Lindsey's Contract Outline

8/2/2019 Lindsey's Contract Outline

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Negotiation and Formation of the Contract

Problems w/ Standard Form ContractsUCC 2-204 formation in generalUCC 2-207 Additional Terms in Acceptance or Confirmation

(1) No acceptance if expressly made conditional on assent to additional/different terms(2) Terms of contract

a. Two types of additional termsi. Materially change terms

1. Contract = binding2. Addl terms are proposals subject to acceptance

ii. Nonmaterial change in terms1. Contract + addl terms = binding

b. Offer expressly limits acceptance to contain no addl termsi. Original contract = binding

Common law - additional terms to acceptance does not insight a contract (mirror image rul)

o Definite and seasonable expression of acceptanceo Written confirmation sent w/in reasonable time

- Last communication (contract/acceptance) holds termso Contract +provisions of2-207(2) + UCC gap fillers

GARDNER ZEMKE v. DUNHAM BUSH ( owner hires general contract, who hires subcontractor. Contractor sends specsto sub and sub returns with different specs exchange has been agreed upon (w/ diff specs)Issue: Was acknowledgment by Contractor an acceptance?Rule: 2-207(1) acceptance can contain addl language terms are allowed unless clearly and unequivocallycommunicates to offeror its unwillingness to proceed unless terms are accepted

Issue: What terms of contract are binding?Rule: 2-207(2)

- Different = addl terms (comment 3)o Ifmaterially alterNOT included

- different terms in responsive document as an acceptance can never become part of contracto Plain language argument different terms NOT included in the code/statute

- Different terms cancel each other out (knockout rule comment 6)o Terms agreed upon = INo Gap fillers provided by UCC = IN

STEP-SAVER DATA SYSTEMS, INC. V. WYSE TECHNOLOGY (185) - P bought software from D over phone, terms andconditions on each box when products arrivedIssue: Whether box top licenses became part of contractHolding: NoRule: Agmt consists of only terms expressly agreed to by parties

- Disclaimer not conspicuous before contract, so not effective- UCC 2-207 governs analysis, box tops materially alteragmt so dont become part of contract- D didnt clearly express unwillingness to proceed unless box top terms were agreed to by P- 2-206/204 contract was formed PRIOR to box-top

Clauses- Choice of law clause says agmt governed by laws of certain state

o Ex- Choice of law is MNo Can bring suit in ND, but will be governed by MN law

- Choice of forum clause says litigation must occur in certain forum- Arbitration clause: a contractual provision mandating arbitration/avoiding litigation of disputes about the

contracting parties' rights, duties, and liabilities

CARNIVAL CRUISE LINES, INC. V. SHUTE (196) P bought ticket with choice of forum clause, P brought suit in WA, Dsays only can bring suit in FLIssue: Whether forum-selection clause is valid (whether claim can be heard in Washington)Holding: Yes, clause is valid (claim can only be heard in Florida)

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Rule: Contract was routine, and terms are never bargained for in these circumstances- P admitted had notice of terms- Non-negotiated clause may still be enforceable for several reasons:

o Cruise line has reason to limit forum because carries people from many areaso Clause saves resources so dont have to determine proper forumo Passengers benefit by reduced fares from cruise saving in limiting forum

Dissent- Passengers cant see clause until after ticket is purchased- Tickets not refundable, so passengers cant get refund if dont agree to clause

- Ability of cruise line to pass savings on to customers by reducing litigation costs not reason to enforce clause

Discussion on Carnival- Prof says if terms are reasonable, fair to enforce when customer continues to hold tickets and go on cruise- Prof thinks case was close call, but ct got it right- Just because this clause is enforceable, doesnt mean all clauses will be (still subject to fairness)- Default rule in US: freedom of contract, but with limits

Comparing Carnival to Step-Saver- Step-Saverbox-top license not part of agmt- Carnival clause is part of agmt- Whats the difference?

o Step-Saver is between merchants, Carnival purchaser is a consumero Applicable body of law: UCC applies to Step-Saver but doesnt apply to Carnivalo Able to negotiate in Step-Saver, but not in Carnival

HILL V. GATEWAY 2000, INC. (205) P bought phone, term for arbitration w/ company, P brought suit for defect, D wantsarbitration clause enforcedIssue: Whether terms shipped w/ computer are effective as contractHolding: Yes, terms are effectiveRule: P had opportunity to return after reading terms. By not returned formed contract = binding terms

Discussion of Hill v. Gateway- Could say contract had formed over phone

o Gateway offered, Hills accepted by giving credit card numbero 2-206(b) says clear offer formed on phone unless expressly stated otherwiseo But judge here doesnt even consider 2-206

o If contract formed over phone addl terms OUT- Troubling to prof: ct doesnt show analysis under UCC

o Ct couldve found way to reach same conclusion by applying the lawo Ct instead just followed own preferences for how contract should formo Most courts wouldnt come to this conclusion

C&J FERTILIZER, INC. V. ALLIED MUTUAL INS CO (212) Ins company doesnt want to cover burglary because ofdefinition in policy trying to protect themselves from internal theftIssue: Whether burglary clause can be upheld when P didnt reasonably expect its meaningHolding: No, clause not enforceableRule: Customers are not bound to unknown terms beyond range of reasonable expectation

- If party is bound by other sides standard form and form contains terms that cant reasonably expect to be there,term isnt binding unless first party is made aware of term- Backed by Restatement2d 211(3)

o Very broad, not generally followed by courtso Invites parties to be ignorant of terms of policy

- UNIDROIT: essentially a model code, agreed upon by scholars in diff jurisdictions, at international levelo Closer to what cts follow in US

o Party cant be bound by unreasonable term unless its been specifically brought to attentionDissent

- Burglary is clear and unambiguous in the policy- No evidence P was made to believe had more protection than he did- Size and style of type cant be described as fine print when similar throughout policy- Ct shouldnt meddle with contract just because doesnt it doesnt like the meaning

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Statute of Frauds

Overview- Common law doesnt require contracts to be in writing, BUT some agmts m/b in writing t/b enforceable- Must be in writing:

o Sale of lando Long term leaseso Sale of goods above certain priceo When taking on debt of another (suretyship)

