UCC - Restatement Field Guide

The UCC / Restatement Field GuideCreated by Adam Dickson , Paul Kuppich, Brenton Kinker, and Jeff Carroll

Category Question to Resolve You Should Use... The Basic Gist of What To Do Is... A Case Example Is... Insights and Notes (and legal realism)

UCC generally The UCC applies to the sale of goods, is this a good?

UCC 2-105 (Definition of Goods)

"Goods" means all things which are moveable at time of indentification to the contract for sale

UCC generally But. . . the UCC doesn't say anything about fraud, estoppel, misrepresentation

UCC 1-103 (Applicability of Supplemental Principles of Law)

unless displaced by provisions of the UCC, the principles of law and equity supplement the UCC

this is legal realism. Judges will apply doctrines as they see fit to make cases come out the way they want them to.

SoF Did the recorded note pass the Statute of Frauds?

Restatement 2d. Sec 133 (Memorandum Not Made as Such)

The Statute may be satisfied by a signed writing not made a a memorandum of a contract.i.e.'s diary or minutes

-No requirement that the memo be communicated or delivered to the other party-communication of the offer is essential

In Lucy v. Zehmer, the contract on the back of the receipt sufficed to pass the SoF because it was signed by the party against whom enforcement was sought.

Formation

Was a contract made? -OR- The party did not intend a contract, is it enforceable?

Restatement 2d. Sec. 17 (Requirement of a Bargain)

Restatement 2d. Sec 2 (Promiese; Promisor; Promisee; Beneficiary)

UCC 2-204 (Formation in General)

17) K requires a bargain where there is a manifestation of mutual assent to the exchange and also a consideration.

2) (1) A promise is a manifestation of intention to act or refrain from acting, so made as to justify a promisee in understanding that a commitment had been made. "external expression is what counts"

2-204 (1) a K for the sale of goods may be made in any manner sufficient to show agreement, including the conduct by both parties which recognizes the existence of such a K

In Lucy v. Zehmer, the Zehmers did not intend to make a contract – they were joking. But, by the objective theory of contract, only the outward expression manifested by the parties counts.

FormationThe conduct by the parties suggests a K but the writings do not?

UCC 2-207 (Additional Terms in Acceptance or Confirmation)

"Conduct by both parties which recognizes the existence of a K is sufficient to establish a K even though the writings do not otherwise establish a K"

Terms There are some terms left open, does the K fail?


(3) Even if one or more terms are left open, the K does not fail for indefiniteness if the parties intended to make a K and there is a reasonable basis for giving an appropriate remedy.

Comment: "their actions may be frequently conclusive on the matter despite the omissions for example where the have performed their agreement"

Formation Did the person have proper capacity to be bound to the contract?

Restatement 2d. Sec 12 (Capacity to Contract)

Restatement 2d. Sec 15 and 16 (Mental Illness or Defect/ Intoxication)

12) (2) a person who manifests assent to a transaction has full legal capacity to incur contractual duties unless: under guardianship, infant, mentally ill or defective, intoxicated

15/16) voidable contract duties if the party is unable to understand in a reasonable manner or is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know.15) (2) if the K is made on fair terms and the other part is without knowledge of defect, then power of avoidance terminates to extent of performance or the circumstances have so changed to make avoidance unjust.

In Lucy v. Zehmer, the Zehmers tried to argue that intoxication prevented a contract from being formed. However, the judge held that they weren’t drunk enough to prevent a binding from being made.

Where there is no previous determination of incompetency the budern of proof is on the party alleging incompetence Other good reasons… Mental illness, minor status, duress

Consideration Was there consideration or not? Restatement 2d @ 71 (Requirement of Exchange; Types of Exchange)

See if there was a legal detriment (an act, a forebearance, or a destruction of a legal relation) that was bargained for. [Remember - promisee's legal detriment doesn't have to be worth anything to the promisor!]

In Petroleum Refractionating v. Kendrick Oil, consideration was found in buyer’s promise to buy, and seller’s promise to discontinue selling the particular brand of oil if could not sell to buyer.

(2) a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise

(3)performance may consist of an act other than a promise, or forebearance, or modification of a legal relation

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Breach Some freak thing happens which renders your participation in the contract impossible

Restatement 2d. Sec 235 (Non-Performance as a Breach)

2d Sec. 261 (Discharge by Supervening Impracticality) AKA Force Majeur

235) When a performance of a duty under a K is due, any non-performance is a breach

261)Claim that something totally out of your control makes further participation in the contract impracticable

In NIPSCO v. CCC, NIPSCO tried to assert this as a defense for breaching its contract because it could get coal cheaper somewhere else, which violated their mandate to operate as cheaply as possible.

Want to be careful to not devalue the sense of K's. Note: may insert "Force Majeure" clause that terminates the K if either party is partially excused for unforeseen hardships.

Breach Some freak thing happens which makes your participation in the contract really hard

Restatement 2d. Sec 235 (Non-Performance as a Breach)

Restatement 2d Sec. 265 (Discharge by Supervening Frustration)

UCC 2-615 (Excuse by Failure of Presupposed Conditions)

235) When a performance of a duty under a K is due, any non-performance is a breach

265)Claim that something totally out of your control makes further participation unrealistic

615) (a) delay in delivery or non-delivery in whole is not a breach of K for sale if performance as agreed to has been made impracticable by the occurence of something that was basically assumed not to occur or by compliance with government regulation

In NIPSCO v. CCC, NIPSCO tried to assert this as a defense for breaching its contract because it could get coal cheaper somewhere else, which violated their mandate to operate as cheaply as possible.

Want to be careful to not devalue the sense of K's. Note: increased costs alone does not excuse performance unless the rise in cost is due to some unforeseen event that alters the essential nature of the performance

Consideration

There is consideration but it doesn't seem equal? -OR- Does pretense of consideration suffice?

