Contracts_Kraus_Fall2020_Outline PDF

ATTACK OUTLINE ~UCC OR COMMON LAW?~ Is it an alleged Hybrid Contract? I. Predominant Purpose Test a. Monetti Is it an Alleged Contract for Goods? II. 2-105(1) – definition of goods Is it an Alleged Contract for Services? III. 1-103 - Common law + equity applies unless displaced...

ATTACK OUTLINE ~UCC OR COMMON LAW?~ Is it an alleged Hybrid Contract? I. Predominant Purpose Test a. Monetti Is it an Alleged Contract for Goods? II. 2-105(1) – definition of goods Is it an Alleged Contract for Services? III. 1-103 - Common law + equity applies unless displaced by provisions of the UCC CONTRACT FORMATION Is there a contract? IV. Was there Objective Intent to Promise? a. R. 1: Contract: promises or set of promises that, if breached, the law gives remedy b. R. 2(1): Promise: intent, manifestation of intent, justification, understanding/belief i. Comment b: manifestation of intent = external expression of intent, not undisclosed intent c. R. 4: How a Promise May Be Made: Oral, written, or inferred wholly or partly form conduct. i. Three Types of Promises may be enforced (Bailey v. West) 1. Express 2. Implied in Fact 3. Quasi (Implied in Law) a. Cannot recover if you were a volunteer (Bailey v. West) b. Appropriate if the person receives notice they are receiving a service and do not deny it (Bailey v. West). d. Law of Agency: Agents can manifest the intents of their superiors. i. Actual Authority ii. Apparent Authority V. Was there Formation? a. Common Law i. R. 17(1): Bargain: requires manifestation of assent and consideration. 1. R. 22(1): Manifestation of assent: occurs through offer & acceptance a. R. 24: Offer: manifestation of willingness to enter a bargain, made to justify an understanding that assent to the bargain is invited and will conclude it. i. Examples of a Manifestation of an Offer 1. Text: a. “I offer you” (Courteen Seed) b. “I will sell to you” (Courteen Seed) c. “A price quote for immediate acceptance” (Fairmount) 2. Context: a. Negotiating for a long time ii. R. 30(1): Type of Acceptance: may be required as answer or performance. 1. R. 30(2): If not specified, any manner reasonable works. iii. R. 26: Preliminary Negotiation: if there is not intent to conclude the bargain until an additional manifestation of offer occurs. 1. Exs: Price quotes, advertisement b. R. 50(1): Acceptance: manifestation of assent to offeror’s terms THINK SMARTER NOT HARDER  i. R. 50(2): Acceptance by Performance: requires partial performance. 1. Unless mandatory for acceptance then requires 100% performance 2. R. 54: No notification necessary unless offeror not reasonably likely to know of acceptance. ii. R. 50(3): Acceptance by Promise: Acts constituting promise must be 100% complete. 1. Comment c: a return promise can be through explicit promise or performance. 2. R. 56: Due diligence to notify promisor of acceptance unless acceptance is permitted via silence (R. 69). c. R. 22(2): If Offer & Acceptance are Unidentifiable: manifestation of assent may still have occurred. i. Comment b: Manifestation of assent may occur through course of conduct, especially if one party knows of conduct and does not refuse it. 2. Consideration & Promissory Estoppel a. Consideration i. Common Law 1. R. 71(1): An enforceable contract must be bargained for. 2. R. 71(2): Bargained for means: promises happened in exchange of another. 3. Consideration is always conditional, but conditional is not always consideration. (Kirkskey)(Williston’s Tramp) 4. R. 79: Adequacy Doctrine: Adequacy of consideration is not required (Batsakis), only that there was a bargain (In Re Greene)(Wolford). 5. Must be a new quid for quo is modifying contract (Alaska Packers). 6. Past Consideration does not count (Alaska Packers)(In Re Greene). ii. UCC 1. Apply common law except in pre-existing duty and past consideration: a. 2-209(1): Modification of a Contract: does not require new consideration. b. Promissory Estoppel i. Common Law 1. R. 90(1): If No Consideration but Promise Induces Reliance: enforcement is proper. a. Comment b: Reliance must be a foreseeable consequence to promisor. (Ricketts). b. Kraus: “Bargain context” (Feinberg) vs. (Hayes) c. Person must have actually relied and had a “substantial change in position” (Haase). b. UCC: i. 2-204(1): Formation in General: Can occur in sufficient manner to show agreement, including conduct. ii. 2-204(2): Unknown time of formation: still valid. THINK SMARTER NOT HARDER 2  iii. 2-204(3): Indefiniteness of terms: still valid. iv. 2-206: Acceptance: 1. 2-206(1): Unless it is “unambiguously indicated”: a. 2-206(1)(a): Acceptance can be: in any manner reasonable under the circumstances. b. 2-206(1)(b): If the offer is to buy goods for prompt shipment, shipment of goods can be considered acceptance. 2. 2-206(2): If start of performance can be acceptance, and it does not occur within a reasonable time, the offeror may treat it as lapsed. v. 2-606: Delivery and Acceptance: Acceptance doesn’t happen at delivery. Only when (a) a reasonable time has passed, (b) they fail to object (c) they “smelt the other guy’s widgets.” VI. What are the terms? a. Battle of the Forms i. Common Law 1. Mirror Image Rule a. R. 59: An acceptance that is conditional: on new terms is a counteroffer. b. R. 39(1): A counteroffer: is rejection of the old offer and a new offer. 2. Last Shot Doctrine a. R. 45: Performance: will create acceptance. ii. UCC 1. 2-207(1): “definite and seasonable expression of acceptance” = acceptance even if there are different terms, unless the acceptance is EXPRESSLY conditional on assent to different terms. 2. 2-207(2): Additional terms are proposals and must be accepted to enact (non- merchants). Between merchants (2-204(1) – merchants def. & 2-204(3) – b/w merchants def.) additional terms automatically become a part of the contract unless: a. (a) The offer expressly limits acceptance to original terms b. (b) They materially alter it i. Examples in Comment 4 c. (c) Objection to the terms is given at a reasonable time 3. 2-207(3): If no acceptance: Conduct means acceptance. Contradicting terms become UCC default rules. b. Interpretation: i. Parole Evidence Rule (What are the terms?) 1. Common Law a. Is the contract integrated? i. R. 209(1): Integration is: when the writings are the final expression of one or more terms of the agreement. ii. R. 209(2): Determining Integration: is a matter for the judge. iii. R. 209(3): Four Corners Rule: where the writing appears final and specific the judge can determine if it was intended to be integrated. iv. Natural Omission Test: Would the parties have naturally included the terms if they intended them? 1. Yes – Term not integrated 2. No – Term integrated v. R. 213(3): If not integrated: all prior agreements admissible. b. Is it partially or fully integrated? i. R. 210(1): Fully integrated: Writing is exclusive. 1. Ex: “This writing is exclusive of all agreement terms” 2. No additional terms permitted. THINK SMARTER NOT HARDER 3  3. R. 213(2): No evidence admissible within scope of writing. ii. R. 210(2): Partially integrated: Some terms not exclusive. 1. Ex: “This writing is the final statements of the terms.” 2. R. 213(1): Only consistent evidence of terms admissible. 2. UCC a. Is the contract integrated? i. R. 2-202 Comment 3: If no integration, Certain Inclusion Test: Would the terms have certainly been included if intended by the parties? 1. Yes – Additional terms not admissible 2. No – Additional terms admissible ii. R. 2-202(1): If partially integrated: 1. R. 2-202(1)(b): Writing may be supplemented with consistent terms. iii. R. 2-202(1)(b): If fully integrated: no additional terms admissible. ii. Interpretation (What are the meanings of the terms?) 