Contracts Briefs

In the Matter of Baby M A pseudonym for an Actual Person

Superior Court of New Jersey, Chancery Division

Family Part, 217 N.J. Super: 313 525 A.2d 1128 (1987)

Parties and Roles: The Sterns signed a surrogacy contract with Mary Beth Whitehead who would bear a child, and are now in court to determine custody of Baby M.

Dispositive and Material Facts: Mary Beth Whitehead and the Sterns entered into a surrogacy contract where Mrs. Whitehead would be paid $10,000 and all medical expenses in return for bearing a child for the Sterns, and surrendering parental rights to the Sterns

Procedural History: None.

Procedural Question: Is the Stern’s surrogacy with Mrs. Whitehead legal and enforceable

Substantive Question: Same as procedural

Holding: All portions of the contract are legal and enforceable, with the exception of the clause prohibiting Mrs. Whitehead from aborting the pregnancy without Mr. Stern’s permission. Mrs. Whitehead is in breach of contract in two ways; failing to surrender the child, and failing to renounce parental rights.

Reasoning: The rights of the parties to contract are constitutionally protected under the 14th Amendment.

In the Matter of Baby “M,” A pseudonym for an Actual Person

Supreme Court of New Jersey,

109 N.J. 396, 537 A. 2d 1227 (1988)

Parties and Roles: The Stern’s and Mary Beth Whitehead entered into a surrogacy contract, and are now in a dispute over custody.

Dispositive and Material facts: The Sterns paid Mrs. Whitehead $10,000 and medical expenses to bear a child with Mr. Stern’s sperm, and subsequently relinquish parental rights to the Sterns.

Procedural History: Trial court ruled that the surrogacy contract was enforceable, and that Mrs. Whitehead was in breach of contract.

Procedural Question: Did the trial court err when it ruled the contract legal and enforceable.

Substantive Question: Are contracts involving the exchange of money for children legal in New Jersey.

Holding: The contract is not legal and enforceable. The Sterns are awarded custody, and the issue of mother’s visitation is remanded to trial court for review.

Reasoning: (1) The contract violates laws prohibiting the use of money in connection with adoptions, (2) laws requiring proof of parental unfitness or abandonment before termination of parental rights is ordered or adoption granted, (3) laws that make surrender of custody and consent to adoption revocable in private placement adoptions.

Hawkins v. McGee

Supreme Court of New Hampshire

84 N.H. 114, 146 A. 641(1929)

Parties and Roles: Plaintiff George Hawkins is suing Dr. Edward McGee for assumpsit in relation to the defendant’s guarantee to deliver the plaintiff a “perfect hand” through a surgical skin grafting procedure.

Dispositive and Material facts: Dr. McGee solicited the plaintiff’s father for the opportunity to perform the operation, and stated that it would be just a few days before the plaintiff would be able to go back to work with a perfect hand. The grafting procedure was performed, and resulted in permanent disability to the hand.

Procedural History: The trial court returned a verdict for the plaintiff. The defendant moved to set aside the verdict on account that the damages awarded by the jury were excessive. The court found the damages excessive, and ordered that the verdict be set aside unless the plaintiff remitted all but $500. The plaintiff refused to remit, and the verdict was set aside. The plaintiff excepted.

Issues: Procedural Question: Did the trial court err when it instructed the jury that a finding for the plaintiff should include pain and suffering due to the operation, and positive ill effects of the operation upon the plaintiffs hand.

Issues: Substantive Question: Is the defendant’s repeated solicitation of the plaintiff’s father and stated guarantee to deliver a hundred percent perfect hand to the plaintiff constitute the assumpsit he is charged with.

Holding: New trial.

Reasoning: The trial court’s setting aside of the verdict for the plaintiff was based on erroneous instructions given to the jury in relation to the law on contracts and damages related to them.

McGee v. United States Fidelity & Guaranty CO.,

U.S. Court of Appeals, First Circuit 53 F.2D 953 (1931)

Parties and Roles: Dr. McGee is suing U.S. Fidelity & Guaranty for reimbursement for the settlement that he paid to George Hawkins in relation to Hawkins v. Mcgee.

Dispositive and Material Facts: The defendant informed that plaintiff by letter that they would not be reimbursing him for the settlement with George Hawkins on account of the nonsuit on the count of negligence, and because the court had found that in making the guaranteeing the result of giving Hawkins a 100% perfect hand had entered into a special contract with him which was not covered under his insurance.

Procedural history: District Court decision for U.S. Fidelity & Guaranty. Hawkins v. McGee, and the trial court proceedings that came before.

Issues: Procedural Question: Does the Hawkins v. McGee verdict that found that there was a special contract and guarantee of result between Hawking and McGee invalidate McGee’s insurance claim.

Issues: Substantive Question: Does a doctor making a guarantee of result constitute a special contract, and invalidate malpractice insurance.

Holding: The judgment of the district court (for the insurance company) is affirmed with costs.

Reasoning: The district court rightly found that Dr. McGee’s guarantee of result to Hawkins represented a special contract which is not covered by his insurance policy

Sullivan v. O’Connor

Supreme Judicial Court of Massachusetts

363 Mass 579, 296 N.E. 2d 183 (1973)

Parties and Roles: The plaintiff received a judgment for $13,500 against the defendant surgeon for breach of contract in respect to three operations the defendant performed on the plaintiff’s nose.

Dispositive and Material Facts: The plaintiff, a professional entertainer underwent three surgeries on her nose. Her nose had been straight, but prominent and long before the surgeries, based on the exhibits presented at trial. The plaintiff underwent three surgeries, and here appearance was worsened as a result. The worsening in plaintiff’s appearance evidently cannot be improved by further surgery.

Procedural History: The trial court’s jury returned a verdict for the plaintiff on the breach of contract, but a verdict for the defendant on the negligence count. She was awarded $13,500

Procedural Question/Issue: Did the trial court err in allowing the jury to take into account factors other than the plaintiff’s out of pocket expenses. Did the court err in refusing that the plaintiff could recover for the difference between the nose as promised and the nose as it appeared after the surgeries.

Substantive Question/Issue: In a breach of contract decision, can a plaintiff recover for pain and suffering damages that over and above the normal pain and suffering that is implicit in the contract.

Holding: A party is can recover for pain and suffering in excess of what is implicit in a contract.

Decision: The defendant’s exceptions fail on all counts. The plaintiff is not confined to the recovery of her out of pocket expenses. The plaintiff is entitled to out of pocket, pain and suffering, and mental distress associated with the third operation.

Reasoning: For breach of the patient-physician agreements under consideration, a recovery limited to restitution seems plainly too meager, if the agreements are to be enforced at all. On the other hand, an expectancy recovery may well be excessive.

J.O. Hooker & Sons v. Roberts Cabinet Co.

Supreme Court of Mississippi, 683 So. 2d 396 (1996)

Parties and Roles: Roberts alleges that Hooker wrongfully breached a subcontract agreement after Roberts had already begun performance

Dispositive and Material facts: In 1991 Hooker served as general contractor in charge of renovations for the BPHA. Hooker entered into a subcontract agreement with Roberts, whereas Roberts the necessary cabinets etc. Roberts informed Hooker that they had underestimated the costs associated, and demanded an additional $23,000. The parties were unable to resolve their dispute, and on 12/13/91 Hooker stated that he would buy the cabinets that Roberts had already produced, but considered the contract between them null and void.

Procedural History: Roberts filed suit against Hooker for wrongfully breaching the subcontract. The trial court granted summary judgment for Roberts, finding that Hooker had no legal right to unilaterally terminate the contract and awarded Roberts damages for $42,870. Trial court denied Hooker’s motions for a new trial, or in the alternative a remittitur of the jury’s verdict. Hooker appealed.

Procedural Question/Issues: Did the trial court incorrectly reward damages in relation: (1) storage and administrative costs; and (2) lost profits.

Substantive Question/Issue: Should the UCC 2-102 govern contracts that are of a mixed sale of goods and performance of service contracts. What damages are recoverable in breach of contract decisions.

Holding: The damages awarded by the trial court for storage and administrative costs were improperly awarded to Roberts. The damages awarded to Roberts for lost profits were properly awarded.

Reasoning: 1. Hooker incurred no additional cost in storing the cabinets at its warehouse, awarding damages on this basis is inconsistent with established expectation principle. 2. Failing to award Roberts damages on lost profits would undercompensate them, which would be inconsistent with established expectation doctrine.

Decision: Affirmed on condition of remittitur of $1440 for storage and administrative costs. If remittitur refused, the reversed and remanded for a new trial on damages only.

Tongish v. Thomas

Supreme Court of Kansas

51 Kan. 728, 840 P.2d 471 (1992)

Parties and Roles: Appellant Tongish is appealing a decision for appellee Decatur Coop Association over the proper monetary compensation stemming from Tongish’s breach of contract with coop.

Dispositive and Material Facts: Tongish entered into a contract with Coop on April 28 1988 where Tongish would grow 160 acres (later mutually agreed on to reduce to 116.8) which would be delivered in three installments at a price of $13 per hundredweight for large seeds and $8 per hundredweight for small seeds. Tongish provided the first two installments of seeds, however on January 13, 1989 informed Coop that he would not be delivering the final installment of seeds. A short crop and bad weather had doubled the market price of Sunflower seeds was then double what it was under the Coop contract. In May 1989 Tongish sold 82,820 punds of seeds to Danny Thomas for approximately $20 per hundredweight. Tongish ultimately profited $5,153 more from the Thomas transaction, then if he’d honored the Coop contract.

Procedural History: At bench trial the district court held that Tongish had breached the contract, and awarded Coop the sum of $455.51, which was the computed loss of the handling charges that represented Coop’s only would-be profit from the transaction. The award was based on the buyer’s loss of profit, consistent with K.S.A. 84-1-106(1). The Court of Appeals reversed stating that the true measure of damages was the difference between the market price and contract price, consistent with K.S.A. 84-2-713(1).

Procedural Question/Issue: Is the trial court or appeals court at error on the matter of which statute rules in this case.

Substantive Question/Issue: When there is conflict between a statute that deals generally with a subject, and another statute dealing specifically with a certain phase of it, which rules.

Holding: Since the cardinal rule of statutory construction to which all others is subordinate is the purpose and intent of the legislature govern, the specific statute controls unless it appears that the legislature intended to make the general act controlling.

Reasoning: Coop was contracted to by the seeds at $13 per hundredweight if the market price had diminished, therefore Tongish is required to sell the seeds at $13 per hundredweight if the market price rises. Adopting the standard put forth by 84-1-106 in cases like these would allow sellers to profit from breach of contract. 84-2-713 encourages sellers not to breach contracts.

Decision: The Court of Appeals reversal of the district court is affirmed, and the case is remanded for determination and award of damages pursuant to the provisions of K.S. A. 84-2-713.

Hadley v. Baxendale

In the Court of Exchequer

9 Ex 341, 156 Eng. Rep. 145 (1854)

Parties and Roles: Hadley is suing Baxendale/Pickford for failure to promptly deliver a broken shaft.

Dispositive and Material Fact: The shaft was delivered to Pickford on the 13th for the purpose of delivering it to Greenwich. The plaintiff told the clerk that the mill was stopped, and the clerk responded that anything sent up by 12:00 would be delivered to Greenwich the next day. The delivery was delayed by some neglect, with the end result being that the plaintiffs did not receive the new shaft for several days.

Procedural History: At trial the defendants tendered 25 pounds for any liability in relation to their negligence. The jury found a verdict for 25 pounds beyond the amount paid into court. The defendant obtained a rule of nisi for a new trial on the ground of misdirection.

Procedural Question/Issue: What criteria for awarding damages should the jury adhere to in the new trial.

Substantive Question/Issue: How should a court decide on foreseeability issues in breach of contract cases.

Holding: Hadley Rule: 1. The breaching party is liable for damages arising naturally or may reasonably supposed to have been in the contemplation of both parties at the time the contract was made.

2. If special circumstances were communicated the breaching party should be liable for the damages that could have been supposed to arise under those special circumstances. If special circumstances, the breaching party can only be held liable for general damages

Reasoning: The debtor can only be held liable for damages foreseen or contemplated at the time the contract was entered into.

Decision: New trial-

Hector Martinez and CO. v. Southern Pacific Transportation CO.

United States Court of Appeals, Fifth Circuit,

606 F.2d 106 (1979)

Parties and Roles: Hector Martinez is suing Southern Pacific for losses resulting from delay and damage to a dragline while in transport with defendant.

Dispositive and Material Fact: Martinez delivered the dragline to New Penn Station on February 11, 1974 for shipment to the ultimate destination of Eagle Pass, Texas. The last of the dragline arrived in Eagle Pass in April 2, 1974. Martinez had to make repairs to damages incurred during transport, which were not completed until June 20, 1974

Procedural History: The district court granted Southern Pacific’s motion under Rule 12 (b)(6) to dismiss for delay damages. Martinez also sought claims for the cost of repairing the damages to the dragline, and also for refund of certain demurrage and storage costs. Both claims of the aforementioned claims were settled prior to the current litigation.

Procedural Question/Issue: Did the trial court err in granting the defendant’s 12(b)(6) dismissal on the grounds that the plaintiff’s loss of use damages were special and therefore not recoverable.

Substantive Question/Issue: How is the precedent of Hadley applied to ascertaining what are special and general damages. Do foreseeable damages claimed need to be the “most foreseeable” damages, or just generally foreseeable.

Holding: The general rule does not require the plaintiff to show that the actual harm suffered was the most foreseeable of possible harms

Reasoning: The amount of damages that was reasonably foreseeable involves a fact question that Martinez is entitled to present to a jury.

Decision: The district court’s dismissal on the count of damages resulting in the delay of shipment is reversed and remanded. The district court’s dismissal of Martinez’s claim for damages during the delay for repair is affirmed.