Restatement 2d. Sec 79 (Adequacy of Consideration; Mutuality of Obligation) Restatement 2d. Sec 71 (Requirement of Exchange)

Restatement 73 (Performance of a Legal Duty)

79) If consideration exists, there is no need for:(a) a gain to the promisor or a detriment to the promisee

(b) equivilance in the values exchanged

(c) mutuality of obligation 71) (1) to constitute consideration a performance or promise must be bargained for(2) it is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise

73) legal duty that is owed to promisor which is not in dispute is not consideration, but a similar performance is consideration if it differs and is more than just pretense

In Hamer v. Sidway, Little Willie’s promise to forbear from sinful vices did not have to be equal to Uncle William’s promise to pay $5K.

consideration Is forebearance from doing something sufficient consideration?

Restatement 2d. Sec 74 (Settlement of Claims)

74) (1) forebearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless:

(a) the claim is in fact doubtful because of uncertainty in the facts or law

(b) the forebearing party believes that the claim may be fairly determined to be valid

(2) written instrument surrendering claim when one does not have to is consideration if bargained for, even if party surrendering party does not believe claim is valid

In Hamer v. Sidway, Little Willie’s promise to forbear from sinful vices did not have to be equal to Uncle William’s promise to pay $5K. In Lake Land Employment v. Columber, the court held that the employer’s forbearance of discharging the at will employee was consideration for signing the non-compete agreement.

At-will Non-compete agreements are sometimes enforceable without additional consideration, sometimes not. (Only reasonable are enforceable)

Dissent: argues that employer has reliquished nothing and that the employee still has the same right: thus no consideration

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Consideration Does a output/requirements contract fail for lack of consideration?

UCC @ 2-306 (Output, Requirements, and Exclusive Dealings)

306)(1) actual output or requirements as may occur in good faith, except no quantity unreasonably disproprotionate to any estimate or otherwise comprable prior output or requirement

(2) seller to use best efforts to supply, buyer to use best efforts to promote sale

NO. IT HAS CONSIDERATION. Mutuality of Obligation is present, b/c the seller or buyer is obligated to operate his plant in good faith and according to commercial standards of fair dealing so that his outputs/requirements will approximate a reasonably foreseeable figure. In Petroleum Refractionating v. Kendrick Oil, the requirements contract did not fail for lack of consideration.

Universally accepted today.

A company could pay a small premium to limit a suppliers ability to sell the extra parts left over to others. Two implicit promises. “I promise to sell/buy everything” and “you promise to pay for it.”

Consideration Is a promise to pay for a previously received benefit enforceable?

Restatement 2d. Sec. 86 (Promise for Benefit Received)

86) (1) binding to the extent to prevent injustice

(2) not binding if (a)promisee confers it as a gift or the promisor has not been enriched (b) to the extent the value is disproportionate to benefit given earlier

In Harrington v. Taylor, Harrington’s action was voluntarily undertaken before the promise was made, and was unenforceable.

Few cts follow restatement

The court was probably racist in its application of the restatement in Harrington. Humanitarian acts ARE NOT consideration.

Consideration Is a firm offer by a merchant revocable for lack of cosideration?

UCC 2-205 (Firm Offers)

Offer by merchant to buy or sell goods in signed writing whose terms give assurance that it will be held open. . . is not void for lack of consideration.

The max length of time is 3 months.

There does not need to be consideration for this.

An option contract needs consideration from both buyer and seller. Firm offer needs no consideration from either. NOTE: the firm offer by the merchant needs to be in writing, an oral offer would remain revocable under this section. If it is supported by consideration, then the firm offer can continue as long as the parties specify.

Consideration The words of promise appear entirely optional, is there consideration?

Restatement 2d Sec 77 (Illusory and Alternative Promises)

77) a promise is not consideration if by its terms it reserves a choice of alternative performances unless:

(a) each of the performances would have been consideration

(b) substantial possibility that before the choice is exercised, events may eliminate the choices that were not consideration

In Petroleum Refractionating v. Kendrick Oil, Kendrick tried to claim that seller could either provide the oil or opt out, thus the performance was illusory. "may choose to order", or which buyer "wants or wishes"- There is no mutuality of obligation, thus no consideration.

If there is enough pain in the condition, then the promise is not illusory.

If condtional promises were not valid then many business k's would be doomed.

Consideration Is a promise is consideration? Restatement 2d. Sec 75 (Exchange of Promise for Promise)

Does the promisor know the promised act can never happen? Is it an illusory or alternative promise? Is it a promise that was not bargained for? THEN NO!!!!

In Hamer v. Siday, Little Willie’s promise to abstain from sinful vices was consideration.

Consideration Are acts taken to accept an offer consideration?

Restatement 2d. Sec 75 (Exchange of Promise for Promise)

75) The promise must be bargained for to constitute consideration

In Fisher v. Jackson, the employee was found to not have given consideration by quitting his job at a bakery when he took a job as a reporter. The newspaper did not bargain for Fisher to quit his job.

It might be consideration if the employer is aware of you having to give up several things to take their offer. i.e. enticing a tenured professor to come

Indefinite employment is considered at-will anyhow so no reliance.

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Promissory Estoppel

Reliance on Promise induced action or forebearance, is it enforceable by specific performance?

Restatement 2d Sec 90. (Promise Reasonably Inducing Action or Forbearance)

Restatement 2d. Sec 21 (Intention to be Legally Bound)

Restatement 2d. Sec 129 (Action in Reliance; Specific Performance)

90) (1)a promise which the promisor should reasonably expect to induce action or forebearance and which does is binding if injustice can be avoided only by performance.

(2) charity subscription or marriage settlement are binding without proof of action of forebearance

21) the intent of the promisor for the promise to be legally binding doesn'tmatter. But a manifestation that a promise shall not affect legal relations may prevent a K.

129) K to transfer interest in land may be specifically enforced notwithstanding Statute of Frauds if reliance was created and party changed position so that justice could be avoided only by specific enforcement

In Ricketts v. Scothorn, the granddaughter quit her job relying on rich grandfather’s promise to pay for her entire life. In Cohen v. Cowles Media, Cohen relied on Cowles’ promise to keep Cohen’s identity secret. In Midwest v. Orion, Midwest relied on Orion’s salesman’s words that a contract was in place and spent money renovating the truckstop to accommodate the contract.

Courts still prefer to use consideration in support of a promise than going the reliance route.