1. Common Law a. Is it Integrated? i. Yes – Textualism 1. Evidence of meaning is admissible only if a term’s plain meaning is ambiguous. ii. No – All evidence of meaning is admissible. 2. UCC a. Is it integrated? i. No – all evidence of meaning is admissible ii. Yes – 2-202(a): Terms may be explained by contextualism… 1. Contextualism = course of performance, course of dealing, or usage of trade. (1-303) a. Problem with Comment 2 (Columbia Nitrogen): Contextualism innately relies on an underlying plain meaning (aka textualism) (Southern Concrete). 2. 2-202: if they do not contradict, and 3. 1-303(e): they are reasonably consistent with writings, & 4. 2-202 Comment 2: they are not carefully negated by the writing. ENFORCEABILITY Is it enforceable? VII. Indefiniteness (Were the terms definite or indefinite?) a. Common Law i. Did the terms include a certain quantity, price, & description of goods? 1. R. 33(2): Terms are Reasonably Certain If: provide basis for determining breach and giving appropriate remedy. (Trimmer v. Van Bomel) 2. R. 34(1): Terms may be Reasonably Certain Even If: parties are permitted to make selection of terms throughout course of performance. 3. Yes - Enforceable 4. No - a. R. 33: Formation may not have occurred via: i. R. 33(1): Acceptance might not have occurred. THINK SMARTER NOT HARDER 4  ii. R. 33(3): Offer may not have occurred. b. R. 34(2): Part Performance: may remove uncertainty c. R. 34(3): Reliance: on agreement may make remedy appropriate. b. UCC i. Did the terms include a certain quantity & description of goods? 1. Yes – Enforceable a. 2-204(3): Contract does not fail for indefiniteness if one or more terms are left open. b. 2-305(1): Contract can still exist with no price if i. 2-305(1)(a): nothing is said about price ii. 2-305(1)(b): parties failed to agree on price (Wagner Ex. v. Fearn) iii. 2-305(1)(c): third party entity was to determine it and did not. c. 2-305(2): If Seller Fixes Price: they are to do so in good faith. d. 2-305(3): If One Party Is Responsible for Setting Price and Does Not: the other party can treat contract as cancelled. e. 2-305(4): If Parties are Not Intended to Be Bound unless Price is Set: goods and money already given will be returned 2. No – Not Enforceable VIII. Statute of Frauds a. Common Law i. R. 110(1): A Contract Must be in Writing if: 1. R. 110(1)(e): Performance will fall outside 1-yr formation (McIntosh) 2. R. 110(1)(d): Sale of Land (Schwedes) 3. R. 110(1)(b): Surety - guaranteeing other person's debts 4. R. 110(1)(c): Marriage 5. R. 110(1)(a): When executor of estate agrees to pay debts from personal funds ii. R. 131: Writing must include: 1. R. 131: Signature a. R. 134: may be any symbol made with intention to authenticate the writing. 2. R. 131(a): Subject matter of contract 3. R. 131(b): Indicates a contract has been made 4. R. 131(c): Reasonably certain essential terms III. R. 132: Several writings: may satisfy requirement if one is signed and they clearly relate to the same transaction. IV. R. 139: Equitable Enforcement is proper when: 1. R. 139(1): the promisor could reasonably expect to induce promise and does, and injustice can only be avoided with enforcement (Equitable Estoppel). (McIntosh) 2. R. 139(2): Equitable Estoppel: to determine if injustice can be avoided, consider: A. R. 139(2)(a): are other remedies available (cancellation, restitution) B. R. 139(2)(b): character of reliance in relation to remedy C. R. 139(2)(c): extent to which reliance proves contract D. R. 139(2)(d): reasonableness of reliance E. R. 139(2)(e): extent that reliance was foreseeable by promisor. F. Entire contract will be enforced. b. UCC I. 2-201(1): A Contract Must Be In Writing & Signed If: >$500 and includes at least some quantity. Omissions and errors are okay. Will be enforced to quantity written. 1. 1-201(b)(37): Signature Includes: any symbol with intention to adopt the writing. THINK SMARTER NOT HARDER 5  A. Could be pre-contractual if not offer or contemplation. (Monetti) B. Could be a letter head (Monetti) II. 2-201(2): Objections: b/w merchants must be written within 10 days. III. 2-201(3): if it was not written or signed, it can still be enforced if: 1. 2-201(3)(a): the goods were made especially for the buyer. 2. 2-201(3)(b): party admits the contract under oath. 3. 2-201(3)(c): goods have been accepted and/or paid for (partial performance). 4. Only the part performed will be enforced. Is it voidable? IX. Fraud & Duress a. Fraud i. R. 159: Misrepresentation: is “an assertion that is not in accordance with the facts.” 1. R. 162: When a Misrepresentation is Fraudulent or Material a. R. 162(1): Misrepresentation Is Fraudulent When: the assertion is intended to induce assent and the inducer: i. R. 162(1)(a): knows it’s a misrepresentation ii. R. 162(1)(b): is not confident in the truth of the assertion iii. R. 162(1)(c): knows he does not have a basis for the assertion iv. Comment b: opinions are not fraudulent misrepresentations b. R. 162(2): Material Misrepresentation: misrepresentation of a material fact likely to induce a buyer (regardless of scienter). 2. R. 160: When Concealment is Misrepresentation: If it is an action known to prevent another from learning a fact, it is like asserting the fact does not exist. a. (Obde v. Schlemeyer) 3. R. 161: Nondisclosure is Misrepresentation When: a. R. 161(a): The disclosure is necessary to prevent a previous fact from being fraudulent misrepresentation. (Reed v. King) b. R. 161(b): The disclosure would correct a party’s mistaken assumption and that is necessary in good faith and fair dealing. i. Laidlaw v. Organ: Unless knowledge is equally accessible to both. c. R. 161(c): It would correct a party’s mistaken understanding of the writing or agreement. d. R. 161(d): The other party is entitled due to a relation of trust and confidence between them. 4. R. 164: Misrepresentation Makes a Contract Voidable When: a. R. 164(1) Assent was induced through fraudulent or material misrepresentation and there was justifiable reliance. (Dannan v. Harris) i. R. 167: Misrepresentation is Inducing When: it substantially contributes to the decision to manifest assent. b. Duress i. R. 174: Duress Prevents a Contract When: manifestation and/or justification occurs w/o intent through physical or emotional duress, therefore no manifestation of assent. ii. R. 174: A Person May Choose to Void or Affirm a Contract When: 1. R. 174(1): there was no reasonable alternative than to manifest justifiable intent. 2. R. 174(2): when a party relies on a promise w/o knowing there was duress. iii. R. 176(1): A Threat in Contracting is Duress When: what is threatened is: 1. R. 176(1)(a): a crime or tort 2. R. 176(1)(b): criminal prosecution 3. R. 176(1)(c): civil process in bad faith THINK SMARTER NOT HARDER 6  4. R. 176(1)(d): breach in duty of “good faith and dealings” (Wolf v. Marlton) 5. R. 176(2) AND it causes: a. R. 176(2)(a): harm to the recipient w/o benefit to threatener (Wolf v. Marlton) b. R. 176(2)(b): reinforces prior unfair dealings c. R. 176(2)(c): use of power for illegitimate ends PERFORMANCE & BREACH Was there adequate performance or breach? X. Performance & Conditions of Terms a. UCC i. Perfect Tender 1. 2-601: If Goods Fail in Any Way from Contract: the buyer may… a. 2-601(a): reject the whole contract. b. 2-601(b): accept the whole c. 2-601(c): accept some units and reject the rest b. Common Law i. Substantial Performance 1. R. 237: Seller has the duty to complete the contract so there is no “material failure.” 