Contracts Fall2011 Ertman

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Contracts Outline

Table of Contents

Introduction........................................................................................................................................... 2

Contract Formation............................................................................................................................. 2

Contract Modification......................................................................................................................... 8

Promissory Estoppel........................................................................................................................... 8

Contract Formation Under UCC....................................................................................................... 9

Battle of the Forms (C/L)................................................................................................................... 9

Battle of the Forms (UCC).................................................................................................................. 9

Defenses to Contract Enforcement.............................................................................................. 10

Statute of Frauds................................................................................................................................ 16

Parol Evidence.................................................................................................................................... 17

Good Faith............................................................................................................................................ 19

Breach (C/L)........................................................................................................................................ 20

Breach (UCC)....................................................................................................................................... 21

Damages...................................................................................................................................................................... 21

- 1 -Contracts Outline


Introduction

I) OVERVIEWa) Contract Cause of Action

i) Formationii) Breachiii) Damages

b) Plaintiff bares the burden of proof – preponderance of the evidenceII) Scope of Body of Law

a) Contracti) Legally enforceable agreement

b) UCC Article 2i) § 2-102 – scope of UCC Article 2 related to the transaction of goodsii) § 2-106 – sale occurs when a title is passed from the seller to the buyer for a priceiii) § 2-105 – defines goods as all things which are movable at the time of identification

for contractc) Restatement 2nd of K

i) “Common law”ii) Governs everything that is not the sale of goods

d) Hybrid Contracti) Contains both goods and servicesii) To determine if UCC or Common Law governs Predominate Test

(1) What part of the contract are you paying the most money. Most expensive part of the contract determines which body of law governs

(2) Gravemen Test: test looks to what part of the contract caused the harm.

Contract Formation

I) Overviewa) Restatement § 1 – Contract Defined - A promise for the breach of which the law givesa

remedy, or the performance of which the law in some way recognizes as a duty.

b) Restatement § 2 – Promise Defined – A promise is a manifestation of intention to act or to refrain from acting in a way that justifies the promisee in understanding that a commitment has been made.

c) Restatement § 3 - Agreement & Bargain Defined - An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

d) Mutual Assent: Offer + Acceptancei) Restatement § 17 – Requirement for a Bargain – Contract requires a bargain where

there is a manifestation of mutual assent.1) Comment: Mutual assent is also known as “meeting of the minds.” Parties must

give actual and apparent assent.



2) Legally enforceable agreement requires: Offer + Acceptance + Consideration = Contract.

ii) Restatement § 18 – Manifestation of Mutual Assent – Each party must make a promise, or begin to or render a performance. (i.e. partial performance)

iii) Restatement § 19 – Conduct as Manifestation of Assent1) May be made wholly or partly by written or spoken words, or by other acts, or by

failure to act.2) Conduct does not constitute mutual assent unless –

a) actor intends to engage in conduct ANDb) knows or has reason to know that the other party may infer from his conduct

that he assents.3) Conduct may constitute mutual assent even if actor does not in fact assent.

iv) Restatement § 22 – Mode of Assent – 1) Manifestation of mutual assent normally takes the form of an offer and

acceptance.2) Manifestation of mutual assent can occur with neither offer nor acceptance, and

without being able to determine the moment of contract formation.v) Restatement § 27 – Written Memorial Contemplated – Manifestation of assent that

are themselves sufficient to conclude a contract will not be prevented from 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 only preliminary negotiations.

e) Offeri) Restatement § 24 (GENERAL RULE) - An offer is the manifestation of willingness

to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

ii) Restatement § 26 (EXCEPTION) - A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.

iii) Restatement § 25 (Option Contracts) - i.e. Firm Offers): An option contract is a promise which meets the requirements for the formation of a K and limits the promisor’s power to revoke an offer.1) It’s and irrevocable offer for the time when was going to be left open.

iv) Restatement § 33 (Certainty) – 1) An offer cannot be accepted to form a contract unless the term of the contract are

reasonably certain.2) Terms are reasonably certain if they provide a basis:

a) For determining the existence of a breach andb) For giving an appropriate remedy.

3) Open or uncertain terms in a proposed bargain may indicate no intent of an offer or acceptance.



f) Acceptancei) Restatement § 50 (Definition) - Acceptance of an offer is a manifestation of assent to

the terms thereof made by the offeree in a manner invited or required by the offer.ii) Restatement § 30 (GENERAL RULE) –

1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specific act, or may empower the offeree to make a selection of terms in his acceptance.

2) Unless otherwise indicated, an offer invites acceptance in any manner and medium reasonable in the circumstances.

iii) Restatement § 35 (EXCEPTION) – 1) An offer gives to the offeree a continuing power to complete the manifestation of

mutual assent by acceptance of the offer.2) A contract cannot be created by acceptance of an offer after the power of

acceptance has been terminated in accordance with § 36 (detailed within).

g) Consideration i) Restatement § 71 (GENERAL RULE)

1 To constitute consideration, a performance or a return promise must be bargained for.

2 A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for the promise.

3 The performance may consist of:a) An act other than a promise, orb) A forbearance, orc) The creation, modification, or the destruction of a legal relation.

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

ii) Restatement § 81 (EXCEPTION)1 The fact that what is bargained for does not of itself induce the making of a

promise does not prevent it from being consideration.2 The fact that a promise does not of itself induce a performance or return promise

does not prevent the performance or return promise from being a consideration for the promise.

II) MANIFESTATION OF MUTUAL ASSENT

b) GENERAL RULE: Manifestation of intent to be bound i) Mutual Assent = OFFER and ACCEPTANCE (Restatement § 22)

c) CONCEPT: Manifestation of assent must be objective. What the parties communicate to one another is what matters, NOT their subjective intent. However, the parties must be judged on their subjective belief of what they actually believed. Both a reasonable person has to believe it and an offeree himself believed iti) EXAMPLE CASE: Lucy v. Zehmer (C)

1 Drunk men sign agreement to sell land, seller does not mean to sell (tells his wife it is a joke).



2 HOLDING: Conduct and words of Zehmer indicate that he wanted to sell sale of land is upheld.

3 RULE: Court looks to the objective manifestation of parties’ intent to determine if they form a contract. Law looks to words and actions NOT intent.

ii) EXAMPLE CASE II: Quake Construction, Inc v. American Airlines, Inc / Jones (C)1 D awarded P contract orally, then in writing, then in meeting. Writing was a letter

of intent that included a cancellation clause and statement of “awarding a contract.” D comes back and says no contract.

2 HOLDING: The cancellation clause and the awarding of a K demonstrate a manifestation of intent to be bound

3 RULE: Generally letter of intents are NOT Ks. However, courts examine if there is a manifestation of intent to be bound by the parties. If so, the letter of intent is binding

iii) EXAMPLE CASE III: Academy Chicago Publishers v. Mary Cheever (NC) – Vague & Missing Terms1 Cheever and Publisher have an agreement to publish books. Cheever must select

the stories and must deliver them on a mutually agreeable date. The publisher must publish within a reasonable time.

2 HOLDING: Court cannot file length, date of delivery, criteria for publishing, and publishing date there is no contract because the court will not rewrite K

3 RULE: Terms of a contract must be “reasonably certain” so that the court must be able to determine what the parties agreea) TEST for Reasonably Certain Terms

(i) Terms are reasonably certain if:1. A party has breached and2. Calculate damages

iv) EXAMPLE CASE IV: B. Lewis Productions, Inc. v. Angelou1 RULE: Duration is a gap that the court is willing to fill. If there is not a set date

the K is terminated at will.v) EXAMPLE CASE V: Wood v. Lucy, Lady Duff-Gordon (C)

1 Lucy gives Wood a 1 year exclusive dealing contract. He markets her design and they spilt profit 50/50. D argues no K because it’s a illusory promise (D gives up work and receives nothing in return)

2 Court fills in Wood’s “promise” K3 A promise of “best efforts” is folded into the doctrine of good faith. There is

an implied duty to use best efforts in personal service contract for services/exclusive dealings.

vi) EXAMPLE CASE VI: Sun Printing and Publishing Association v. Remington Paper & Power Co. (NC)1 D is refusing service because K was imperfect. There are incomplete terms not

legal bound by promise2 RULE: Courts enforce Ks. They will not rewrite contract terms.