Morrow v. First National Bank of Hot Springs

Supreme Court of Arkansas,

261 Ark. 568, 550 S.W. 429 (1977)

Parties and Roles: Morrow and Goslee are suing First National Bank to recover the value of stolen coins.

Dispositive and Material Fact: Morrow and Goslee had collected coins for a number of years, which the two kept at Morrow’s home. On September 4th someone broke into Morrow’s house and stole a substantial amount of the Morrow/Goslee coin collection. The plaintiffs allege breach of contract stemming from the bank’s failure to notify the plaintiffs of the availability of safety deposit boxes. On June 25th the plaintiff’s reserved three large boxes with the explanation of his need for the boxes by September 1st. The bank employees expected the boxes to be available within 30 to 60 days, and promised to let the plaintiffs know as soon as the boxes were available.

Procedural History: The appeal is from summary judgment for the defendant.

Procedural Question/Issue: Did the trial court err in granting summary judgment for the defendant

Substantive Question/Issue: Can a party to a contract be held liable for consequential damages if it only has a mere knowledge that a breach of contract will entail special damages.

Holding: Under the “tacit agreement test” for the recovery of consequential damages for a breach of contract a plaintiff must prove more than the defendant’s mere knowledge that a breach of contract will entail special damages to the plaintiff. The promisor and promisee must have a tacit agreement to cover special damages.

Reasoning: The bank’s bare promise to notify the plaintiff’s as soon as the boxes were available did not amount to a tacit agreement that the bank, for no consideration in addition to its regular rental for the boxes, would be liable for as much as $32,000 if the promised notice was not given. Tacit agreement test: the plaintiff must prove more than the defendant’s mere knowledge that a breach of contract will entail special damages.

Decision: The trial court’s decision is affirmed.

Chicago Coliseum Club v. Dempsey

Illinois Court of Appeals , First district

265 Ill. App. 542 (1932)

Parties and Roles: CCC is suing Jack Dempsey for breach of contract

Dispositive and Material Facts: A contract was signed by Dempsey with the CCC, and the intended opponent of Dempsey also signed a contract to fight Dempsey just prior to the Dempsey contract.

Procedural History: Plaintiff entered a decree in the Superior Court of Marion County finding that the contract was valid and expended large sums of money carrying out the terms of the agreement, and entered a decree that Dempsey be perpetually enjoined from in any way training, preparing, or taking part in any boxing match

Procedural Question/Issue: Which damages claimed by the plaintiff can he recover on.

Substantive Question/Issue: 1. Can a plaintiff recover for speculative future profits. 2. Can the plaintiff recover for damages incurred in reliance prior to the signing of the contract. 3. Can the plaintiff recover for damages incurred in attempting to restrain the defendant from other contests. 4. Can the plaintiff recover his legitimate (payroll, deposits, etc) reliance expenses after the signing of the contract.

Holding: 1. The plaintiff cannot recover speculative future profits, compensation for damages for breach of contract must be established by evidence from which a court or jury are able ascertain the extent of said damages with some certainty. 2. No. The general rule is that in an action for a breach of contract a party can recover only on damages which naturally flow from and are the result the act accompanied of. 3. No. Since the plaintiff had been informed of the defendant’s repudiation of the contract, the plaintiff took on these expenses at his own risk. 4. Yes. The plaintiff may recover for any expenditures during the period in which the contract was in effect, that can be substantiated and were necessary in the furthering of the undertaking.

Reasoning: In the holdings

Decision: Reversed and remanded

Anglia Television LTD. v. Reed

Court of Appeal, Civil Division, [1971] 3 All E.R. 690

Parties and Roles: Robert Reed is appealing a decision of damages for Anglia TV stemming from an alleged breach of contract.

Dispositive and Material Facts: Reed had been hired to perform in a play that Anglia had expended resources on prior to signing a contract with Reed. Reed’s manager had mistakenly already booked him for another play at the time he was to be under contract with Anglia. Anglia is seeking damages stemming from wasted expenditures.

Procedural History: It does not say explicitly, but it appears that this is on appeal, and that Anglia has already received a judgment for damages, and Reed is now appealing.

Procedural Question/Issue: Can Anglia claim wasted expenditure in place of lost profits. If so can they collect for wasted expenditure damages from Reed for money spent during the period before signing the contract with Reed.

Substantive Question/Issue: At what point is the contracted person liable for expenses undertook in preparation of a project. Is the contracted person liable for expenditures that existed prior signing the contract.

Holding: The wasted expenditure can be recovered from the contracted party if that expenditure is wasted by reason of the defendant’s breach of contract.

Reasoning: If the expenditure incurred before the contract is an expenditure that would reasonably be in the contemplation of the parties as likely to be wasted if the contract was broken.

Decision: Appeal dismissed

Mistletoe Express Service v. Locke

Court of Appeals of Texas Texarkana

762 S.W. 2d 637 (1988)

Parties and Roles: Locke is suing Mistletoe Express for breach of contract.

Dispositive and Material Facts: Mistletoe breaches contract with Locke before the minimum one year

Procedural History: Mistletoe Express appeals from an adverse judgment for breach of contract in the amount of $19,400, plus prejudgment and attorney’s fees of $2,000

Procedural Question/Issue: Did the trial court err in it calculations of damages.

Substantive Question/Issue: Can Locke opt to claim wasted expenditure damages in place of lost profits in a breach of contract suit.

Holding: A party that was deprived of their opportunity to recoup those expenditures can opt to collect their reliance expenditures.

Reasoning: Yes. The Restatement (Second) of Contracts 349 comment a (1981) says, the injured party may, if he chooses ignore the element of profit and recover as damages his expenditures in reliance. The party in breach has the burden of proving that the plaintiff would have lost money if there had been performance.

Decision: Judgment of the trial court affirmed

Rockingham County v. Luten Bridge Co.

Circuit Court of Appeals, Fourth Circuit

35 F.2d 301 (1929)

Parties and Roles: Luten is suing Rockingham County for damages stemming from a breach of contract.

Dispositive and Material Facts: Rockingham County contracted Luten Bridge Company to construct a bridge. Before the completion of the bridge, the composition of the County Commissioner’s changed, and the new board of commissioners voluntarily breached the Luten contract. After acknowledging the county’s repudiation of the contract Luten continued construction while awaiting remedy.

Procedural History: Appeal from Rockingham County from trial court judgment in favor of Luten of the full amount of claimed damages.

Procedural Question/Issue: Did the trial court err in excluding evidence from the county in support of its contention as to notice of cancellation and damages, and directing verdict for plaintiff for full amount of claim.

Substantive Question/Issue: Does the contracted party have an obligation to stop construction after repudiation of contract.

Holding: The contracted party has an obligation to treat the contract as broken when he receives notice, and sue for the recovery of such damages as are the result of the breach, not continue work and run up further expenses.

Reasoning: It is true that the county had no right to rescind the contract, and the notice given the plaintiff amounted to a breach on its part, but after plaintiff had received notice of the breach, it was its duty to do nothing to increase the damages flowing therefrom.

Decision: Reversed.

Shirley MaClaine Parker v. Twentieth Century-Fox Film Corp.

Supreme Court of California

3 Cal. 3d 176 (1970)

Parties and Roles: Parker is suing Fox for breach of contract.

Dispositive and Material Facts: Parker was contracted to star in the movie project Bloomer Girl, Fox breached contract and offered Parker the female lead in Big Man, which rescinded several provisions of her contract for Bloomer Girl.

Procedural History: Fox appeals from summary judgment granting Parker the recovery of agreed compensation.

Procedural Question/Issue: Did the trial court err in granting summary judgment for Parker.

Substantive Question/Issue: Does Parker’s refusal to accept the Big Man role constitute her failure to mitigate damages, and therefore support Fox’s affirmative defense to that effect.

Holding: A party is not obligated to mitigate damages when the offer of employment is both different and inferior in nature to the employment contracted for.

Reasoning: The employer must affirmatively prove the income that an employee might have earned from other employment, however before projected earnings from other employment opportunities not sought or accepted can be applied in mitigation the employer must show the alternate employment to be comparable or substantially similar to that which the employee was deprived.

Decision: Affirmed

Neri v. Retail Marine Corp

Court of Appeals of New York

334 N.Y.S.2d 165 (1972)

Parties and Roles: Neri is suing Retail for the return of a deposit paid on a boat. Defendant counterclaimed.

Dispositive and Material Facts: Neri paid a deposit of $4250 for a boat which would be delivered in 4-6 weeks. On account of medical issues the plaintiff’s lawyer sent a letter saying that Neri would not be capable of making any payments on the boat, and requesting the return of deposit. Retail refused return of the deposit, and this action ensued.

Procedural History: Neri is suing Retail for the return of a deposit paid on a boat. Defendant counterclaimed and was granted summary judgment for its counterclaim, and special term directed an assessment of damages to determine whether plaintiff was entitled to return of any portion of his deposit.

Procedural Question/Issue: What is he proper measure of damages to be paid after the Special

Term.

Substantive Question/Issue: Is a dealer’s expectation and compensation for breach of contract held to a different standard than that of a private seller.

Holding: The proper recovery for a dealer in a breach of contract is the profit on the lost sale.

Reasoning: If the dealer has an inexhaustible supply of cars, the resale to replace the breaching buyer costs the dealer a sale, because, had the breaching buyer performed, the dealer would have made two sales instead of one. The buyer’s breach depletes the dealer’s sales to the extent of one, therefore the damages due the seller is the profit on one boat.

Decision: Affirmed in accordance with the opinion.

Wassenaar v. Towne Hotel

Supreme Court of Wisconsin, 331 N.W.2d 357 (1983)

Parties and Roles: Plaintiff seeks to recover stipulated damages that were part of his employment contract with the defendant.

Dispositive and Material Facts: Plaintiff signed an employment contract with the defendant that was supposed to span three years. The defendant terminated the contract with 21months remaining on the contract. Plaintiff was unemployed for approximately 2 ½ months before obtaining employment in another hotel.

Procedural History: Superior Court returned judgment for the plaintiff by enforcing the stipulated damages clause in the contract and awarding the plaintiff $24,640. The Court of Appeals reversed by finding the stipulated damages clause unenforceable.

Procedural Question/Issue: Is the stipulated damages clause in the contract valid and enforceable.

Substantive Question/Issue: (1) What standard are stipulated damages clauses held to in private contracts.

(2) Does a stipulated/liquidated damages clause remove the employees obligation to mitigate damages.

Holding: (1) Stipulated/liquidated damages clauses in private contracts are held to the three part reasonableness test.

(2) Once the stipulated damages clause is found to be reasonable proof of the employee’s actual loss is no longer relevant. The doctrine of mitigated damages is no longer applicable to the non-breaching party.

Reasoning: The plaintiff has suffered damages. The damages outlined in the stipulated damages clause were reasonable, and the employee therefore has no duty to mitigate damages. That burden of proof was on the breaching party, and only before the decision on the reasonableness of the stipulated damages clause.

Decision: Court of appeals reversed, judgment of Superior Court affirmed

Cumbest v. Harris

Supreme Court of Mississippi

363 So.2d 294 (1978)

Parties and Roles: Cumbest and Harris contracted for the sale of high-fi equipment.

Dispositive and Material Facts: On May 19, 1976 Cumbest contracted for the sale of Cumbest’s high-fi equipment by bill of sale. The primary intent of the sale was a loan from Harris to Cumbest, with the high-fi equipment as collateral. There was an option agreement that Cumbest could re-purchase the equipment on or 5:00PM June 7, 1976. The agreement was clear, unambiguous, and notarized. On June 7, 1976 Cumbest attempted all day to pay Harris the agreed upon money, and alleges that Harris purposely avoided him in order to keep the equipment per the agreement. As a last resort Cumbest left the money with Harris’ landlord. The equipment was very unique, and all that stuff.

Procedural History: This is an appeal from the Chancery Court of Jackson County, Mississippi, dismissing appellant Cumbest’s bill of complaint.

Procedural Question/Issue: Did the trial court err in dismissing Cumbest’s bill of complaint.

Substantive Question/Issue: Is the equipment in question of such peculiar, sentimental, or unique value as to constitute an order of specific performance.

Holding: The Chancery Court erred in not finding that the property was sufficiently unique to justify the equitable jurisdiction of a chancery court.

Reasoning: In the present case, there was uncontradicted testimony that some components of the system were irreplaceable. Other components were replaceable with difficulty and long waiting periods. Others were handcrafted by Cumbest, and all were assembled over a fifteen year period to work together as one system.

Decision: Reversed and remanded for a hearing on the merits

Scholl v. Hartzell

Court of Common Pleas of Pennsylvania, Northampton County,

20 Pa. D. & c.3d 304 (1981)

Parties and Roles: Defendant agreed to sell a 62 Corvette for $4,000 to the plaintiff.

Dispositive and Material Facts: Defendant agreed to sell a 62 Corvette to the plaintiff for $4,000, after paying a deposit of $100 the defendant subsequently refused to sell the car to the plaintiff for the agreed on balance due of $3,900

Procedural History: None

Procedural Question/Issue: Does the current case represent a case in replevin or a simple breach of contract.

Substantive Question/Issue: What constitutes an object of sufficient uniqueness to satisfy a judgment for specific performance.

Holding: 62 Corvette is not up to the standard of unique goods according to U.C.C. 2-716. Plaintiff’s action does not lie in replevin, but assumpsit.

Reasoning: Allowing the plaintiff to recover in replevin would allow plaintiff to accomplish indirectly what he cannot do directly. Specific performance should only be granted where facts clearly establish plaintiff’s rights thereto.

Decision: Plaintiff is given leave to file an amended complaint.

Sedmak v. Charlie’s Chevrolet, Inc.

