason to know of any
innocent party's meaning. SEE ALSO Contra
different meaning attached by the other, and
Proferentem below.
the other had reason to know the meaning
attached by the first party.
(3) Except as stated in this Section, neither
party is bound by the meaning attached by the
other, even though the result may be a failure
of mutual assent.

This is NOT a good rule. It is too subjective. There


Where there were two different meanings, are two rare extremes. One is where the court will
Raffles v. Ricklehouse Interpretation there was no "meeting of the minds" and thus simply define the ambiguous term on its own. At the
no K. other end (Raffles) a court will void a K due to an
ambiguous term.
R204 & UCC 2-204(3) allow an omitted term to
Omitted Terms Interpretation
be filled in where appropriate
The court in Joyner rejects this application because
This applies where there is unequal bargaining
there was no unequality in bargaining power. They
power between the parties and where the
reason that this is a case of interpretation while
Interpretation stronger party is responsible for the ambiguous
Contra Proferentem contra proferentem is a rule for construction--the
Principles language…the court will construe the
judicial role in determining the legal effect of the
ambiguity most strongly against that drafting
language. Must first determine what the
party
interpretation of the language is.

The meaning of a word in a series is affected


Interpretation by others in the same series; or it is affected
Noscitur a sociis
Principles by its immediate context. Illustrated by
Ejusdem Generis
A general term joined with a specific one will
Ex: S contracts to sell B his farm together with "the
be deemed to include only things that are like
Interpretation cattle and hogs and other animals." This language
Ejusdem Generis (of the same genus as) the specific one. If
Principles might include a few sheep on the farm but would not
applied, this usually leads to a restrictive
include S's house dog.
interpretation

"Expression of the one, excludes the other"; If


Ex: S contracts to sell B his farm together with "the
Expressio Unius Exclusio Interpretation one or more specific items are listed, without
cattle and hogs on the farm." This would exclude the
Alterius Principles any more general or inclusive terms, other
sheep and S's house dog.
items although similar in kind are excluded

Ut Magis Valeat Quam Interpretation An interpretation that makes the K valid is


Pereat Principles preferred to one that makes it invalid

A writing or writings that form part of the same


Interpretation transaction should be interpreted together as a This maxim expresses the contextual theory of
Interpret K as a Whole
Principles whole--every term should interpreted as a part meaning.
of the whole and not as if isolated from it

The principal apparent purpose of the parties


Interpretation is given great weight in determining the
Purpose of the Parties
Principles meaning to be given to manifestations of
intention or to any part thereof.
If two provisions of a K are inconsistent with Ex: A lease of a truck states that lessee should be
each other, and if one is "general" enough to absolutely liable for loss or damage to the vehicle in
Specific Provision is Interpretation include the specific situation to which the other once clause and in another says that no party's
Exception to a General One Principles is confined, the specific provision will be liability should be increased by this K. The first
deemed to qualify the more general one--to statement is more specific and therefore, controlls
state an exception to it. the more general statement. The lessee is liable.

Where a written K contains both printed reasoning: the inserted language by writing or
Handwritten or Typed
Interpretation provisions and handwritten or typed provisions, typewriter is likely more recent and more reliable
Provisions Control Printed
Principles the the two are inconsistent, the handwritten or expression of their intentions than is the language of
Provisions.
typed provisions are preffered. a printed form.

May have some appropriate uses in contruing Ks


between private parties. Might be applied to
If a public interest is affected by a K, that
Interpretation government Ks if to be used to save taxpayers'
Public Interest Preferred interpretation or construction is preferred which
Principles money as against those contracting with the
favors the public interest.
government. This is not a standard construction
applied to government Ks.