II) OFFER



a) GENERAL RULE: Offer defined –a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it (Restatement § 24)

b) EXCEPTION: Negotiations (Restatement § 26)i) Manifestation of willingness to enter a bargain is not an offer if person to whom it is

addressed knows or has reason to know person making it does not intend to conclude a bargain until he has made a further manifestation of assent

c) EXAMPLE CASE: Leonard v. PepsiCo . (No Offer)i) Kid tries to buy Harrier jet in PepsiCo commercial through pepsi points. Commercial

is not a definite and clear offer because it served the details of the offer to a separate writing (catalog)

ii) No offer a reasonable person would not understand that assent was invited to the offer and conclude the deal

d) CERTAINTY OF TERMS (Restatement § 33)i) An offer cannot be accepted such as to form a contract unless the terms of the

contract are reasonably certain ii) Test for Reasonably Certain Terms:

1 Determine that there is a breached and2 Determine damages

iii) Open or uncertain terms in a proposed bargain may indicate no intent of an offer or acceptance.

e) ADVERTISEMENTS AS OFFERSi) GENERAL RULE: Ads are not offers. Ads are an invitation to negotiate.

1 Policy rational: a seller would breach too many times if ads are offer. If the ad goes to 1000s of people and each person wants the good – the seller would run out and there would be a breach of contract

ii) EXCEPTION: An add is an offer if: 1 Specific, definite, and explicit terms, 2. leaving nothing open for negotiation

a) EXAMPLE CASE: Lefkowitz v. Great Minneapolis Surplus Store (Offer)(i) Store puts up 2 ads for fur coats worth around 100 for $1 to first person to

arrive at store, and another ad for Stole worth 139.50 for $1 to first person to arrive at store

(ii) Ad was an offer here b/c it was definite and explicit in terms, first come first serve, price to be paid listed, nothing left open for negotiation

2 Reward Caseb) EXAMPLE CASE: Carbolic Smoke Ball Case

(i) Ad: if you get the flu after using the balls as directed, we will give you 100 pounds.

(ii) Woman uses the balls and gets the flu. She wins because they placed $1,000 pounds in the bank to show how serious they are.

III) ACCEPTANCE

a) ACCEPTANCE DEFINED (Restatement § 50)1 Acceptance of an offer is a manifestation of assent to the terms thereof made by the

offeree in a manner invited acceptance



b) MANNER OF ACCEPTANCE (Restatement § 30)1 Offeror can require a specific manner of acceptance2 Unless otherwise indicated, an offer invites acceptance in any manner and by any

medium reasonable in the circumstancec) MODES OF ACCEPTANCE

1 Mirror Image Rulei. Acceptance must be definite and unequivocal. An acceptance, which changes or

adds to an offer is not acceptance.ii. If an acceptance differs from the offer in some way, it is a “counter-offer” and is a

rejection of the original offer.a. EXAMPLE CASE: Ardente v. Horan (C)

1. Ardente bids 250,000 on house, Horan’s atty sends purchase agreement to Ardente, which he signs, sends check, and letter confirming furniture would be included with agreement, however Horan’s atty returns check and PSA saying no sale b/c furniture not included, Ardente sues.

2. Acceptance must be definite and unequivocal and impose no additional conditions on the offer or add limitations to it

3. Letter for furniture inclusion uses word confirm and seeks confirmation that other items are part of deal, so not a request which would be an exception to Mirror Image rule

4. Letter imposes condition on P’s acceptance and D’s offer5. Letter does not state that w/o the items P is willing to complete sale6. Letter seeks confirmation that listed items are pt. of transaction7. Violates mirror image rule. No Contract. Ruling for Horan.

iii. Exception – Restatement § 61 – Acceptance which requests the change of terms - An acceptance which changes or adds to an offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms. Comment: An acceptance can add immaterial or collateral terms as long as it’s not equivocation.

iv. It’s not equivocation to say what is “already reasonably implied” in the terms of the offera. EXAMPLE CASE: State of RI Department of Transportation v. Providence

and Wochester Railroad Corp. (C)1. PW sold property to Promet but had to give RI 30 days to buy it

instead. RI sent letter and accepted offer for property from PW saying to discuss removing the track and that the name of buyer must change. RI never finalized sale so sold to Promet.

2. HOLDING: Under Mirror Image Rule – acceptance must mirror the offer. In case, acceptance did not mirror the offer but was still valid b/c the changes are “immaterial or collateral terms” since they are reasonably implied from the offer.

2) Mailbox Ruleii) CONCEPT: K is effective as soon as acceptance leaves offeree’s hand

a. Restatement § 63: Unless offer provides otherwise, an acceptance made in a manner and by a medium invited by the offer is effective if it is done in a



proper manner and medium invited and sent properly as soon as put out of offeree’s possession.

b. Exception - If the contract is an option K, it is not effective until the acceptance is received.

c. Mailbox Rule for Electronic Communication (UETA § 15): Electronic records is sent when:

1. Addressed properly to an IPS that recipient has designated/uses forgetting electronic records of this type and can be retrieved.

2. Form capable of being processed.3. Enters processing system outside control of sender or enters system

used by the recipient. 4. Electronic record is “received” when it enters processing system of

recipient and is in form capable of being processed by system 3) Acceptance by Performance or Promise (ie: Unilateral K)

a. Offeror is bound when the performance begins and must give the person reasonable time to complete it (Restatement § 45)

b. Offeree is not bound to perform, but once the offeree begins performance, the offeror must allow offeree a reasonable time to finish performing (Restatement § 62).

c. When an offer invites an offeree to accept by rendering performance, notification of acceptance is not necessary unless the offer requests notification.

d. If an offeree who accepts by performance has reason to know that the offeror has no adequate means of learning of the performance, offeror has no duty to contract unless:i. the offeree exercises reasonable diligence to notify of acceptance, orii. the offeror learns of the performance within a reasonable amount of time, oriii. the offer indicates that notification of acceptance is not required.

e. Restatement § 32 – Invitation of promise or performancei. In case of doubt an offer is interpreted as inviting the offeree to accept either

by promising to perform or by rendering the performance, as the offeree chooses.

4) Acceptance by Silence or Inaction a. GENERAL RULE: Silence is not acceptance

i. Restatement 19: a manifestation of assent can be in words or in actions, or a failure to act

b. EXCEPTION: Silence and inaction operate as an acceptance only in the following cases (Restatement § 69)i. Offeree takes the benefit of offered services with reasonable opportunity to

reject them and reason to know they were offered with the expectation of $ii. Assent may be manifested by silence or inaction and that the offeree in

remaining silent and inactive intends to accept the offeriii. Previous dealings indicate acceptance by silence

d) TERMINATION OF ACCEPTANCE1. An offer gives the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer (Restatement § 35)

a. EXCEPTION: Offeree cannot accept if the offeror properly revokes his offer in



accordance with Restatement § 36.2. MODES OF REVOCATION

a. Restatement § 36: Terminating Power of Acceptancei. Offeree’s power of acceptance may be terminated by:

1. Rejection or counter-offer by the offeree2. Lapse of time3. Revocation by the offeror4. Death or incapacity of the offeror or offeree.

b. Restatement § 42 - Revocation by Communication – An offeree’s PoA is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

c. Restatement § 43 – Indirect Communication of Revocation: An offeree’s PoA is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.

d. Restatement § 37 – Termination of PoA under Option Contract: PoA under and option contract is NOT terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty.