There is a fear that reliance with take over bargaining theory. But . . . it is only binding if it is is the only way to to prevent an injustice

Option Contract

Is there an option contract?

Does pretense of consideration suffice?

Restatement 2d. Sec 25 ([definition of] Option Contracts)

Restatement 2d. Sec 87 ([binding] Option Contract)

25) Ask: Is the promisor's power to revoke limited? If it was...

87) Was the contract...(1a) in writing signed by offeror, recites a purported consideration, propose an exchange on fair terms within reasonable time OR...(1b) made irrevocable by statute(2) Did the offeror reasonably expect the offer to induce action or forbearance of a substantial character on part of the offeree, and it is necessary to avoid injustice? If so, YES. It is kind of like promissory estoppel.

In EMU v. Burgess, EMU never paid the consideration, which affected the option contract. It reduced it to a regular offer. So until consideration was actually paid, the offer was just a regular contract which can be revoked before acceptance.

87) makes it seem like the consideration does not have to be paid. However, the restatement is not law. modern K law has become increasingly disapproving of "pseudo-bargains"-skeptical of consideration that is mere pretense (i.e. $1000 for that $1 book

Formation Can I enforce a K that was not expressed but "implied in fact?"

[NO PROVISIONS IN BOOK] In Baily v. West, there was no agreement and intent to contract to take care of the ghetto horse.

The source of the obligation is in the intention of the parties. Laundry dropoff = implied contract.

Open Terms How do you fill an open price term in the contract?

UCC 2-305 (Open Price Term)

(1) A reasonable price at time of delivery is used if...(a) nothing is set as to price (b) parties fail to agree on price, even though agreed to agree (c) price is to be fixed to a standard, but standard is not set.

(2) When a seller/buyer has sole discretion in deciding the open price, it must be in good faith.

(3) if one party interferes with the determination of a standard, the other party may cancel or set their own price

(4) if there is no intention to be bound until there is a price, there is NO CONTRACT.

Open Terms What if there is no time for payment mentioned?

UCC 2-310 (Open Time for Payment)

unless specified310(a) payment is due at the time and place which the buyer is to receive the goods

Open Terms What if no payment method is mentioned?

UCC 2-511 (Tender of Payment by Buyer)

511(2) payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment by legal tender.

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Open Terms What if no delivery place or time specified?

UCC 2-308 (Absence of Specified Place for Delivery)

UCC 2-309 (Absent Specific Time Provisions)

unless otherwise agreed:308(a) the place is the seller's business, if he has none, then his residence

309(1) the time for shipment or delivery shall be a reasonable time

Open Terms What if their is no mention of the duration of a K for specific performances?

UCC 2-309 (Absent Specific Time Provisions)

309(2) It is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party(3) termination by one party except on happening of agreed event requires that reasonable notification be received by the other party. Agreement dispensing with notification is invalid if unconscionable.

i.e. Todd appoints Randy to be a dealer for Todd. Todd will manufacture and Randy will sell but the K doesn't say how long they have to deal with each other.

Acceptance What is the manner and medium of acceptance?

Restatement 60 (Acceeptance of offer which states time, place, manner)

UCC 2-206 (Offer and Acceptance)

60) if an offer prescribes the time, place, or manner of acceptance its terms must be complied with to create a K. If they are mere suggestions another method is not precluded.

206(a) unless otherwise indicated an offer shall invited acceptance in any manner and by any medium reasonable in the circumstances(b) an order to buys goods for prompt or current shipment shall invite acceptance by either prompt promise to ship or by prompt of current shipment of conforming or non-conforming goods. Shipment of non-conforming goods are not an acceptance if seller notifies buyer that is only an accommodation to the buyer.(2) where the beginning of a requested performance ifs a reasonable mode of acceptance an offeror who is not noitified withing a reasonable time may treat the offer as lapsed.

comment: shipment of non-conforming goods would constitute both an acceptance and a breach of K.

comment: If the seller does not have the goods requested by the buyer but thinks he has a substitute, he can send the substitute without breaching the K if he lets the buyer know its an accommodation.

Acceptance of goodsWhat constitutes acceptance of goods?

UCC 2-606 (What Constitutes Acceptance of Goods)

-the buyer takes particular goods as the buyer's own by words, action, or silence when it is time to speak

Acceptance of goodsWhat are the effects of acceptance of goods?

UCC 2-607 (Effect of Acceptance)

The effect of acceptance of goods:-the buyer must pay the K rate.-precludes rejection.-the buyer must within a reasonable after he should have discovered defects notify the seller or be barred from any remedy.

Note: the burden is on the buyer to establish any breach with respect to the goods accepted

Offer/Acceptance Is there an offer or not? Restatement 2d Sec 24 (Offer Defined)

Is there the manifestation of the willingness to enter into a bargain which could justify someone else understanding that their assent to that bargain is invited and conclude it?

If so...YES!

(remember - manifestation is objective)

Offer/Acceptance Is an advertised price quote an offer?

Restatement 2d Sec 26 (Preliminary Negotiations)

If the person recieving the quote should know a "yes" would not seal the deal, it is not an offer. In advertising, there need to be words of commitment to sell the item if it will be an offer. (IE "They go Saturday! First come, first served.)

Offer/Acceptance When is an offer terminated? Restatement 2d Sec 36 (Methods of Termination of the Power of Acceptance)

If (1) (a) you rejected or counter-offer (b) let too much time lapse (c) the offer gets revoked (d) death or incapacity

OR ...

(2) there was a condition for acceptance which was not met ...

NOT BINDNG/VALID. It's like resurrecting Jesus.

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Interpretation What if there is misunderstanding between two parties?

Restatement 2d Sec 20 (Effect of Misunderstanding)

(1) NO CONTRACT if...(a) both parties know of only their meanings (b) both parties know of both meanings(2) CONTRACT IF... if one party knows or should know of both party's meanings. In this case, the party oblivious to both meaning's interpretation wins.

Terms Is there an acceptance between non merchants because there are additional terms?