Frigaliment did not sustain its burden of proof that


R201: A party is bound by the other party's
"chicken" was used in the narrower rather than in the
menaing if the first party either knew or had
broader sense. The court looked at many factors
reason to know of the second party's meaning
including 1) What does the K say? The price in the K
while the second party did not know or have
Frigaliment Importing Co. v. was supportive of BNS interp. Of "chicken." The
reason to know of the first party's
BNS International Sales Interpretation word was left in English which was of further support
interpretation. General view: if an argument of
Corp. to BNS. 2) The trade usage of "chicken"; Frig's
interpretation is based ONLY on subjective
expert witnesses asserted one thing, but practiced
intent, it will likely be rejected. If there is
the other which favored BNS. Language, Negotiation
objective evidence, the court will likely hear it
History, Trade/Usage, Gov't Regs are all important
to decide whether the K is ambiguous.
objective evidence.
The Parol Evidence Rule does not define what
2-202: When a K is fully integrated, neither evidence is affirmatively admissible; it only
party will be permitted to contradict or operates to exclude evidence that would
supplement that written agreement with otherwise be admissible as rationally probative
“extrinsic” evidence (written or oral) of prior of some fact at issue. If the parol evidence rule
agreements or negotiations between them. applies in any situation, it has the effect of
The Parol Evidence Rule UCC
When the writing is intended to be final only preventing one party from introducing into court
with respect to a part of their agreement extrinsic (or “collateral”) evidence of matters not
(partially integrated), the writing may not be contained in the written agreement between the
contradicted, but it may be supplemented by parties, where that evidence is offered to
such extrinsic evidence. supplement or contradict the written agreement.

The Parol Evidence Rule Common Law R209-281


“Four Corners” Approach to determining
integration: Willistonian approach/classic
Merger Clause Ex.: This document constitutes the
approach
entire agreement of the parties and there are no
• Should not look beyond the four corners of
representations, warranties, or written agreements
Parol Evidence - Classic "Four Corners" the document to determine its level of
other than those contained in this document.
integration
• A substantial # of jurisdictions still adhere to the
• A merger clause would conclusively establish
“four corners” approach.
that the writing was integrated.