2. Jacob v. Youngs: Partial performance is considered breach but, if it is not material, the damages will be the difference in market value, not for total breach. XI. Impossibility a. R. 261: Discharge by Supervening Impracticability: if performance becomes impractical without the fault of either party, the performance is discharged unless express agreement indicates otherwise. (Taylor v. Caldwell) XII. Performer’s Risk Rule a. Stees v. Leonard i. Tailor-made risk clause vs. common law default rules (best ex ante decision). ii. Performer bears risk. No excuse for (1) unanticipated costs and (2) changed circumstances. b. US v. Spearin i. Performer does not have to bear risk if the buyer was in the best circumstance to know. XIII. Relational Contract Performance Requirements a. Requirements/Output Contracts i. 2-306(1): Terms that measure outputs or requirements must not be unreasonably disproportionate and must be made in good faith. 1. Comment 2: Output and Requirements terms are permitted to be indefinite. 2. Comment 3: “The agreed estimate is to be regarded as a center around which the parties intend the variation to occur.” a. Empire Gas: Posner says the requirement is a maximum not a minimum. 3. 1-201(b)(20): Good Faith: “honesty in fact and the observance of reasonable commercial standards of fair dealing.” a. Empire Gas: Posner “Good Faith” Test: i. Contract independent business standard b. Feld standard: don’t have to drive self to bankruptcy. b. Exclusive Dealings Contracts i. 2-306(2): Seller must use best-efforts to supply and buyer must use best-efforts to promote sale. 1. Comment 5: Parties are still bound by good faith. a. Bloor v. Falstaff: Best Efforts is: i. Integrated Firm Standard THINK SMARTER NOT HARDER 7  ii. Wood v. Lucy: Consideration is implicit for buyer in their implicit “best-efforts” commitment. REMEDIES XIV. Damages a. R. 344(a): Expectation Damages: to put the party in the position they would have been if contract had been performed. Unless: i. Foreseeability Doctrine 1. Hadley v. Baxendale ii. Speculative Damages Doctrine 1. R. 352: Damages are not permitted over the amount they can be proved with reasonable certainty. (Freund v. Washington Square Press) iii. Mitigation Principle 1. R. 350(1): The party will not get damages if… a. R. 350(2): They did not make a reasonable effort to avoid the growth of damages by notifying the defendant of the breach. b. R. 344(b): Reliance Damages: Damages to reimburse for the amount lost caused by breach. i. R. 349: includes expenses of prepping for the contract. c. R. 344(c): Restitution Damages: To remove any benefits that the breacher has gained. XV. Equitable Relief a. Specific Performance i. Common Law 1. R. 360: Specific Performance: might be appropriate if: a. R. 360(a): damages are difficult to prove w/o reasonable certainty b. R. 360(b): difficulty determining an amount that would suffice. c. R. 360(c): likelihood that damages could not be collected. ii. UCC 1. 2-217(1): Specific performance: is permitted where goods are unique and other proper circumstances (Van Wagner) a. Per se in real estate THINK SMARTER NOT HARDER 8  SD CONTRACTS - KRAUS RESTATEMENT OBJECTIVE INTENT §1 Contract Defined: “A contract is BAILEY V. WEST RHODE ISLAND SUPREME COURT 1969 a promise or set of promises for the Bascom’s Folly is left with Bailey w/o owner or payment. breach of which gives remedy or the ISSUE: Was there an implied in fact contract between Baily & West? performance of which the law HOLDING: No. There was no “intent to contract” on West’s behalf. recognizes as a duty.” Contracts can be: §2 Promise Elements Defined: o Express Contract (RSC §4) Promise includes: intent, o Implied in fact contract (RSC §4) manifestation (Comment b – § If notice if given and denied, no longer external expression of implied in fact. intention, distinguished from o Implied in law (quasi-contract)(equitable relief – not undisclosed), justification, contract) understanding/belief § Cannot recover if you are a volunteer. §4 “a promise may be oral, written, Law of agency or inferred wholly or partly from o Actual Authority conduct” o Apparent Authority § A reasonable person would believe… Objective Intent (RSC §2(1) Comment b). o Someone’s secret intent cannot rule a contract. o Objective intent is what a reasonable person would be justified in believing the intent was. Notice o Once someone has received notice that they are receiving a service and does not deny the service, it can be considered a quasi-contract. THINK SMARTER NOT HARDER 9 RESTATEMENT DURESS §174 Duress prevents a contract WOLF V. MARLTON CORP NJ APPELLATE COURT 1959 when: Manifestation and Racist builder & couple argue over building contract payments. justification can occur without intent ISSUE: Whether the plaintiffs breached the contract via duress. if they were created through HOLDING: Breach occurred IF threats were made and the defendant physical or emotional duress. This was reasonable to believe them. Send to jury. means there is no manifestation of Couple threatened to sell the house to “undesirable people” assent. O Builder claimed duress and therefore breach. O Builder could keep the deposits per contract. §175 A contract is voidable when: Progress payments Gives the plaintiff the choice of O Allow everyone to have adequate “skin in the game” voiding or affirming the contract Threat was improper based on RSC 176 (1)(d) and (2)(a) when: (1) there is no reasonable The court may consider acts to be wrongful even if they are alternative but to manifest intent or not criminal. (2) when a party relies on a promise w/o knowing there was duress. §176 When a threat is improper: (1) what is threatened is (a) a crime or tort (b) criminal prosecution (c) civil process in bad faith (d) breach in duty of “good faith and fair dealings” under a contract and (2) the result is (a) harm of the recipient and no benefit to threatener (b) reinforced by prior unfair dealings (c) use of power for illegitimate ends. THINK SMARTER NOT HARDER 10 RESTATEMENT FRAUDULENT MISREPRESENTATION §159: "A misrepresentation is an SPIESS V. BRANDT SUPREME COURT OF MN 1950 assertion that is not in accord with Sale of resort w/o showing the books & representing success the facts." (Not in casebook) ISSUE: Did D fraudulently misrepresent resort success? HOLDING: Yes. By saying they were making “good money.” §161: (d) "where the other person is Seems to confuse misrepresentation, nondisclosure, and entitled to know the fact because of concealment. a relation of trust and confidence Ultimately relies on misrepresentation. between them." Relies on §161(D) and §162. §162 When a Misrepresentation is CBS V. ZIFF DAVIS NY COURT OF APPEALS 1990 Fraudulent: (1) when the intent is to CBS Saw Ziff Davis’ books before the sale and knew that their induce assent and they (a) know the representations were incorrect. Bought anyways and sued on assertion is nonfactual (b) is warranty. uncertain if the assertion is factual or Could not bring a fraud claim because they could not prove not (c) knows the basis of his justifiable reliance. §164(1) assertions are nonfactual (These are The promise the business would do well, in this case, was based on “state of mind” - scienter part of the sale (aka warranty not misrepresentation). requirements) (2) misrepresentation is material if it would be likely to DANNAN REALTY CORPS V. HARRIS NY CT. OF APP. 1959 induce a reasonable person to Sale of building was not as profitable as believed. manifest assent. (not settled law) ISSUE: Can a defendant be sued for fraud w/ no representation clause? §164: When Misrepresentation HOLDING: Yes. The non-reliance & no representation clause was Makes a Contract Voidable: (1) If specific enough that the plaintiff knew. By claiming they didn’t the assent was induced by fraud or plaintiff was being fraudulent. Dissent: it is common to rely on material misrepresentation and