- Article 2 of UCC incorporates the statute of fraudso Were dealing w/ unamended UCC because states havent yet adopted amended versiono Unamended version is in red supplement

Analysis for Statute of Frauds- Look for oral agmt described in fact pattern- If sale of goods, then apply analysis underUCC 2-201

o Ex- contract is for $400, so not within statute of frauds (must be $500 per UCC)o If is over $500, continue analysis

- If say agmt is w/in the statute of frauds, means agmt is not enforceable

C.R. KLEWIN, INC. V. FLAGSHIP PROPERTIES, INC. (224) - Oral agmt for bldg project, signed standard form w/o filling inblanks, D unhappy w/ Ps work and contracted w/ another co for rest of project

Issue: Whether oral contract is unenforceable when unlikely performance would be complete w/in a yearHolding: No, contract is enforceable because doesnt state how long completion of performance will actually takeRule: Oral contract must expressly say performance wont be completed w/in one yr to be void

- Outside scope of SoF actual duration is irregardless, expressly state it WILL take > 1 year

MIGEROBE, INC. V. CERTINA USA, INC. (233) - Certina orally agreedto sell watches to Migerobe, some writtenmemos re: deal, Certina then said wouldnt sell. Amount in excess of $500.00Issue: Whether writings are sufficient to satisfy statute of fraudsHolding: Yes, writings together constitute writing to satisfy statuteRule: Writing for statute of frauds may consist of separate writings connected together

- This is transaction in goods, so UCC 2 applieso 2-201(1) - Contract must be written forsale ofgoods, for price over$500, or not enforceableo 2-201(2) UNLESS, under subsec (1) (parties dont have to be merchants to show this exception)

Have some writing Must have signature of party against whom enforcement is sought Needs to have quantity

- Court finds combined writings sufficient to satisfy statute of frauds (see statutory exceptions, below)o Certina memo discussing sale: shows agmt reached, is signedo Certina memo about promo codes, also signedo Unsigned Certina writing w/ quantity, styles, prices: connects other memos together

CONAGRA, INC. V. NIERENBERG (237) oral agreement for sale, written confirmation given 10 days after oral agreemenIssue: Whether parties formed an enforceable oral agmtHolding: Yes, parties formed an enforceable oral agmtRule: Written confirmation of oral agmt meets exception under2-201(2)

- Ct finds agmt s/b enforced under2-201(2), the merchants exceptiono Applies only to transactions between two merchantso Writing must meet requirements of (1) as against the sendero Sender provides written confirmation of understanding of agmt, gives recipient 10 days to object

- Ct finds (see statutory exceptions, below)o 2-201(2), Written confirmation sent by Conagra to Nierenbergs

Contained addl terms not discussed on phone 2-207(2) discusses addl terms in acceptance, will be in if dont materially alter agmt Sender sent w/in 10 days, ct finds sufficient time since recipient gets 10 days to object

o 2-201(3), when recipient admits to contracts existence at trial

Nierenbergs testimony was ambiguous; this argument doesnt win Admission must be deliberate, clear and unequivocal for this section to apply

o Note, farmers arent merchants as a matter of law in MT (not raised on appeal, so ct doesnt get to it)

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UCC 2-201: Statutory Exceptions to Statute of Frauds- 2-201(1), applies to everyone, dont have to be merchants

o P1 and P2 have oral contracto P1 puts in writing

Identifies parties Specifies quantity P1 signs

o P1 later wants to get out of dealo If P2 knows about P1s writing and can get copy, P2 can use writing against P1o Whats used in Migerobe, above

- 2-201(2), applies to merchants onlyo Use above exampleo P1 sends writing to P2, and P2 doesnt objecto P2 wants to get out of dealo P1 can use writing against P2, even when P2 hasnt signedo Whats used in Conagra, above

- What constitutes signatureo Entire signature not required, UCC is broad/doesnt require much for sigo Initials may be enough, letterhead could be enough under subsection 1, some jurisdictions email

signatures are sufficient- 2-201(3), statute of frauds no longer available as defense if meet a subsection below

o (a)

Exception for specially manufactured goods, when buyer works w/ seller for customized good May apply if seller proceeds w/ production and buyer wants to get out of deal

o (b)

Exception when party against whom enforcement is sought admits in trial to existence of contract Applies only to quantity of goods admitted

o (c)

Performance exception, if one party performs and other accepts Neither side can assert statute of frauds defense when above has occurred

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Contents of the Contract

Parol Evidence Rule

Overview- 3 categories of agmts to consider

o Oral agmts, determining terms of agmto Have a writing, but has very little to it, will be supplemented by other terms/what they will beo Lengthy written agmt, but words are unclear/inconsistent/ambiguous, how to understand words

- Will focus on third category above for parol evidence ruleo Determine if words can have multiple interpretations and decide what third party would decide meaning iso If wording doesnt seem quite right, its probably notstop and fix it!

- Prevents parties from introducing any evidence at trial that would contradict oradd to terms of written contract

BAKER V. BAILEY (255) agreement that ONLY Baileys could use water line, Baileys wanted to sell but Bakers would notgive permission for anyone else to access water reduces property value to nothingIssue: Whether parol evidence rule applies to water use agmtHolding: Yes, rule applies so no addl evid allowedRule: When language of written contract is clear and unambiguous, there is nothing for ct to construe

- No terms in contract state Bakers will provide water to subsequent reasonable purchasers- Bakers didnt breach terms of agmt, no violation of covenant of good faith and fair dealing

MASTERSON V. SINE (259) Bro conveyed land to sis w/ option to repurchase w/in 10 years. Threat of creditors takingoption when Bro files bankruptcy. Sis trying to prove option incites property stay w/in familymilyIssue: Whether parol evidence regarding personal nature of option s/b allowed at trialHolding: Yes, evidence s/b heard at trialRule: No integration clause here, so parol evid m/b used to prove elements of agmt not reduced to writing