circumstances surrounding the execution of the


“Contextual Approach”: more progressive
contract as well as the writing itself.
approach willing to look beyond the four
• After hearing all the evidence, the court can then
corners in order to determine intent. It is
conclude whether the agreement was integrated and
frequently identified with Corbin.
thusly whether/how the parol evidence rule applies.
• R210: “[a] writing cannot of itself prove its
• In this approach, a merger clause will not solely
Parol Evidence - Modern "Contextual" own completeness, and wide latitude must be
determine integration.
allowed for inquiry into circumstances bearing
In order to understand the parol evidence rule, it is
on the intention of the parties.”
necessary not only to understand the scope of the
• In uncovering intent, the courts should look to
rule as to what type of evidence it generally purports
all the evidence of all facts and
to exclude from consideration—but also the
numerous exceptions to its operation.
3) The parol evidence rule does not apply to evidence
offered to show that effectiveness of the agreement was
Exceptions to the parol evidence rule: subject to an oral condition precedent.
1) The parol evidence rule does not apply to a. Ex: If Libby had told Thompson (or his agent) when the
evidence offered to explain the meaning of the K was signed that the agreement was contingent upon the
agreement. local bank’s approval of a loan for which Libby had applied
a. If partially integrated, the writing may NOT be and about which he would hear within a week, if the bank
contradicted by extrinsic evidence. had denied the loan, the parol evidence rule would not bar
b. If completely integrated, then it may NOT be evidence of Libby’s oral statement even though the writing
contradicted and it may NOT be supplemented was absolute on its face, because the evidence would
by extrinsic evidence. establish an oral condition to the effectiveness of the
c. Whatever the degree of integration—partial, agreement.
Exceptions to the Parol complete, or none—a written agreement may 4) The parol evidence rule does not apply to evidence
Parol Evidence always be explained by extrinsic evidence. offered to show that the agreement is invalid for any
Evidence Rule
2) The parol evidence rule does not apply to reason, such as fraud, duress, undue influence,
agreements, whether oral or written, made after incapacity, mistake, or illegality.
the execution of the writing. a. This is justified theoretically on the fact that if such
a. Ex: If Thompson and Libby, after the written factors exist, then no legal K has been formed in the
agreement, made an oral agreement that payment first place. None of these things is likely to appear on the
of the logs would be made partly in cash and partly face of the document.
by promissory notes, then if any litigation followed b. Some courts limit the fraud exception to cases of
the parol evidence rule would not bar testimony to “fraud in the execution.” Ex: if Thompson asks to sign
the oral agreement. what he says is a receipt for logs delivered, but its really a
“contract” for the sale of more logs.
i. Generally, a writing may be reformed only if it is shown
by “clear and convincing evidence” that the parties really
c. Most courts will extend the fraud exception also to
did intend their written agreement to contain the term in
instances of “fraud in the inducement”—
question.
misrepresentations of fact that induce the other
b. Ex: In Thompson, the D, Libby, might have sought to
party to enter to the K.
have the agreement reformed to include the warranty of
d. Some courts will prohibit the introduction of parol
quality, but he probably would have been unable to meet
evidence to support a claim of fraud in the
this higher standard of proof since the opinion suggests he
inducement if the alleged misrepresentation directly
did not attempt to do so.
contradicts a term in the writings. Ex: If Libby sought
6) The parol evidence rule does not apply to evidence
to show that in order to induce him to sign the K,
introduced to establish a “collateral” agreement between
Thompson had represented that to his own personal
the parties.
knowledge at least half of the cut logs were good
a. In Thompson, the court held that evidence of an oral
quality, while it later appeared that only a quarter or
Exceptions to the Parol warranty as to quality was not admissible under the
Parol Evidenc Rule less met that description. Many courts would grant collateral agreement exception because that exception
Evidence Rule a fraud exception here.
only applied to an agreement about a “subject distinct from
5) The parol evidence rule does not apply to
that to which the writing relates.”
evidence that is offered to establish a right to an
b. As time progressed, courts applied a more flexible
“equitable” remedy, such as “reformation” of the K.
approach:
a. R§214(e): If one party can establish that a part of
i. R§216(2): an agreement will not be regarded as fully
the agreement was inadvertently omitted from the
integrated if the parties have made a consistent additional
writing due to some mistake (ex: secretary or
agreement which is either agreed to for separate
printing error), that party may seek judicial
consideration or is “such a term as in the circumstances
reformation of the agreement—a court order
might naturally be omitted from the writing.”
declaring that the mistakenly omitted provision will
ii. UCC §2-202: “consistent additional terms” should be
be treated in law as part of the agreement.
excluded under §2-202(b) only where the court concludes
that if such terms had actually been agreed upon they
would “certainly have been included in the document.”
Holding: Where there exists a valid written
instrument which does not contain a warranty, that
written instrument is presumed to be inclusive of all
the terms involved and parol evidence cannot be
admitted to add another term to the agreement.
Reasoning: Only the writing itself is necessary to
presume that the whole engagement of the parties,
and the manner and extent of their undertaking, was
intended to be reduced to writing (strictly objective).
Classic Rule: Parol contemporaneous
There is nothing “on the face” of the written
Thompson v. Libby Parol Evidence evidence is inadmissible to contradict or vary
agreement that suggests that it is an informal or
the terms of a valid written instrument.
incomplete memorandum.
Dicta: Parol evidence of extrinsic facts and
circumstances would be admissible, if necessary,
to apply the contract to its subject matter or to
gain a better understanding of its language. In
this case, however, the evidence is used to uphold
and enforce the writing as it stands, not to
contradict, to add terms, or to vary the written
instrument.
This Court takes the Modern
Approach/Corbinian: There is no need to make a
preliminary finding of ambiguity before the judge
considers extrinsic evidence. The court must
find something "reasonably susceptible to
interpretation." The court may consider all
Classic Approach/Willistonian: “Four
evidence as to intent and then exclude from the jury
Corners” approach. Parol evidence is admitted
evidence that contradicts or varies the meaning of a
for interpretation purposes ONLY upon
K if it is found not to be ambiguous. Before applying
finding that some language in the K is
Taylor v. State Farm Parol Evidence the parol evidence rule, the court must first
unclear, ambiguous, or vague. If the judge
understand the meaning the parties intended to give
finds in the “four corners” that it has only one
to the agreement. The judge cannot be restricted to
meaning, parol evidence is neither considered
the “four corners” of the document. The court can
nor admitted for any purpose.
admit evidence for interpretation but must stop short
of contradiction. This involves a two step process:
1) consider evidence to determine the extent of
integration 2) Preclude admission of evidence that
would vary or contracict the meaning of the written
words.

This case is follows the mistake exception to


the parol evidence rule. The year on the K was
wrong and there was evidence that Faivre
Parol Evidence Reformation is no usually used to overcome a
Faivre v. DEX knew this to be the case.R153(b): Complete
[exception] mistake, but the court does so here.
integration does no bar a unilateral mistake of
a typographical error where on party knows
about it.