UCC 2-207 section 1 (Additional Terms in Acceptance or Confirmation)section

UCC(1) A definite and seasonable expression of acceptance operates as an acceptance even though there are different or additional terms, unless the acceptance is expressly made conditional on those terms). The additional terms if a non-merchant is involved are to be construed as proposals for addition to the K.

Terms Are additional terms are to be considered a counter-offer between two merchants?

UCC 2-207 (Additonal Terms in Acceptance of Confirmation)

207(2) the additional terms are to be construed as proposals to for additon to the K:-Between merchants such terms become part of the contract unless:(a) the offer expressly limits the additional terms(b) they materially alter it(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received (3) If the conduct of the parties recognizes the existence of a K for sale (performance), the terms of the K consist of those terms on which the parties agree. . . the terms which the parties do no agree are "knocked out"

example: occurs a lot with pre-printed purchase order and acceptance forms where the terms do not correspond.

The UCC changes the"mirror image" rule of Restatement 59 by stating that a "definite and seasonable expression of acceptance" even though it states additional or different terms than those in the offer The UCC finds the "mirror image" and "last shot" rule that says the person who accepts the goods must take the terms of the other undesireable. materially alter= unreasonable surprise or hardship (if it the clause is not too different than K's used in trade. . . does not materially alter) NOTICE: the terms between merchants say "additional" terms become part of the K but does not say anything about terms that are "different"

Terms whether a “different” term can come into the contract under any circumstances.

UCC 2-207 (Additonal Terms in Acceptance of Confirmation)

The language of 2-207(2) mentions only “additional,” not different terms

White Theory o J.J. says that the different term acts as a

rejection of the original term sent by the offeror, and thus both terms fall out and we use a U.C.C. “gap-filler”/default rule to determine the term.

o He says his support is found in comment 6: “Where clauses on confirming forms sent by both parties conflict … the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to.”

o Known as the “knockout rule,” and adoped by many, if not most, courts.

Offer/Acceptance Is an acceptance invalid because a technicality was not followed?

Restatement 58 (Necessity of Acceptance Complying With Terms of Offer)

Restatement Acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered

Offer/Acceptance At what point is acceptance valid? Restatement 63 (Time When Acceptance Takes Affect)

(a) valid as soon as the offeree accepts regardless of whether the offeror receives it(b) in an option contract, it is not valid until the offeror gets it

Offer/Acceptance Is an acceptance invalid because there is a request to change terms?

Restatement 61 (Acceptance Which Requests Change of Terms)

Requests to change or add terms of the offer does not invalidate the acceptance unless the acceptance is made to depend on the assent to the changed or added terms

Parol Evidence

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Parol Evidence Can you use parol evidence if the K is a complete and exclusive statement?

UCC 2-202 (Final Written Expression: Parol or Extrinsic Evidence)

An integrated contract cannot be contradicted, but can be explained or supplemented by (a) course of dealing or usage of trade or by course of performance and (b) evidence of consistent additional terms may be admitted unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms

In Thompson v. Estate of Coffield, parol evidence was allowed to explain that the mineral royalty sharing agreements from silent leases were not to be included in the sale of the land. In Nanaluki v. Shell Oil, the court found that parol evidence could be introduced about Hawaiian asphalt price protection through a usage of trade and course of performance.

Parol Evidence Is an agreement integrated? Restatement 209 (Integrated Agreements)

(1) If the writing or writings constitute a final expression of one or more terms in the agreement, INTEGRATED.

(2) The court will determine this before interpreting the contract, or applying the parol evidence rule.

(3) When an agreement looks integrated, it will be treated as such unless there is other (parol) evidence that the writing was not a final expression

In Baker v. Bailey, the contract for the water-well use agreement was very explicit and had a merger clause which said that it was the final expression of the deal. So, it was completely integrated, and parol evidence could not be admitted.

Parol Evidence

What is the difference between a completely integrated agreement and a partially integrated agreement?

Restatement 210 (Completely and Partially Integrated Agreements)

(1) If the contract is *complete* and exclusive statement of the terms, COMPLETELY INTEGRATED.

(2) A partially integrated agreement is not completely integrated

*an agreement may be shown to be incomplete by other writings (cmt. C)

In Masterson v. Sine, the court found the deed to convey Masterson’s land to Sine was not integrated as to the parties’ intent on assignability. So, parol evidence was admissible to keep the land in the family, and out of the bankruptcy trustee’s hands.

Masterson was a Traynor opinion, so like usual, he liberally allowed testimony to get what he thought was a fair result.

Parol Evidence What happens when an integrated agreement conflicts with prior agreements?

Restatement 213 (Effect of Integrated Agreement on Prior Agreements) [Parol Evidence Rule]

(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them

(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope

(3) A nonbinding integrated agreement does nothing to prior agreements

Parole Evidence Can you use parol evidence to show the need for an essential Omitted Term?

Restatement 204 (Supplying an Essential Omitted Term)

When there is a legit contract, the court may supply a term which is reasonable in the circumstance.

Cmmt E (Effect of Parol Evidence Rule): The fact that an essential term was omitted may clue you in to the fact that the agreement is not integrated, and parol evidence may be appropriate.

In Masterson v. Sine, the parties omitted the essential term that the option was not assignable (it was not on the deed), and the court allowed parol evidence to show that the term was really a part of the contract.

In Masterson, the court recognized that deeds are not very conducive to showing parties’ intent. That’s why Traynor allowed parol evidence.

Modifications

Is an agreement to modify a K binding if one side simply keeps its preexisting duty with no additional consideration?

UCC 2-209 (Modification, Recission, and Waiver)

209) (1)An agreement modifying a K within this article needs no consideration to be binding(2) signed agreement which excludes modification except by writing cannot be ignored, but it must be separately signed by the other party(3) Modifications are still subject to the SOF

A market shift would be a good faith reason for modifying the price of the apples the seller is providing

NOTE: the modifications must meet the test of "good faith"1-201

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Modifications Is the promise that modified a duty under the K binding?

Restatement 89 (modification of executory contract)

(a)the promise is binding under a K not fully performed if (a) fair and equitable in view of unanticipated circumstances(c) to extent justice requires enforcement b/c of material change in position in reliance on promise

Modifications

Can you change (reform) a contract to reflect the true expression of what the parties want if both parties made a mistake when making it?