- Ct looks to see if contract is integrated and includes integration clause like, This is final agmt between parties.- When parties have agreed contract is an integration, a complete and final embodiment of terms, parol evidence

cant be used to add or vary the terms- When only part of agmt is integrated, same rule applies to part, but parol evidence may be used to prove

elements of agmt not in writing- Look to instrument to see if parties intended writing to be exclusive, ex- there are no previous understandings or

agmts not contained in the writingDissent

- Majority undermines parol evidence rule- Majority lessens reliance which may be placed on written instruments- Allows new technique for defrauding creditors

Discussion on Masterson v. Sine, reconciling with Baker v. Bailey- Language

o Water use agmt said was for sole use of Baileyso Here, no language specific to assignability of option

- Contract v. deedo Deed is a form, less flexibility w/ wording, used in Mastersono Contracts more flexible, could have used any wording wanted, used in Baileyo Courts more understanding of something be left out of a deed than a contract

- Merger clause: not dispositive, but very persuasive

o Clause not used in Masterson, would show agmt was complete and exclusiveo Was used in Baker v. Bailey

Merger/Integration Clauses- Says agmt is final agmt between parties, excludes other docs and conversations- Clause like this is strong evidence that writing is integrated, BUT not dispositive- Example of clause: This agmt is the entire agmt between the parties, superseding any and all prior and

contemporaneous agmts, understandings, representations and warranties, whether oral or written, on the subjectmatter of this agmt.

- Common in commercial contracts, not necessarily in non-commercial contracts

UCC 2-202Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writingintended by the parties as a final expression of their agreement with respect to such terms as are included therein may not

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be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained orsupplemented

(a) by course of dealing or usage of trade (Section 1-105) or by course of performance (Section 2-208); 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.

Points for understanding and applying UCC parol evidence rule:

(1) Application of parol evidence rule is appropriate only when there is a contract. If there is no contract, then there isno need to apply parol evidence rule

(2) After determining there is a contract, the next task is to determine whether there is some writing that amounts to afinal expression of the parties agreement. If not, then the parol evidence rule is not applicable.

BUT if there is writing that is a final expression of the parties agreement, then parol evidence rule is applicable and mustbe used if either party seeks to prove terms agreed upon outside that writing

(3) The parol evidence rule keeps out any and all evidence of anyprioragreement, whether oral or even in writing, IFthe prior agreement contradicts the writing that constitutes a final expression

(4) Parol evidence rule keeps out any and all evidence of agreements allegedly reached contemporaneously w/ writingthat constitutes a final expression, if the alleged contemporaneous agreement was oral and contradicts the writingthat constitutes a final expression

(5) However, PER does not keep out all extrinsic evidence. Some evidence may be considered to explain the finalexpression of agreement (if terms are unclear) and even to supplement the agreement (if agreement is silent on aparticular matter). But what extrinsic evidence is admissible depends on further determination

(6) Is writing that amounts to a final expression of the agreement complete and exclusive? Ifnotcomplete andexclusive then PER will allow the writing that constitutes a final expression to be explained and/or supplemented bytwo things:

a. Course of dealing, course of performance, and usage of grade ANDb. Evidence of consistent additional terms.

Note that these items can be prior or contemporaneous, and they can be oral or written(7) If the writing is complete and exclusive, then the PER will allow the writing that constitutes a final expression to be

explained and/or supplemented by only one thing:a. Course of dealing, course of performance, and usage of trade

Thus, even evidence of consistent and additional terms is excluded when the agreement is complete and exclusive

Interpreting the Terms of the Contract

RANDOM HOUSE, INC. V. ROSETTA BOOKS LLC (272) Rosetta published several authors in digial format RandomHouse had license agreement for right to print, publish and sell the work in book formIssue: Whether Random House is owner of right to publish works as ebooksHolding: No, language of contracts not broad enough to include rights to ebooksRule: Most reasonable interpretation of grant in contracts doesnt include right to publish work as ebook

- Separate grant for book clubs/diff editions not necessary if book form covered all types of books- Authors struck out certain phrases, evid of intent not to grant publisher the broadest rights in work- Reasonable person aware ofindustry would find lang doesnt include ebooks

Discussion on Random House

- Another argument to makeo If parties couldnt have contemplated new medium at time of agmto Then new medium wouldnt be included in agmto Counter: if grant was broad, would include new use not yet knowno Still language, of book form is specific and limiting

WWW ASSOCIATES INC. V. GIANCONTIERI (282) D contract to sell to P, with two provisions: reciprocal cancellationand merger clause. Contract didnt close by date specified and D chose to cancel.Issue: Whether unambiguous provision should be read in light of extrinsic evidenceHolding: No, clear and unambig contract s/b enforced according to its termsRule: When parties set down agmt in clear, complete doc, writing should be enforced according to its terms

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- Four corners rule: Extrinsic and parol evid not admissible to create an ambiguity in written agmt which is completeand clear and unambiguous upon its face

- Ct said dealing w/ sophisticated business people, so made big diff why only looked at lang of contract- By ignoring plain lang of contract, P is effectively rewriting the bargain struck- 5 standard principles cts use in interpreting docs

o Entire contract s/b read as a whole and every part interpreted w/ ref to the whole, so as to give effect to itstrue purpose

o Contract itself must be read in light of circumstances under which it was made, necessary to consider thesituation of parties at that time, necessities for which they naturally provided, advantages each probablysought to secure, and relation of properties and rights in regard to which they negotiated

o Where public interest is affected, interpretation is preferred which favors the publico Specific provisions usually regarded as qualifying the meaning of broad general words in relation to

particular subjecto Unless contrary to plain meaning of contract, an interpretation given by parties themselves will be favored

PACIFIC GAS & ELECTRIC CO. V. GW THOMAS DRAYAGE & RIGGING CO (288) D agreed to furnish labor/equipmentat own risk and expense and to indemnify P cover fell and damaged Ps turbineIssue: Whether extrinsic evidence is relevant to prove a meaning which lang of instrument is reasonably susceptibleHolding: Yes, relevant evid allowed to prove meaning hereRule: If ct decides lang is susceptible two interpretations, extrinsic evid relevant to prove meaning is admissible

- Exclusion of relevant, extrinsic evid justified only if feasible to determine the meaning the parties gave to the wordsfrom the instrument alone