IV) CONSIDERATION

a) CONCEPT: court will not enforce a contract if it is simply a gratuitous promise. There must be consideration – something that both parties are giving and getting in return for their promise

**KEY QUESTION: Do the promises mutual induce each other?**b) GENERAL RULE (Restatement § 71) – Bargain for Exchange (mutually induced

promise s) i) To constitute consideration, a performance or a return promise must be a bargained

forii) A performance or return promise is bargained for if it is sought by the promisor in

exchange for his promise and is given by the promise in exchange for the promise iii) Performance may consist of:

1 An act other than a promise, or2 Forbearance, or3 Creation, modification, or destruction of a legal relation

c) EXAMPLE CASE: Hamer v. Sidway (C)i) Uncle had to pay nephew $5,000 for refraining from drinking, gambling, smoking,

etc…until he was 21. ii) Nephew quitting smoking induced the uncle to pay $5,000 and the uncle gives $5,000

inducing the nephew to quiet the acts. iii) HOLDING: A wavier of legal rights is sufficient consideration for a contract.

d) EXAMPLE CASE II: United States of America v. Betty Jo Meadors (NC)i) Wife signed guaranty on bank loan with husband. Wife’s name was not originally

printed on the contract. She just signed it after negotiations.



1 SBA was not induced by her signature. SBA did not know about her signature so it could NOT have induced the load no consideration.

e) EXCEPTION - Restatement § 81 – CONSIDERATION AS MOTIVE i) The fact that what is bargained for does not of itself induce the making of a promise

does not prevent it from being consideration.ii) The fact that a promise does not of itself induce a performance or return promise does

not prevent the performance or return promise from being a consideration for the promise.

f) EVIDENCE – Restatement § 86 - The court will often decide if there is inducement on whether the parties suffered a detriment or benefit.

g) NOT DETERMINED TO BE CONSIDERATIONi) Testamentary Gift

1 EXAMPLE CASE: Dougherty v. Salt (NC)i) 8 year old received note for $3,000 payable to aunt’s death for being “good

boy”ii) No consideration just a testamentary gift, not enforceable promise

ii) Conditional gift/Gratuitous Promise1 Only one party benefits and the thing done on the other side is incidental2 EXAMPLE CASE: Johnson v Otterbein University – Court held that Johnson did

not have to pay OU $100 b/c it was a conditioned gift, and not consideration. There was no exchange of promises to induce the other party to go pay off debt.

3 EXAMPLE CASE: Pennsy v. American Ash (C)i) Hazardous material (Aggrite) is given for free and used to pave road. Road

breaks.ii) Not a conditional gift. There is mutual inducement, American Ash’s promise

to supply Aggrite free to charge induced Pennsy to assume the determent of collecting and taking title to material. American Ash avoids the high cost of disposing of material (receives a benefit).

iii) Moral consideration1 No inducement if there is no moral obligation2 EXCEPTION: If one party was benefited (Restatement § 86)

i) Promise made in recognition of a benefit previously received by promisor from the promisee is binding to the extent necessary to prevent injustice.

ii) EXAMPLE CASE : Mills v Wyman, dad did not have to pay for son’s medical expenses b/c son was already an adult so dad had no moral obligation to take care of him.

iii) EXAMPLE CASE: Appeal of Clark (C)(i) Clark cared for man who was ill. Man wrote note promising him $700 if

he died.(ii) Sick man received family’s care, and family’s care was a determent

consideration iv) Past consideration - No inducement for contract because one side has already

performed before the agreement.1 Contract modification under C/L requires new consideration

ADEQUACY OF CONSIDERATION



a) GENERAL RULE: Restatement § 79 - ADEQUACY OF CONSIDERATION - Courts will not second guess the adequacy of consideration b/c it often is difficult to figure out the actual value of things. The bottom line is that as long as people get something in exchange then it satisfies the reciprocity aspect of contract1) If the requirement of consideration is met there is no additional requirement of:

i) a gain, advantage, or benefit to the promisor. Or a loss or disadvantage to the promisee. Orii) Equivalence in the values exchanged. Oriii) “mutuality of obligation.”

2) EXCEPTION – Restatement § 364 – UNFAIRNESS – If the promisee gets nothing for the promise or something virtually worthless, then the courts may not enforce the promise.

i) Specific performance or an injunction will be refused if such relief would be unfair b/c

a) [c] the exchange is grossly inadequate or the terms of the contract are otherwise unfair

Contract Formation Under UCC Article 2

I) GENERAL RULE: UCC § 2-204 –CONTRACT FORMATION - K is formed for sale of goods “in any manner sufficient to show agreement, including conduct, between two parties.” a) NOTE: Precise moment of formation is irrelevantb) K does not fail if there are open terms. As long as the:

(1) Parties intent to make a K(2) Terms must be reasonably certain (Reasonably certain if they satisfy test from

Restatement § 33)c) Open terms of K may be supplemented by “gap fillers”

II) OFFER & ACCEPTANCE: UCC § 2-206 - An offer invites acceptance in any reasonable manner and by any medium reasonable in the circumstances.a) SHIPPING OF GOODS

i) Order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a promise of prompt shipment or prompt shipment of goods.

ii) EXCEPTION : But a shipment of non-conforming goods does not constitute an acceptance if the seller reasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

III) FIRM OFFERSa) UCC §2-205 – An offer by a merchant to buy or sell goods in a signed writing which by

its terms gives assurance that it will be held open is NOT revocable for lack of consideration, during the time stated, or if no time is stated for a reasonable time, but not to exceed 3 months.

IV)PERFORMANCEa) UCC §2-208 – Repeated occasions of performance and any course of performance can be

sufficient to show an agreement.



b) EXAMPLE CASE: Hobbes v Massasoit Whip Company: Court held there was a contract even though there was no written agreement and many open terms due to : (a) continual pattern of doing business with each other and (b) silence on Δ’s part constituted acceptance.

CONTRACT MODIFICATION

a) Traditional Rule1) Pre-existing duty rule

i) Modifying contract is not supported by consideration if one of the parties to the agreement does or promise to do something he is legally obligated to do or refrain from doing

b) C/L: a new consideration is required to support K modification (Restatement § 73)(1) EXCEPTION: New Circumstances

i) Restatement § 89: Modification of Executory Contract(i) A promise modifying a duty under a contract not fully performed on either

side is binding:1. If the modification is fair and equitable in view of circumstances not

anticipated by the parties when K was made, or2. To the extent provided by statute, or3. To the extent that justice requires enforcement in view of material

change of position in reliance on the promise ii) Three Part Test under Restatement § 89:

(i) Promise modifying original contract must be made before contract was fully performed on either side

(ii) Circumstances requiring modification were unanticipated by parties (iii) Modification is fair and equitable

(2) EXAMPLE CASE: Angel v. Murrayi) D signed 5 year K to remove waste at fixed rate. Unexpected, large increase in

housing development. D wanted more money. ii) Modification of K allowed because unexpected difficulties arise

ii) UCC: no new consideration is required, but all modifications fall under Statute of Frauds(1) UCC 2-209

i) An agreement modifying a K needs no consideration to be binding as long as it is done in good faith.

ii) NOM clause – no oral modification (2) Statute of Frauds a modification must be evidenced by signed writing

Promissory Estoppel

I) Promissory Estoppel -- Alternative to Considerationa) Promissory Estoppel (Restatement § 90)



i) CONCEPT: A causes B to detrimentally rely on A’s promise. [A makes a promise and B relies on that promise, to B’s detriment. A is stopped from saying there is no contract because it lacks consideration]

ii) Restatement § 90(i) Promise with intent to induce reliance, is binding if injustice can be

avoided only be enforcement of the promise iii) EXAMPLE CASE: Conrad v. Fields (PE)

(ii) Fields offers to pay for Conrad’s law school. Conrad quits her job and goes to school. Fields stops paying after first payment because of financial issues.