Restatement 2d Contracts @ 155 (When Mistake of Both Parties As to Written Expression Justifies Reformation)

A court may reform the agreement to meet the both parties’ actual expectations. However, the court will not change the contract if 3rd parties are affected. This is about the way the contract was expressed – not the substance of the contract.

In Thompson v. Estate of Coffield, the Estate tried to get the contract reformed, claiming that words in the contract did not mean what they intended.

Usually, both parties have to make a mistake to reform the contract. The Estate was wrong to ask for this. This should have been governed by the rules in Merced County – since Thompson had no reason to know of Estate’s meaning, they are held to the contract.

Modification Can you change (reform) a contract where one party misrepresented the facts?

Restatement 166 (When a Misrepresentation As to a Writing Justifies Reformation)

If a party is induced by misrepresentation, that party may ask for reformation if (a) they were justified on relying on the contract (b) it won’t affect 3rd parties.

(this was just mentioned in the notes of Thompson v. Estate of Coffield)

Breach Is failure to read grounds for reformation?

Restatement 172 (When Fault Makes Reliance Unjustified)

No, it does not, unless it amounts to a failure to act in good faith. (this was just mentioned in the notes of Thompson v. Estate of Coffield)

Interpretation What are the general rules of contract interpretation?

Restatement 202 (Rules in Aid of Interpretation)

This is too long to list here. There are 5 general principles of interpretation you should check out.

(this was in the notes in WWW Associsates v. Gianconterri)

Terms If there is a dickered term which is inconsistent with a standardized term, which term wins?

Restatement 203 (Standards of Preference in Interpretation)

d) separately negotiated or added terms are given greater weight than standard/not negotiated terms

this was in the notes in WWW Associsates v. Gianconterri )

Parol Evidence How Do you Interpret a term in an Integrated Agreement?

Restatement 212 (Interpretation of Integrated Agreement)

(1) Interpret contract In light of the circumstances in which it was made

(2) Extrinsic evidence can be used to interpret if credible.

In Pacific Gas v. GW Thomas, Traynor allowed GW Thomas to bring in extrinsic evidence to show that their interpretation of a contract one was correct, even though on its face, the term was totally unambiguous.

Traynor thinks language is too imperfect to be totally in line with the parties’ intent 100% of the time.

Interpretation Who gets the benefit of the doubt when interpreting a contract?

Restatement 206 (Interpretation Against the Draftsman)

When it is a toss-up, the draftsman usually loses an interpretation question.

In ZRL v. Great Central Insurance, the court held that the insurance company’s term “improper eviction” could be broad enough to cover racial discrimination.

We want to give the little guy who often has no power to negotiate a form contract the edge in some disputes.

Implied Terms Who can be held to the implied terms set by course of performance or trade usage?

UCC 1-303 (Course of Performance, Course of Dealing, Usage of Trade)

Parties who regularly deal in a certain industry will be expected to obey the industry customs and follow implied terms in contracts with parties in those industries

In Nanaluki v. Shell Oil, Shell Oil was held to the trade use of price protection for asphalt.

Term What is a seller’s posted price at the time of delivery?

UCC 2-305 (Open Price Term) (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

In Nanaluki v. Shell Oil, Shell raising its prices while previously protecting them was not in good faith. In Shell Oil v. HRN, the open price term was good faith because it was not discriminatory and within a window of acceptable prices

Term What happens if there is an indefinite (time) term in the contract?

Restatement 230 (Event that Terminates a Duty)

UCC 2-309 (Absence of Specific Time Provisions)

230) It is generally agreed that where a duration may be fairly and reasonably supplied by implication, a contract is not terminable at will.

2-309) it shall be a reasonable time.

In Haines v. City of New York, the court decided that the term was until the city no longer needed the sewage plant.

Good Faith Do you Have to Act in Good Faith?

Restatement 205 (Duty of Good Faith and Fair Dealing)

UCC 1-304 (Obligation of Good Faith)

304)Yes, you have to act in good faith and deal fairly.

UCC 1-201 says good faith is “honesty in fact in the conduct or transaction concerned”. UCC 2-103b says good faith is, in the case of a merchant, “honesty in fact and the oberservance of reasonable commercial standards.” Merchants appear to have a higher standard.

(this was from the good faith intro)

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Good Faith A contract that leaves particulars of a performance to be specified by one party, requires good faith?

UCC 2-311(Options and Cooperation Respecting Performance)

(1) any such specification must be made in good faith an within the limits set by commerical reasonableness

examople: assortment of goods at the buyer's option, K for 600 pens; 100 blue and 500 green is ok.

Warranty When is there an express warranty by the seller?

2-313 (Express Warranties by Affirmation, Promise, Description, Sample)

(1) Express warranties by the seller can be created by (a) an affirmation of fact or promise about a good (b) a description of the good which is made part of the basis of the bargain (c) any sample or model which creates part of the basis of the bargain

-The affirmation, promise, description of sample must create part of the basis of the bargain

(2) You don’t have to say the words “warrant” or “guarantee,” or even have the specific intention to make a warranty.

In Carpenter v. Chrysler, the used car salesman was held to have made a warranty about the car’s fitness when he said “this was a good car…this is a car for you…”

-No specific intention to make a warranty is required -No words such as "fact" or "guarantee" are needed -The following do not create express warranties: statements of opinion, affirmations of the value of the goods, or statements of commendation aka "puffing" Be careful to differentiate this from PUFFING. -Expressed warranties rest on the "dickered" aspects

Warranty Can statements made after the sale be an expressed warranty?

UCC 2-313 (Express Warranties by Affirmation, Promise, Description, Sample)

- The precise time when express warranties are made or samples are shown is not material.- The sole question is whether the language or samples are fairly to be regarded as part of the K.

example: Sales clerk hands over purchased eye solution and say this is absolutely harmless to the eyes

- While this warranty becomes a modification, it does not need additional consideration because "an agreement modifying a K withing the UCC needs no additional consideration" (2-209)

Warranty

How can a dealer protect himself from agents making warranties that could come back to bite him in the ass?