Ex: "hole in one" case. Win a car if you score


on hole 8 but he scored on the second time
Werber's Notes Parol Evidence through the course which made it hole 17. The
court rules for golfer--contra proferentem
(construed against the drafter).
This case is about strict and contextual
application of the parol evidence rule where
possible fraud is concerned. Classic [majority]
v. Progressive approach [dissent] Holding:
Rules: The parol evidence rule applies because the written
1) When an agreement is reduced to writing by agreement supersedes all previous oral agreements
the parties, there can be no evidence of the and the rule prohibits admission of any evidence of
terms of the agreement other than the contents contrary representations to the written agreement.
of the writing except when a mistake or Reasoning: Any reliance on the alleged fraudulent
imperfection of the writing is claimed or when statement of the Morrison-Knusden rep. is
the validity of the agreement is the fact in contradicted by the terms of the written contract. To
dispute rule the other way would be to make all written Ks
Sherrod, Inc. v. Morrison- Parol Evidence
2) Majority interpretation: There is an uncertain as to whether they can be relied on. This
Knudsen Co. [exception]
exception made to the parol evidence rule is a classic approach.
when fraud is alleged; however, it only applies Dissent Reasoning: If the facts alleged by P are
when the fraud alleged does not directly relate true, the elements of fraud are present and the result
to the subject of the K. means that no party can be held accountable for its
3) Where an alleged oral promise directly fraudulent conduct as long as it is in a sufficiently
contradicts the terms of an express written K, superior bargaining position to compel its victim to
the parol evidence rule applies. sign a document relieving it of liability. The
precedent is old and should not be applicable. The
dissent cites a fraud exception in MT law that, for
fraud and mutual mistake, a K can be revised. The
majority is rewarding fraudulent parties.

1) Would promissory estoppels trump the


parol evidence rule where there is reliance on
fraudulent oral promises with a signed writing?
Probably not. A handful of courts have allowed
Promissory Estoppel Parol Evidence
promissory estoppel to prevail here. Most
courts, however, have rejected the use of
promissory estoppel to avoid the parol
evidence rule.
Nanakuli Paving & Rock
See Separate Sheet
Co. v. Shell Oil
A contract that a court enforces in a given case
will include not merely those terms on which
the parties have thus “agreed” but also other
terms, which the court finds to be “implied” in
that agreement.
The Rationale For Implied Terms
Werber's Notes: Impled terms can be outcome
Any term that the court finds to be “implicit” in
determinative and are difficult to predict b/c they
the parties’ words or conduct even though
come from the ct's discretionary power. Implied
not literally expressed by them is an “implied
terms allows us to find the true intent. There are
in fact” term
Implied Terms three factors/reasons for implying a term: 1) overall
Implied in law: a term that the court does not
fairness: allowing the ct to police bargains 2)
find in the parties’ agreement, even as broadly
business efficacy: commercial interests 3)
viewed, but that the court holds should be
Protection of Expectancy: the bargain you thought
“implied in law”—made a part of that
you made.
agreement by operation of the rules of law
rather than by the agreement of the parties
themselves.
The line can be difficult to draw between i.i.f.
and i.i.l.