(iii) No consideration look to promissory estoppel.(iv) Clear and definite promise, reliance, and detriment meet requirements

of promissory estoppel b) Injured party receives reliance damages

1) Remedy is to make the injured party whole

Battle of the Forms (C/L)

I) COUNTER OFFER (Restatement § 39)a) TEST:

1) About the same matter as the original offer2) Proposed a substituted bargain differing from proposed original offer

b) Last Shot Rule: the terms of the last counter-offer are the ones that govern. Acceptance can be governed by beginning to start the performance of the contract and the terms governing the contract are the ones within the LAST counter-offer.

Battle of the Forms (UCC)

I) Battle of the Forms [UCC 2-207]i) UCC 2-207

(1) GENERAL RULE: K can still be formed even if acceptance does not mirror offer(a) EXCEPTION: Proviso is evoked

(i) Provsio: contract back into common law mirror image rule. Very clearly evoked when the acceptance copies the language of the proviso exactly: “Acceptance is expressly made conditional on other party’s assent to the additional or different terms”

ii) K is formed under UCC § 2-207 when:(1) UCC § 2-207 (1) Definite and seasonable expression of acceptance operates as an

acceptance even though it states terms additional to or different from offer (a) EXCEPTION: UNLESS acceptance is expressly made conditional on assent

to the additional or different terms (known as proviso)(2) UCC § 2-207 ( 3) Conduct by both parties which recognizes the existence of a

contract is sufficient to establish a contractc) TERMS GOVERNING K – “First Shot Rule”



i) K formed under UCC § 2-207(1) (1) additional terms are part of K unless [UCC 2-207(2)]

(a) Offer expressly limits acceptance to terms of the offer(b) Materially alter it or(c) Notification of objection to them has already been given or is given within a

reasonable timeii) K formed under UCC § 2-207(3):

(1) terms of the K are those on which the writings of the parties agree together with any supplementary terms incorporated under any other provision of UCC

d) Knock Out Rule: part of K stating different options about same item, cancel each other out. Therefore act like nothing was ever statement about the item

e) EXAMPLE CASE: C Itoh v. Jordan (C)i) Itoh fills out p.o. for coils and sends to Jordan, Jordan acknowledges form and says

acceptance is conditional on assent to arbitration clause. Itoh agreed to then sell coils to Riverview, but defective so Riverview refused to buy. Itoh sued Jordan. Jordan says no K because Itoh never assented to arbitration clause.

ii) K under 2-207(3) – b/c Jordan sent coils there was performanceiii) NO Arbitration clause because parties never agreed to it

INTERPRETING TERMS OF A CONTRACTA) Introduction=> Sometimes the terms are so unclear that a Court says a contract was not

even formed even though both parties have mutually assented. Some guidelines include: UCC §2- 204: To be enforceable, there must be a way of enforcing a remedy and Restatement 2nd §33: A contract must also be reasonably certain.

B) Interpreting Ambiguous & Vague Terms under the U.C.C. Article 2A. Two Types of terms:

i) Implied-in-fact—terms the parties implicitly agree toii) Implied-in-law—duty of good faith implied in every K under both UCC and

Restatement B. Hierarchy of terms: Wherever reasonable, courts will construe E.T., CP, CD, &

T.U. as consistent with each other, but if it is unreasonable, then E.T. controls C.P. and C.P. controls both C.D. & T.U. [Hierarchy established in §2-208 (2)] C.D. controls T.U. according to §1-205(4)i) Express terms [as defined in §1-205]looks to meaning of terms at time of agreement.ii) Course of performance [§2-208(1)]looks after agreement to see what parties did.

1) Repeated occasions of performance by either party iii) Course of dealing [§1-205(1)]looks to previous transaction b/w parties to see what had been done.

1) Sequences of previous conduct b/w the parties as to a particulartransaction.

iv) Trade usage [§1-205(2)looks to what 3rd parties in that field do1) Any practice or method of dealing...if such usage is embodied in a written trade code, the interpretation of the writings is for the court

KEY case: Frigailment Importing―chicken‖ Court looked to (i) E.T. of ―chicken‖ in



the contract and determined that chickens can weigh different sizes; (ii) C.P.—even though Ps complained that 1st shipment had both chicken and fowl, they accepted the 2nd shipment; (iii) C.O.D.—when D asked Ps what kind of chicken they wanted, Ps said any kind of chicken; price too low to only include P’s meaning of chicken, so court assumes D would not make a bad deal; (iv) T.U.—Dept. of Agriculture’s of chicken includes stewing and broiler chickens. ]

C) Relevant Provisionsi) UCC §1-205=> Definitions of terms

1) Course of dealing (CD) — sequence of previous conduct b/w theparties as to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

2) Usage of trade (T.U.) — Any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question...If it is established that such usage is embodied in a written trade code or similar writing, the interpretation of the writing is for the court.

3) C.O.D and T.U. give particular meaning to and supplement or qualify terms of an agreement.

4) Express terms (E.T.), C.D., and T.U. shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable, E.T. control both C.D. and T.U. and C.D. controls T.U.

5) An applicable usage of trade in the place where any part of the performance is to occur shall be used in interpreting as to that part of the performance.

6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

ii) §2-208=> Hierarchy of evidence relevant to establishing meaning of terms

1) Any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement, if the sale involves (i) repeated occasions for performance by either party w/knowledge of the nature of the performance and (ii) opportunity for objection to it by the other.

2) [GENERAL RULE]Express terms, course of performance, course of dealing, and usage of trade terms, shall be construed as consistent with each other whenever reasonable; [EXCEPTION] When it is unreasonable, express terms shall control COP & COP shall control both C.O.D. and T.U.

3) Subject to the provisions on the next section on modification and waiver, such C.O.P. shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

D) Interpreting Ambiguous & Vague Terms under the Restatement 2nd of K

A. Three Scenarios in determining meaning:



i) When both parties subjectively attached the same meaning:1) If parties subjectively attach the same meaning, there is no misunderstanding and under Restatement §201-1, that subjective agreement is the governing term.

ii) When both parties subjectively attached different meanings, then it is interpreted according to the meaning attached by one party that knew or had reason to know the first party intended a different meaning. [§201(2)]

iii) When no answer under the subjective, then look to see in Restatement §202 if an objective meaning can be determined

1) What is happening in the industry? What have governmental agencies said?

**IF NO OBJECTIVE DEFINITION OR SUBJECTIVE WAY TO KNOW PARTY'S INTENTION, THEN NO CONTRACT IS FORMED.** [§201(3)] [EX. Oswald v. AllenNo K because both parties had different interpretations of ―Swiss coins.‖]

B. RelevantProvisions:i) §200=> Interpretation of Promise or Agreement

1) Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning.

ii) §201=> Whose Meaning Prevails1) If parties have ―attached the same meaning,‖ that is the meaning of the

term.2) If the parties have ―attached different meanings,‖ it is interpreted

according to the meaning attached by one of them at the time agreement was made if:(a) That party did not know of any different meaning, and the other party knew the meaning attached by the first party; or (b) That party had no reason to know of any different meaning, and the other had reason to know of the meaning attached by 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.

iii) §202=> Rules In Aid of Interpretation

1) Words and conduct are interpreted in light of all circumstances, and ifthe parties’ purpose is ―ascertainable, it is given great weight.