Missouri Court of Appeals Eastern District, Division Four;

622 S. W.2d 694 (Mo. App. 1981)

Parties and Roles: The Sedmaks are suing Charlie’s for a breach of contract

Dispositive and Material Facts: The Sedmaks paid Charlie’s a deposit of $500 in relation to the special ordering of a 1978 limited edition Indy Pace car replica Corvette. The Sedmaks had ordered the car with specific options. Upon arrival, Charlie’s informed that Sedmaks that they could not buy the car for the agreed upon $15,000, but would need to bid on the car. The Sedmaks did not place a bid, but instead brought suit.

Procedural History: Appeal from a decree of specific performance.

Procedural Question/Issue: Are the Sedmaks entitled to specific performance.

Substantive Question/Issue: Are the Sedmaks entitled to specific performance.

Holding: When the relevant and equitable principles have been met and the contract is fair and plain, specific performance goes as a matter of right.

Reasoning: The Sedmaks have no adequate remedy at law. They cannot go out onto the open market and purchase a car of this kind with the same mileage, condition, ownership and appearance as the automobile involved, except, if at all, with considerable expense, trouble, loss, great delay and inconvenience. This is under “other proper circumstances” clause of 2-716.

Decision: Affirmed

Dallas Cowboys Football Club v. Harris

Court of Civil Appeals of Texas, Dallas,

348 S. W.2d 37 (1961) Rehearing Denied June 23,1961

Parties and Roles: The club brought action against Harris for injunction to restrain him from playing professional football, or engage in any professional football related activities.

Dispositive and Material Facts: Harris was under contract to play for the LA Rams for $8,000 in the 1958 season, with the Rams option for an additional year. Harris did not play in the 1959 season, but returned to professional football by signing a contract with the Dallas Texans, while the option from the Rams had been assigned to the Dallas Cowboys.

Procedural History: On 7/29/60 the club received a temporary injunction, Harris appealed. On 9/21/60 judgment in the main case was for Harris, the club appealed.

Procedural Question/Issue: Did the trial court err in refusing to grant a new trial based on the fact finding of the jury

Substantive Question/Issue: Does Harris possess unique skills and knowledge in accordance with ruling of specific performance

Holding: A player does not have to be the only one, or singularly unique in order to represent exceptional and unique ability to a team. The uniqueness is more dependent on the availability of players of such ability to a given club.

Reasoning: It is true that there are other football players that are of equal or better ability than Harris, but the players of Harris’ ability were not available to the club. Therefore, Harris’ knowledge and skill are unique and in accordance with specific performance.

Decision: The judgment denying the Club nothing in the main suit is reversed and remanded for new trial.

The order granting a temporary injunction in favor of the Club is affirmed.

Bush v. Canfield

Supreme Court of Errors

2 Conn. 485 (1818)

Parties and Roles: Bush brought action against Canfield for breach of contract

Dispositive and Material Facts: Canfield (defendant) agreed to deliver flour to Norton & Bush (Bush) (plaintiff), a partnership, on or before May 1. The contract stipulated that the price of flour would be $7.00 per barrel at the time of delivery. Bush paid $5,000 in advance for the flour and agreed to pay the remainder of the balance thereafter. Canfield did not deliver the flour. Bush brought suit for damages and the matter was tried before a jury. Evidence was introduced at trial showing that the price of flour in New Orleans on May 1 was $5.50 per barrel.

Procedural History: The trial court instructed the jury that, if the jury found in favor of Bush, the damages would be the amount Bush paid in advance plus interest. The jury returned a verdict for $6,771. Canfield petitioned the Supreme Court of Errors for a new trial.

Procedural Question: What standard should be used in calculating breach of contract damages?

Substantive Question: Whether the plaintiff was entitled to expectancy damages or restitution damages.

Reasoning: The defendant should return the entire amount it received from the plaintiff.

Holding: The breaching party cannot claim that losses that would have been incurred by the non-breaching party if there had been performance should be deducted from the non-breaching party’s monetary damages.

Decision: Judgment affirmed, new trial not to be granted.

Britton v. Turner

Superior Court of Judicature of New Hampshire

6 N.H. 48, 26 Am. Dec. 713 (1834)

Parties and Roles: Plaintiff contracted to work for one year for the Defendant where he would be paid $125.00 at the end of employment for services rendered.

Dispositive and Material Facts: Plaintiff contracted to work for one year for the Defendant where he would be paid $125.00 at the end of employment for services rendered. The contract explicitly stated that payment would be given at the end of the year. Plaintiff ceased working after nine and a half months and did not receive any compensation from the Defendant. There was no evidence that the Defendant suffered any damages as a result of Plaintiff’s departure. The trial court held that the Plaintiff was allowed to recover under is quantum meruit claim for the reasonable value of the labor he performed for the Defendant. Defendant appealed.

Procedural History: Britton (Plaintiff) brought an action of assumpsit for work and labor performance of the Plaintiff in servicing Turner (Defendant). Defendant appeals from a judgment allowing the Plaintiff to recover for work and labor performed.

Procedural Question/Issue:

Substantive Question/Issue: Whether the Plaintiff can recover for services rendered when the performing party did not deliver substantial performance?

Holding: To deny the Plaintiff benefits from working would be unfair and unjust in its operation. If the party performs over the damages suffered by the failure to complete services, there is reason to pay the party for the reasonable worth that has been done for the other party’s benefit. He is required to pay because the circumstances compel him to accept the services completed. Moreover, a hired laborer shall be entitled to compensation for services performed, even though he will not continue until the end of the contract term. Therefore, the Plaintiff can recover for his services in quasi contract.

Reasoning: There has been acceptance of what has been done. The plaintiff has received value, and is using the material or has advantage from the labor, therefore the breaching worker must be compensated for the work that has been performed that has benefitted the employer.

This rule will leave no temptation to the employer to drive the laborer from his service close to the end of the contracted period, nor the worker to desert his service before the term is over without sufficient reason.

Decision: Judgment affirmed.

Cotnam v. Wisdom

Supreme Court of Arkansas

83 Ark. 601, 104 S.W. 164 (1907)

Parties and Roles: Harrison, deceased is represented by the Appellant who inherited intestate. Harrison was thrown from a street car. Appellees, surgeons, performed a difficult operation in an attempt to save his life but failed.

Dispositive and Material Facts: Appellant representing estate argued that the deceased, Mr. Harrison, could not give consent expressly or impliedly to the surgery since he was rendered unconscious and should not by contract have to pay for the surgery.

Procedural History: None

Procedural Issue/Question: Whether it was error to admit evidence of the ability to pay for the surgery provided relying on law that contemplated means to pay as evidence of the price contemplated for the contract.

Substantive Issue/Question: Whether surgeons are entitled to recover cost of difficult operation performed in an effort to save the life of Mr. Harrison under a quasi-contract or implied contract theory.

Holding: The financial condition of a patient cannot be considered where there is no contract and recovery is sustained on a legal fiction which raises a contract in order to afford a remedy which the justice of the case requires.

Reasoning: It was error to admit evidence of ability to pay on an implied contract which is a legal fiction. By it, the surgeon is entitled to reasonable compensation for the services rendered regardless of the patient’s financial status.

Decision: It was well settled that surgeons may recover the necessaries furnished in good faith to a person rendered in a helpless condition. Surgeons were entitled to recover.

Notes: The constructed contract stems from the implied consent. The constructed contract is a tool to encourage Dr.’s to treat on implied consent without worry about whether they will be paid or not.

Lucy v. Zehmer

Supreme Court of Appeals of Virginia

196 Va. 493, 84 S.E. 2d 516 (1954)

Parties and Roles: W.O. Lucy is suing the Zehmers for specific performance stemming from the alleged sale of the Zehmer’s farm for $50,000

Dispositive and Material Facts: Zehmer wrote a bill of sale on 12/20/52 stipulating that he and his wife would sell the Ferguson Farm complete for $50,000, title satisfactory to buyer. Zehmer alleges that he was intoxicated, and that the note was not a serious bill of sale, but just a joke. He secretly told his wife he was just fooling with Lucy, and he wasn’t really selling the farm. He intended for Lucy not to hear the conversation.

Procedural History: Depositions were taken and the decree appealed from was entered holding that the complainants had failed to establish their right to specific performance, and dismissing their bill. The assignment of error is to this action of the court.

Procedural Question/Issue: Did the pre-court preceding err in finding that the plaintiff had no right to specific performance.

Substantive Question/Issue: Is the mental assent of the selling party necessary to establish a valid contract to sell?

Holding: Where there appears to be a good faith offer and good faith acceptance, followed by the execution and apparent delivery of a written contract, it is immaterial what the real but unexpressed state of his mine.

Reasoning: We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words. Also there were multiple drafts of the B.O.S.

Decision: The plaintiff is entitled to have specific performance of the contracts sued on. Reversed and Remanded.

Notes: Objective Theory of Assent.

Nebraska Seed Co. v. Harsh

Supreme Court of Nebraska

98 Neb. 89, 152 N.W. 310 (1915)

Parties and Roles: Plaintiff, a corporation, engaged in buying and selling seed in Omaha, brought action against the defendant, a farmer in Lowell

Dispositive and Material Facts: The defendant put out a telegraph to the plaintiff making an offer of his approximately 1800 bushels of millet asking $2.25 per cwt. The plaintiff sent a reply letter accepting the offer, and requesting prompt delivery. The plaintiff interpreted the correspondence as a binding contract to buy 1800 bushels of millet seed.

Procedural History: Plaintiff asks for judgment of $900. Defendant filed a demurrer, which was overruled. He saved an exception to the ruling, and answered, denying that the petition stated a cause of action; that the correspondence set out constituted a contract, etc. At trial the jury found for the plaintiff, defendant now appeals.

Procedural Question/Issue: Did the trial court err in finding the correspondence to be a binding contract?

Substantive Question/Issue: Can the statement of the price at which property is held be understood as an offer to sell?

Holding: A letter of this sort is not intended as a final proposition. If a proposal is nothing more than an invitation to the person to whom it is made, it cannot be turned into a binding agreement just by acceptance.

Reasoning: The letter as a whole shows that it was not intended as a final proposition, but as a request for bids. The language is general, as might be used in an advertisement and is clearly not an offer which the seller could be bound if accepted by all persons addressed.

Decision: There is no binding contract between the parties. The judgment of the district court is reversed.

Leonard v. PEPSICO

Supreme Court of Appeals of Virginia

196 Va. 493, 84 S.E. 2d 516 (1954)

Parties and Roles: Plaintiff brought action seeking specific performance on an alleged offer of a Harrier jet featured in the defendant’s commercial for the Pepsi Stuff catalog.

Dispositive and Material Facts: A promotion by Pepsi called Pepsi Stuff encouraged customers to get products in exchange for collected Pepsi points that came with Pepsi products. One of the defendant’s commercials showed a Harrier jet with the caption “Harrier jet 7,000,000 Pepsi points. The plaintiff used Pepsi’s policy of buying additional Pepsi points for $.10 apiece. Plaintiff sent an order form with Harrier jet written in, along with his fifteen original Pepsi points, and a check for $700,008.50. Pepsi tried to explain that the jet was not a prized that could be redeemed.

Procedural History: None given.

Procedural Question/Issue: Same as substantive.

Substantive Question/Issue: Did the Harrier Jet commercial constitute an offer?

Holding: The commercial cannot be construed as an offer since it reserved the details of the offer to a separate writing (commercial is an invitation to bargain). Also, no objective reasonable person could have concluded that the commercial actually offered consumers a Harrier Jet.

Reasoning: An advertisement is not transformed into an enforceable offer merely by a potential offeree’s expression of willingness to accept the offer. There must a further manifestation of assent. In this case there is no enforceable contract until the defendant accepts the order form and accepts the contract.

Decision: The court finds in sum that the Harrier Jet commercial was just an advertisement. Defendant’s motion for summary judgment is granted.

Empro manufacturing Co. v. Ball-Co

United States Court of Appeals Seventh Circuit

870 F.2d 423(1989)

Parties and Roles: Empro Manufacturing (Empro) (plaintiff) drafted a letter of intent to buy Ball-Co Manufacturing’s (Ball-Co) (defendant) assets and plant.

Dispositive and Material Facts: Empro Manufacturing (Empro) (plaintiff) drafted a letter of intent to buy Ball-Co Manufacturing’s (Ball-Co) (defendant) assets and plant. The letter of intent provided general terms and conditions and stated that the agreement in the letter was subject to a definitive Asset Purchase Agreement and various conditions, including the approval of Empro’s board of directors and shareholders. During subsequent negotiations, it became clear that Ball-Co wanted to retain a security interest in the land under the plant, but Empro refused. Ball-Co then started negotiating with a different company

Procedural History: Empro brought suit and filed for a temporary restraining order. The district court dismissed the complaint. Empro appealed.

Procedural Question/Issue: Did the court err in dismissing Empro’s motion for a restraining order?

Substantive Question/Issue: Does the binding effect of a document depend on the party’s intent?

Holding: So long as Illinois has the availability of approaching an agreement in stages, federal courts in diversity cases must send the disappointed party home empty-handed.

Reasoning: A binding contract between the parties is subject to a definitive agreement. Each party clearly retained the right to make and stand on additional demands

Decision: Affirmed.

Dickinson v Dodds

In the Court of Appeals

2 Ch. D 463 (1876)

Parties and Roles: Plaintiff Dickinson is suing Dodds for specific performance stemming from an alleged

Dispositive and Material Facts: On June 10, 1874, John Dodds (defendant) drafted a documented which stated his willingness to sell a piece of property to George Dickinson (plaintiff). The document stated that the offer would be open until 9am on June 12, 1874. On Thursday, June 11, Dickinson was informed by his agent that Dodds changed his mind and actually intended to sell the property to Thomas Allen (defendant). Dickinson immediately went to the home of Dodd’s mother-in-law where Dodds was staying and dropped off a document expressing his intent to accept Dodds’ offer to sell the property. Dodds never received this document from his mother-in-law. At 7am on the morning of June 12, Dickinson and his agent both found Dodds at a train station and provided him with duplicate copies of the document accepting Dodds’ offer to sell. Dodds stated that it was too late and he had already sold the property to Allen.