- Extrinsic evid not admissible to add to, detract from, or vary terms of contract

Discussion on PG&E v. GW Thomas- Indemnification: Like one party saying, I know youre liable but Ill bear the cost- Reason party may agree to indemnify other

o Party may be in better position to bear risko Ex- author plagiarizes, publishing company is sued, author will indemnify publishing company

- Here, agmt to indemnify against all loss, damage, expense and liability resulting from injury to property . . .- Prof thinks trade practice shouldnt be used to trump the lang of the contract

ZRL CORP V. GREAT CENTRAL INS CO (293) Restaurant ejected 3 black men now suing for racial discrim, Restaurantsays claim covered under insurance policy since it covers wrongful eviction Insurance wont payIssue: Whether wrongful eviction includes racial discrim suit when asking patron to leaveHolding: Yes, context shows wrongful eviction meant to include action hereRule: Noscitur a sociis, words or phrases s/b defined in context of associated words or phrases

- Term wrongful eviction included in group of torts involving patrons- Insurance co concedes that wrongful eviction would include situation in which insured removed rowdy patron from

premises, so follows that term would also cover charge of racial discrim- Arguments for ins co

o Co never intended to defend against claims of racial discrimo P knows doctrine ofcontra proferentem, - construed against the drafter

NANAKULI PAVING V. SHELL (297) P bought asphalt from D, P claims D breached by failing to price protect (routine ofsuppliers in trade) and reinforced by Ds prior course of performanceIssue: Whethercourse of performance and usage of trade can be considered in contract interpretationHolding: YesRule: UCC allows for liberal interpretation of comml usages, so cts cant stand in way of comml practices and usages by

insisting on narrow/inflexible rules of interpretation- Evidence shows suppliers routinely price protected contractors at this time, small market led to trust among

suppliers and pavers- Shell did price protect at other times- Enough evidence for jury to find that price protection in trade existed in HI at time, regular enough to bind seller- Under UCC, comml agmt goes beyond written words on paper, includes course of dealing, usage of trade,

course of performance

Discussion on Nanakuli- UCC 2-208(2): Pecking order for contract interpretation, if below conflict w/ each other

o Express termso Course of performance Revised 1-303(a)

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o Course of dealing Revised 1-303(b)o Usage of trade Revised 1-303

- Note, court didnt follow above order in this case- 2-202 (parol evidence) allows following to explain orsupplement, but not contradict, terms of agmt

o Course of performanceo Course of dealingo Usage of trade

CISGOverview

- An international treaty- Like a contract among countries- When countries adopt, it becomes part of their law

o US, Canada, Mexicoo Most of EU, but not UK or Irelando China, Korea, Japan

Questions- When is it applicable?

o Contracts for sale of goodso Between parties whose places of business are in different countrieso When countries are parties to CISG

- What happens to UCC and common law when CISG applies?o CISG trumps UCC and common law (US Const makes treaties higher than state law)o CISG will be first place courts will look to answer questions of partieso If answer not in CISG, then can be supplemented by UCC 2 and common law

- If parties expressly choose laws of certain stateo Choice of law clauses almost universally cant exclude use of CISGo CISG still part of the law of those stateso Even when parties want state laws to govern, courts find CISG will be used instead

- If parties say want to exclude law of CISGo Then CISG wont apply to relationship

o Keep in mind when draftingo This will hold up, but choice of law clauses wont

- No parol evidence or statute of frauds, unless contract has merger/integration clauseo More flexible for interpretationo Parties can argue intent v. express language

- Wont be asked for detailed analysis under CISG for this classo Just be able to recognize when CISG applies instead of UCC article 2o For analysis, say

This is sale forgoods Between parties w/ places of busi in diff countries Parties have adopted CISG

Ifunsure about whether country has adopted, just say if has, then CISG would control

Implied Terms and Implied Covenant of Good Faith

Overview- Cts often called upon to supplement express contracts w/ other terms- Rstmt 204, a term which is reasonable in circumstances is supplied by the ct even though one party or other may

not wish that term to be present- Led to list of default terms or gap fillers

o For sale of goods, many of these terms are codified in statuteo Parties may depart from them, but must provide expressly; if not, then UCC terms apply

- Implied obligation of good faith and fair dealing adopted in UCCo UCC 1-203, revised 1-304o Then generalized for all contracts by Rstmt 205o no requirement to negotiate in good faith

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HAINES V. CITY OF NEW YORK (316), implied terms NYC ran sewage for towns, developer wanted to hook new lines,NYC wouldnt allow because of excess/overflow to systemIssue: Whether contract missing duration term implies perpetual durationHolding: No, continuing performance does not imply perpetual durationRule: When parties have not clearly expressed duration of contract, courts will imply they intend performance to continuefor a reasonable time

- City is obligated to maintain existing plant but not required to expand or build new one- Under circumstances, reasonable to infer that parties intended city to maintain facility until time city no longer

needed or desired water, purity of which plant designed to insure

Discussion on Haines v. City of New York- Omission of duration in contract

o How long contract will lasto P arguing that city is perpetually bound to operate/expand facilityo Ct finds

Duration not perpetual, but for a reasonable time Duration will last until city no longer needs water supply

- Omission of scope in contracto Whats included in citys dutieso D arguing that contract is terminable at willo Ct finds

Citys duty not broad enough to include growing needs of municipalities

City doesnt have to expand or build addl facilities Ct says citys duty just to maintain facility at its original max capacity

- Requirements Contract required to supply 100% of all production to buyero If they do not meet 100% of demand = BREACHo UNELSS there is a term that limits this obligation

- Foreseeability determines intent of partieso Building a new plant in 1924 was NOT foreseeable could not have been itnent

CENTRONICS CORP V. GENICOM CORP (320), implied covenant P selling business asses to D, D putts funds in escrowwhile P negotiation of price takes place, P wants distribution for undisputed amountsIssue: Whether contract missing term about escrow distribution implied duty to release funds not in disputeHolding: No, distribution not impliedRule: When agmt gives one party a degree ofdiscretion sufficient to deprive other party of portion of value, parties intent

to be bound raises implied obligation of good faith to observe reasonable limits in exercising discretion- Duty of good faith arises when one party has discretion given to it by contract- No discretion given here, ct not willing to rewrite agmt