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

3) Unless a different intention is manifested,(a) Where language has a generally prevailing meaning, it is interpreted in accordance with that meaning. {U.C.C. equivalent to express terms}(b) Technical terms and words of art are given their technical meaning when used in a transaction within their technical field. {U.C.C. equivalent to ―trade usage‖}



4) Where an agreement involves repeated occasions for performance by either party with knowledge of that performance and an opportunity for objection, any course of performance is given great weight. {U.C.C equivalent of course of performance}

5) Wherever reasonable, the manifestation of intention of the parties are interpreted as consistent with each other and with any relevant C.O.P., C.O.D., or T.U.

[KEY cases=> Weinberg v. Edelsteinmeaning of term - dresses. Court looked to express definition in dictionary and trade usage to determine that two-piece skirt and blouse sets were not dresses.]

E) Gap-Filling: Agreements to Agree & Illusory Promises

A. U.C.C.=> OPEN TERMSi) §2-305=> Open Price Term: Courts will fill in a ―reasonable price.

ii) §2-308=>Absent Place of Delivery:1) Unless otherwise agreed,

(a) [GENERAL RULE]: Place of delivery of goods is the seller’s place of business or if he has none, his residence; but

(b) [EXCEPTION]: in a K for sale of identified goods which to theknowledge of the parties at the time of contracting are in someother place, that place is the place for their delivery.

(c) Documents of title may be delivered through customarybanking channels.

iii) §2-309=> Absent Time Provisions:1) If not agreed upon, the time for shipment or delivery or any other such

actions shall be a reasonable time.2) Where the K provides for successive performances but is indefinite in

duration, it is valid for a reasonable time and may be terminated at any time by either party unless otherwise agreed.

3) A party who is terminating a K must give reasonable notification to other party unless it is occurring on an already agreed upon event.

iv) §2-310=> Open Time for Payment 1) Unless otherwise agreed,

(a) Payment is due at the time and place where buyer is to receive the goods, etc...

v) §2-306(1)=> Open Output Requirements 1) GENERAL RULE: An open term about the quantity of output means

such output as may occur in good faith. [§2-306(1)] 2) EXCEPTION: Except the quantity cannot be unreasonably

disproportionate to any stated estimate or to any normal or otherwisecomparable prior output or requirements. [§2-306(1)]

3) EX. Case=> Eastern AirLines and supply of oilvi) U.C.C. §2-306(2)=> Open Exclusive Dealings



1) GENERAL RULE: A lawful agreement for exclusive dealing imposesupon an obligation on the seller to use best efforts to supply the goodsand on the buyer to use best efforts to promote their sale. [§2-306(2)]

2) EX. Case=> Wood v. Lucy, Lady Duff-Gordon and exclusive dealingswith sale of fashion

B. Under Restatement 2nd of Ki) §34=>Terms to make contract enforceable

1) Certainty of Terms: Terms of a K must be reasonably certain. 2) Partial Performance: Partial performance may remove uncertainty and

establish an enforceable contract. 3) Reliance: Action in reliance can make a contractual remedy

appropriate. [EX. Case: Sun PrintingNot enough terms, so court says it was just an agreement to agree.“We are not at liberty to revise while professing to construe.” ]

Defenses to Contract Enforcement

I) After K formation is there a defense, which would stop the enforcement of the K?a) **START WITH K FORMATION…THEN…ADDRESS IF K IS

ENFORCEABLE**II) Defenses to Mutual Assent

a) Although it may seem like a K was formed, facts demonstrate that there was no true assenti) Defense are:

(1) Mistake(2) Misrepresentation(3) Duress(4) Undue Influence(5) Unconscionability

b) Mistake i) DEFINITION OF MISTAKE (Restatement § 151)

(1) Belief that is not in accord with the factsii) EXCEPTION: Party bears the risk of a mistake when (Restatement § 154)

(1) (a) risk is allocated to him by the agreement(2) (b) he is aware at time of K that he has limited knowledge but teats limited

knowledge as sufficient or(3) (c) risk allocated to him by court b/c it is reasonable

iii) MUTUAL MISTAKE(1) GENERAL RULE: If both parties were mistake about a fact at time of K

formation it can be void (Restatement § 152)(a) Test for Mutual Mistake

(i) 1. Basic Assumption(ii) 2. Material affects performance of parties(iii) 3. No assumption of risk

(2) EXAMPLE CASE: Lenawee County v. Messerly (NO Defense)



(a) Messerly sold property to Barnes, who gave it back. Messerly then sell property to Pickles. Pickles sign K to buy lot w/ apartment but building is uninhabitable because of septic tank violation. Pickles try to get out of deal

(b) Defense of mistake – material because can’t rent property and assumed property was fine

(c) K says buyer assumes risk of mistake in clause no defense since there was an assumption of risk

(d) HOLDING: Buyers are stuck with property because they are not untitled to recession under § 152 because they expressly said they’d bare the risk (§ 154)

iv) UNILATERAL MISTAKE(1) Contract is voidable if (1) mistake was material and mistake is such that

enforcement of K would be unconscionable or other party had reason to know the mistake or his fault caused the mistake (Restatement § 153)(a) Test for Unilateral Mistake

(i) 1. Basic assumption(ii) 2. Material affects performance(iii) 3. No assumption of risk(iv) 4. Unconscionable or(v) 4. Other party had reason to know of the mistake or his fault caused the

mistake (2) EXAMPLE CASE: Wil-Fred v. Metro Sanitation (Defense of Mistake)

(a) Wil-Fred bid on job for sanitary district, won, but rescinded offer because bid was several hundred thousand $ too low and their subcontractor made a mistake.(i) Enforcing K would force subcontractor to file for bankruptcy and would

cause great financial damage to Wil-Fred (b) Mistake material feature of K, enforcement would be unconscionable and

reasonable care was taken by all companies, gap in $ should have placed Sanitary on notice of error

c) Misrepresentationi) Misrepresentation is fraudulent: (Restatement § 162)

(1) Misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and maker(a) Knows or believes that the assertion is not in accord with the facts, or(b) Does not have confident that he states or implies in the truth of the assertion,

or(c) Knows that he does not have basis that he states or implies for the assertion

(2) Misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent or if the maker knows that it would be likely to induce the recipient to do so

ii) Misrepresentation makes K voidable (Restatement § 164)(1) TEST for Misrepresentation of Fact

(a) 1. Misrepresentation is not in accord with the facts(b) 2. It’s material – reasonably induces the conduct(c) 3. Statement is relied upon – caused the action(d) 4. Justifiable -- no fault for recipient, reliance has to be reasonable



iii) EXAMPLE CASE: Barrer v. Women’s National Bank(1) Barrer house is going into foreclosure. He does not pay his taxes so the IRS sells

his house to Curtis in foreclosure. He is given a period to pay off his debit. He goes to the bank to get a loan to pay off his debt. The woman at the bank, who knows Barrer, gives him the loan without looking at Barrer’s credit report. Curis, the man who brought Barrer’s house, calls the bank and lets the bank know about Barrer’s mortgage problems. Did Barrer misrepresent? (a) Issue of material fact so Barrer is entitled to title

d) Duressi) Assent by physical force is void (Restatement § 174)ii) Duress Makes K voidable (Restatement § 175) Only voidable by victim of threat

(1) If a party’s assent is induced by an improper threat by the other party that leaves victim no reasonable alternative, the k is voidable

(2) If party’s assent is induced by one who is not party to transaction the k is voidable by victim unless other party to transaction in good faith does not know of duress and relies on transaction

iii) Restatement § 176: Threat is improper when(1) Crime/Tort

(a) Any threat of criminal prosecution(b) Threat of bad faith civil process(c) Breach of good faith under contract

(i) Good faith = honestly and compliance with standards of fair dealing(2) OR Exchange on unfair terms AND

(a) Harms B but does not benefit A(b) Prior unfair dealings or(c) Power used for illegitimate ends

iv) Test for Duress (Holler v. Holler)(1) Coercion(2) Putting a person in such fear that he is bereft of the quality of mind essential to

make a contract(3) K was thereby obtained as a result of this state of mind

v) EXAMPLE CASE: Holler v. Holler(1) Wife sues husband b/c of premarital agreement she was forced to sign to remain

in US with child. Husband knew of deadline, made her agree or deportation and could not support herself.