UCC 2-202 (Final Written Expression: Parol or Extrinsic Evidence)

-The statements might be kept from the trier of fact if "the writing is intended by the parties as a final expression of their agreement. . . it may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement"

Warranty What warranties must be fully and conspicuously disclosed?

Magnuson-Moss Federal Warranty Act

-Whether such warranty is full or limited (under a full a warrantor must remedy a defect in a reasonable time without charge)-A warrantor must not limit the duration of implied warranties-Exclusion or limitation of consequential damages must appear conspicuously on the face of the warranty-After a reasonable number of attempts to remedy defects, the consumer may elect either a refund or replacement

Warranty When is there an implied warranty of merchantability?

UCC 2-314 (Implied Warranty: Merchantability)

Unless excluded or modified:(1) A warranty that goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind

(2) goods to be merchantable must at least:

(a) pass without objection under the K description(b) be of fair average quality within the description(c) be fit for the ordinary purposes (d) run, within variations permitted by the agreement(e) are adequately packaged as agreement may require(f) conform to the promise or affirmations of fact made on the container if any

Example: Shotgun shells that prematurely explode or cattle feed that causes sterility

-particular problem areas include design defects.

NOTE: In an action based on the breach of warranty, it is necessary to show not only the existence of a warranty but that the warranty was broken and that the breach was the proximate cause of the loss sustained.

Warranty How does an implied warranty of merchantability if I examine the goods or refuse to examine them?

UCC 2-316 (Exclusion or Modification of Warranties)

(3)(b) "if the buyer before entering the K has examine the goods or sample as fully as desired or has refused to examine the goods after a demand by the seller, there is no implied merchantability with regard to defects that an examination in the circumstances should have reveled to the buyer"

NOTE: a particular purpose differs from the ordinary purpose in that it contemplates a specific use that is peculiar to the nature of the business

Warranty Can an implied warranty arise from course of dealing or trade usage?

UCC 2-314 (Implied Warranty of Merchantability)

(3) unless excluded or modified other implied warranties may arise from course of dealing or trade usage.

example: for a pedigreed dog, trade usage may require that pedigree papers be produced

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Warranty When is there an implied warranty of fitness?

UCC 2-315 (Implied Warranty: Fitness for a Particular Purpose)

When at the time of contracting, the seller has reason to know of any particular purpose for which the goods are required and the buyer is relying on seller's skill or judgment to select or furnish suitable goods

example: shoes are ordinarily used to walk with, but a seller may know that a particular pair was selected to be used for climbing mountains

NOTE: you can have both an implied warranty of merchantability ad one of fitness for a paticular purpose. In fact they may overlap.t

Warranty

What if there is an expressed warranty in the agreement and then also a clause that disclaims all warranties?


(1) express warranties shall be construed, if possible, as consistent with disclaimers of warranty. If such construction is not reasonable, the disclaimer is inoperative.

example: contract says the cloth will not fade and also says all warranties excluded. The disclaimer is inoperative to this warranty.

Warranty Can an implied warranty be excluded by course of dealing, performance or trade usage?


(3)(c) an implied warranty can be excluded or modified by evidence of the parties' course of dealing, performance, or trade usage

example: a cattle buyer inspects cattle and cuts out those that do not suit him. According to trade usage his acceptance of others is irrevocable and excludes all implied warranties.

Warranty How does one exclude implied warranties?


(3)(a) all implied warranties are excluded by language that calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty.

Other language may also be used: to exclude merchantability must mention merchantability, to exclude fitness must be by writing

example: "sold as is and with all faults"

or

"there is no warranty of merchantability""there are no warranties which extend beyond the description of the face hereof" (fitness)

NOTE: In the case of a writing, the exclusion or modification of merchantability or fitness must be CONSPICUOUS

Remember: it will be hard to exclude everything because there is usually a description of the product

Warranty Can the seller limit the remedies available to the buyer for breach of warranty?


UCC 2-719 (Contractual Modification or Limitation of Remedy)

316)(4) remedies for breach of warranty can be limited on liquidation or limitation of damages and on contractual modification of remedy

719)(1)(a) may limit the damages to return and repayment of the goods or repair and replacement

example: "it is expressly understood that the buyer's sole and exclusive remedy shall be repair and replacement of defective parts, and the seller shall not be liable for damages or injuries to persons or property"

Note: watch out for unconscionability. -minimum adequate remedies should be available.

Note: In the case of consumer goods, limitation of consequential damages for injury to person is unconscionable. 2-719(3)

Note: A term fixing unreasonably large liquidated damages is void as a penalty.-a unreasonably small amount is stricken for unconscionability. 2-718

Warranty Does the express warranty or seller misrepresentation apply to third parties?

UCC 2-318 (Third Party Beneficiaries of Warranties)

(c) extends to any person who may be reasonably be expected to use, consume or be affected by the goods and who is injured by the breach of warranty"

-(torts) misepresentations extend to consumers but makes no mention of a non-consumer

Warranty Is there an implied Warranty of title when selling land?

UCC 2-312 (Warranty of title and Against Infringement; Buyer’s Obligation Against Infringement)

There is a warranty by the seller that the title will be good. (this was mentioned in the notes)

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Warranty Can a Warranty be Modified or Excluded?

2-316 (Exclusion or Modification of Warranties)

Magnuson-Moss Act

(1) Express warranties, once given, cannot be disclaimed

(2) The modifications to merchantability must mention merchantability and be conspicuous

(3) You can disclaim warranties by saying “as is/with all faults”, or by course of dealing, performance, or trade use.

M.M.A.) If a seller makes a written warranty of a product, it cannot be disclaimed by 2-316. It is in there for good, and cannot be disclaimed.

In Carpenter v. Chrysler, the dealer could not disclaim the express warranties its salesman had made. In Massey-Ferguson v. Utley, the disclaimer of warranties was not conspicuous, and was held invalid.

Warranty Do warranties apply to remote purchasers?

REVISED 2-313 (Express Warranties)

(A) Extends a seller’s obligations to a remote consumer, like a warranty in a computer box

(B)Extends a seller’s obligations to remote consumers through advertising (buying used items)

(this was just mentioned in the notes) JJ SAYS THIS WILL NEVER BECOME PART OF US LAW, SO DON’T USE THIS AUTHORITATIVELY

Warranty What if the seller sells a defective product to the buyer?