Discussion on Centronics- Three categories w/ implied duty of good faith

o In contract formation, refrain from misrepresentation (very narrow)o In at-will emp, cant fire emp out of malice/bad faith in retaliation for action taken or refused by employee in

consonance w/ public policy (very narrow)o Limits on discretion in contractual performance, at issue here

- Ct identifies common ruleo When one party is given some sort of discretion, that discretion is not absoluteo Party w/ right to exercise discretion has to do so in good faith

- Discretiono Sometimes contract confers decision-making authority to one of partieso Law then implies an obligation ofgood faith in contract performance

- Unilateral movement constrained by duty of good faitho Absence of discretion (unilateral right)o (1) deny other party economic benefit (alt. party will suffer loss)o (2) recapture by first party of economic benefit

- CISGo No clause requiring good faith in inatl sale of goods by merchantso But most European codes have clauses similar to Rstmt, excluding conduct of bad faith

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SHELL OIL CO V. HR, INC (330) - Ps think D is intending to drive dealers out of business w/ high gas prices, claimingbreach of duty of good faithIssue: Whether the price fixed by a refiner for the sale of its gasoline was in good faith as required by codeHolding: Yes, price was fixed in good faithRule: Commly reasonable price is good faith price under2-305 absent some evidence that refiner used pricing todiscriminate among its purchasers

Shell Oil v. HR, Inc- UCC 2-305(2) in dispute here

o Price to be fixed by seller or buyer, means price to be fixed in good faitho Good faith includes observance of reasonable, comml standards in trade if party is merchant

- Posted price satisfies good faith requiremento 2-103(1)(b) good faith honesty in fact and reasonable terms of trade

- Good faith has general definitiono Here, have seller setting price in contract, must be done in good faitho Look to official comment 3 for more guidance, focus on objective standardo One way to understand, posted price automatically satisfies good faith requirement

o BUT, official comment isnt law, adopted statute is law so must look to lang of statute- Ct ultimately looks back to language of contract for setting price

DONAHUE V. FEDERAL EXPRESS CORP(340)Employee accused supervisor of improprieties, eventually terminated,appealed term under cos fair treatment procedure, but co upheld term

Issue: Whether employer violated implied covenant of good faith and fair dealing in terminating an at-will empHolding: No, in this case employer didnt violate implied covenantRule: Private emp hasnt violated public policy when fires whistle blower who didnt have public or legal duty to report

- Ct sayso Emp was at-willo Grievance procedure existed, but didnt become part of employment contracto FedEx doesnt have to follow grievance procedure since not part of contracto Note, other companys policies may become part of emp contract, but not here

- Public policy claimo To violate public policy, emp can

Require employee to commit crime Prevent emp from complying w/ a statutorily imposed duty Discharge employee when specially prohibited from doing so by statute

o Public policy is to be ascertained by ref to laws and legal precedents and not from generalconsiderations of supposed public interest

- To defeat at-will presumptiono Emp can show he gave employer addl consideration other than services for which he was hiredo Donahue claiming addl consideration was substantial, superior job performanceo Ct finds this insufficient

Express and Implied Warranties

CARPENTER V. CHRYSLER CORP (348) - Man bought car asking for reliable car, car had many problems dealer knewabout, but sold stating it was a reliable carIssue: Whether salesmans statements regarding car was express warrantyHolding: Yes, salesman provided express warranty

Rule: Seller may exaggerate w/o becoming liable for breach of express warranty, but cant misrepresent a fact- UCC says express warranty created by affirmation of fact or promise made by seller to buyer which relates to goods

and becomes part of basis of bargain- For P to make case of breach of express warranty, must prove following

o Ds sale of goods to Po Ds representation to P that goods were of certain kind or qualityo Ds representation induced Ps purchase or was material factor in Ps decision to purchaseo Nonconformity of goods to the representations madeo Ps notice to D, w/in reasonable time of discovery of nonconformity, of failure to conformo Ps damages

Discussion on Carpenter v. Chrysler Corp

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- Not in LA, car is a good, so UCC governs transaction, doesnt matter that buyer isnt a merchant- UCC 2-313 discusses express warranties

o Three categories that can give rise to express warranties undersubsection 1

a. affirmation of fact or promise b. description of conforming goods c. sample or model made for which goods shall conform to

o Above 3 create express warranty when relate to goods and form part of basis of bargaino Subsection 2

Seller doesnt have to use specific wording of warranty

Seller doesnt need specific intention to make a warranty- Arguments why salesman gave warranty as opposed to using puffery

o Look at salesmans precise language under 2-313 subsection 1

Looks like affirmation of fact or promise, 1a Could be a description too Not a sample or model though

o Customer said needed X

Salesman pointed to X Customer relying on salesmans judgment in making purchasing decision Looks like affirmation of fact

- Arguments against warrantyo Most reasonable consumers are expecting that salesman will engage in pufferyo Salesmans job to move vehicles, so puffery used and is allowedo Not salesmans fault vehicle didnt work, since mechanic signed off on worko Wasnt specific, just said good and reliable car

Ex of specific- this car gets 30 mi/gal, is a warranty Not ex- this car gets good mileage, not a warranty

- Prof thinks lang alone doesnt look like warrantyo But looking in context looks more like express warrantyo And knowing customers needs, also looks more like express warranty

UCC Implied Warranties- 2-314 implied warranty: merchantability; usage of trade- 2-315 implied warranty: fitness for particular purpose- 2-316 exclusion or modification of warranties

Warranties- Promise a seller makes about a good being sold- Where can find warranties

o In contract, can be in warranty section or any other placeo Statement of salespeople, either oral or writteno Advertisements, promotional literature, documentation on producto Sample presented to potential buyero Industry standard: course of dealing and usage of tradeo UCC

VLASES V. MONTGOMERY WARD & CO (354) Man bought chickens from MW. Chickens died after delivery MW saysthey didnt know disease was present when shippedIssue: Whether seller is liable for breach of implied warranty when unable to detect the defects in its product