Procedural History: Dickinson brought suit against Dodds and Allen seeking specific performance of Dodd’s offer to sell the property to him. The Vice Chancellor hear the case and held for Dickinson, granting specific performance. Both Dodds and Allen appealed.

Procedural Question/Issue: Did the trial court err by enforcing the contract?

Substantive Question/Issue: Were the parties in agreement at some point about the contract? If so, there was a contract, if not, there was not.

Holding: A binding contract requires the buyer and seller to be of the same mind at some point. Without both parties agreement, it is simply an offer, and there is no concluded agreement.

Reasoning: Until such time that the parties are of the same mind on the agreement, there is no binding contract.

Decision: Reversed.

Notes: case decided incorrectly, see UCC §2-205 on p. 309

Ardente v. Horan

Supreme Court of Rhode Island

366 A.2d 162 (1976)

Parties and Roles: In August 1975, William and Katherine Horan (defendants) offered to sell residential property in the city of Newport. Ernst Ardente (plaintiff) bid $250,000 for the property.

Dispositive and Material Facts: The Horans’ attorney communicated that the bid was acceptable and prepared a purchase and sale agreement which he forwarded to Ardente. Ardente executed the agreement, and his attorney forwarded it back to the Horans. Ardente also included with the agreement a check for $20,000 and a letter asking if certain furniture and fixtures were a part of the transaction and requesting that they remain with the property. The Horans refused to sell the items listed by Ardente and returned the unsigned purchase and sale agreement and the $20,000 deposit to Ardente. The Horans refused to sell the property to Ardente.

Procedural History: Ardente brought suit seeking specific performance. The trial court ruled that Ardente’s letter constituted a conditional acceptance of the Horans’ offer to sell their property and thus must be construed as a counteroffer. The Horans never accepted the counteroffer and thus no contract was formed, so the trial judge granted the Horans’ motion for summary judgment on the grounds that no facts were in dispute and no contract had been formed as a matter of law. Ardente appealed.

Procedural Question/Issue: The plaintiffs claim that the trial court erred in deciding that the facts did not disclose a valid acceptance of the defendant’s offer?

Substantive Question/Issue: Do conditional acceptances constitute a binding acceptance of an offer?

Holding: To be effective, an acceptance must be definite and unequivocal. Conditional letters operate as a rejection of the offer on the table, and therefore do not solidify binding agreements.

Reasoning: The plaintiff’s acceptance as is would have constituted a binding contract. However, the plaintiff’s letter made the acceptance of the contract conditional on the terms laid out in the aforementioned letter.

Decision: The judgment is affirmed and the case is remanded to the Superior Court.

Carlill v Carbolic Smoke Ball Co.

In the Court of Appeal, 1 Q.B 256 (1893)

Parties and Roles: The owners of Carbolic Smoke Ball Co. (Carbolic) (defendants) manufactured the Carbolic Smoke Ball and advertised it as a preventative measure against influenza. Carlill (plaintiff) purchased a Carbolic Smoke Ball and later contracted influenza despite using the ball as directed by Carbolic’s instructions.

Dispositive and Material Facts: The owners of Carbolic Smoke Ball Co. (Carbolic) (defendants) manufactured the Carbolic Smoke Ball and advertised it as a preventative measure against influenza. Carbolic placed an advertisement in several London newspapers saying that one hundred pounds would be paid to any person who purchased a Carbolic Smoke Ball and still contracted influenza. The advertisement further stated that Carbolic had deposited one thousand pounds in a local bank to demonstrate its seriousness in the matter. Carlill (plaintiff) purchased a Carbolic Smoke Ball and later contracted influenza despite using the ball as directed by Carbolic’s instructions.

Procedural History: Carlill brought suit to recover the one hundred pounds. The trial court held she was entitled to the one hundred pounds, and Carbolic appealed.

Procedural Question/Issue: Same as substance.

Substantive Question/Issue: Was the advertisement intended to be a promise binding on the defendants if customers performed the necessary action?

Holding: In cases like the present one the notification of acceptance need not precede the performance. The person making the offer, makes it clear through the advertisement’s language that they do not expect or require notice of the acceptance apart from notice of the performance.

Reasoning: The claim in the advertisement claims that 1000 pounds have been deposited in a bank account for the purpose of paying anyone who uses the smoke ball and contracts influenza. The court states that this is not an inferred promise, but an actual promise.

Decision: The defendants must perform their promise, and if they have exposed themselves to other actions, so much the worse for them.

White v. Corlies &Tifft

Supreme Court of Appeals of Virginia

196 Va. 493, 84 S.E. 2d 516 (1954)

Parties and Roles: White (plaintiff), a builder, submitted his estimate to Corlies & Tift (Corlies) (defendant) for the requested work on their offices at 57 Broadway.

Dispositive and Material Facts: Based upon provided specifications and a request for an estimate, White (plaintiff), a builder, submitted his estimate to Corlies & Tift (Corlies) (defendant) for the requested work on their offices at 57 Broadway. After making a change to the specifications, Corlies submitted a copy to White, which he assented to by signing and returning to Corlies. The next day, September 29, Corlies sent White a note stating, “Upon an agreement to finish the fitting up of offices 57 Broadway in two weeks from date, you can begin at once.” White immediately purchased supplies and began to prepare those materials for the work. The next day, Corlies sent another note retracting the previous note that had asked him to start the work.

Procedural History: White sued Corlies for breach of contract. At trial, the lower court instructed the jury that it must determine whether White needed to give notice of assent before commencing the work. The trial judge stated in his instruction to the jury that he did not believe that White needed to give notice of assent, and verdict was entered for White. Corlies appealed the trial court’s jury instruction.

Procedural Question/Issue: Same as substance.

Substantive Question/Issue: Did the trial court err in instructing the jury that the plaintiff need not indicate to the defendants his acceptance of their offer.

Holding: A mental determination not indicated by speech or put in course of indication by act to the other party, is not an acceptance which will bind the other.

Reasoning: Plaintiff did no act that which indicated an acceptance of it to the defendants.

Decision: Judgment reversed, and new trial ordered

Petterson v. Pattberg

Court of Appeals of New York

248 N.Y. 86, 161 N.E. 428 (1928)

Parties and Roles: Petterson owned a property upon which the defendant owned a bond secured by a mortgage.

Dispositive and Material Facts: The mortgage was payable to the defendant in monthly installments, but the defendant offered to grant Petterson a $780 reprieve on the total mortgage if he paid it off in full by a certain date. Petterson went to defendant’s house with cash prepared to pay off the entire mortgage before the date. Before Peterson tendered any money, the defendant informed him that he had sold the mortgage to a third party and thus revoked his offer. Consequently, Petterson had to pay the third party the full price of the mortgage.

Procedural History: The executrix of Petterson’s will (plaintiff) brought suit against the defendant for the $780 lost. The trial court found in favor of the executrix and the appellate court affirmed. The defendant appealed.

Procedural Question/Issue: Same as substance.

Substantive Question/Issue: Did Defendant revoke the offer prior to acceptance?

Holding: Whatever the act may be until it is performed the offer must be revocable

Reasoning: Defendant revoked the offer to enter into a unilateral contract prior to Petterson’s acceptance. A unilateral contract involves one party making a promise in exchange for performance of an act by the other party. In a unilateral contract, the party making the promise is not seeking a promise in return, but the performance of the requested action. An offer to enter into a unilateral contract is not accepted until the requested action is performed. In the present case, the Court determined that Defendant’s letter constituted an offer to enter into a unilateral contract.An offer to enter into a unilateral contract may be revoked at any time prior to acceptance. Under these facts, the Court found that Defendant revoked the offer prior to Petterson’s acceptance when Defendant informed Petterson that the bond and mortgage had been sold before accepting the payment of the principal from Petterson.

Decision: The judgment of the appellate division and that of the trial term should be reversed and the complaint dismissed, with costs in all courts.

Hobbs v. Massasoit Whip C.

Supreme Judicial Court of Massachusetts

158 Mass. 194 (1893)

Parties and Roles: The plaintiff shipped eel skins to the defendant and the defendant kept the skins for several months.

Dispositive and Material Facts: The plaintiff shipped eel skins to the defendant and the defendant kept the skins for several months without notifying the plaintiff of whether the defendant had accepted and agreed to pay for the shipment. The skins were eventually destroyed because of this delay. Previously, the plaintiff had shipped skins in the same manner to the defendant about four or five times, and the defendant accepted and paid for the shipment each time.

Procedural History: The plaintiff brought suit and the trial court found in his favor. The defendant appealed.

Procedural Issue: Same as substantive.

Substantive Issue: Whether hobbs as a reasonable person could conclude that the Massasoit retention of the skins, under the circumstances could constitute an acceptance.

Holding: Silence on the company’s part, coupled with the retention of the skins for an unreasonable period of time, could be enough for the jury to find that the defendant had accepted the skins. The silence on the part of the defendant was acceptance.

Reasoning: The court rejected the defendants argument that one stranger may impose a duty upon another, and make him a purchaser, in spite of himself, by sending goods to him, unless he will take the trouble, and bear the expense, of notifying the sender that he will not buy. This is because the two parties had dealt together in the past, and the defendant was in the business of buying eel skins.

Decision: Exceptions overulled.

Specht v. Netscape Communications Corp.

United States Court of Appeals, Second Circuit306 F.3d 17 (2002)

Parties and Roles: Specht (plaintiff) and five others brought suit against Netscape (defendant) under violation of privacy and electronic eavesdropping statutes.

Material and Dispositive Facts: Netscape Communications Corp. (Netscape) provides two separate software programs known as “Communicator” and “SmartDownload.” When internet users download these programs, the programs track the users’ internet usage and display advertisements relevant to such usage. Before downloading Communicator, all users are required to view and accept a license spelling out these terms of use. The license automatically displays on the computer screens of everyone who attempts to download Communicator. However, a similar license does not appear on the screens of those who attempt to download SmartDownload. Rather, users just see a button which says “download” and invites them to click to download the program. A link to the license agreement for SmartDownload can be viewed by users who scrolled down their screens below the “download” button. However, this link is not automatically visible to users who do not scroll down. Both license agreements for Communicator and SmartDownload contain arbitration clauses. Specht (plaintiff) and five other plaintiffs all downloaded both Communicator and SmartDownload. They agreed to the license agreement for Communicator but were unaware of and thus did not agree to the license agreement for SmartDownload. If they had clicked on the license link for SmartDownload, Specht and the other plaintiffs would have been presented with a screen telling them that by downloading the product, they were agreeing to be bound by the terms of the license agreement.

Procedural History: Specht and the other plaintiffs brought suit against Netscape in federal district court on the ground that the Communicator and SmartDownload software is a violation of privacy and electronic “eavesdropping” statutes. Netscape sought to enforce the terms of its license agreements for both Communicator and SmartDownload with all plaintiffs. Specht argued that they should not be bound by the arbitration clause for the SmartDownload contract because the license for that product is not visible to a reasonable internet user. The district court agreed and held all plaintiffs were not bound by the license agreements for either Communicator or SmartDownload. Netscape appealed.

Procedural Question:

Substantive Question: Does a contract that one party had no reason to know about is enforceable?

Holding: No, one must have reasonable knowledge that the terms exist to assent to them.

Reasoning: A person of reasonable prudence would not have seen the terms nor known that they existed. No attention was called to the terms so plaintiffs were unaware that the download meant assenting to license terms. Clickwrap contracts are always enforced but in those cases people have general notice that the contract exists. These people may not have specific notice, but as long as they know that there are terms, they have a duty to read them. In this case however, general notice was missing so the contract is unenforceable.

Decision: Affirmed. Contract cannot be enforced.

Notes: Netscape embedded an arbitration clause.

Register.com, Inc. v. Verio, Inc.

United States Court of Appeals, Second Circuit

356 F.3d 393 (2004)

Parties and Roles: : Register.com, Inc. (Register) (plaintiff) was a registrar for the issuance of internet domain names is suing Verio, Inc. (defendant), a web site development business, that created an automated software program that submitted multiple successive queries each day to acquire the contact information of new registrants.

Material and Dispositive Facts: Register.com, Inc. (Register) (plaintiff) was a registrar for the issuance of internet domain names. In compliance with federal agency regulations, Register updated and made available to the public all registrants’ contact information. The results were accompanied by a restrictive caption written by Register that prohibited searchers from using the data to “support the transmission of mass unsolicited, commercial advertising or solicitation via email.” Verio, Inc. (defendant), a web site development business, created an automated software program that submitted multiple successive queries each day to acquire the contact information of new registrants. Verio sent these registrants marketing solicitations by e-mail, phone, and direct mail. Register updated its caption to further bar mass solicitation via direct mail or telephone, in addition to e-mail. Verio accordingly stopped using the information for email marketing but refused to cease marketing by direct mail and telephone.

Procedural History: Verio argued that it never received legally enforceable notice of the new restrictions. The district court enjoined Verio from using the contact information. Verio appealed.

Procedural Question: Same as substantive.

Substantive Question: Under Federal Law, does a buyer become bound by terms in essence electronic shrinkwrap, when it downloads information which comes with terms attached and prohibits its use by terms that differ from its parent company’s?

Holding: Yes, the court held that Verio was bound by the terms, not b/c they downloaded once, but because they downloaded multiple times a day and saw the terms multiple times a day.