representations and realize later. justifiable reliance. Non-reliance & no representation clause O Ernst rule: It is fraud to claim you were frauded if §167: When an Assent is Induced: you signed to agree that you were not being frauded. When the misrepresentation § It would be inequitable to enforce this fraud of substantially contributes to the signing a clause you don’t adhere to. decision to assent. O Policy: can benefit both parties in a quick and cheap sale. O General merger clause is much more generic (not enforced) Allocation of risk (equitable) Still the rule in NY THINK SMARTER NOT HARDER 11 RESTATEMENT FRAUDULENT NONDISCLOSURE & CONCEALMENT §160: Concealment: When an Action is Equivalent to an Assertion: An “action OBDE V. SCHLEMEYER SUPREME COURT OF WASHINGTON 1960 intended or known to be likely to Termite infestation in house after new owners move in. prevent another from learning a fact is ISSUE: Did D fraudulently conceal the termites when selling? equivalent to an assertion that the fact HOLDING: Yes. It does not matter that the P’s didn’t ask. They should does not exist. have informed them of the termites. Concealment Case §160 §161: When Nondisclosure is an Latent vs. Patent defect Assertion that Fact Does Not Exist: (a) o Latent – reasonably examination would reveal it where he knows the fact is necessary to o Patent – reasonable examination would NOT reveal it. prevent a previous fact from being D argues Caveat Emptor: misrepresentation, fraudulent, or o Parties dealing “at arms length” means “buyers material. (b) where he knows a beware” disclosure would prevent an inaccurate Perkins Test: assumption (c) where he knows o If it relates to health and safety, and disclosure would correct a mistake that o If the person could not have seen it on their own: the party has of the writing, evidencing, o Duty to disclose or embodying of the agreement (d) REED V. KING COURT OF APPEALS, CALI 1983 where the other person is entitled to Murder in house undisclosed to seller. know the fact based on a relation of trust ISSUE: Is it fraudulent nondisclosure to hide that a murder occurred at house? and confidence between them. HOLDING: Yes. The murder depreciated value and should be (grounded in equity) disclosed. Nondisclosure Case §161 requires a party to “come forward” with information. o This is a rare case to prove – not common law yet. Perkins Test Nondisclosure vs. Concealment Concealment is an action "intended or known to be likely to prevent another from learning a fact" (RSC §160) o This is considered a "negative" conception of what people "cannot" do o To prove concealment, one needs to prove justified reliance. Non-disclosure is classified by breaching a duty to disclose a fact that you are knowledgeable for. (RSC §161) o This is a "push" or "recommendation" from the ALI and therefore is not considered liability in most courts o This is considered a "positive" conception of what people "ought" to do LAIDLAW V. ORGAN – Tobacco Sale Price Change No disclosure necessary where external information is equally accessible to both parties. Still may not mislead. STAMBOVSKY V. ACKLEY (NY 1991) – Advertised Haunted House If seller CREATES a situation that lowers the value – duty to disclose KRONMAN THEORY: If no investment in info occurred: duty to disclose. THINK SMARTER NOT HARDER 12 RESTATEMENT INDEFINITENESS §33 Certainty: (1) Manifestation of consent is TRIMMER V. VAN BOMEL NY SUP. CT. 1980 not an offer or acceptance unless the terms of Man gets dumped by sugar momma and sues for money for the contract are reasonably certain. (2) They “sumptuous living” are reasonably certain if they provide a basis for determining the existence of a breach ISSUE: Was the agreement sufficient to bind D to pay for and for giving and appropriate remedy. (3) If sumptuous living? one or more terms are left uncertain, HOLDING: “Sumptuous” is an indefinite term and cannot be manifestation of intention might not be an enforced. “Courts cannot aid parties who have not specified offer or acceptance. their own agreements” Policy that if the terms are vague then the parties did §34 Certainty and Choice of Terms (1) not want to be bound. Terms may be reasonably certain even if Common law requires: Quantity, Price, Description of they allow parties to make clarify terms during performance (2) Part performance goods may remove uncertainty or establish an o Or else unenforceable. enforceable contract as a bargain has been RSC §33 & §34 formed (3) Reliance may make a remedy appropriate even though uncertainty WAGNER EXCELLO FOODS V. FEARN INT’L INC. IL APP. CT. 1992 remains. Contracted to make fruit drinks, price not set, buyer backed out. UCC ISSUE: Is there a valid contract even though no price-for- goods? HOLDING: It is valid. The parties intended to contract a price. §2-204 Formation in General: (3) Even if UCC §2-240(3) & UCC §2-305(1) rules against §2- one or more terms are left open, a contract 305(4) does not fail for indefiniteness if the parties Also a case of partial performance and reliance have intended to make a contract and there o Plaintiff began making fruit drinks and paid for is reasonably certain basis for remedy. equipment to do so. Because contract was enforceable based on the UCC, §2-305 Open Price Term: (1) Contract exists they could hold D liable for not purchasing the agreed with no price. Price set at reasonable price at amount. time of delivery if (a) nothing is said about price (b) parties failed to agree on a price (c) UCC K only requires quantity & description of goods. price is to be determined by a third entity Agreements to agree are void in common law – not in and it was not. (2) If the seller fixes the price UCC he is to do it in good faith. (3) If a party is Majoritarian Default Rule (UCC Article 2): responsible for fixing the price and does not o Rules that the Majority would want ex ante the other party may treat the contract as i. Price = market price cancelled if he wants (4) If parties are not ii. Delivery Place = seller’s location intended to be bound unless there is a price, iii. Warranty = merchantability (fit 4 then goods or money already given will be returned if a price is not fixed. market) iv. Risk of Loss = Transfer on Possession THINK SMARTER NOT HARDER 13 RESTATEMENT CONDITIONS §237: There should be no material failure JACOB & YOUNGS V. KENT NY CT. OF APP. 1921 of a party in rendering their Homeowner rejected house due to incorrect pipes. performance. ISSUE: Does D owe the cost of complete pipe replacement? HOLDING: No. D substantially performed and therefore only owes the difference between the cost of the pipes, not replacement. Perfect tender v. Substantial performance UCC o Substantial performance is still a breach of contract. i. But the breached condition is nonmaterial. ii. This is adequate in Common Law doctrine. §2-601 Buyer’s Rights on Improper 1. Damages would be cost of difference Delivery: If the goods or delivery fail in – not replacement any way to conform to the contract the iii. Policy: Avoids fly-specking for reasonable buyer may (a) reject the whole (b) parties accept the whole or (c) accept any units o Perfect Tender and reject the rest. i. Required in sale of goods (UCC §2-601) Dependent v. Independent promises o A promise can be dependent on certain conditions i. They are material o Or independent of certain conditions i. Nonmaterial 1. Substantial performance is possible. Express Idiosyncratic Intent o Cardozo: if a clause is conditional/dependent, the intention needs to be express in the contract. i. Courts still have the right to rule otherwise 1. (skyscraper & lawnmower example) Majoritarian Default Rule of Contracts o Courts will assume ex post that the