Holding: Yes, seller is liableRule: Seller is liable for quality of goods/breach of warranty (like strict products liability)

- Two implied warranties at issue, both to protect buyer from loss when no express promise but goods not goodo Merchantabilityo Fitness for a particular purpose

- Purpose behind implied warranty sections of code is too Hold seller responsible when inferior goods are passed to unsuspecting buyero Dont need evidence that defects should/could have been discovered by sellero Just need evidence that goods not of merchantable quality or fit for their particular purpose

- Implied warranty arises only if the seller is a merchant w/ respect to goods of that kind

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MASSEY-FERGUSON, INC. V. UTLEY (357) Dealer sold combine attachment to farmer. Assigns contract tomanufacturer farmer defaults on payment claiming manufacturer breached implied warrantyIssue: Whether breach of implied warranties can be asserted against assignee when buyer agreed in contract not to assertdefenses against assigned that might have asserted against the sellerHolding: Yes, buyer can assert breach of implied warranties and bring defense against P in this caseRule: Exclusionary lang disclaiming warranty not conspicuous, so not properly disclaimed

UCC 2-316- How is this different from implied warranty of merchantability (in 2-314)?

o Doesnt just apply to merchants, applies to any sellero Seller has reason to know of merchantability for buyers purposeo Particular purpose this buyer has in mind for this good, could be completely out of the ordinary

- Subsection 1o Cts will take words of express warranty and look at limitations and construe in way for both to be enforced

as much as possibleo Express warranties trump limiting language

- Subsection 2o Language must mention merchantabilityo If in writing, must be conspicuouso To exclude ormodify any implied warranty of fitness, must be in writing and conspicuous

Magnuson-Moss Act (361)

- Just know it exists- Fed law that regulates how warranties can be made when seller selling consumer good to consumer- Dont spend time studying

Modifications

Pre-Existing Duty Rule Restatement 73- Common law rule, applied when not dealing w/ goods- Modification is a contract itself, so requires consideration to be enforceable- Agreeing to do something already agreed to do, so cant get addl compensation- Still in use, but in decline, and UCC 2-209 deals w/ issuemod needs no consideration to be binding

ANGEL V. MURRAY (363) - city had contract for garbage removal, additional 400 houses led to higher collection costs

asked for more money (5 year contract)Issue: Whether modifications (addl payments) were illegal because they lacked considerationHolding: No, modifications were legalRule: Modification of a contract is itself a contract, unenforceable unless supported by consideration

- Subsequent agmt for addl pay is unenforceable if contractor is only doing work which wouldve been required ofhim under original contract

- BUT cts reluctant to apply pre-existing duty rule when one party encounters unanticipateddifficulties and othervoluntarilyagrees to pay addl compensation for work already required under contract

- Rule doesnt compel a modification of unprofitable/unfair contract,just enforces if parties voluntarily agreeand if:

o Promise modifying original contract was made before contract was fully performed on either sideo Underlying circumstances prompting modification were unanticipated by partieso Modification is fair and equitable

- Restatement 89 Modification of Executory Contract - Promise modifying duty under contract not fullyperformed on either side is bindingo Modification is unfair and equitable in view of circumstances not anticipated by parties when contract was

made: oro To extent provided by statute: oro To extent that justice requires enforcement in view of material change of position in reliance on promise

Discussion on Pre-Existing Duty Rule- Implicates

o Statute of fraudso Parole evidence ruleo Reliance

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BROOKSIDE FARMS V. MAMA RIZZOS, INC. (376) requirements contract between P and D, forbids oral modifications,D asked P for addl performance in consideration for increased price, D would write change on purchase orderssue: Whether oral agmt to change contract and put modification in writing is enough to modify contract when containsclause forbidding oral modifications of termsHolding: Yes, oral agmt enough when one party relies to its detriment on promise of other partyRule: Promissory estoppel can be used when one party promises but fails to create writing changing contract

Discussion on Brookside Farms v. Mama Rizzos- Consideration given: one party has increased performance, other party paying more for this service

o Pre-existing duty rule consideration made- Statute of Frauds contract, not enforceable by SoF if oral

o IS enforceable under (3) goods for which payment has been made and accepted or which has beenreceived and accepted

- 2-207 oral changed not materially altered obligations are not barred- 2-209

o Agreement to modify needs no considerationo Signed agreement exclusion modifications (except in signed writing) cannot be modified, except between

merchants such requirement form must be signed by each partyo Requirements of SoF must be satisfied IF contract is modified w/in provisions

- But problem is contract forbid oral modifications- Court found modification was enforceable though promissory estoppel

o D promised to write in modification on their contracto

Parties performing as if both agreed to modification

Unilateral v. bilateral contracts- Unilateral has only one promisor- Other party hasnt contractually obligated itself- Classic ex of unilateral contract, Hamer v. Sidway (Uncle Willy)

ASMUS V. PACIFIC BELL (385) - PB has policy giving job security to managers, gave notice of would be policy changeIssue: Whether employer may terminate or modify unilateral contract thats been accepted by employees performanceHolding: YesRule: Employer may terminate after a (1) reasonable time, (2) on reasonable notice, and (3) w/o interfering w/ theemployees vested benefits

Discussion on Asmus v. Pacific Bell- Employer made unilateral promise to employees

o No return promise made by employeeo Consideration is continuing to work in response to unilateral promise

- Different approaches could adopt, ct follows thirdo Employer could terminate w/o notice at any time before completion of contracto Impose bilateral concepts to require mutual assent and addl consideration to support terminationo Employers must have mechanism which allows them to alter the employee handbook to meet the

changing needs of both busi and employees- Arguments for majority and dissent

o Majority, favors employer

Fair and reasonable policy, allows for time and notice to change agmt Would be crazy for employer to be stuck w/ many policies, inefficient and chaotic

If no right to change unilateral policy, co will be stuck w/ it foreverDissent- Pacific Bell would only be stuck w/ policy for length of employment of people w/ policy in their employment contract- Must show respect for terms of contract, allows employees to rely on promises of employers