UCC 2-314 (Implied Warranty of Merchantability)

UCC 2-315 (Fitness for a particular purpose)

2-314) There is a warranty that goods will be merchantable. There is a list of qualifications; QUOTE FROM LIST ON TEST.

2-315) When the seller knows what the buyer will use things for, there is an implied warranty that the things sold are fit for that purpose.

In Vlases v. Montgomery Ward, the chicken buyer used 2-314 to obtain relief from the sale of diseased chicks.

Modification Can you modify a contract without consideration?

UCC 2-209 (Modification, Recission, and Waver)

UCC 2-209(3): If there has been acceptance of the goods, you can introduce parol evidence to show that the contract was orally modified

149) the modified contract would take place of the old one

In Angel v. Murray, the garbageman was in good faith able to modify his contract because of an unexpected increase in garbage.

This only works for goods delivered in the past. This cannot be shown for goods to be delivered in the future.

Formation What if a contract is made under duress?

Restatement 175 (When Duress by threat makes a contract voidable)

Restatement 176 (When a threat is improper)

175 – (1) If the threat leaves the victim with no alternative, contract is voidable. (2) If the threat is made by a third party, contract is voidable unless other parties in good faith rely on it

176 – a threat is improper if it is a tort, criminal, in bad faith.

(This was from the Jury Instructions Example…no cases illustrate this)

Performance Can you substitute an original promised performance for something else?

Restatement 278 (Substituted Performance)

Restatement 281 (Accord and Satisfaction)

278) If the obligor gives something different than what was originally due, and the oblige accepts, the obligor’s duty to pay is discharged.

281) A contract which an obligee promises to accept a stated performance in satisfaction of the obligor's existing duty. Performance of the accord discharges the original duty.

In Wong v. Paisner, Paisner tendered a check that was “paid in full,” even though Wong said more was owed. Wong cashed it, and the court held there was an accord an satisfaction. The offer of the check was an accord, which was instantly accepted by cashing it.

Mistake What is the definition of a mistake? Restatement 2d Sec 151 (Mistake Defined(

Defines mistake: "A mistake is a belief that is not in accord with the facts."

Mistake How vital does the mistake have to be to the execution of the contract?

Restatement 2d Sec 152(1) (When Mistake of Both Parties Makes a Contract Voidable)

It can't just be any mistake, but "one that goes to a basic assumption on which the contract was made (and) has a material effect on the agreed exchange of performances"

Is there really a difference between a mistake that goes to the substance of the contract and one that merely affects the value? The "barren cow" case was rescinded because it was deemed a mistake that went to the heart of the substance of the agreement - but modern courts, in particular Lenawee, seem to be moving away from that distinction

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Mistake What is a unilateral mistake and how is it handled?

Restatement 2d Sec 153 (When Mistake of 1 Party Makes a Contract Voidable)

A mistake made by one party when the other party is aware of the mistake: "Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake. ... and (a) the effect of the mistake is such that enforcement would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake."

Important to understand that this doesn't merely mean that the party took on a knowing risk of the contract and then things went poorly compared to his expectations. There has to be an actual mistake of fact, not merely a bad bet.

Mistake What about an instance where a party merely made a decision to bear a certain amount of risk?

Restatement 2d Sec 154 (When a Party Bears the Risk of a Mistake)

"The court should look first to whether the parties have agreed to the allocation of risk between themselves." (Lewanee County Board of Health v. Messerly). In other words, the first thing the court needs to do in determining a mistake case is figure out if the adversely affected party merely took on voluntary risk

Public PolicyandIllegality

Illegality

What if the contract the parties entered into was an illegal contract to begin with (i.e. the act bargained for was illegal)?

Restatement 2d Sec 178(1) (When A Term is Unenforceable on Grounds of Public Policy)

"A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms."

Courts rendering contracts unenforceable because of public policy have an easy job when the act bargained for is prohibited by statute, but are urged to tread carefully otherwise: "Courts need ... to face the real danger of treading where they are not welcome, even though they walk with the best intentions." (from the casebook)

Public Policy

Where are rules governing "restitution when contracts are unenforceable on public policy grounds?

Restatement 2d Sec 197-199 (Restitution)

Only briefly mentioned in a casebook note after Clouse v. Myers, a case we did not discuss in class, so it's difficult to believe this would come up on an exam.

Public Policy

What can courts do when they find that one portion of a noncompete contract is unenforceable while the rest of it is fine?

Restatement 2d Sec 184 (When Rest of Agreement is Enforceable)

Today, a court can selectively enforce terms of a non-compete.

1. A court cannot add terms to the contract (cmt. b)2. This is different than the 1st RST, in which Sec 518 said that the unreasonableness of even one term of a non-compete rendered the entire contract unenforceable.

Public Policy How should we balance the competing interests of employees, employers and the public?

Restatement 2d Sec 188 (Ancillary Restraints of Competition)

"A restraint is reasonable only if it (1) is no greater than is required for the protection of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public."

Called the "Rule of Reason" in the Hopper decision.

Unconscionability

Unconscionability Why was unconscionability codified in the U.C.C.?

U.C.C. Sec 2-302 (Unconscionable Contract or Clause)

The widening use of standardized form contracts was the impetus. Llewellyn, the writer of the U.C.C., thought people should be able to sign standard form contracts without worrying about unfairness.

Gives courts sweeping statutory authorization to refuse to enforce all or parts of contracts for the sale of goods if "the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made"

Unconscionability Who makes determinations regarding unconscionability?


Judges make the determination, not juries.

Examples: unconscionability has been found in warranty disclaimers particularly when physical injury results, remedy limitations,

Basic Test: In the Light of the general commercial background and the commerical needs of the particular trade or case, the clauses are so one-sided so as to be unconscionable at the time if the making of the K. -The goal is prevention of oppression and unfair surprise and not disturbance of the allocation of risks because of superior bargaining power.

Unconscionability When must unconscionability be present?