parties wanted what most parties would have wanted ex ante. Liability Cases v. Remedy Cases o Liability § Breach of contract or not needs to be determined. o Remedy Case § Breach of contract has been established; remedy needs to be decided. § Jacob & Youngs is a remedy case. Omnibus Clauses o Clauses that create all other clauses as conditional o Typically are not upheld. THINK SMARTER NOT HARDER 14 RESTATEMENT PERFORMERS RISK RULE STEES V. LEONARD SUP. CT. MN 1847 Builder realizes house is on quicksand tries to void contract and not finish. ISSUE: Who should bear the risk of a contract that is difficult to UCC complete? HOLDING: The builder in the best position to mitigate risks ex ante and therefore should bare the risks if they occur ex post. Tailor-Made Risk Clause vs. Common Law Default Rules O Parties can explicitly allocate risks in their contract. O If they don’t, there is a gap to be filled in unanticipated circumstances. § Judge must decide who is best to bear the risk with ex ante or ex post analysis. Ex post: decide equitable approach on facts Ex ante: common law default rule O Can turn on the biggest $ saver. § Contracts are for “value building” O Contractor can charge for value of risk: § (prob of risk)*(cost of risk) § Can either fill gaps or “leave it where it lies” Performer Risk Rule: o Performer should bear the cost of all risks of performance by default because the performer can prevent them at the least cost. O Performer is responsible for following the contract and bearing the risks not mentioned. § No excuse for nonperformance when: Unanticipated costs Changed circumstances o It's in both parties' interest - it will lower costs all around. Spearin Doctrine O US v. Spearin: US knew of condition & did not inform. O Builder does not have to bear the risk if the buyer was in the best circumstance to know about the risk and did not tell. THINK SMARTER NOT HARDER 15 RESTATEMENT IMPOSSIBILITY §261: Discharge by Supervening TAYLOR V. CALDWELL KING’S BENCH 1863 Impracticability: If, after a Music hall contracted for use burns down contract is made, the performance ISSUE: Should the loss sustained by plaintiff be borne by defendant if is impracticable without his fault impossible to fix? by an occurrence or HOLDING: If the very thing that the contract was assumed upon ceases to nonoccurrence of which was a exist, the parties no longer owe each basic assumption on which the Doctrine of implicit conditions (RSC §261) contract was made, his duty to O Implicit condition is that the contract item exists. render that performance is § This would have been the ex ante decision. discharged, unless the language § Does not exist for every contract. or circumstances indicate Is based on contract wording. otherwise. O “uniqueness” of the venue/product O Not an “excuse doctrine” Contracting for Damages - Idiosyncratic desires O Would have to be stated within the contract O Would have to include a “liquidated damaged clause” UCC § Price of goods/service can be negotiated on this need. Information Forcing Rule O Impossibility forces parties to disclose their idiosyncrasies. O Forces seller to discuss the prices of risk protection. O Forces buyer to consider any “backups” necessary and costs. THINK SMARTER NOT HARDER 16 RESTATEMENT SPECULATIVE DAMAGES §344 Purpose of Remedies: (a) FREUND V. WASHINGTON SQUARE PRESS CT. OF APP NY 1974 “Expectation interest” – interest Publisher voided contract before publishing book. of having the benefit of the ISSUE: What damages are recoverable for D's failure to publish P's bargain by being put in as good a manuscript? position as he would have been in had the contract been performed. HOLDING: Restitution and nominal damages are appropriate. Book (b) “reliance interest” – interest in returned. $1 for contract breach. being reimbursed for loss caused Policies: by reliance on the contract by o A party should not recover more than the contract itself being by being put in as good of a would have provided. (RSC §344) position as if the contract had not § Better to under-award P than make D overpay been made. (c) “restitution Damage theories are applied in this order (RSC §344) interest” interest in having o Expectancy Damages (RSC §344(a)) restored any benefits that he has § Limits: conferred on the other party. Speculative damages (RSC §352): o Courts are reluctant to award §347 Measure of damages: are expectancy damages where the in accordance with the costs from expected gains are highly interests in §344. uncertain and speculative. Foreseeability Doctrine (Hadley) §349 Reliance interest: includes o Plaintiff can only recover what expenditures made in prep for would foreseeably arise. performance minus costs that the Mitigation Principle (RSC §350) breaching party can prove would o If party has breached and damages have occurred anyways. will grow, plaintiff must inform breacher. §350 Damage Limits: (2) party o Reliance Damages (RSC §344(b)) and (RSC §349) needs to make a reasonable effort o Restitution Damages (RSC §344(c)) to avoid loss (1) or no damages. Contracting Damages o Parties try to include damages clauses to “opt out” of §352: “Damages are not general rules. recoverable for loss beyond an Punitive Damages amount that the evidence permits o Are only allowed in tort cases when there was fraud. to be established with reasonable § If contract is “voided” can sue in torts (no contract) certainty.” Compensatory damages (expectancy) § If contract is not voided can sue in contracts Punitive damages. o Are against “individualistic” contracting policies. THINK SMARTER NOT HARDER 17 RESTATEMENT SPECIFIC PERFORMANCE §344(a): Expectancy remedies: VAN WAGNER ADVER. CORP. V. S&M ENTERS CT. OF APP. NY 1986 Purpose is to make the buyer Building leases billboard space, new landlords breaks lease. “whole” again. ISSUE: Is the real estate “unique” enough to warrant S.P.? §360: Factors Affecting HOLDING: No. All real estate is “unique” and expectancy damages Adequacy of Damages: “In can be accurately calculated. determining whether the remedy Based in equitable relief in damages would be adequate, UCC/ Sale of Goods the following circumstances are O Specific Performance only appropriate if the goods significant: (a) difficulty of are “unique” and damages cannot be justly proving damages with reasonable calculated. (UCC§2-716) certainty (b) difficulty of procuring a suitable substitute § May happen for sentimental property value performance by means of money (not leased) awarded as damages and (c) § May happen if there is no market value likelihood that an award of available. damages could not be collected.” Common law: O Available when Expectancy Damages cannot make the buyer “whole” again. (RSC §344(a)) Disproportionate harm UCC O S.P. should not be granted if it is disproportionate from the harm caused by D. §2-710 Seller’s Incidental Exception: Damages: Permits the court to O Do not provide SP when you are relying on service order the care and custody of performance. goods and return or resale of the § Do not want to force someone to do something goods. important to the plaintiff that they do not want to do. §2-716 Buyer’s Right to Specific Special Performance Per Se Performance or Replevin: (1) S.P. is okay where the goods are O Occurs in the sale of land/real estate (not leases) unique or in other proper § Based in England’s old-time value of land. circumstances (2) S.P might include payment of price, damages, or other relief that is just THINK SMARTER NOT HARDER 18 RESTATEMENT FORESEEABILITY HADLEY V. BAXENDALE COURT OF EXCHEQUER (ENG) 1854 Crank shank breaks, shipping to replace is delayed, company loses $. ISSUE: Was the shipping delay foreseeable to create profit loss and therefore