Issue: Whether intent of the parties can


overcome an otherwise illusory promise in an
exclusive dealing K.
Rule: Woods case is the parent of UCC §2-
An implied obligation to use reasonable efforts will
306(2): imposes a “best efforts” obligation in
prevent a somewhat indefinite promise from being
cases where the contract for sale calls for an
Wood v. Lucy, Lady Duff illusory. Weber Says: Courts have implied 1.
Implied Terms “exclusive dealing.”
Gordon reasonable effors 2. best efforts. 3. reasonable
Holding: Where the intent of the parties is
efforts & due diligence. What is the diff? No easy
clear in an exclusive dealing, an implied
answer. Read E&E 10-8
promise to use “reasonable efforts” will be
implied to overcome what would otherwise
amount to a mere illusory promise.
UCC §2-309 (2): “Where the K provides for
successive performances, but is indefinite in
duration, it is valid for a reasonable time but
In deteriming whther 2-309 is applicable to the
unless otherwise agreed may be terminated at
termination of a manufacturer/supplier relationship it
any time by either party.”
must be based on the sale of goods. 1) the real
UCC §2-309 (3): “Termination of a K by one
nature of the agreement 2) the real purpose 3) what
party except on the happening of an agreed
the parties really intended. If Leibel were a
event requires that reasonable notification be
salesperson or employee, the UCC would likely NOT
received by the other party and an agreement
apply. There are issues of 1) overall fairness and 2)
dispensing with notification be received by the
business efficacy; The amount of money invested by
other party and an agreement dispensing with
the supplier is often great, there are often no formal
notification is invalid if its operation would be
agreements. If termination were allowed as "at-will,"
Leibel v. Raynor unconscionable.”
Implied Terms one party would be unfairly damaged. Thus,
Manufacturing UCC §2-309 (3) Comment 8: “recognizes that
"reasonable notification" is required. Some states
the application of principles of good faith and
require "a reasonable duration will be implied in
sound commercial practice normally call for
franchise agreements where a dealer has made
such notification of the termination of a going
substantial investments in reliance on the
contract relationship as will give the other party
agreement." Courts may consider: 1) distribs. need
reasonable time to seek a substitute
to sell off remaining inventory 2) outstanding
arrangement. An agreement dispensing with
investments made in reliance 3) sufficient time to
notification or limiting the time for the seeking
find a substitute arrangement. This can also be
of a substitute arrangement, is of course valid
affected by course of performance, course of
under the subsection unless the results of
dealing, and trade usage.
putting it into operation would be the creation
of an unconscionable state of affairs.”
Common Situation: one party to a K claimed
More recently, many courts have moved toward a
to be acting in ways either expressly permitted
textualist approach in which absolute priority is given
or at least not forbidden by its terms, but the
to express terms, rendering the implied duty of good
other party complained that such conduct was
faith irrelevant in many situations.
improper and actionable.
Modern approach: “Good faith” is not an
This is where “good faith” is employed.
independent cause of action for failure to perform
UCC §1-203 imposes an obligation of good
in good faith, but instead means that a failure to
faith into every K.
perform or enforce in good faith, a specific duty or
Restatement §205: imposes an obligation of
obligation under the K, constitutes a breach of K or
good faith into every K.
makes unavailable, under the particular
“Good faith” does not have and cannot have
circumstances, a remedial right or power. The
a single definition. Some states choose to
doctrine of good faith merely directs the courts
retain a minimal standard of “honesty in fact”
toward interpreting Ks within the commercial
at least for parties who are not merchants
context in which they are created, performed,
Good Faith Implied Terms while others have extended the meaning to
and enforced, and does not create a separate
include “honesty in fact and the observance
duty of fairness and reasonableness which can
of reasonable commercial standards of fair
be independently breached.
dealing.”
Good faith is normally employed in cases where the
“Good Faith” is an excluder. It is concerned
spirit of the K has been undermined by:
with ruling out certain conduct and less with
1) Enabling that party to realize gains that making
formulating the positive conduct of a standard.
that K he had implicitly agreed to surrender; or
NY Ct of App: In every K there is an implied
2) By unfairly denying to the other party the fruits of
covenant that neither party shall do anything
the K that she reasonably expected to receive.
which will have the effect of destroying or
Good faith can be viewed as a device for
injuring the right of the other party to
protecting the bargain the parties themselves
receive the fruits of the K, which means that
have made against later attempts by one side to
in every K there is an implied obligation of
undermine it.
good faith and fair dealing.
4) “Good faith” has been applied in three general
ways:
a. Permits the inclusion of terms and conditions
which have not been expressly set forth in the
1) The covenant of good faith and fair dealing written K. i.e. to include terms the parties must have
is contained in all Ks and mandates that intended because they are necessary to give
“neither party shall do anything which will have business efficacy to the K. [gap fillers]
the effect of destroying or injuring the right b. To allow redress for the bad faith performance
of the other party to receive the fruits of the of an agreement even when the defendant has not
K. breached any express term, as in Sons of Thunder.
2) The implied covenant of good faith has c. To permit inquiry into a party’s exercise of
evolved to the point where it permits the discretion expressly granted by a K’s terms
adjustment of the obligations of K parties in 5) An implied covenant of good faith and fair dealing
Seidenberg v. Summit Good Faith & Parol a number of different ways in order to avoid cannot override an express term in a K. But, it
Bank Evidence an inequitable result otherwise permitted requires that a contracting party act in good faith
by the Ks express terms. They may consider: when exercising either discretion in performing its
a. Inadequate bargaining power/Financial K obligations or its right to terminate. It may occur
Stability that a party will be found to have breached the
b. Expectations of the parties implied covenant even if the action complained of
c. Defendant’s bad faith or outright dishonesty does not violate a “pertinent express term.”
3) Because good faith is implied, it is always 6) To determine what is considered a good faith
present and so the parol evidence rule is not in performance, the court must consider:
conflict with good faith. a. The expectations of the parties; and
b. The purpose for which the K was made
In order to examine these areas, parol evidence
must be considered as to do so without it would
be an impossible task.
guiding principle of application of the Good Faith has addressed 3 situations: 1) when
implied cov. Of good faith: a party to a K the K does not provide a nec. Term to fulfill parties'
may not unreasonably frustrate its purpose. expectations 2) when bad faith was present in the
One may not exercise discretion provided by right of termination 3) when the K expressly provides
Werber's Notes Good Faith the express terms to thwart the P's purpose or a party with discretion regarding its performance. To
expectation. R205: emphasies faithfulness to distinguish between "bad faith" and "sharp buisness
an agreed common purpose and consistency practice, we must examine 1) state of mind 2)
with the justified expectations of the other context of the claim 3) nature of the agreement 4)
party. business/industry standards