(2) K voidable b/c signed under duresse) Undue Influence

i) Restatement § 177: K is voidable under undue influence(1) Undue influence is unfair persuasion of a party who is under the domination of

the person exercising the persuasion or who by virtue of the relation b/w them is justified in assuming that person will not act in manner inconsistent with his welfare

(2) Factors of over persuasion where multiple persuaders have undue influence over assenter

(3) Due to relation of people, person has to act in manner inconsistent with his welfare



ii) Preys on high pressure and weakness of mind(1) Bad action on A’s part and vulnerability of B

iii) Test for Undue Influence (Odorizzi)(1) Use of excessive pressure to persuade one vulnerable to such pressure(2) Pressure applied by a dominant subject to a servient object

iv) EXAMPLE CASE: Odorizzi v. Bloomfield School District (Undue Influence)(1) P was an employee to the school to teach. He was arrested. The following day he

resigns. Two days later the school accepts the resignation. After the charges are dropped, he tries to get the job back. Do not allow him.(a) Signing of resignation: principal came to his house after being released from

jail. He had no sleep for 40 hours. Telling him that they are trying to help and his best interest at heart. If he does not resign, it will get out in the public. Ultimately, agrees to resign.

(2) HOLDING: Undue influence Short time, consequence of delay, no advisor, multiple persuaders, transaction in unusual place, no time to get atty, inappropriate time

f) Unconscionability 1. DEFINITION: so unfair that no party would ever agree to the term or contract.i) Two measures:

(1) Procedural – method of how a term gets into K, how the agreement is made(a) Small print, vague term, etc.

(2) Substantive – (what) face of the term or the term in and of itself is something a reasonable person would not have agreed to

ii) C/L Restatement § 208(1) If any term is unconscionable at time K is formed, court can either not enforce K

or not enforce unconscionable part of Kiii) Under UCC

(1) UCC 2-302(a) If any clause is unconscionable at time K is made a court can either not

enforce K or enforce the remainder of K without the clause hat is unconscionable or can limit the unconscionable clause to avoid any unconscionable result

(2) UCC 2-208(a) If a K or term is unconscionable at the time the K is made, a court may refuse

to enforce the K or may enforce the remainder of the K without the unconscionable term or may limit the term

iv) EXAMPLE CASE: Williams v. Walker Thomas (1) Furniture Co. keeps balance on all items bought and until the balance on all items

brought is paid, all the items can be liquidated. Williams brought a stereo, defaulted so company took everything.

(2) Unconscionable procedurally unconscionable b/c she did not have bargaining power and substantive b/c terms were unfair to her b/c she paid off other items

(3) Factors to determine unconscionable:(a) Education(b) Unequal bargaining power(c) Maze fine point print



(i) Headings, where is it in the K, what to the headings sayv) EXAMPLE CASE: In re RealNetworks, Inc., Privacy Litigation

(1) FACTS: Ps brought a class action lawsuit stating that the “click wrap” agreement was procedural and substantively unconscionable

(2) HOLDING: The court rejected the Ps argument and held that the arbitration clause within the click wrap was legal

g) Adhesion Contracts i) Take it or leave it type of deals

III) Defenses Based on Lack of Capacity to Contracta) Lack of capacity does not make the K void – it only makes the K voidable by the party

that lacks capacity b) GENERAL RULE: Assumed to have capacity (Restatement § 12)c) EXCEPTION:

i) Infancy (§ 14)ii) Mental Illness (§ 15)iii) Intoxication (§ 16)

d) Infancyi) GENERAL RULE: Person under 18 years of age can void contract (Restatement §

14)ii) EXCEPTION: (1) If the minor is emancipated and the contract is for a necessity

(then the minor is liable) or (2) If the minor is not emancipated and the contract is for a necessity (then the parents are liable)

iii) EXAMPLE CASE: Webster Street Partnership, Ltd. v. Sheridan(1) P entered into lease with two minors. Minors paid 2 months rent but could not pay

again so moved out. P demanded damages, D said K not enforceable because they are minors

(2) D wins neither child fell under the exception (house was not a necessity)e) Mental Illness

i) Restatement § 15: K voidable if person entering into transaction if by reason of mental illness or defect(1) Unable to understand consequences of transaction or(2) Unable to act in reasonable manner in relation to transaction and other party

knows of condition ii) Test for mental illness

(1) Person lacks control over their behavior(2) Other party has reason to know

iii) EXAMPLE CASE: Orteler v. Teachers’ Retirement Board(1) P teacher in NY. Developed mental illness (depression/psychosis). Before she

retires, she adjusts her benefits.(2) P acted under mental illness and therefore an void K

(a) School board had knowledge of mental illness because of her leave of absence IV)Defense of Public Policy

a) Some agreements the law does not enforce because it violates public policyi) Waivers of negligence ii) Surrogacy

b) Public Policy (Restatement § 178)



i) Unenforceable if: legislation that says it is against public policy or if the interests of enforcements are less than the interest of not enforcement (the reasons of no enforcement are more than the reasons for enforcement)(1) Example of legislation:

(a) Sale of drugs, human trafficking (2) Most though we go through a balance test of weighing enforcement against not

enforcementii) Facts favoring enforcement:

(1) Justified expectations(2) Forfeiture from non-enforcement(3) Special public interests in this particular term

iii) Facts weighing against enforcement:(1) Strength of the policy (criminal statute or judicial decisions) (2) Likelihood that refusal to enforce will further the policy(3) Misconduct(4) Link between misconduct and the term

iv) EXAMPLE CASE: Tunkl v. Regents of the University of California (NC)(1) P signs K which cases that hospital is released of all liability for negligence(2) Clause is NOT enforceable because it is against public policy

v) EXAMPLE CASE: Johnson v. Calvert (C)(1) Calvert’s gametes were implanted into Johnson. Johnson refuses to give up child.(2) Under UPA there is a tie, both could be the other for the child

(a) In K states that the parties initial intention original intent was for the Calvert to be mother

Statute of Frauds

I) Overview:a) GENERAL RULE: Oral K are enforceable

i) EXCEPTION: Statute of Frauds – certain contracts require a writing to be enforced b) Rational

i) Evidentiaryii) Cautionaryiii) Channeling

c) Test for Statute of Frauds:i) Does the SOF say this kind of contract must be evidenced in writing?