the defendant owes all the lost profits for the delay? HOLDING: No. If am unforeseeable risk is at play, the defendant does not owe those damages. Hadley test: O The defendant should only have to pay damages if the harm injured was a foreseeable consequence of their breach. Opt. Out Clauses O Parties can try to specify foreseeable risks of breach. O Courts are often skeptical of these clauses. Mass Transactions O Foreseeability never applicable O Contractors cannot specially consider each individual’s needs (plane rides w many passengers, phone calls, etc.) Information-Forcing: O Forces buyers to specify needs. § Gives sellers a chance to charge for extra protections. THINK SMARTER NOT HARDER 19 RESTATEMENT CONSIDERATION §71 – Consideration (1) KIRKSKEY V. KIRKSEY SUP. CT. AL 1845 enforceable contract must be Widow of children invited to live on brother-in-law’s land, is kicked off. bargained for. (2) Bargain means ISSUE: Does the move of the widow count as consideration? that promises happen in HOLDING: No. The promise was “mere gratuity.” Nonenforceable. exchange for one another. Conditional promises are not necessarily promises with consideration. Consideration promises are always conditional. §79 – Adequacy Doctrine – (1) If Williston’s Tramp: O It is hard to determine which promises were “meant to induce” an there is consideration then there act and which were not. need be no (a) a gain, advantage, or benefit to the promisor or a IN RE GREENE SDNY 1930 loss, disadvantage, or detriment Man stopped paying for his mistress’s living, as he promised he would. to the promise (b) equivalence of ISSUE: Was there consideration for the promise based on $1? values exchanged (c) mutuality of HOLDING: No. Past consideration is not enforceable - contract was not bargained for. obligation Nominal consideration is not consideration because it’s not bargained for. Past-consideration is not consideration. Illicit/Illegal consideration is not enforceable. Functions of Consideration: O Evidentiary – provides evidence of agreement. O Cautionary/Deterrence – Checks against rash decisions. O Channeling – framework to make a promise enforceable. UCC Based on the rule of bargaining (RSC §71) not adequacy (RSC §79) BATSAKIS V. DEMOTSIS CT. OF CIVIL APP. TX 1949 §2-209: eliminates pre-existing In Nazi controlled Greece woman exchanged $25 in value for $2,000 in value due to duty rule in sales contracts - desperation. Lender sues when she doesn’t pay. ISSUE: Was there consideration or was this a gift? however it must be in good faith HOLDING: This was bargained for. There is no adequacy requirement to be enforceable. Adequacy doctrine (§79) WOLFORD V. POWERS SP. CT. OF IN 1882 Man promised to care for another family's son for life, estate tried to provide lump sum instead. ISSUE: Was there consideration or was this a gift? HOLDING: This was bargained for. There is no adequacy requirement Non-pecuniary interests are not sham bargains once they “please the fancy” of the person who bargained for them. Mutuality of obligation is not essential for consideration. ALASKA PACKERS V. DOMENICO 9TH CIR. 1902 Fishermen try to renegotiate deal – employer did not follow through. ISSUE: Was the second contract enforceable? HOLDING: No. There was no consideration because no new obligation. Pre-Existing Duty Rule: o Consideration requires a new quo for the quid pro quo. There must be a new change in conditions in T2 for consideration. o To Avoid: § Must show changed circumstance or obligations. o Not applicable in UCC Contracts. (UCC §2-209) THINK SMARTER NOT HARDER 20 RESTATEMENT PROMISSORY ESTOPPEL §90(1) – PE requires: Promise, HAASE V. CARDOZO CALI COURT OF APP. 1958 made that would reasonably Wife stops payment she promised to deceased husband’s sister. induce reliance, reliance occurs, ISSUE: Was there consideration or reliance to consider this a breach of justice requires enforcement. contract? HOLDING: No. There was no consideration and no reliance. No enforceable §90 comment b: “not all reliance contract. is created equal.” Must be If there is a promise w/o consideration, can reinforce through foreseeable on behalf of the Promissory Estoppel promisor. For an informal promise to be enforceable, there must be some subsequent changes of position in reliance on the promise Example of intrafamilial reluctance to legalize promises. o Assumption that intrafamilial promises are not intended to PROMISSORY VS. EQUITABLE be enforced legally (donative). ESTOPPEL: § Could have been made without “sufficient deliberation” o Might make family members reluctant to support one Promissory estoppel is in cases another. of clear promise but no consideration for that promise. RICKETS V. SCOTHORN SP. CT. NE 1989 Grandfather offered grandaughter check so she didn’t have to work. Equitable estoppel is when there ISSUE: Was this a gift or in consideration of her not working? is no clear promise but HOLDING: This was a gift, but it was meant induce her to stop working, representations and inducements. which she did and relied on. PE applies because, even though it was a gift he: O Knew he was inducing her not to work O She was induced and relied on him while not working O It could only be made right by enforcement. Exception to intrafamilial rule. Typical damage awards are specific performance or expectancy FEINBERG V. PFEIFFER CO. ST. LOUIS CT. OF APP, MO 1959 Woman offered generous retirement for years of service. ISSUE: Was her retirement a gift or done in consideration? HOLDING: It was a gift but it was meant to induce something and she relied on it. Bargain context occurs when promisor intend promise to be legally enforced. PE Appropriate. O Potentially implied consideration. Employee relied on promise in a way that changed her position. HAYES V. PLANTAION STEEL CO. SUP. CT. RI 1982 Man retired and was loosely promised pension (no amount mentioned) ISSUE: Was his retirement a gift or done in consideration? HOLDING: Not enforceable. No consideration and no reliance. Bargain (§RSC 71) vs. Bargain context (§RSC 90) No true bargain was made. Plaintiff did not rely on $. THINK SMARTER NOT HARDER 21 RESTATEMENT OFFER & ACCEPTANCE §2 Comment b: Manifestation of COURTEEN SEED CO. V. ABRAHAM SP. CT. OR 1929 intent means the external expression Clover seed purchaser accepted an advertisement as an offer. of intention (not the unexpressed one) ISSUE: Whether the defendant was offering or inviting to negotiate? §17 Requirement of a Bargain: (1) HOLDING: Seller was inviting to negotiate - acceptance is not binding. formation of contract requires a Invitation to negotiate / advertisement is not an offer. bargain in which there is a O An affirmative response to these would be the offer. manifestation of mutual assent to the exchange and a consideration. FAIRMOUNT GLASS WORKS V. CM WOODENWARE CT. APP. KY 1899 Plaintiff relied on their own acceptance of quote as binding. §22: Mode of Assent: Offer and ISSUE: Was the quote of goods simply a quote or an offer? Acceptance: (1) A manifestation of HOLDING: Offer, by specifying “for immediate acceptance”. mutual assent ordinarily takes the Quotation for price is not an offer to sell (this case is exception) form of an offer by one party followed by an acceptance by the other. (2) a Specifying terms/form of acceptance occurs in an offer. manifestation of mutual assent may be o When acceptance occurs in that form is it then binding made even though neither offer nor o RSC §30(1) acceptance can be identified and the Purchase order - the proper response to a quote – is the offer. moment of formation cannot be o §2-206(1)(b) determined. Comment b.: Assent by IONICS V. ELMWOOD SENSORS 1ST CIR. 1997 course of conduct. D & P exchanged legal