the court may apply the covenant of good faith


and fair dealing even where the defendant has
best example of how a Ps unequal bargaining apparently “acted in conformity with the express
power will bring the implied covenant to the terms of a K.” Ps invested large amounts of funds
forefront even if defendant acted in conformity in clam-fishing vessels based on assurances of
with the express terms of the K. Unequal purchases to be made by the D, Borden. Borden
bargaining power is not only one factor to be consistently failed to perform in accordance with the
Good Faith/Unequal
Sons of Thunder considered…not the sine qua non of such a K and eventually exercised an express right to
Bargaining Power
cause of action. Courts also usually consider: terminate the K with the notice required by the K.
a. Inadequate bargaining power/Financial The Sup. Ct. agreed with Borden that the express
Stability right to terminate could not be overridden by an
b. Expectations of the parties implied good faith covenant. They also held,
c. Defendant’s bad faith or outright dishonesty however, that Borden could have breached good
faith in the performance before exercising the
right to terminate.

Applications Good Faith See separate sheet See separate sheet

Shell franchisees driven out of business by Shell by


setting the prices accordingly. The court ruled that a
subjective inquiry into Shell's/price setters motives is
Casserlie v. Shell Oil Good Faith Discussed in class
not permitted. Can only look at the objective prices.
Rejects subjective good faith. Werber strongly
disagrees and believes this to be bad law.
benefits: guaranteed market, price certainty
(sometimes. Risks: conditions change, flux prices.
These risks are taken for the benefit of access to a
definite market. BUT Ex: cannot "stock up" when
UCC 2-306-1,2: output/requirement/exclusive
Requirement & Output K Good Faith prices are low (bad faith) Generally, though, courts
dealings must be conducted with good faith
have held that reqmnt buyers may reduce levels of
purchase even to zero as long as it acts in good
faith--even where the K contains an estimate of the
buyer's demand.

1) Some cases hold that if the K provides that the


seller’s performance must be to the buyer’s
Two categories where personal satisfaction is satisfaction, his rejection—however
concerned: 1) Reasonable Person Standard: unreasonable—of the seller’s performance is not
applied when quality, operative fitness, a breach of the k unless the rejection is in bad
mechanical utility (or areas which other people faith.
Good can judge) are present 2) Good Faith: applies 2) Most cases conform to Restatement §228: if it
Morin Buidling Products v
Faith/Satisfaction when personal aesthetics or fancy like is practicable to determine whether a reasonable
Baystone Construction
Clause portraits, photographs, subjective are at stake. person in the position of the obligor would be
A case with a home roof might differ from satisfied, an interpretation is preferred under which
this since its aesthetic fancy of a private the condition [that the obligor be satisfied with the
home v. a factory with business concerns. obligee’s performance] occurs if such a reasonable
i.e. situational. person in the position of the obligor would be
satisfied.
1)Where a K confers on one party a
discretionary power affecting the rights of the
other, a duty is imposed to exercise that 5) The parties may, by express provisions of the K,
discretion in good faith and in accordance with grant the right to engage in the very acts and
fair dealing. conduct which would otherwise have been forbidden
2) In every K there is an implied covenant that by an implied covenant of good faith and fair
neither party shall do anything which will have dealing.
the effect of destroying or injuring the right 6) R205: “Subterfuge and evasions violate the
of the other party to receive the fruits of the obligation of good faith even though the actor
K. believes his conduct to be justified”Although the
Good Faith & 3) R228: When it is a condition of an obligor’s express terms of the K were fully met, genuineness
Locke v. Warner Bros.
Discretion duty that he or she be subjectively satisfied of motive is relevant and important for
with respect to the obligee’s performance, the performance and good faith. One can be
subjective standard of honest satisfaction is unreasonable in artistic decisions (matters of fancy)
applicable. but this discretion must also be genuine. Practical
4) Where the K involves matters of fancy, effect: discretion must be exercised in good faith
taste, or judgment, the promisor is the sole only where we imply the duty. Werber thinks this
judge of the satisfaction. If he asserts in good case was maneuvered to achieve the desired
faith that he is not satisfied, there can be no outcome where bad faith denied Locke the potential
inquiry into the reasonableness of his attitude. fruits of the bargain.