In profs view, this was bad decision- Employers will make promises- But wont be obligated to keep promises- Employees will be skeptical of promises of employer, less likely to be loyal to employer

WONG V. PAISNER (401) P sent bill for $5400, more than quoted price of $1500. Customer paid $1500 with paymentfor full noted on check this crossed out then depositedIssue: Whether have enough evidence for instruction ofaccord and satisfactionHolding: Yes

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Rule: Dispute about method of calculating amount owed is enough for jury to consider accord and satisfaction

Doctrine ofaccord and satisfaction- Offer by someone who has obligation to another party to substitute performance in satisfaction of existing obligation- Amount of underlying obligation must be in dispute for accord and satisfaction

o Ex- promissory note for $1000

One party owes, but can only pay $750 Party pays $750 marked payment in full Other party cashes check but sends bill for remaining $250

No accord and satisfaction since $1000 amount not in dispute Neither partys rights or duties have changed, no consideration to change amount

o Another ex- parties dispute about amount due

One party wants $5400 Other party thinks should only pay $1000 When party pays $1000, marked payment in full and other party cashes, Then theres accord and satisfaction

- How to establish amount is in disputeo Question of fact, fact-finder must determineo Usually dispute about method of calculating amount owed

Can have evid like receipts, time entries, oral agmts, etc. Good example in above case w/ amount for services of architect

o Possibility to accept lower pymt (that says in full) if accepted in protest

Must be very careful in doing so Check law in jurisdiction Can be risky, but might be option if party really needs partial payment

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Legal Regulation of Contracts

Misrepresentation and Mistake of Fact

Overview- Person asserting mistake is almost always D trying to get out of contract- Mistake m/b something big, a mistake of fact- Claim is destroyedif risk of mistake was allocated to one party or another- Mistake pleas are rarely successful today

Definitions- Misunderstanding: when offeror means one thing and offeree understands another, or vice versa- Fraudulent misrep: when ones mistaken belief was intentionally fostered by another- Warranty: where mistake is fostered by honest and good faith assurances of another- Mistake and misunderstanding

o Usually lead to finding ofno binding contracto No damage recovery

- Misrep and breach of warranty usually result in damage recovery

Weintraub v. Krobatsch (408)Facts: Home for sale, always saw during day, came at night and full of roachesIssue: Whether seller has duty to disclose defects in property when buyer doesnt address those defects

Holding: Possibly, case should go to full trial; Reverse and remand, buyers will appealRule: Minor conditions parties would reasonably find immaterial dont call for judicial intervention(but this isnt minor)

Discussion- Rstmt 164(1): If agmt to contract induced by fraud misrep, contract is voidable- Rstmt 161

o Material misrep can include failure to disclose infoo But Comment A says party not required to disclose all info knows about situation

- Murky standard, no bright-line rules- Representations and Warranties

o Section of contracto Will include promises of seller made about condition of thing being soldo If seller makes rep about no roaches, but turns out there are and misreped, then seller has breached rep

and warranty of contract- Or could have express as is clause, so seller not liable for later conditions found out

Lenawee County Board of Health v. Messerly (415)Facts: P agreed to buy property in present condition, found raw sewage seeping out, bldg condemnedIssue: Whether buyers can avoid contract on basis of mutual mistake and lack of considerationHolding: Parties did have mutual mistake, but no rescission warranted because risk of loss assigned to buyersRule: Rescission not available to party who assumed risk of loss in connection w/ mistake (as is clause)

Discussion- What is a mistake? A belief not in accord w/ the facts.- How to analyze now that establish theres a mistake

o Ct says will use case-by-case analysis

o Rescission appropriate when Mistake is about essential assumption of parties upon which agmt made, AND which materially affectsagreedperformance of parties

- Both elements for rescission met, but ct finds cant rescind hereo Because ofas is clauseo One party assumed risk of loss

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Public Policy and Illegality

Overview- Cts willingness to enforce contract is not w/o limits- Wont enforce when contract or performance of obligation is illegal

Clouse v. Myers (426), illegalityFacts: Liquor license in Ds name, became partners w/ P but called contract something else to avoid new liquor licenseIssue: Whether P gets money back when knowingly entered into illegal contract

Holding: No, P cant recoverRule: Ct cant redress a wrong that has resulted from the injured partys own wrongful and illegal conduct

Restatement and Unilateral Mistake (424)- Restmt 153 says contract is voidable due to unilateral mistake under certain circumstances- Where one party made contract, made mistake about basic assumption w/ material effect on performances that is

adverse to him,- Contract is voidable by party if he doesnt bear risk of the mistake- AND if

o Enforcement would be unconscionable, OR

o Other party had reason to know of mistake or his fault caused the mistake

Hopper v. All Pet Animal Clinic, Inc. (430), public policyFacts: Vet working and later signed non-compete covenant, left and started own competing practiceIssue: Whether covenant not to compete is enforceableHolding: Yes, but ct narrows scopeRule: Traditional disfavor of restraints, so non-compete covenants are construed against party seeking to enforce

- Covenant: No small animal practice in 5 mi radius of city for 3 yrs- Duration unreasonable: One yr limit is sufficient to moderate risk of injury from unfair competition

Discussion- Why are courts hesitant to enforce restrictive covenants?

o May create undue burden/hardship on one party, ability to earn a livingo Could burden society at large, be a restraint on trade, stifle innovation

- Ct found restrictive covenant enforceable here, considered three elementso Nature of activity being prohibited

Here was small animal vet practice Hopper could still practice large animal med

o Geographic scope

Five-mile radius of city here Ct found okay, Hopper couldve gone elsewhere in county and practiced

o Duration

Three years here, ct found unreasonable restraint on trade Ct said one year more reasonable, sufficient to moderate risk of injury from unfair competition Ct narrows this term and then enforces covenant

- Approaches to covenant w/ unreasonable termso Throw out whole thing and dont enforce anyo Throw out unreasonable term and enforce resto Blue pencil rule: rewrite bad term and then enforce entire covenant