Reasoning: Where a benefit is offered, subject to stated conditions, and where the offeree takes the benefit with knowledge of the conditions, then the offeree is deemed to have accepted the conditions.

Decision: District Court affirmed. Register.com showed likelihood of success on the merits of its contract claim.

Notes: Inquiry notice

Raffles v. Wichelhaus

Court of Exchequer159 Eng. Rep. 375 (1864)

Parties and Roles: Raffles (plaintiff) and Wichelhaus (defendant) entered into a contract in which Raffles agreed to sell 125 bales of cotton to Wichelhaus.

Material and Dispositive Facts: Raffles (plaintiff) and Wichelhaus (defendant) entered into a contract in which Raffles agreed to sell 125 bales of cotton to Wichelhaus. The cotton was to arrive from Bombay via the ship Peerless. The plaintiff delivered the cotton via the ship Peerless, which departed from Bombay in December, and Wichelhaus refused to pay. Wichelhaus argued that the cotton was to be delivered by a different ship also called Peerless, which was to depart Bombay in October.

Procedural History: Raffles sued for breach of contract. Demurrer and joinder therein?

Procedural Question: Same as substance.

Substantive Question: Does the goods arriving on a different ship called Peerless constitute a breach of contract?

Holding: To constitute a breach of contract under these circumstances, the defendant would have to have specifically indicate that the goods must be on a specific vessel under the name.

Reasoning: It doesn't matter by what ship the cotton was to arrive, as long as it was a ship called peerless. The name of the ship in the contract was only to specify that if the ship was lost in transit, that the contract would be at an end.

Decision: There is no breach of contract.

Notes: Use this analysis for the exam

If parties attach same meaning, that meaning controls? If one of the parties knows or should know other parties meaning, the latter's meaning

should control? A common definition, or generally prevailing meaning? If no to all three questions, then no contract

Frigaliment Importing Co. v. B.N.S. International Sales Corp.

United States District Court, Southern District of New York190 F. Supp. 116 (1960)

Parties and Roles: Frigaliment Importing Co. (Frigaliment) (plaintiff) offered to purchase a total of 100,000 pounds of chicken from B.N.S. Intern. Sales Corp. (BNS) (defendant).

Material and Dispositive Facts: Frigaliment Importing Co. (Frigaliment) (plaintiff) offered to purchase a total of 100,000 pounds of chicken from B.N.S. Intern. Sales Corp. (BNS) (defendant). In the agreement, Frigaliment specifically requested 75,000 pounds of heavier chickens, and 25,000 pounds of lighter chickens, as lighter chickens are more expensive. Unbeknownst to BNS, Frigaliment intended for these weight distinctions to communicate its desire to purchase only young chickens suitable for broiling and frying. BNS interpreted Frigaliment’s order for “chicken” as encompassing a general desire to purchase 100,000 pounds’ worth of unspecified types of chicken. BNS, an American company, completed Frigaliment’s order by shipping primarily stewing chicken, or “fowl” to Frigaliment’s home country of Sweden. This type of chicken was unacceptable to Frigaliment.

Procedural History: Frigaliment brought suit against BNS.

Procedural Question: Same as substance.

Substantive Question: What is chicken?

Is the trade term "chicken" understood to only mean young chicken?

Holding: For the terms of a contract the disputing party has the obligation to specify that chicken is meant in the narrower rather than the broader meaning.

Reasoning: The contract used the FDA regulations by reference, therefore there is force in the defendant's argument that the contract made the regulations a dictionary.

Decision: Complaint dismissed with costs.

Notes: Use this analysis for the exam

If parties attach same meaning, that meaning controls? If one of the parties knows or should know other parties meaning, the latter's meaning

should control? A common definition, or generally prevailing meaning? If no to all three questions, then no contract

Sun Printing & Publishing Association v. Remington Paper & Power Co., Inc.

Court of Appeals of New York139 N.E. 470 (N.Y. 1923)

Parties and Roles: The parties entered into a 16-month contract in which the plaintiff agreed to buy from the defendant 1,000 tons of paper per month at a specific price for the first four months.

Material and Dispositive Facts: The parties entered into a 16-month contract in which the plaintiff agreed to buy from the defendant 1,000 tons of paper per month at a specific price for the first four months. At the conclusion of the four months, the price of the paper and the length of time that price was to apply was to be agreed upon by the parties for the remaining 12 months on the contract. The new price was not to be higher than the price charged by Canadian Export Paper, a third party paper company. Both parties performed their parts of the contract during the first four months, however, no new price or time period for the new price was ever agreed upon. As a result, the defendant did not deliver any more paper.

Procedural History: The plaintiff brought suit, alleging that Canadian Export Paper’s price automatically applied if no agreement was reached.

Procedural Question: Same as substance.

Substantive Question: Was Sun Publishing bound to agree to a price and term and therefore does its refusal to do so amount to a breach of contract?

Holding: When a contract is worded as an "agreement to agree", the parties are free not to agree without being liable for breach of contract

Reasoning: The majority reasoned that the contract was expressly written to allow both price and term to be negotiable, and so the court would have been "revising" the contract if it attempted to "construe" it to a reasonable market price and some fixed term that was not negotiated by the parties.

Decision: Appellate division reversed, and the judgment of the Special Term affirmed.

Notes: What is the argument that the court can impose one of the four suggestions in the dissent without imposing a contract that the parties don't want?

New York Central Iron Works Co. v. United States Radiator Co.

Court of Appeals of New York66 N.E. 967 (1903)

Parties and Roles: United States Radiator Co. (Radiator) (defendant) entered into a supply contract whereby it agreed to supply New York Central Iron Works Co. (Iron Works) (plaintiff) with all of its radiator needs for the year for a specified price.

Material and Dispositive Facts: United States Radiator Co. (Radiator) (defendant) entered into a supply contract whereby it agreed to supply New York Central Iron Works Co. (Iron Works) (plaintiff) with all of its radiator needs for the year for a specified price. Radiator supplied the radiator needs for the year until it had delivered 48,000 feet of radiation. This was the most Iron Works had required in the past, but Iron Works continued to send in orders. Radiator refused to fill the additional orders, which would have put the yearly total at over 100,000 feet of radiation.

Procedural History: Iron Works filed suit for damages for breach of the contract. The trial court found for Iron Works. Radiator appealed to the Court of Appeals of New York.

Procedural Question: Same as substance.

Substantive Question: Was there is mistake in framing the contract?

Is there an implicit limit to amounts of goods requested by a party under a contract?

Holding: Parties are held to a standard of reasonableness in contracts of this sort. It is a breach of contract for a party to not act in good faith, or to use the contract for purposes outside the contemplation of the parties, such as for speculative purposes.

Reasoning: The reasonableness argument was not made by the defendant so the trial court judgment for damages is affirmed.

Decision: Judgment affirmed.

Eastern Air Lines, Inc. v. Gulf Oil Corp.

United States District Court for the Southern District of Florida415 F.Sup 429 (1975)

Parties and Roles: : Gulf Oil Corp. (Gulf) (defendant) executed a contract with Eastern Airlines (Eastern) (plaintiff) under which it was to provide jet fuel to Eastern.

Material and Dispositive Facts: Gulf Oil Corp. (Gulf) (defendant) executed a contract with Eastern Airlines (Eastern) (plaintiff) under which it was to provide jet fuel to Eastern. Gulf drafted the contract and provided that payment be calculated according to a price escalation provision tied to postings in Platt’s Oilgram Crude Oil Supplement.

Procedural History: Eastern filed a complaint alleging that Gulf had breached its contract, and requesting preliminary and permanent injunctions requiring Gulf to perform the contract.

Procedural Question: Same as substance.

Substantive Question: Does ambiguity in the contract render Gulf subject to Eastern's whims regarding the volume of jet fuel that Gulf would be required to deliver to Eastern?

Holding: Requirements contracts can be binding since indefiniteness can be resolved by courts as to the volume of goods that is reasonable to operate a specified business.

Reasoning: Same as holding.

Decision: The document is a binding and enforceable requirements contract.

Notes: Gulf argues there is no mutuality of obligation.

Carnival Cruise Lines v. Shute

United States Supreme Court, 499 U.S. 585 (1991)

Parties and Roles: Eulala and Russel Shute (plaintiffs) purchased tickets through a travel agent in Washington state for a cruise operated by Carnival Cruise Lines, Inc. (Carnival) (defendant).

Material and Dispositive Facts: Eulala and Russel Shute (plaintiffs) purchased tickets through a travel agent in Washington state for a cruise operated by Carnival Cruise Lines, Inc. (Carnival) (defendant). Only after purchasing their tickets from the travel agent did the Shutes receive paper tickets containing a form contract with a forum selection clause requiring all disputes to be brought in Florida. The form contract was comparable to form ticket contracts used by other cruise lines. The face of the ticket warned that passage was subject to acceptance of the terms of the ticket contract and the Shutes admitted having been made aware of the forum selection clause. The ticket contract also contained a provision that no refunds were available for the tickets once purchased. While on the cruise in international waters, Mrs. Shute fell during a tour of the ship

Procedural History: The Shutes sued Carnival for damages in District Court in Washington. Carnival moved to dismiss citing the forum selection clause, and asserted a lack of personal jurisdiction in Washington. The District Court granted the motion finding insufficient contacts for personal jurisdiction in Washington. The Court of Appeals reversed, finding sufficient contacts with the state of Washington and refused to enforce the forum selection clause. Carnival appealed.

Procedural Question: Same as substance.

Substantive Question: Are forums clauses of this sort, which are not subject to negotiation, enforceable?

Holding: Forums contracts are not unenforceable simply because they are not the product of negotiation.

Reasoning: The Court reasons that there would have been assent by the Shutes even if they'd known the terms of the contract before purchase. There are several reasons why a cruise line would limit jurisdiction in a forums clause, such as carrying passengers from many locales, and the benefits of costs to the consumer by limiting the potential legal costs to the cruise line.

Decision: Court of appeals is reversed.

Notes: The dissent notes that the refund policy would be unenforceable if the Shute's did not assent to the ticket disclaimer.

Caspi v. Microsoft Network

Superior Court of New Jersey, Appellate Division

323 N.J. Super. 118, 732 A.2d 528 (1999)

 Parties and Roles: The plaintiffs complained that the defendants were guilty of breach of contract, common law fraud, and consumer fraud because they had “rolled over” MSN membership into more expensive plans.

Material and Dispositive Facts: The plaintiffs complained that the defendants were guilty of breach of contract, common law fraud, and consumer fraud because they had “rolled over” MSN membership into more expensive plans. The defendants moved to dismiss the complaint based upon a forum selection clause that each user must have clicked upon entering into the MSN subscription. The user was forced to click “I Agree” button to terms stating that “This agreement is governed by the laws of the State of Washington…and you consent to the exclusive jurisdiction and venue of courts in King County…”

Procedural History: Trial court granted defendants’ motion to dismiss the complaint on the ground that the forum selection clause in the contract called for claims to be litigated elsewhere. Plaintiff appeals.

Procedural Question: Same as substance.

Substantive Question: Whether a forum clause which requires a computer user to click “I Agree” to certain terms constitutes a contract.

Holding: When agreeing to a forum selection clause it must contain adequate clarity and the meaning must be plain.

Reasoning: The plaintiffs in this case were free to scroll through the various computer screens that presented the terms of their contracts before clicking their agreement.

Decision: Affirmed.

Step-Saver Data Systems, Inc. v. Wyse Technology

United States Court of Appeals for the Third Circuit939 F.2d 91 (1991)

Parties and Roles: : Between August 1986 and March 1987, Step-Saver Data Systems, Inc. (Step-Saver) (plaintiff) purchased software from The Software Link, Inc. (TSL) (defendant).

Material and Dispositive Facts: Between August 1986 and March 1987, Step-Saver Data Systems, Inc. (Step-Saver) (plaintiff) purchased software from The Software Link, Inc. (TSL) (defendant) for incorporation into a system Step-Saver sold to law and medical offices. (Wyse Technology, a co-defendant, was successful at the trial court and on appeal.) While the documents exchanged during the order process had identical terms, a licensing agreement printed on the top of each software box (box-top license) contained a disclaimer of warranties and stated that opening the box constituted acceptance of the licensing agreement terms. In March 1987, Step-Saver stopped selling its system due to problems with TSL’s software

Procedural History: Step-Saver sued TSL for breach of warranties and indemnification. TSL argued that the disclaimer of warranties in the box-top license was binding, and Step-Saver argued that the box-top license materially altered the parties’ agreement. The district court found that the licensing agreement governed the relationship between the parties and granted TSL’s motion for directed verdict. Step-Saver appealed.

Substantive/Procedural Question: If one party to an agreement unilaterally incorporates materially different additional terms into the parties’ agreement over several transactions, does this bind the other party to those terms?

Holding: Under the Uniform Commercial Code, additional terms that materially alter an agreement must be assented to by both parties to in order to be binding, and a unilateral course of conduct is not sufficient to establish both parties’ assent to the additional terms.

Reasoning: No. Under the Uniform Commercial Code (UCC), additional terms to the parties’ agreement that materially alter the agreement are not incorporated without proof that both parties assented to those additional terms. If acceptance of the contract was made conditional on the other party’s acceptance of the additional terms, then acceptance is ineffective without such acceptance and no contract is formed. However, if acceptance is not conditional, then the contract is formed and the additional terms are treated as proposals for incorporation into the parties’ agreement, unless the additional terms materially alter the agreement. A conditional acceptance must be clearly and expressly stated. Here, TSL did not expressly require acceptance of the additional terms of the box top license in order to proceed with the transactions. Since there was no conditional acceptance, and the addition of the disclaimer of warranty materially altered the parties’ agreement, the materially different terms in the box top license had to be assented to by Step-Saver. Since Step-Saver has not expressly assented to the box top license, TSL points to the series of transactions between the parties as a course of conduct indicating assent to the additional terms. Although course of conduct can demonstrate parties’ assent to an agreement, TSL’s repeated inclusion of the box top license in the parties’ transactions was unilateral conduct insufficient to establish mutual assent to the additional terms in the box top license.