forms listing different conditions of sale. ISSUE: Were the additional terms of Elmwood (no warranty) accepted? §24: Offer Defined: An offer is the manifestation of willingness to enter a HOLDING: No, in accepting goods did not accept terms (§2-207(1)). By bargain, so made as to justify another sending contradictory form, notified of conflict (§2-207(2)). There §2-207(3) person in understanding that his applies. assent to that bargain is invited and Overturned Roto-Lith, which held same situation governed by §2- will conclude it. 207(1) after the comma (conditional acceptance). §2-207 - designed for fast trade & competing generic legal forms. §30 Form of Acceptance Invited: (1) §2-207(1) overturns Mirror Image Rule An offer may invite or require that o Contracts much be mirror images of one another. acceptance be made by an affirmative answer in words or by performing or § Still the common law refraining from performing a o After the comma allows for a counteroffer (rejecting offer) specified act. (2) Unless otherwise §2-207(3) overturns Last Shot Doctrine indicated, an offer invites acceptance o Last contract sent is the binding one. in any manner by any medium § Still the common law. reasonable. Types of Commericial Law “Acceptance”: o Acceptance of an Offer (RSC §50) §36: Methods of Termination of the o Acceptance of delivery (no legal significance) Power of Acceptance: (1) An offeree’s power of acceptance may be o Acceptance of goods under §2-606 & §2-607(4) terminated through (a) rejection or § §2-606: counteroffer (b) lapse of time (c) Acceptance does not happen at delivery. revocation by the offeror (d) death or Acceptance happens if you: incapacity of offeror. (2) Non- o Say “I accept” occurrence of the specified condition o Reasonable time passes w/o of acceptance will terminate power of rejection acceptance. o Uses goods inconsistent with §38 Rejection: (1) 36(a) applies seller’s ownership unless offeror has manifested a § §2-607(4): different intention. (2) manifestation of Burden of proving nonconformity passes intention not to accept an offer is from seller to buyer upon delivery. THINK SMARTER NOT HARDER 22 rejection unless it is a manifestation of intent to take it under further STEP-SAVER DATA SYSTEMS, V. WYSE TECHNOLOGY 3RD CIR. 1991 advisement. Re-seller purchased technology for computer system. §39 Counteroffers: (1) A counteroffer ISSUE: Was the box-wrap clauses binding including no warranty? is when an offeree proposes a HOLDING: No. Formation occurred during the initial phone call and different bargain from the original therefore the terms are non-conditional under 2-207(1) and material under about the same matter. (2) 36(a) 2-207(2). Because they were not accepted, default rules apply. applies unless offeror has manifested Minority rule: Box top clauses are not binding, formation happens a different intention. beforehand. Three ways to determine if acceptance is conditional on the box §41: Lapse of Time: (2) A reasonable lapse of time depends on the facts top clause (aka box-top clause is a counteroffer) and circumstances. O If it states material terms to disadvantage of buyer (not conditional). §45: Option Contract Created by O If certain words or phrases are used: “only if”, etc. Part Performance or Tender: If O Offerer demonstrates unwillingness to continue with acceptance is created by bargain if terms aren’t included. performance, performance will create Three times formation can occur: acceptance. O Before purchase § Box-top is additional non-conditional terms under §50: Acceptance of Offer: (1) Acceptance is a manifestation of 2-207(1)(before comma). assent to the terms made by the O At box opening offeree in a manner invited or § Box top terms are conditional terms under 2- required by the offer. (2) Acceptance 207(1)(after comma). by performance requires that at least O By conduct part of what the offer requests be § Using the goods is performance under 2-207(3) performed. (3) Acceptance by Takeaway: depending on how you characterize formation, 2-207 promise requires that the offeree and box-top openings can mean different things. complete every act essential to the making of the promise. HILL V. GATEWAY 2000 7TH CIR. 1997 §56 Acceptance by Promise: It is Computer purchaser did not return computer in time for warranty. essential to an acceptance by promise ISSUE: Was the box-wrap clauses binding including no warranty? that the offeree exercise reasonable HOLDING: Yes. If formation had to occur at purchase, it would take too long diligence to notify the offeror of for the seller to read all terms. More efficient for everyone. acceptance. Majority rule: box top clauses are binding and efficient. Formation occurs at box opening. UCC o Box-top is offer, opening is acceptance. Arbitration clauses are material terms. §2-104: (1) Merchant Defined (3) “between to merchants” defined §2-206(1)(b): “An order or other offer to buy foods for prompt or current shipment shall be construed as inviting acceptance.” §2-207(1): Acceptance can occur even if it states additional terms or terms that are different than what is offered, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) Additional [or different] terms are to THINK SMARTER NOT HARDER 23 be construed as proposals for additions to the contract. Between merchants unless (a) offer expressly limits acceptance to the terms of the offer, (b) they materially alter it (c) notification of objection was given within a reasonable time. (3) Conduct by both parties that recognizes a contract if sufficient, even if the writings establish otherwise. If additionally or different terms exist, they will be supplemented by UCC general terms. Comment 4: Defines Material Offer. Comment 6: if no answer is received after a reasonable amount of time it is fair to assume additional terms have been assented to. §2-314: Implied Warranty of Merchantability §2-316: Warranty Disclaimers: permitted. §1-103: Common Law vs. UCC (a) UCC is to be liberally construed. (b) Unless in the UCC, common law rules over sales of goods. (a) §2-719: (3) Limit on Consequential Damages: is permittable in cases of commercial loss, but not injury. §2-606: What Constitutes Acceptance of Goods: (1) Occurs when (a) reasonable opportunity to inspect goods has passed (b) fails to make an objection (c) acts inconsistently with seller’s ownership (2) acceptance of part of a commercial unit is acceptance of entire unit. §2-607(4): Burden is on the buyer to establish and breach with respect to goods accepted. THINK SMARTER NOT HARDER 24 UCC REQUIREMENTS CONTRACTS §2-306(1): A term that measures EASTERN AIRLINES INC., V. GULF OIL CORP SDFL 1975 output or requirement quantities Gulf claims bad faith for over-demand of oil from Eastern when set price may not be unreasonably was too low. disproportionate to any stated ISSUE: Was Eastern acting in accordance with “good faith” by fuel estimate and must be made in freighting under UCC 2-306(1)? good faith. HOLDING: Yes. Fuel freighting is an industry norm and therefore does not violate good faith under UCC 2-306(1). Comment 2: Output and Relational Contracts (typically for sale of goods): requirements terms cannot be too o Facilitates long-term joint investments. indefinite because it is held to o Allows terms like quantity and price to stay indefinite. good faith. o Types: Requirements Contracts & Output Contracts o Requirements: Comment 3: “The agreed § Seller can sell to whoever once they supply buyer estimate is to be regarded as a § Buyer must purchase from only seller center around which the parties § Risk of over-demand protected via intend the variation to occur.” Quantity Controls (Empire) Price Controls (Eastern) §1-201(b)(20): Good Faith