Ex: a buyer enters a K on the condition


Ex: An award is offerd for a tip leading to
precedent that the school levy passes. Then
"conviction." Your tip results in the arrest of the
the buyer actively campaigns against the levy.
perpetrator but they plea bargain with him and so
Werber's Examples Good Faith The levy fails. Did he violate "good faith" in his
there is no conviction. The law says you still get the
right to free speech on a poitical issue? If you
award. The police, although done in good faith,
can prove that his efforts caused the failure, he
prevented the condition of the offer.
is in breach.
Bayliner Marine Corp. v.
Implied Warranties
Crow
Classic Rule: An offer for a unilateral K is Note: Things have progressed since this ruling. See
revocable before acceptance. Reasoning: Cook v. Coldwell. R45 now provides for
Because Pattberg told Petterson that he had commencement of performance of an act in a
Petterson v. Pattberg Omitted Case sold the mortgage before he accepted the unilateral contract to create an “option” contract.
payment, the offer was revoked. Petterson Once performance begins there is an implied
would have had to complete the performance subsidiary promise that the offer will not be
to make the promise from Pattberg binding. revoked.

James Baird Co. v. Gimbel Drennan approach would prevail today. This case
Omitted Case Not important
Bros. Inc. was pre-promissory estoppel in bid reliance.

This case represents a relaxation of the


requirements for promissory estoppel. It
Leaning on this precedent, and with the fact pattern
starts out by saying that originally a “clear and
being similar, the court found a sufficient cause of
definite” promise was required under the law
action in reliance based on R§90. Pop’s cones did
and gave examples where even obvious
not renew its lease, put items into storage, and
promises were not “clear and definite” enough
was without a “home” for a while all based on
to evoke promissory estoppel.
representations and direct advice from a rep. of
The court then discusses Hoffman v. Red Owl
Resorts all during the preliminary negotiation
which is a staple case for promissory estoppel.
process and before any definite agreement—
Pop's Cones, Inc. v. Hoffman is included in the Restatement
Omitted Case written or oral—had been reached.
Resorts Intl. Hotel comment 10 to §90. This case displayed a
Notes:
move from the strict requirement of a clear
• A promise may still be required and distinguished
and definite promise to a more “equitable
from an expression of intention or a prediction, either
analysis designed to avoid injustice.”
of which may bar an action in reliance
Therefore, in the context of preliminary
• Courts may also consider the nature of the
negotiations, Hoffman relied on promises
parties…ex: representations made between two
made and ended up selling his store,
sophisticated stock brokers might fail because a
borrowing money, etc. on the basis that he
court might find that no injustice will result from non-
would be granted a Red Owl franchise store.
enforcement of the alleged promise
Promissory estoppel was found to apply here.