Notes: Offer to amend

Decision: The district court should not have found that the box top license governed the parties’ relationship and the matter is reversed and remanded for further proceedings

Union Carbide Corp. v. Oscar Mayer Foods Corp.

United States Court of Appeals, Seventh Circuit947 F.2d 1333 (1991)

Parties and Roles: Union Carbide Corp. (Union) (plaintiff) entered into a contract to sell Oscar Mayer Foods Corp. (Oscar Mayer) (defendant) sausage casings.

Material and Dispositive Facts: Union Carbide Corp. (Union) (plaintiff) entered into a contract to sell Oscar Mayer Foods Corp. (Oscar Mayer) (defendant) sausage casings. The parties performed under the contract when Oscar Mayer would send in purchase orders and Union would send the casings to Oscar Mayer containing an invoice. The invoices provided an indemnity clause, stating that the buyer would pay the seller all government taxes the seller “may be required to pay.” The price for the casings under the contract included two one-percent sales taxes. A competitor began undercutting Union’s price, claiming that based upon its location its customers only had to pay one of the one-percent sales taxes. Union changed locations and then claimed that its customers, including Oscar Mayer, did not have to pay either of the one-percent sales taxes. Eight years later, the state tax authorities assessed Union $88,000 in back taxes on the sales to Oscar Mayer, and charged $55,000 in interest thereon.

Procedural History: Union paid the tax authorities then filed suit against Oscar Mayer for indemnity on the tax liability. The trial court granted summary judgment to Oscar Mayer. Union appealed to the United States Court of Appeals for the Seventh Circuit.

Substantive/Procedural Issue: Can a party to a contract between two merchants be required to honor terms that were not contained in the offer, but added with the acceptance of the offer, when those terms would materially alter the contract?

Holding: Terms added to the contract through an acceptance that materially alters the contract will not become part of the contract if those terms would cause unreasonable surprise, unless consent to the terms can be inferred.

Reasoning: No. Under the Uniform Commercial Code (UCC 2-207), an enforceable contract exists even though the acceptance of an offer adds terms to the offer. If the contract is between two merchants, the additional terms will become part of the contract if the offeror would be unlikely to object to them because they do not constitute material alterations to the contract. However, if the additional terms would be a material alteration, the contract is still enforceable, but the additional terms are not. A material alteration is one for which consent cannot be presumed. In other words, a material alteration cannot be enforced if it would result in “unreasonable surprise.” An unreasonable surprise will result in hardship. Even if an unreasonable alteration results in unreasonable surprise, it can be enforced if consent to the alteration can be inferred. Consent will be inferred from silence or a failure to object to the alteration. A party cannot claim unreasonable surprise when the alteration is present in a succession of invoices.  The party seeking enforcement of the material alteration has the burden to prove that it was reasonable to infer consent from the other party’s silence or failure to object. If an offeror wishes to protect against material alterations found in an acceptance it can restrict acceptance strictly to the terms of the offer. In the current matter, the purchase order is Oscar Mayer’s offer and the invoices are Union’s acceptance. Therefore, the indemnity clause, contained in the invoice, becomes part of the contract only if it does not constitute a material alteration. It is true that Oscar Mayer paid all sales taxes ever shown on Union’s invoices.

However, despite Union’s arguments to the contrary, the back taxes are different than a mere increase in sales taxes that would appear on the invoice and would have presumably been paid given past experience. With increased sales tax, Oscar Mayer could simply choose to move to a different supplier for the next order. This is different than assuming responsibility for an open-ended and incalculable tax liability.

Decision: Accordingly, the indemnity clause materially altered the contract and consent to this term cannot be inferred. The contract was not breached and the summary judgment for Oscar Mayer is affirmed.

ProCD, Inc. v. Zeidenberg

United States Court of Appeals, Seventh Circuit86 F.3d 1447 (1996)

Parties and Roles: ProCD (plaintiff) sells a software product known as its SelectPhone database. Matthew Zeidenberg (defendant) purchased SelectPhone and ignored the license agreement. He started his own company to sell the information contained in SelectPhone to commercial users at a cheaper price than that charged by ProCD.

Material and Dispositive Facts: ProCD (plaintiff) sells a software product known as its SelectPhone database. The product consists of a detailed address directory and is sold to both commercial and non-commercial users. To make more profit, ProCD engages in price discrimination by charging a higher price for commercial users. It enforces its price discrimination scheme by including a license within the software package that limits use of SelectPhone to non-commercial purposes. The license terms are printed in the manual located inside the SelectPhone software packaging, and also pop up on the computer screen whenever the product is run. Matthew Zeidenberg (defendant) purchased SelectPhone and ignored the license agreement. He started his own company to sell the information contained in SelectPhone to commercial users at a cheaper price than that charged by ProCD.

Procedural History: ProCD brought suit against Zeidenberg in federal district court for breach of contract. The district court held that the license agreement was not enforceable on the ground that it was inside the box rather than printed on the outside. ProCD appealed.

Substantive/Procedural Issue: Whether a “shrinkwrap license” provided within a package and not printed on the outside constitutes an enforceable contract.

Holding: Shrinkwrap licenses included within a product’s packaging are enforceable unless their terms are objectionable on grounds applicable to contracts in general, such as violating a positive rule of law or being unconscionable.

Reasoning: Yes. The license included by ProCD in its software packaging constitutes an enforceable contract, the terms of which were violated by Zeidenberg. Shrinkwrap licenses included within a product’s packaging are enforceable unless their terms are objectionable on grounds applicable to contracts in general, such as violating a positive rule of law or being unconscionable. Shrinkwrap licenses have long been held enforceable when printed on the outside of product packaging, and there is nothing in the Uniform Commercial Code (UCC) which prevents this rule from extending to a license just because it is included inside the packaging. Under UCC Section 2-204(1), “a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” Based on this, a vendor may invite acceptance by its conduct, and may state limitations on the type of conduct which will constitute acceptance. In this situation, a buyer may accept by performing whatever acts the vendor states will be treated as acceptance. ProCD, a vendor, invited acceptance through its conduct of placing its software products for sale. Additionally, ProCD limited the types of conduct that would constitute acceptance in the license placed within the software packaging. Under this license, ProCD proposed that buyers could accept its contract by using the software after having read the license agreement either on their computer screens or in the manual. Zeidenberg read the license agreement on his screen, and continued to use the software. He thus accepted ProCD’s offer, and a binding contract was

formed. ProCD is entitled to recover damages for Zeidenberg’s breach of this agreement by using the software for commercial purposes, a type of conduct prohibited in the license agreement.

Decision: The decision of the district court is reversed and remanded.

Hill v. Gateway 2000, Inc.

United States Court of Appeals for the Seventh Circuit105 F.3d 1147 (1997)

Parties and Roles: Rich and Enza Hill (plaintiffs) ordered a computer from Gateway 2000, Inc. (Gateway) (defendant) by phone.

Material and Dispositive Facts: Rich and Enza Hill (plaintiffs) ordered a computer from Gateway 2000, Inc. (Gateway) (defendant) by phone. Gateway shipped the computer and included in the box a written agreement which the Hills could reject by returning the computer in 30 days. The agreement also contained an arbitration clause. The Hills kept the computer for more than 30 days without returning it, and later filed suit in federal court alleging RICO violations against Gateway on behalf of themselves and a class of purchasers. Gateway sought to compel arbitration and the district court denied Gateway’s request.

Procedural History: The district court found no valid arbitration agreement between the parties and found that the Hills did not have adequate notice of the arbitration clause. Gateway appealed the district court’s denial of the request to compel arbitration.

Substantive/Procedural Issue: Can a purchaser be bound under the Uniform Commercial Code to an agreement that is included in the product packaging and provides the purchaser time to review the agreement and reject it by returning the product?

Holding: Under the Uniform Commercial Code, a purchaser may be bound to terms included in product packaging if the purchaser has an opportunity to review the agreement and reject it by returning the product.

Reasoning: Yes. A consumer may be bound by terms of an agreement included with a product once the consumer has had an opportunity to open the package, review the terms and reject the terms by returning the product. In ProCD Inc.v. Zeidenberg (1996), this court found that a purchaser of a software program was bound by the agreement included in the software because by using the software, the purchaser had an opportunity to review the terms of the agreement and to reject the terms by returning the product. ProCD applied the Uniform Commercial Code (U.C.C.), which also governs this case, so ProCD applies to this case. Here, the Hills kept the computer for more than 30 days, even though the agreement included in the package stated that they had 30 days to return the computer if they did not agree with the terms of the enclosed agreement. Like the defendant in ProCD, the Hills had an opportunity to review the terms of the agreement and their acceptance of those terms was effective when they failed to return the computer within 30 days. The Hills’ arguments to the contrary fail to produce a different result than ProCD. First, the Hills argue that ProCD should only apply to sales of software programs; however, the practical considerations against requiring cashiers to read contract terms over the phone when customers place an order are not limited to software. Moreover, since the Gateway computer shipped with software that was critical to its operation, this case cannot be factually distinguished from ProCD on this basis. Second, the Hills argue for limiting application of ProCD to executory contracts. However, the holding in ProCD pertains to formation of the contract, not its performance. Since important performance remains incomplete, including Gateway’s promise of lifetime support, there is no factual distinction between ProCD and the instant case. Both involve executory contracts. Third, the Hills argue that ProCD is distinguishable because the customer in ProCD was a merchant and they are not. However,

ProCD did not have to make this distinction because there was only one form involved, and consequently, the U.C.C. provisions governing conflicting documents in a “battle of the forms” did not apply. Therefore, the result in ProCD applies to merchants and consumers alike. Lastly, there was no need for Gateway to include a notice on its shipping package that additional terms were contained within. The Hills ordered the computer by phone rather than buying it from a store. Thus the packaging served a different purpose. Moreover, the Hills had other means to obtain the terms, such as asking for the terms in advance, or researching the information online. Because the Hills kept the computer for 30 days without returning it, they accepted Gateway’s offer and are bound by the agreement, including the arbitration provision.

Decision: The district court is reversed. 

Klocek v. Gateway

United States District Court, District of Kansas104 F. Supp. 2d 1332 (2000)

Parties and Roles: Klocek (plaintiff) ordered a computer from Gateway (defendant).

Material and Dispositive Facts: Klocek (plaintiff) ordered a computer from Gateway (defendant). Gateway included its Standard Terms in every shipment of a new computer. At the top of the first page of those terms Gateway informed the purchaser that keeping the computer beyond five days constituted acceptance of the terms and conditions. Included in the Standard Terms was an arbitration clause.

Procedural History:

Substantive/Procedural Issue: Is the purchaser of a good required to comply with terms that are added to the agreement through a form memorializing the agreement, where the form states that failure to return the goods constitutes acceptance?

Holding: Additional or different terms provided in the acceptance do not become terms of the contract unless acceptance is made expressly conditional upon acceptance of the additional terms or the non-merchant offeror expressly agrees to the additional terms.

Reasoning: No. Arbitration clauses are favored, but an arbitration clause must be valid in order for it to be enforced. Section 2-207 of the Uniform Commercial Code (UCC) is often said to apply when there is a “battle of the forms,” but will also apply to cases involving only one form. The official comment thereto states that this section will apply where an oral agreement is reached and one or both of the parties sends a form memorializing the agreement and adds additional or different terms. The buyer is typically the offeror in a sales transaction. An acceptance will be deemed a counter-offer only when the acceptance is made conditional upon the offeror’s consent to the additional or different terms. When the offeror is not a merchant, section 2-207 provides that additional terms in the acceptance do not become part of the agreement unless the offeror expressly agrees to them. In the current matter, section 2-207 applies even though Standard Terms included in the package was the only form involved in the transaction. The Standard Terms constitute Gateway’s acceptance of the offer. It is not a counter-offer because Gateway’s acceptance was not made conditional upon Klocek’s consent to the additional terms. Moreover, the additional terms in the Standard Terms are not enforceable because Klocek did not expressly agree to them. Klocek’s keeping the computer beyond five days was not sufficient to constitute express agreement to the additional terms.

Decision: Accordingly, Gateway’s motion to dismiss is overruled.

Thompson v. Libby

34 Minn. 374, 26 N.W. 1 (1885).

Parties and Roles: Defendant Libby entered into a written contract to purchase logs from Plaintiff Thompson. Defendant claims that Plaintiff breached an oral warranty as to the quality of the logs.

Material and Dispositive Facts: Plaintiff entered into a contract with Defendant to sell Defendant logs. The parties put the contract in writing. Defendant alleges that Plaintiff made an oral warranty as to the quality of the logs.

Procedural History: Trial court admitted the defendant’s parol evidence and found for the defendant. Refused new trial.

Substantive/Procedural Issue: Is the evidence of the oral warranty barred by the parol evidence rule?

Holding: The parol evidence rule prevents extrinsic evidence from being used to contradict or vary the terms of a written contract that is intended as the full expression of the parties’ agreement.

Reasoning: Yes. Evidence of the warranty is inadmissible under the parol evidence rule.The parol evidence rule prevents the use of extrinsic evidence to speak where the writing is silent or vary where the writing speaks. The parol evidence rule applies when the written document is a complete integration. A complete integration is a written document intended to be the full expression of the agreement between the parties.The Court determined that the written contract for the sale of the logs was a complete integration. Because the oral warranty would add or vary terms in the written contract, evidence of the warranty is inadmissible under the parol evidence rule.

Decision: Trial court erred in admitting parol evidence, new trial granted.

Notes: Four Corners Rule.