(1) If No then SOF not applied(2) If yes then….

ii) Does the contract fall within one of the exceptions?(1) If yes the SOF not applied(2) If no then…

iii) Look if there is a writing sufficient to satisfy the SOF requirements?(1) If yes, k can be enforced(2) If not k is not enforceable

II) Requiring a Writing: Statute of Frauds under UCC



a) If K for the sale of goods is for a price of $500 or more, K is not enforceable without a writing: (i) sufficient to indicate that a K for sale has been made and (ii) signed by the party against whom enforcement is sought (UCC 2-201)

b) EXCEPTION: UCC 2-201(3)i) Even if there is not a signed writing, it can still be enforced if:

(1) Goods are to be specially manufactured for the buyer and are not suitable for sale to other

(2) If party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a K for sale was made – enforced up to quantity of goods admitted

(3) With respect to goods for which payment has been made and accepted (delivery)(4) Confirming merchant memo between merchants if within a reasonable time and

received, it is accepted unless written notice of object within 10 days c) Satisfaction of Statute of Frauds

i) 1. Writing, signed, by person to be enforced againstii) 2. K was madeiii) 3. Mistakes are fine but MUST list a QUANITY

III) Requiring a Writing: Statute of Frauds under Restatement a) Restatement § 110

i) A writing is required for:(1) Sale of land(2) K not capable of performance within 1 year

b) EXCEPTION: Restatement §139i) Promise that should reasonably induce action on promisee is enforceable

notwithstanding SOF if injustice can be avoided only by enforcement of the promiseii) Determine whether injustice can be avoided only by enforcement is determined by:

(1) Availability of other remedies, character of action, forbearance corroborates evidence of the making and terms of promise, reasonableness of action, Foreseeability of forbearance

c) Satisfaction of Statute of Frauds (Restatement § 131)i) Writing, signed by the party to be chargedii) Reasonably identifies the subject matter of Kiii) K made or offeriv) Reasonable certain terms

d) Combination of Writings to Satisfy SoF:i) Corbin:

(1) Writings need to be related to same item(2) Adopt Corbin when dealing with UCC. The ideas of Corbin were used in the

development of the UCC.ii) Wilson

(1) Expressed reference in signed document to unsigned document iii) EXAMPLE CASE: Owen v. Hendricks (NC)

(1) Owner of the land wins. He does not have to pay the commission. It is not enforceable because there is no signed writing.

(2) There needs to be internal evidence that the writings relate to each other.(a) Two writing:



(i) 1. Owen to Hendricks “Your 960 acres in Dellam county”(ii) 2. Hendricks to Owen “The 960 acres in Dellam county”

1. Doesn’t get the land because Hendricks uses “the” we cannot tell if they are about the same land

2. There is no signed writing that satisfies the statute of frauds(3) Signed writing needs to explicitly refer to the unsigned writing

iv) EXAMPLE CASE II: Crabtree v. Elizabeth Arden Sales Corporation (C)(1) Oral offer to Crabree: two year contract. For the first 6months it is $20K, $25K

second 6 months and 30K for the second year. Memo by the secretary after the meeting which says “2 years to make good”

(2) P wins because they read all three writings together(a) Signed writings just need a “connection”

IV)Electronic “Signed Writings”a) Statute of Frauds is not limited to pen and paperb) Satisfy statute of frauds through electronic records & authentication:

i) Record – stored electronic and retrievable in perceivable form ii) Authenticate – electronic system attached or logically associated with a record AND

is executed with the intent to sign the document

Parol Evidence

I) Contract terms come from:a) Expressed writingsb) Parol Evidence: evidence outside of the writing, prior to the execution or at the moment

of executionII) Levels of Integration:

a) **KEY QUESTION: WHAT WAS THE PARTIES’ INTENT?**b) Final (Partial Integrated)

i) Can be explained and supplemented by course of performance, course of dealing, usage of trade, and consistent additional terms

c) Exclusive and Complete Agreement (Completely Integrated)i) Can be explained and supplemented by course of performance, course of dealing,

usage of tradeii) NO consistent additional terms

III) Hierarchy of Parol Evidence (UCC § 1-303)a) 1. Writingb) 2. Course of performance

(1) Occurs as the K is being performed – repeated conduct between the partiesc) 3. Course of dealing

(1) Looks to the pastd) 4. Trade usage

i) What do parties in this business in this area do?IV)Parol Evidence Rule under UCC

i) YES P.E. comes into play(1) FINAL EXPRESSION:

(a) Is the writing the final expression of the agreement under § 2-202?



(i) No P.E. is admissible(ii) Yes

(b) Does P.E. contradict the writing as defined in § 2-202?(i) Yes P.E. is NOT admissible (ii) No P.E. may be used to explain or supplement through course of

dealing; usage of trade; or course of performance (§ 2-202(1)(a)) or consistent additional term (§ 2-202(1)(b))

(2) COMPLETE & EXCLUSIVE EXPRESSION:(a) Is the writing the complete and exclusive expression of the agreement

(i) No P.E. is admissible(ii) Yes

(b) Does P.E. contradict the writing as defined in § 2-202?(i) Yes P.E. is NOT admissible(ii) No P.E. may be used to explain or supplement by course of dealing;

usage of trade; or course of performance (§ 2-202(1)(a)) BUT NO consistent additional term (§ 2-202(1)(b))

b) Relevant UCC Statutesi) § 2-202: Parol or Extrinsic Evidence

(1) P.E. NOT admissible – terms that parties agree to or are in a writing intended by parties to be a final express of their agreement, cannot be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement ,[§202(1)]

(2) P.E. admissible – may be used to explain or supplement(a) by course of dealing; usage of trade; or by course of performance. [§2-202(1)

(a)] (b) by evidence of a consistent additional term unless the court finds the writing

was a complete and exclusive statement of the terms of the agreement. [§2-202(1)(b)]

V) Parol Evidence Rule Common Law a) CONCEPT: limits the extent to which a party may establish discussions and writings

prior to the execution of a written contract.i) Used to determine ambiguous meaning in the contract

(1) To decide if a term is ambiguous the court uses the “four corner test” – look at the written contract

b) Two step process(1) Judge determines if parol evidence is allowed(2) Jury looks at the parol evidence if admissible

c) Completely Integrated v. Partial Integrationi) Determined by the judge as a matter of law (Restatement § 209)ii) Completely integrated (Restatement § 210) – adopted by the parties as a completely

integrated agreementiii) Partially integrated (Restatement § 210) – is an integrated agreement other than a

completely integrated agreement d) STEPS:

i) Is the contract an integrated agreement under § 209(1)(1) “Final expression of one of more terms of an agreement”



(2) Look for a merger clause(3) If YES

(a) If the agreement is a final agreement, the court determines if the agreement is completely or partially integrated:(i) Completely integrated under § 210(1) NO P.E. as long as it is within

the scope of the contract [§ 213(2)](ii) Partially integrated under § 210(2) no inconsistent terms [§ 213(1)]

Good Faith

I) CONCEPT: A party has breached a contract when it fails to act with good faithII) Duty of Good Faith

a) CONCEPT: Restatement and the UCC both require an obligation that parties perform in good faithi) UCC § 1-304 – Every K within this Act imposes an obligation of good faith in its

performance or enforcement(1) UCC § 2-103(b) – DEFINITION OF GOOD FAITH

(a) “Good faith” …honestly in fact and observance of reasonable commercial standard of fair dealing

(2) Under UCC, Good faith TEST(a) 1. Honesty in fact (subjective)(b) 2. Reasonable commercial standard in fair dealing (objective)

ii) Restatement § 205 – Every K imposes upon each party a duty of good faith and fair dealing in its performance and enforcement(1) Common law- DEFINITION OF GOOD FAITH

(a) “Faithfulness to an agreed common purpose” (b) Duty not to deprive the other side of the fruits of the K

b) EXAMPLE CASE: Market Street v. Freyi) JCP entered in K with GEPT to finance JCP’s growth, JCP sold property to trust, trust

must finance construction and improvements, negotiate about construction, and if can’t agree JCP can repurchase property from them

ii) JCP wanted property, tried to finance from others, could not, so asked GEPT for money for construction, but asked too much, then invoked right to buy property for well less than market value

iii) VP did not mention clause that they could buy it without agreement to finance construction, acted in bad faith by not disclosing all terms, K made a while ago so person may have been unaware of term

iv) No negotiation took place either, summary judgment reversed, goes to trial

Breach (C/L)

I) Contract breach under Restatement SUBSTANTIAL PERFORMANCE v. MATERIAL BREACHa) Substantial Breach perform by non-breaching party is required however they can

recover damages



b) Material Breach relieves the non-breaching party of obligations c) Material v. Substantial Breach TEST

i) Restatement § 241 – Weigh all factors to determine outcome(1) Injured party deprived reasonable expect benefits?(2) Victim compensated by $ damages?(3) Breaching party suffers forfeiture (damages)(4) Likelihood of breaching party curing breach (NOTE: difference between cure +

cover. Cure is what the breaching party does. Cover is what the non-breaching party does)

(5) Breaching party act in GFd) Substantial Breach

i) “Trivial and innocent” breach [Jacob & Youngs]e) EXAMPLE CASE: Jacob & Youngs v. Kent (Substantial Performance)

i) K stated “Reading” pipe had to be used. After house is completed, owner realized that Reading Pipe was not used.

ii) HOLDING: Construction worker had substantial performed and receives the rest of the money owed to him. House owner can recover damages from the value lost from not having Reading pipes

f) EXAMPLE CASE 2: Roberts Contracting Co. v. Valentine-Wooten Road Public Facility Board (Material Breach)i) Roberts was contracted to build a sewer system. Roberts walks off job and sues

saying he is entitled to the rest of his $ owed because he substantial performed.ii) HOLDING: Material breach D was deprived of a reasonable benefit – an

operational system – the system was not functional so the board received NO benefit.