Kirskey v. Kirskey Omitted Case Not important


Notes:
• They cannot establish fraud because they had
alleged a breach of promise by the bank to do
This is a basic promissory estoppel case. The something in the future.
Shoemaker’s received a letter and phone calls o Fraud requires a misrepresentation of a present
from their mortgagee stating that if they didn’t fact rather than a promise to do something in the
take out insurance on their home, the bank future.
would have to do it for them. o A breach of promise may be fraudulent if the
Issue: Whether a mortgagor who is obligated promisor never intended to perform the promise at
by a mortgage to maintain insurance on the the time it was made since this would be a “present
mortgaged property can establish a cause of fact.”
action in promissory estoppel based upon an • Courts will not always accept a cause of action in
Shoemaker v.
Omitted Case oral promise made by the mortgagee to obtain promissory estoppel and may apply stricter rules to
Commonwealth Bank
insurance. find the existence of a promise and detrimental
The court finds no merit in the fraud and reliance.
breach of K claims but reverses the trial court’s o Ex: A food demonstration contractor failed to
ruling and creates a cause of action in establish detrimental reliance against a grocery store
promissory estoppel. chain for refusal to honor a promise to retain the
The court goes through each element of contractor’s services through a specific date when
promissory estoppel and finds that there is contractor continued to earn substantial profit after
evidence that would support a claim. the promise was made. Thus, there was no
detriment.
• Charitable Subscription may utilize §90 without the
showing of detrimental reliance
R§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, in reasonable
reliance on the contract and on the continuing
assent of the party against whom enforcement
P contended that by reneging on the agreement to
is sought, has so changed his position that
renew and permit assignment of the lease, D
injustice can be avoided only by specific
deliberately and wrongfully precluded P from
Winternitz v. Summit Hills enforcement.
Omitted Case satisfying the contingency in his first contract with
Joint Venture The court held that “part performance” is an
the prospective buyer. The broker for the buyer
equitable doctrine available only where the
testified that he asked D for a lease and D replied
principal relief sought is specific
“as long as Mr. Winternitz walks out with nothing.”
performance of the oral agreement and not
where money damages are sought. The
court held that the trial court did not err in
granting judgment notwithstanding the verdict
on this count.
The court held that an insurance policy carries
an implied warranty of fitness for its intended
purpose and the reasonable expectations of
the policy holder are to be enforced. In
Reasonable Expectations: The objectively
construing and applying a standardized
reasonable expectations of applicants and
contract, courts seek to effectuate the
intended beneficiaries regarding the terms of
reasonable expectations of the average
insurance contracts will be honored even though
policy holder. An insurance company tenders
painstaking study of the policy provisions would
the insurance upon a ‘take it or leave it’ basis.
have negated those expectations. The court held
Policy holders do not read the detailed,
that customers are not bound to unknown terms
cross-referenced, standardized, mass-
beyond the range of reasonable expectation. A
produced insurance forms, and would not
C & J Fertilizer v. Allied party who adheres to the other party’s standard
Omitted Case understand them if they did. The courts have
Mutual Insurance terms does not assent to a term if the other party
therefore adopted the doctrine of reasonable
has reason to believe that the adhering party
expectations. Gross inequality of bargaining
would not have accepted the agreement if he had
power, together with terms unreasonably
known that the agreement contained that term.
favorable to the stronger party, may confirm
Reason to believe may be inferred from the fact that
indications that the transaction involved
the term is bizarre or oppressive, from the fact that it
elements of deception or compulsion, or may
eviscerates the non-standard terms explicitly agreed
show that the weaker party had no
to, or from the fact that it eliminates the dominant
meaningful choice, no real alternative, or did
purpose of the transaction.
not in fact assent or appear to assent to the
unfair terms. The court held that in this case
P’s evidence demonstrated that definitional
provision was unconscionable.
Superior work performance is insufficient to establish
additional consideration. At-will cannot be easily
1) In an at-will employment relationship, the overcome so an agreement for a term should be
duty of good faith and fair dealing applies to specific. Permanent employment does not mean
those contractual terms that exist beyond the "for life." Good faith can be breached by denying a
at-will employment relationship. 2) An at-will terminated employee compensation owed to him
employee may furnish evidence of extra before the termination. Good faith can also be
consideration to overcome the at-will label breached in the manner of termination if established
Donahue v. Federal
Omitted Case when an employee undergoes a substantial methods are not followed. Good faith will not
Express Corp.
hardship other than the services which he is however, move an employee from at-will to "good
hired to perform or where the employee in cause." Public policy considerations. A handbook
response to recruitment efforts gives up a may provide an "implied-in-fact" term to only fire for
stable position in another state, sells a house, good cause. Could go either way based on
and relocates to a new city only to be fired circumstances/evidence. Promissory estoppel may
shortly thereafter. be an appropriate action for an at-will employee
substantially relies and is terminated before he has a
chance to perform his duties.

Caceci v. Di Canio Const. home warranties better left to commercial law and
Omitted Case Not important
Corp. products liability