Definition: “honesty in fact and EMPIRE GAS V. AMERICAN BAKERIES 7TH CIR. 1988 the observance of reasonable D made contract to buy goods bought none, claims no breach. commercial standards of fair ISSUE: Was Am. Bakeries acting in accordance with “good faith” not dealing. purchasing any of the promised goods? HOLDING: Yes. Good faith requires a contract independent reason for lowering quantity and providing no adequate good faith reason is not enough. Estimates in requirements contracts will act as maximums. o §2-306(1) “unreasonably disproportionate” refers to going above maximum. Example of Requirements Contract w/Quantity Controls The word “requirements” in contract ≠ requirements contract (Posner) o Estimate can create option contract if it is more central than the fluctuating requirements. §2-306(1) “Good Faith” Test (Posner): o Contract independent standard § Business decisions cannot be contract distorted. o Feld Standard: Don’t have to drive yourself to bankruptcy. THINK SMARTER NOT HARDER 25 UCC EXCLUSIVE DEALINGS §2-306(2): Exclusive dealings WOOD V. LUCY, LADY DUFF-GORDON CT. OF APP. NY 1917 contracts impose a responsibility P agrees to market D’s brand, D sells to another and tries to claim no on the seller to use best efforts to consideration. supply the goods and best efforts ISSUE: Was there consideration by the plaintiff for their exclusive right to of the buyer to promote their sale. market the defendant’s goods? HOLDING: Yes. The consideration of the plaintiff was to give best efforts to Comment 5: Parties are advance the business of the defendant. impliedly bound to good faith and Landmark case setting standard that there is an implicit condition reasonable diligence that the service provider must maintain best efforts. requirements. This includes refraining from supplying another BLOOR V. FALSTAFF BREWING CO. 2ND CIR. 1979 dealer. Beer co. sells name to distributor on royalty fees, D minimizes sales. ISSUE: Was the defendant utilizing best efforts to sell the beer? HOLDING: No. By maximizing profits at the expense of the sale of Ballantine Beer, D was not maximizing Bloor’s business and therefore no best efforts. Exclusive dealings contracts (§2-306(2)) (retail distribution) o Requires good faith and best efforts (no market check). o Best Efforts requires: § Integrated Firm How P would have performed if they owned both firms. Joint maximization Diligent or reasonably prudent business conduct. o Parties can protect themselves through: § Termination clauses Allows termination of contract in cases of “chiseling” § Liquidated damages clauses: Protects if one party decides to become “competition” after learning trade tricks. Notes: might not be “exclusive dealing” because based on one- time sale. o Rather, royalty was to pay for one-time sale, o Therefore D was avoiding payment. THINK SMARTER NOT HARDER 26 RESTATEMENT INTERPRETATION §209: Integrated agreements INTERPRETATION OF MEANING OF TERMS: COLUMBIA NITROGEN V. ROYSTER 4TH CIR. 1971 §210: Completely and partially P attempted to buy only nothing when contract stated to buy 31,000 lbs of integrated agreements product. ISSUE: Should the court consider usage or trade and past dealings as evidence of implied meaning when interpreting terms of contract? HOLDING: Yes. Usage of trade should always be included to interpret meaning (§2-202 Comment 2). Interpretaion: UCC o Common law = textualism / plain meaning rule o UCC = contextualism §2-202(a): Interpretation: SOUTHERN CONCRETE V. MABLETON CONTRACTORS N.D. GA 1975 Agreement terms may be P was to supply approc. 70k cub. Yards of concrete, D only paid for 12k. explained by course of dealing, ISSUE: Should the court consider usage or trade and past dealings as usage of trade, or course of evidence of implied meaning when interpreting terms of contract? performance if they do not HOLDING: No. Usage of trade should not be included if it contradicts the contradict the terms in the plain meaning of the express terms (§2-202) agreement and… Interpretation: o Contextualism as prescribed by UCC still relies on a plain §1-303(e): … are reasonably meaning term within the context of extrinsic evidence. consistent with… the express terms… Interpretation Common Law: NYC = Plain Meaning Comment 2 (Problematic): Unless in cases of careful CA = Contextualism negation. (The extrinsic evidence IDENTIFICATION OF TERMS: is assumed meaning). Parole Evidence Rule: Three levels of integration: §2-202(b): Parole Evidence: o No integration: Partially integrated terms may be supplemented by evidenced of § No writing or completely unprivileged writing - everything is admissible for evidence. consistent additional terms unless o Partial Integration the court finds that it is fully § Final statement of the terms in the writing - any integrated. evidence of consistent additional terms is admissible Comment 3: Certain Inclusion Test: If the additional terms § "This writing is the final statement of the terms" certaintly would have been o Full integration: included if intended ex ante, then § Final statement of all the terms possible in the they may not be included. writing - nothing but that writing is admissible to evidence. § "This writing is exclusive of all terms of agreement" §1-303: (a) Course of performance definition: current The "Four corners rule" transationc (b) course of dealing: o Will come to conclusion of the intent of the parties by past transactions b/w same reading the contract (what is within the four corners alone). parties (c) usage of trade: When determining partial or full integrated. common practice in the trade. The "Natural Omission Test" – Would the parties have naturally omitted the term even if they intended it to be a part of the writing? THINK SMARTER NOT HARDER 27 RESTATEMENT STATUTE OF FRAUDS §110(1): A Contract Must be in Writing if: (a) MCINTOSH V. MURPHY SP. CT. HI 1970 When executor of estate agrees to pay debts from personal funds (b) Surety - Man moved to Hawaii for job, was laid off after two months. 1+ yr contract? guaranteeing other person's debts (c) ISSUE: Was this written contract within a 1-year time frame? (RSC §130) Marriage (d) Sale of Land (e)Performance HOLDING: It does not matter because we can rule based on equitable will fall outside 1-yr formation estoppel. (RSC §139) Estoppel is appropriate in cases where there has been reliance. §131 Writing Requirements: A contract (RSC §139) under SoF is enforceable when it is in writing Employment contracts (“just cause” vs. “at will”) and signed by the party to be charged which O Some contracts only allow employers to terminate when (a) reasonably identifies the subject matter of the contract (b) sufficiently indicates that a they have “just cause.” contract has been made between the parties O Some contracts allow employers to terminate “at will.” or offered by the signer to the other party Summary judgement & Motion to Dismiss are appropriate times to and (c) states with reasonable certainty the bring SoF. essential terms of the unperformed promises Common Law case. in the contract. SCHWEDES V. ROMAIN MONATANA 1978 §134: Definition of “signed” P gave real estate offer, D began to prep, D sold property to someone §139 Equitable Enforcement: (1) The the else. promisor can reasonably expect to have ISSUE: Can a real estate agreement that is not in writing be enforced? induced action or forbearance of the HOLDING: No, Real Estate agreements need to be in writing (RSC §125- promise and then DOES induce the promise 129) can fall under SoF if injustice can only be Action taken “in contemplation” or “in preparation” of contract is avoided with enforcement of the promise. (2) not partial performance. determining if injustice can be avoided is