Breach (UCC)

II) Contract breach under UCC PERFECT TENDER RULE *Note: only for one-shot contracts*

a) CONEPT: When goods are nonconforming, the buyer can reject or accept the goods. If they are rejected, seller has the right to cure as long as there is still time for performance within K and if seller reasonable believed that the goods would be conforming

b) When a seller sends non-conforming goods, the buyer can either reject or accept them:i) REJECTION

(1) § 2-601: Buyer can reject goods if they fail to conform to the K(2) § 2-602: HOW a buyer rejects

(a) (1) Buyer must seasonably notify seller of rejection within a reasonable time(3) EXCEPTION: Sellers right to cure

(a) § 2-508 Seller has right to substitute conforming tender when(i) (1) Time for performance has not expired or (ii) (2) Seller reasonably believed the tender would be conforming

(4) EXAMPLE CASE: Ramirez v. Autosport(a) HOLDING: P is entitled to money for old van. P could rescind their K

because they promptly notified D of their rejection when they first came to pick up van. While D attempted to cure the goods, they never did it successfully. P also waited a reasonable amount of time.



ii) ACCEPTANCE:(1) § 2-601: Buyer can accept goods if they fail to conform to K(2) § 2-606: HOW a buyer accepts goods

(a) (1) Buyer says goods are okay(b) (2) Buyer does nothing (fails to make effective rejection)(c) (3) Buyer acts inconsistent with seller’s ownership interest

(3) Effect of the acceptance § 2-607(a) (1) Buyer has to pay for goods(b) Acceptance precludes rejection

(i) EXCEPTION: Buyer accepted on the reasonable assumption that seller would seasonably cure the defect

(c) Buyer has burden of proof of breach and damagesiii) REVOCATION OF ACCEPTANCE:

(1) § 2-608 – Buyer may revoke his acceptance when:(a) (1) Substantial impairment and(b) (2)(a) Buyer knows of impairment and thought seller would cure or(c) (2)(b) Buyer did NOT KNOW of impairment and difficult to discover or by

the seller’s assurances (2) Effect of acceptance SAME as rejection Seller then as a right to cure under

§ 2-508

Damages

I) REMEDYa) GOAL: to put the non-breaching party back into the position it would have been if the

breaching party completely performed b) GENERAL RULE: Victim of breach is entitled to the value that was promised. Reduces

everything to $. There is NO punitive aspect i) Courts will not enforce windfall or penalty damages

(1) If the damages result in more than A would have gotten through K courts do not recognize damages

ii) EXCEPTION: Specific performance(1) Equitable remedy used for land contracts and goods that are unique

II) AMOUNTa) GENERAL RULE: Victim receives expectation damages – benefit of the bargain

i) EXCEPTION: Reliance and restitution damages(1) Reliance Damages: Assume there was no contract and gives party out of pocket

expenses for reliance on the K(a) ie: Primissory Estoppel

(2) Restitution Damages: Assumes there was no contract but looks at ill gotten gains by the breaching party

III) LIMITS on Damagesa) Three Limits:

i) 1. Reasonably Certainii) 2. Foreseeableiii) 3. Mitigation



b) Reasonably Certaini) Damages are not recoverable for loss beyond an amount the evidence permits to be

established with reasonable certainty. ii) Damages cannot be speculative. iii) General damages to reputation are unreasonably certain. However specific losses that

can be shown as due to damage of reputation can be recovered. (Redgrave v. Boston Symphony Orchestra)

c) Foreseeablei) Damages are not recoverable for loss that the party in breach did not have reason to

foresee as a probable result of the breach when the contract was made.ii) Burden of proof rests w/non-breaching partyiii) Consequential Damages category one – Injury to person or property due to breach of

warranty.(1) Implied warranty of Merchantability – Warranty implied by law that goods are

reasonably fit for the general purpose for which they are sold.(2) Implied warranty of Fitness – When goods are sold for non-ordinary purpose the

seller does not need to be a merchant of those goods, only that the seller posses knowledge that the buyer mat rely on.

iv) Consequential Damages category two - must be foreseeable(1) TEST

(a) Loss arose in the ordinary course of events (b) or arose out of special circumstances that party in breach had reason to know

of that was not avoidable by “cover” (replacement) or otherwise(i) EXAMPLE CASE - Special circumstances in Hadley v. Baxendale include

mill being shutdown until crank-shaft could be delivered. (ii) Court held that Baxendale did not know that the mill was shut down and

would remain closed until the new shaft arrived.(iii) Loss of profits could not fairly or reasonably have been

contemplated by both parties in case of a breach of this contract without Hadley having communicated the special circumstances to Baxendale.

(iv)Must be a showing of actual knowledge that the mill was stopped until the new crank-shaft could arrive.

(v) EXAMPLE CASE – General damages to reputation are unreasonably certain. However specific losses that can be shown as due to damage of reputation can be recovered. (Redgrave v. Boston Symphony Orchestra)

(vi) Court held that Redgrave could only recover $12,000 in consequential damages because she could not prove the damage to her reputation cost her the ability to get three movies. She could prove the BSO cancellation cost a Broadway play (part paid $12,000). BSO had “reason to know” the special circumstance of firing a high profile performer for her political views may cause her foreseeable losses in future.

d) Mitigation

i) Victim has a duty to mitigate the harm. If victim was not mitigate and is given the ability to – then breaching party is said to not have created the loss and victim is not entitled to those damages.



ii) Burden of proof on mitigation rests with breaching partyiii) EXAMPLE CASE – Shirley Maclaine Parker v 20th Century Foxiv) Fox cancels musical comedy but offer Maclaine role in upcoming western v) Direct damages – $750,000. Fox claims Maclaine failed to mitigate loss by refusing

to take part in western. Fox must prove that new employment was substantially comparable to that of which Maclaine had been deprived.

vi) Maclaine must expend reasonable efforts to seek new employment, but is not obligated to take employment that is different or inferior to employment deprived.

vii)Court ruled part in western was inferior and different to part offered to Maclaine in musical comedy based on different location, different movie genre, and loss of approval option of directors. Maclaine awarded $750,000 in summary judgment. Judgment affirmed by Supreme Court of CA.

IV)CALUCATING Damagesa) FORMULA: Direct Loss + Indirect Loss – Cost Avoided – Mitigation b) Direct Loss

i) Actual value of Kc) Indirect Loss

i) Incidental and Consequential lossesd) Cost Avoided

i) $ that victim did not have to pay because of breache) Mitigation

i) Amounts that party mitigated

Notes:

Summary Judgment – no genuine issue of material fact and the moving party is awarded judgment as a mater of law. Facts viewed in light most favorable to the non-moving party.


Contracts Fall2011 Ertman

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