Brown v. Oliver

Kansas Supreme Court256 P. 1008 (1927)

Parties and Roles: Brown (plaintiff) purchased land from Oliver (defendant).

Material and Dispositive Facts: Brown (plaintiff) purchased land from Oliver (defendant). On part of this land stood a hotel, which was being leased and operated by a third person. The parties had a written contract drafted by a scrivener, but it made no mention of the personal property contained in the hotel. After entering into the agreement, Oliver had the lease assigned to him and took possession of the hotel. Brown told Oliver to leave and Oliver did, but took the personal property with him in the middle of the night.

Procedural History: Brown filed a suit in replevin, requesting possession of the personal property. The trial court held in Brown’s favor. Oliver appeals.

Substantive/Procedural Issue: Can an agreement in a transaction that is not included in the written document for the transaction be determined by parol evidence when the parties did not intend for it to be included in the written document?

Holding: Parol evidence may be considered to determine an agreement that is part of a transaction, but was not intended to be included in the written document memorializing the transaction.

Reasoning: Yes. When a contract is only partially integrated the issue becomes whether the parties intended for the disputed subject of negotiation to be covered by the written document. The question depends entirely upon the parties’ intent. If the parties intended the disputed subject to be part of the written document, then parol evidence may not be considered for determining the parties’ agreement on the disputed subject. If the parties did not so intend, then parol evidence may be considered when determining the parties’ agreement on the disputed subject. Intent is determined by reviewing the written document, the conduct and language of the parties, and the circumstances surrounding the written document. Searching outside of the written document, rather than being confined within the “four corners,” is permitted. The most important factor for determining intent is whether or not the disputed subject appears in the written document. If it does in any way, it is presumed that the agreement covers all details of the disputed subject and parol evidence may not be considered. If it does not, it is presumed the written document was not intended to cover that part of the agreement and parol evidence may be considered. In the current matter, parol evidence may be considered in determining what the parties agreed upon with regard to the personal property. The scrivener did not recall hearing from either party anything regarding the personal property. Brown testified that this subject matter was not raised with the scrivener because it had already been agreed upon. Based upon this and other evidence, the trial court was correct in deeming the writing complete. The parties did not intend the written document to encompass the subject of the personal property and thus allowing the jury to consider parol evidence to determine the parties’ agreement regarding the personal property was sound.

Decision: Accordingly, the decision of the trial court is affirmed.

Notes: Court rejects the Four Corners Rule and adopts Extrinsic Evidence Test

Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.

Supreme Court of California442 P.2d 641 (1968)

Parties and Roles: In 1960, G.W. Thomas Drayage & Rigging Co. (Thomas) (defendant) entered into a contract with Pacific Gas & Electric Co. (PG&E) to provide labor and equipment necessary to remove and replace the upper cover for PG&E’s steam turbine.

Material and Dispositive Facts: In 1960, G.W. Thomas Drayage & Rigging Co. (Thomas) (defendant) entered into a contract with Pacific Gas & Electric Co. (PG&E) to provide labor and equipment necessary to remove and replace the upper cover for PG&E’s steam turbine. Thomas agreed to perform the work at its own risk and expense and to indemnify PG&E for any “loss, damage, expense and liability resulting from injury to property” or any other act associated with performance of the contract. During performance, the cover fell and damaged part of the exposed rotor of PG&E’s turbine. PG&E brought suit to recover $25,144.51 in damages. The trial court awarded judgment for PG&E on the ground that Thomas’ indemnity provision protected PG&E from damage to its own property. The trial court concluded that the “plain meaning” of the indemnity provision in Thomas’ contract was to permit indemnification of damage to PG&E’s property in addition to the property of third parties.

Procedural History: The trial court admitted no extrinsic evidence on this issue. Thomas appealed, arguing that that extrinsic evidence should be admissible to show that the “plain meaning” of the indemnity clause was that it should only apply to damage of the property of third parties, not PG&E.

Substantive/Procedural Issue: Whether extrinsic evidence is admissible to prove the meaning of contractual terms when the intent of the parties to the contract is ambiguous.

Holding: If a preliminary consideration of all credible evidence offered to prove the intent of the parties still leaves contractual terms fairly susceptible to at least two rational interpretations, extrinsic evidence relevant to prove either of these meanings is admissible.

Reasoning: Yes. The trial court erred in refusing to admit extrinsic evidence on the issue of the plain meaning of Thomas’ indemnity provision. If a preliminary consideration of all credible evidence offered to prove the intent of the parties still leaves contractual terms fairly susceptible to at least two rational interpretations, extrinsic evidence relevant to prove either of these meanings is admissible. The meaning of words used in a contract varies immensely based on the verbal context and surrounding circumstances associated with contract formation, as well as the linguistic education and experience of their users and readers. This includes the linguistic education and experience of judges. However, judges act improperly when they refuse to consider extrinsic evidence relevant to show the intent of the parties in drafting contract language, as no contractual rights or obligations are formed minus the intent of the parties. Thus, instead of relying on its own interpretation of the “plain meaning” of Thomas’ indemnity clause, the trial court should have examined the contract language itself and any credible extrinsic evidence relevant to ascertaining the intent of the parties surrounding that language.

Decision: The decision of the trial court is reversed.

Notes: Plain Meaning Rule

Trident Center v. Connecticut General Life Ins. Co.

United States Court of Appeals for the Ninth Circuit847 F.2d 564 (1988)

Parties and Roles: Trident Center (Trident) (plaintiff), a partnership of two law firms and an insurance company, obtained financing from Connecticut General Life Insurance Company (CGLI Co.) (defendant) for construction of an office building complex.

Material and Dispositive Facts: Trident Center (Trident) (plaintiff), a partnership of two law firms and an insurance company, obtained financing from Connecticut General Life Insurance Company (CGLI Co.) (defendant) for construction of an office building complex. The promissory note set the interest rate at 12¼ percent for 15 years, and provided that Trident could not prepay in the first 12 years of the note. The note also provided that, in the event of a default during the first 12 years, CGLI Co. could accelerate payment of the full amount due and charge a 10 percent prepayment fee. When interest rates dropped a few years later, Trident sought to refinance the loan to obtain a better interest rate, but CGLI Co. insisted that the loan could not be prepaid until after the first 12 years of the note. Trident brought an action against CGLI Co. seeking a declaration that it could prepay the loan before the first 12 years of the note had concluded. Trident claimed that the contract terms were ambiguous, and that the parties had agreed that Trident could prepay at any time.

Procedural History: CGLI Co. moved to dismiss the complaint on the ground that the contract clearly and unambiguously prevented Trident from prepaying the note in the first 12 years. The district court granted the motion to dismiss and sanctioned Trident for bringing a frivolous lawsuit. Trident appealed both rulings.

Substantive/Procedural Issue: Under California law, must extrinsic evidence be admitted to interpret the terms of an agreement whose terms are clear and unambiguous?

Holding: Under California law, a contract must be interpreted in light of any relevant evidence of the parties’ intent, including evidence extrinsic to the written agreement itself, even if the agreement is clear and unambiguous on its face (Pacific Gas Decision).

Reasoning: Yes. The California Supreme Court case Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641 (1968) established that any relevant extrinsic evidence pertaining to the intent of the parties must be admitted. Although traditional contract principles do not permit admission of extrinsic evidence to interpret the terms of a clear and unambiguous contract, Pacific Gas established a different rule in California by holding that it is not possible to determine contractual intentions merely from the words of the contract itself, and therefore any relevant evidence regarding the parties’ intent must be admitted. As long as a party claims that there was a different understanding as to the terms of the contract, the court must consider extrinsic evidence to determine the intent of the parties. Here, Trident seeks to offer extrinsic evidence, despite the clear and unambiguous terms of the contract regarding prepayment of the note, showing that the parties had actually agreed to allow prepayment of the note at any time. While the court finds that this rule creates substantial uncertainty in the interpretation of contracts in California, it is bound by the precedent in Pacific Gas.

Decision: Accordingly, Trident should have been permitted to offer the extrinsic evidence. The order of the district court is reversed and remanded.

Travelers Insurance Co. v. Bailey

Supreme Court of Vermont197 A.2d 813 (1964)

Parties and Roles: Bailey (defendant) submitted an application to an agent of Travelers Insurance Co. (Travelers) (plaintiff) for a life insurance policy.

Material and Dispositive Facts: Bailey (defendant) submitted an application to an agent of Travelers Insurance Co. (Travelers) (plaintiff) for a life insurance policy. The application requested a plan insuring the Bailey’s life for $5000, with a $500 per year annuity beginning at age 65 and continuing for at least ten years for the balance of his life. Travelers, however, inserted incorrect information into the policy form, yielding a policy with an annuity payment of $500 per month for life for at least one hundred months.

Procedural History: Travelers brought suit to reform the insurance contract to the terms requested by Bailey. The trial court ruled for Travelers and Bailey appealed.

Substantive/Procedural Issue: Whether an insurer is entitled to reformation of a policy mistakenly issued that is not what the insured requested.

Holding: Where there has been established beyond a reasonable doubt a specific contractual agreement between parties, and a subsequent erroneous rendition of the terms of the agreement, the party penalized by the error is entitled to reformation, if there has been no prejudicial change of position by the other party while ignorant of the mistake.

Reasoning: Yes. A party seeking reformation has the duty of establishing, beyond a reasonable doubt, the true agreement to which the contract in question is to be reformed. In similar cases of mistakenly issued insurance policies, courts justify reformation on mutuality of mistake or because the policyholder knew or ought to have known that there was a variation between the policy requested and the policy received. Where there has been established beyond a reasonable doubt a specific contractual agreement between parties, and a subsequent erroneous rendition of the terms of the agreement, the party penalized by the error is entitled to reformation, if there has been no prejudicial change of position by the other party while ignorant of the mistake. Here, there is no reliance by Bailey on the policy, as the premiums he paid would actually have been higher for the policy that was issued. Furthermore, the mere passage of time between issuance and learning of the error does not constitute reliance.

Decision: The reformation was properly granted and the judgment of the lower court is affirmed.

Boone v. Coe

Court of Appeals of Kentucky154 S.W. 900 (Ky. App. 1913)

Parties and Roles: J.F. Coe (Coe) (defendant) entered into a verbal contract with W.H. Boone and J.T. Coe (Boone) (plaintiffs).

Material and Dispositive Facts: J.F. Coe (Coe) (defendant) entered into a verbal contract with W.H. Boone and J.T. Coe (Boone) (plaintiffs). Under the contract, Coe would lease his farm to Boone for a period of one year, starting whenever they arrived at the farm. Coe said that he would have a house ready for Boone to live in and would furnish supplies for them to build a barn. In exchange, Boone was to cultivate certain portions of the farm for the year. When Boone arrived at the farm, the house was not ready to be inhabited and supplies for the barn were not there.

Procedural History: Boone brought suit, seeking damages for the cost and time it took to travel from their former home in Kentucky to the farm in Texas, as well as the cost of giving up their home and business in Kentucky. The trial court found in favor of Coe because the oral agreement fell within the statute of frauds and was unenforceable. Boone appealed.

Substantive/Procedural Issue: Can damages be recovered for breach of a contract within the statute of frauds if the breaching party does not benefit from the breach?

Holding: Damages cannot be recovered for breach of a contract within the statute of frauds if no benefit is conferred on the breaching party.

Reasoning: No. Under the statute of frauds, certain contracts, including those for the lease of land for more than one year and those not to be performed within one year must be in writing to be enforceable. Verbal leases of land for one year have been determined to fall within the statute. However, when a contract within the statute of frauds is breached, damages cannot be recovered by the aggrieved party if no benefit is conferred on the breaching party. In this case, the lease contract was not in writing and could be performed after one year because there was no limit on when Boone could arrive at the farm. Therefore, the contract falls within the statute of frauds. Even though Coe breached the contract, he was conferred no benefit and so Boone is entitled to no damages.

Decision: The trial court is affirmed.

Riley v. Capital Airlines, Inc.

United States District Court, Southern District of Alabama185 F. Supp. 165 (1960)

Parties and Roles: Riley (plaintiff) agreed by oral contract to supply water methanol to Capital Airlines, Inc. (Capital) (defendant) for five years, with an option to renew.

Material and Dispositive Facts: Riley (plaintiff) agreed by oral contract to supply water methanol to Capital Airlines, Inc. (Capital) (defendant) for five years, with an option to renew. Riley purchased equipment in order to fulfill the contract according to Capital’s specifications. Capital denied that it entered into the contract, but that if it did, the contract was barred by the Alabama’s statute of frauds. 

Procedural History: Riley filed suit for breach of contract.

Substantive/Procedural Issue: Is a contract that has not been reduced to writing enforceable when the contract, by its terms, cannot be performed within one year?

Holding: The statute of frauds will void a contract that has not been reduced to writing if it cannot, by its terms, be performed within one year.

Reasoning: No.  Alabama’s statute of frauds requires, in pertinent part, for all agreements to be in writing that, by their terms, will not be performed in one year from the time that it is made. An Alabama statute does remove a contract from under the statute of frauds when the seller specially manufactures the goods at issue for the buyer and those goods are not suitable to be sold to others in the normal course of the seller’s business. However, those goods must be entirely manufactured and the delivery date must be scheduled for one year after the date of entering into the contract. Additionally, it is settled law that partial performance will not remove a contract from under the statute of frauds. A party may recover money reasonably expended in anticipation of performance of a contract even though the contract is voided by the statute of frauds. In the current matter, the parties entered into a five-year contract. It must be determined whether this contract falls under the statute of frauds. The contract does not fall under the Alabama statute removing this case from under the statute of frauds. Though the water methanol was specially blended for Capital each time it was ordered, this was not a good manufactured in its entirety for delivery to be made five years after the contract is made. For each time the water methanol was ordered, there was a separate contract because each order was delivered, invoiced, and paid for separately. For those future orders that have not been invoiced and are thus executory, they do fall under the statute of frauds. Partial performance of the contract will not remove it from under the statute frauds. Therefore, Riley cannot recover damages for breach of contract. Riley cannot recover for the executory portions of the contract because they are void under the statute of frauds. Also, because the orders already completed have been paid for, Riley is not entitled to recover on those orders. To the extent that Riley purchased equipment in good faith in order to fulfill the contract to Capital’s specifications, he is entitled to recover for the loss in equipment. Capital did not prove that the expenses were incurred unreasonably.