Note 3 (441)- If Hopper was partner instead of employee, signed non-competed, sold out to other partners, same outcome?- Analysis

o Should look at amount paid for partnership

If a great compensation, more likely to enforce If not that much, less likely to enforce

o Also look at covenant not to compete

If narrow (short amount of time, still practice some med), more likely to be enforced If broad (cant practice at all or for a long time), less likely to be found reasonable and enforced Also consider whether public is being denied an important service

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AZ v. BZ (441), public policyFacts: Couple to IVF clinic, H signed donor form then W added terms, couple separated and embryos leftIssue: Whether old consent form can be enforced when relationship between signing parties has fundamentally changedHolding: No, cant enforce form; affirm, wife loses appeal/husband winsRule: As matter of public policy, wont force one donor to become parent against his/her will

Discussion- Husband signed before wife added terms, so no intent to agree to terms added- Note: cts will usually enforce anyway, this case is an exception- Two separate issues

o Contract formationo Contract enforcement

- Public policy reason to not enforceo Court wont order husband or wife to do whats necessary to prevent or do whats necessary to conceiveo Prof thinks above is strongest public policy argument

- Strongest legal argument, in profs opiniono Could strictly construe languageo Say parties only addressed event of separationo Since divorce happened here, then cant enforce contract

Unconscionability

Williams v. Walker-Thomas Furniture (450)Facts: Series of purchases from furniture store, term that if default store can repo all items, customer defaultedIssue: Whether pro rata (all debts pooled/all items collateral) clause is enforceableHolding: Possibly, remanding for trialRule: Ct options w/ unconscionable clauses (note: ct didnt say clause was unconscionable, wants trial ct to decide)

- Throw out whole thing and dont enforce any- Throw out unreasonable term and enforce rest- Blue pencil rule: rewrite bad term and then enforce entire covenant

Notes on Unconscionability- Ways cts look at now, need both below

o Procedural unconscionability, how was this contract entered into?

Unfair leverage

Unclear, hidden termso Substantive unconscionability, whats in the agreement

- Cts use unconscionability sometimes to protect categories of people, like consumers- But not often used, and almost never used in comml transactions

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Remedies

Overview- How to make an injured party whole- Look to contract first, may list specific remedy for breach- If contract addresses, is that sole and exclusive remedy, or is it just one of many?- If contract says remedy w/in is sole and exclusive remedy, usually upheld as only remedy

Expectation Damages- Remedy thats most appropriate, common- Putting harmed party in same position economically as if contract had been performed- Example

o Lawyer had contract to work for one year for $100ko Fired w/o cause and gets job for $60ko Expectation damage is then $40k

- Must respect idiosyncratic tasteso Even if contract would decrease valueo Need to respect subjective happinesso Ex- author paints house lavender, decreases value but he likes it

- Farnsworth formulao General measure = loss in value + other loss cost avoided loss avoided

o Loss in value: diff in value between what injured wouldve recd and what did rec

Ex- buy nice new car Go to pick it up, and has big dent in it Diff between new car and car w/ dent in it (worth less)

o Other loss: injureds costs from breach

Ex- Transactional costs, need to negotiate w/ new supplier when old one breaches Damage to reputation

o Cost avoided: what injured doesnt pay as result of reach

Ex- Contractor was hired for job to be paid $100k, hiring party breached But contractor wouldve paid subcontractor $50k Should subtract $50k didnt have to pay subcontractor Also subtract materials didnt purchase, labor costs, etc

o Loss avoided: any savings injured may make after breach

Other Damages (quickly went over, just know definitions)- Reliance damages

o Rare, but given when P cant show what expectation damages would beo Return to P of his outlay in performing the contracto Dont include Ps profit

- Restitution damageso More rareo Part of Ps outlay that benefitted Do Dont include Ps profito Ex- caring for lost pet until owner is found, owner benefits

- Specific performance or an injunctiono Equally rareo Not given if damages are adequate to protect expectation interest of injured party

UCC Damage Formulas- 2-711(1), Buyers remedies in general

o Buyer may cancelo Buyer gets back down payment if cancels

- 2-713(1), Buyers damages for non-delivery or repudiationo Buyers remedyo RBPP + MP KP + ID + CD ES = D

o Letters

Return buyers purchase price

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HADLEY V. BAXENDALE P hired D to transport broken mill shaft d promised tP to deliver next day. Delivery did notoccur for multiple days P lost addl week of workIssue: Whether damages for delay/lost profits was foreseeableHolding: Possibly, remanding for jury to determine (ct hints damages were foreseeable)Rule: Damages should be limited to those foreseeable when contract was made

DISCUSSION- 351Unforeseeability and Related limitations on Damages- 2-715 Buyers Incidental and Consequential Damages

o (1)(a) loss from genera or particular requirements/needs which seller had reason to know and whichcould not reasonably be prevent by cover(obligation to mitigate damages)

MITIGATIONRepudiation - one party purports to terminate K, w/ no right to do so

CLARK v. MARSIGLIA painter refused repudiation and continued to finish paintingIssue: Did painter had duty to mitigate damages when P repudiatedHolding: YESRule: one party does not have right to insist on performance, which increases costMADSEN v. MURRY & SONS agreement for D to make pool table and P to furnish w/ special rails (use for a pinball/pooltable). P did not finish rails D salvaged tables for significantly less than pool table valueIssue: is there a duty to mitigate damages?

Rule: Mitigation of Damages Rule no party suffering a loss as a result of breach is entitled to any damages which couldhave been avoided if aggrieved party had acted in a reasonably diligent manner in attempting to lessen losses

Discussion:- P paid $42,500 advance- MP exists wherein aggrieved seller can market its goods- MP = 21250 and KP =33750- BD (42,500) SD (33,750) $8750 to Buyer

o Buyer not entitled to further credit for expenses saved by sellero Only gets difference between what he lost and what he could have had BD KP

EXAM- No need to talk about case law

- APACo Applicable law UCC or Common Lawo Principles likely to be relevant for analysis

Statute of Frauds, Parol Evidence, etc Description of and citation to principle Further analysis of other principles implicated

o Analysis argue BOTH sideso Conclusion not as important as analysis

Play TENNIS and come to reasonable solution

Documents

Lindsey's Contract Outline