Decision: Judgment is entered for Riley and costs are taxed to Capital.

Schwedes v. Romain

Montana Supreme Court587 P.2d 388 (1978)

Parties and Roles: Romain and Mudgett (defendants) sent a letter to the Schwedes offering to sell a piece of property for a specified price. The Schwedes (plaintiffs) communicated acceptance of the offer to Romain by telephone.

Material and Dispositive Facts: Romain and Mudgett (defendants) sent a letter to the Schwedes offering to sell a piece of property for a specified price. The Schwedes (plaintiffs) communicated acceptance of the offer to Romain by telephone. Romain hired Hoover, an attorney, to close the transaction. Hoover ordered title insurance, prepared the deeds, and scheduled the closing date. At some point, Hoover contacted the Schwedes by telephone to inform them that the closing date would be postponed. During the call, the Schwedes offered to pay the full purchase price, but Hoover told them to wait until the closing. Before the closing could take place, Romain and Mudgett sold the property to a third party.

Procedural History:

Substantive/Procedural Issue: Can a real estate contract be enforced when it has not been reduced to writing and the party seeking enforcement has not partially performed?

Holding: A real estate contract cannot be enforced when it has not been reduced to writing and when the party seeking performance has not partially performed.

Reasoning: No. Four things must be present in a transaction in order for the contract to be enforceable: (1) legally capable parties, (2) their consent, (3) a lawful object, and (4) consideration. Regarding consideration, an oral promise to pay is not sufficient. A real estate contract, specifically, is voided by the statute of frauds unless it is reduced to writing. With any contract, an agent of one of the parties thereto cannot legally bind that party to the contract unless his authority to do so is reduced to writing. Partial performance of a contract may bring it out from under the statute of frauds, but it must be performance of the contract, not merely an act done in contemplation of eventual performance of the contract. Also, a party seeking to enforce the agreement may not rely on partial performance that was completed by others, even any partial performance completed by the other party. Obtaining financing and making studies of the property at issue under the contract have been held to be insufficient partial performance under this rule. Any contract within the purview of the statute of frauds cannot usually be enforced through reliance on promissory estoppel. The one exception is when application of the statute of frauds would operate to perpetuate a fraud. Regarding remedies for breach of contract, specific performance cannot be awarded unless the contract was valid. In the current matter, there is no note or other writing evidencing the real estate contract at issue. Additionally, Hoover’s actions were not sufficient as partial performance to bond Romain and Mudgett to the real estate agreement. Also, the actions taken by the Schwedes and Romain and Mudgett were actions taken in contemplation of performance and therefore are not sufficient partial performance under the contract. Moreover, the Schwedes cannot rely on any actions taken by Romain and Mudgett to evidence partial performance of the contract. Additionally, because this action falls under the purview of the statute of frauds, the Schwedes cannot rely upon the doctrine of promissory

estoppel to enforce the contract. This is not a case in which application of the statute of frauds would perpetuate a fraud. Finally, because the contract in the current matter is invalid, there is no evidence upon which specific performance can be granted.

Decision: The trial court’s grant of summary judgment is affirmed.

In re RealNetworks

United States District Court for the Northern District of Illinois2000 WL 631341 (2000)

Parties and Roles: RealNetworks, Inc. (RealNetwork) (defendant) permitted downloads of free, basic versions of various software products it owned.

Material and Dispositive Facts: RealNetworks, Inc. (RealNetwork) (defendant) permitted downloads of free, basic versions of various software products it owned. Before the products could be downloaded, a user had to accept the terms of the License Agreement, which appeared on the computer screen. The agreement included an arbitration clause. The clause was provided in the same font and size as the rest of the agreement and was the final clause on the screen. This pop-up window did not expire, but would only close when directed by the user. The clause also provided Washington as the forum in which a litigant could file the arbitration action. The clause additionally did not provide for class arbitration and provided that the user must pay costs.

Procedural History: Lieschke, Jackson, and Simon (plaintiffs) filed a lawsuit individually and on behalf of a class against RealNetworks. RealNetworks moved to enforce the arbitration clause under the Federal Arbitration Act (FAA).

Substantive/Procedural Issue: Is an electronic agreement a “writing” that is subject to the terms of the Federal Arbitration Act?

Holding: An electronic agreement is a “writing” and therefore subject to the terms of the Federal Arbitration Act.

Reasoning: Yes. The FAA, enacted in 1925, only applies to written contracts. It does not, however, explicitly apply to electronic agreements. In order to determine whether the FAA intended to apply to electronic agreements, its terms must be given their plain and ordinary meaning. The plain meaning of a word in a statute will be determined by reference to a dictionary that was published when the statue was drafted and enacted. According to the 1913 Webster’s Dictionary, a “writing” includes letters or characters formed on some material for the purpose of recording expressed ideas. Similarly, the definition of “write” at that time included inscription of legible characters on some instrument for the purpose of conveying meaning. Also, a legal dictionary at the time defined the word “written” when used in a statute to include printing and other modes of representing words and letters. Specifically regarding the enforceability of particular contract clauses, they may be deemed procedurally unconscionable and/or substantively unconscionable. Any clause can be procedurally unconscionable if it is “buried” or hard to find in the contract. However, there is no requirement that the drafter specifically draw attention to the clause. Additionally, the clause designating the forum for litigation, selected by a company with a nationwide reach, is not substantively unconscionable simply because it selects a forum that is distant for some possible litigants. Moreover, an arbitration clause is not substantively unconscionable because it does not provide for class arbitration. Finally, an arbitration clause is not substantively unconscionable because one may have difficulty paying arbitration costs. In the current matter, the plain and ordinary meaning of “written” in the FAA includes electronic agreements. Despite the Intervenor’s assertion, the License Agreement is printable and storable. It is not necessary for RealNetworks to provide conspicuous “print” and “save” buttons, when the agreement could be easily copied and pasted into a word-processing program and thereafter printed. Additionally, the agreement is

automatically saved, making a manual “save” function unnecessary. The saved agreement is also not hidden, as the Intervenor claims, but easy to find and labeled conspicuously. Furthermore, Congress is currently discussing changing the definition of “writing” to include “electronic communications.” However, that does not mean that the 1925 Congress did not intend for “electronic communications” to be excluded by the statute when it was first drafted. Those discussions only demonstrate that the 1925 FAA was ambiguous on this issue. With regard to the specific arbitration clause at issue, it is not procedurally unconscionable. Though RealNetworks did not draw special attention to the clause, it was not buried either. It is the same size font and print as the rest of the contract and is the final provision in the contract. The clause is also not unconscionable because it is provided in a pop-up window and cannot be printed; it is not difficult to read; and it does not expire, giving the user as much time as he desires to read it. Additionally, the arbitration clause is not substantively unconscionable. RealNetworks is a nationwide company and the fact that its selected forum is inconvenient for some users does not render the clause unconscionable. Further, the fact that the clause does not provide for class arbitration and that the users must pay arbitration costs cannot render an arbitration clause substantively unconscionable.

Decision: The License Agreement, including the provision requiring arbitration, is a writing subject to the FAA.

Cloud Corp. v. Hasbro Inc.

United States Court of Appeals, Seventh Circuit314 F.3d 289 (2002)

Parties and Roles: Hasbro Inc. (Hasbro) (defendant) sold a toy requiring the use of a packet of a specific powder. Cloud Corp. (Cloud) (plaintiff) mixed and packaged this powder for Hasbro according to a formula developed by Hasbro.

Material and Dispositive Facts: Hasbro Inc. (Hasbro) (defendant) sold a toy requiring the use of a packet of a specific powder. Cloud Corp. (Cloud) (plaintiff) mixed and packaged this powder for Hasbro according to a formula developed by Hasbro. Hasbro sent to Cloud a “terms and conditions” form stating that Cloud could not deviate from the terms of the form without Hasbro’s written consent. At some point, the toy began losing popularity and the final purchase orders for the powder were sent to Cloud. Cloud ordered the necessary ingredients for the powder based upon these purchase orders. Before the final purchase orders could be supplied, however, Hasbro provided Cloud with a new formula for the powder, which required less of one of the expensive ingredients, Laponite. Cloud mixed and packaged the powder according to the new formula, but because it had already purchased the Laponite based upon the old formula, it had excess Laponite. Cloud therefore pre-mixed and pre-packaged packets additional to those requested through the purchase orders. Cloud sent an order acknowledgment for the original purchase orders, but included the additional packets as well, despite not having received a purchase order for the additional packets. Hasbro received the acknowledgment, but did not explicitly respond. A Hasbro employee did, however, exchange emails and have phone conversations with Cloud discussing various terms of the agreement. These emails included numbers consistent with Cloud’s order acknowledgment, as did a memorandum written and signed by another Hasbro employee. Hasbro refused to accept delivery of or pay for any of the additional powder.

Procedural History: Cloud filed suit for breach of contract. The district judge ruled in Hasbro’s favor. Cloud appealed to the United States Court of Appeals for the Seventh Circuit.

Substantive/Procedural Issue: Can a writing modifying the quantity of a contract for goods be enforceable?

Holding: A writing modifying the quantity of a contract for goods can be enforceable if there are sufficient writings evidencing the contract, when the seller of specially manufactured goods has partially performed, or when there is sufficient confirmation of a contract.

Reasoning: Yes. The Uniform Commercial Code (UCC) requires the quantity term of a contract to be in writing, including any modification of that term, and to be signed by the party against whom enforcement is sought. The entire contract need not be in writing, but there needs to be written evidence of the contract’s existence and its essential terms. Additionally, including the sender’s name in an email is sufficient to satisfy the signature requirement. Though a handwritten signature is better evidence of identity than a typed one, neither the UCC nor the common law require a handwritten signature. The purpose of the statute of frauds is to require the party seeking enforcement to submit evidence other than his testimony to prove the existence of the contract and/or its terms. This purpose does not require a handwritten signature, especially when additional evidence is provided. Additionally, under the UCC, a seller’s partial performance of a contract for goods that are specially manufactured for the buyer will take the

contract out from under the purview of the statute of frauds. Moreover, when a contract is between merchants, a writing confirming the contract sent within a reasonable time from making the contract is sufficient to satisfy the statute of frauds if it is received, the party receiving it had reason to know of its contents, and the party receiving does not send a writing within 10 days rejecting the confirmation. In the current matter, the emails and Hasbro’s employee’s memorandum were sufficient writings under the UCC to evidence the existence of the contract and its essential terms. Also, the inclusion of the employee’s name in the email was sufficient to satisfy the signature requirement, even though it was not handwritten. Not only were Cloud’s actions in this matter sufficient evidence so as not to require a handwritten signature, they also constitute partial performance under the UCC and, thus, the contract between Cloud and Hasbro is not subject to the statute of frauds. Finally, Hasbro and Cloud were merchants and Cloud’s acknowledgment, received and not objected to by Hasbro, constitutes a writing sufficient to satisfy the statute of frauds.

Decision: Cloud’s modification of the contract quantity is enforceable and the judgment of the trial court is reversed. The case is remanded to the trial court for a determination of Cloud’s damages.

Nanakuli Paving & Rock Co. v. Shell Oil Co.

United States Court of Appeals for the Ninth Circuit664 F.2d 772 (9th Cir. 1981)

Parties and Roles: Nanakuli Paving & Rock Co. (Nanakuli) (plaintiff) entered into two long-term contracts with Shell Oil Co. (Shell) (defendant) to purchase all the asphalt it required.

Material and Dispositive Facts: Nanakuli Paving & Rock Co. (Nanakuli) (plaintiff) entered into two long-term contracts with Shell Oil Co. (Shell) (defendant) to purchase all the asphalt it required. The contracts set the price as the price posted by Shell at the time of delivery. For several years Shell maintained the same price for Nanakuli, though it increased prices for other customers.

Procedural History: Nanakuli brought suit when Shell later increased the price, claiming that under customary trade practices in the Hawaiian asphalt industry there was an implied requirement that Shell protect prices. In support of this assertion Nanakuli identified the routine use of price protection by asphalt suppliers. Shell however claimed that no such customary trade practice existed and that the contract terms controlled the price. Nanakuli appealed from a jury verdict in Shell’s favor.

Substantive/Procedural Issue: Trade usage and course of performance will be implied into contracts if there is evidence that it is not inconsistent with the terms of the contract, and the purported trade usage is so prevalent that the parties would have intended to incorporate them.

Holding: Whether courts can use customary trade practice and course of performance as evidence of implied terms in a contract.

Reasoning: Yes. Trade usage and course of performance will be implied into contracts if there is evidence that it is not inconsistent with the terms of the contract, and the purported trade usage is so prevalent that the parties would have intended to incorporate them. In Hawaii, price protection occurred when prices increased, and only for work performed prior to those increases. Hence price protection was routinely practiced in the Hawaii asphalt market. Shell should have known that it was a necessity to utilize price protection to operate in that market. Moreover, Shell’s past performance of maintaining Nanakuli’s initial price indicated that it was aware of the practice of price protection and that Nanakuli expected this as part of performance.

Decision: The trial court’s judgment is reversed.

Concurrence: The majority’s opinion should not be applied to read into the contract implied terms where there is not such overwhelming evidence as with the Hawaii asphalt industry.

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