It must be present at the time the contract is made, not something that arises later due to circumstances.

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Unconscionability What rights does the seller have when accused of unconscionability?

U.C.C. Sec 2-302(2) (Unconscionable Contract or Clause)

The seller has the right to at least present evidence on his own behalf that there were legitimate reasons for the way the agreement was structured:

Unconscionability What may the court do if it finds a contract or term unconscionable?

U.C.C. Sec 2-302(2) (Unconscionable Contract or Clause)

-It may refuse to enforce the K-It may enforce the remainder of the K without the unscionable clause-It may limit the application of the clause as to avoid unconscionable results

Unconscionability

Which Restatement provision incorporated the unconscionability doctrine first put to paper in the U.C.C.?

Restatement 2d Sec 208 (Unconscionable Contract or Term)

Negotiation & Formation

Role of Courts What is the role of Courts? Courts must enforce certainty in contracts. Not role of courts to revise when should be construing.

Offer/Acceptance Under Common Law, what effect does a Counteroffer have?

Restatement 57(Effect of Equivocal Acceptance)

Restatement 59 ( Purported Acceptance Which Adds Qualifications)

Restatement 61 (Acceptence which Requests Change of Terms)

57) Acceptance must be unequivocal 59) If an acceptance adds terms, a counteroffer is made (Mirror Image Rule). 61) If an acceptance merely requests additional terms, it is still a valid acceptance Once a counteroffer is made, it voids the original offer unless there is an option.

Offer/Acceptance Under the UCC, what affect does an acceptance w/ material differences do?


Abolishes "Mirror Image Rule". Knock out rule for different terms. Additional terms may enter contract.

Mistake What is Misunderstanding? Restatement 20 (Effect of Misunderstanding)

Non-deliberate attachment of materially different means by one or both parties. Tension between "ambiguity" and attaching different meanings.

3 Possible Scenarios for Misunderstanding:Clear (SJ) -> Ambiguous (Judicially interpreted) -> Misunderstanding (No K)

Offer/Acceptance What constitutes acceptance of the offer?

UCC 2-206 (Offer and Acceptance in Formation of Contract)

Restatement 30 (Form of Acceptance Invited)

Restatement 62 (Effect of Performance by Offeree)

206) (1)unless unambiguously indicated, any manner or medium reasonable in the circumstance works.(2) an order for a prompt shipment invites acceptance by promise to ship or prompt shipment, BUT a shipment of non-conforming goods does not constitute acceptance if seller notifies buyer that it is only an accommodation(2) where beginning of performance is reasonable, if buyer is not notified of acceptance within reasonable time, may treat offer as lapsed before acceptance

30) (1) may require acceptance by words, performance, or may allow offeree to make selection of terms(2) unless indicated, any reasonable manner is acceptable

62) where offere invites accpetance by promise or performance, the tender or beginning of it is an acceptance by performance(2) such acceptance operates as a promise to render complete performance

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Promissory Estoppel Effects of Reliance Restatement 90 (Promise Reasonably Inducing Action or Forbearance)

Promissory Estoppel- When a promise to perform is reasonably relied upon- may make an otherwise unenforceable contract enforceable (circumvent statute of frauds).

Arrango v Success Roofing (1986)When sub-contractor reneges. Reliance meant had to pay damages.

Two different approaches- Judge Learned Hand: No contract if reneges. Could have created bilateral contract beforehand.Judge Traynor: Reliance makes the sub-contractor's bid irrevocable.

Implied Terms Oral Agreements that contemplate written contracts.

Restatement 90 (Promise Reasonably Inducing Action or Forbearance)

Oral agreements enforceable if parties are beyond a preliminary stage, foreseeably rely, and history of doing business like this.

Situation Management v Maloof (2000)Oral agreement to give 5 year contract if P buys another company. D reneged, P had relied upon.

Formation Letters of Intent- How do they come out?

Restatement 26 (Preliminary Negotiations) Restatement 27 (Existence of Contract Where Written Material is Contemplated)

Mutual manifestation of intent may be a K, but other facts may show manifestations are merely preliminary expressions (RS 27). Not a K if other party has reason to know not really interested (RS 26).

Arnold Palmer v Fuqua (1976)Letter of intent to merge. Since board approval was mere formality (Fuqua controlled board), there was a K. Also made a press release that there was a K. Empro v Ball-Co (1989)Came out opposite from above case. Basically condition requiring shareholder approval was not formality. Not a K, merely K not to negotiate w/ other people.

Terms Agreements to Agree and Open Terms.


UCC 2-305 (Open Price Term)

(By analogy for both)Restatement 205

Even if no price term is included, there is still a K (2-204). If parties do not intend to form K w/o price, then no K (2-305). RS 205 imposes an obligation of good faith for all contracts.

City of Kenai v Ferguson (1987)55 year lease at airport. City raised price very high. Duty to negotiate non-set price terms in good faith.

Good Faith Good Faith in Contract Formation UCC 1-304Restatement 205

Every contract imposes upon its parties good faith in its performance

Racine v Dept' of Parks (1992)P entered agreement to operate park. Wanted to build restaurant, but negotiations broke down. Good faith limited to complying with terms- can't create additional terms not comtemplated by K.

Obviously difference between California and New York here.

->This could have been decided by reliance, but due to relationship w/ contractors/ subs, put under good faith.

New England Insulation v General Dynamics Corp. (1988)Rare pre-contractual violation of good faith. Engaged in sham negotiations and showed P's bid and specs to other competitors.

BoF 2-207 Too big to cover here- see seperate attachment/ go over in group. Battle of the Forms.


If nothing is made expressly conditional in counter-form, not a counteroffer.

Gardner v Zemke (1993)P and D sent contrasting form. P claimed form was controlling- b/c D's form was not expressly conditional.

Lesson of day:Adding different terms = knockout rule. Point is to try not to let the last sender have an advantage.

BoF



If different terms, do not get included (2-207). But contract exists even if exact moment of creation cannot be pinpointed (2-204).

Step-Saver Data Systems v Wyse Technology (1991)Box-top contract for software. When was contract made? By telephone, or when opened box? Should telephone convo be a contract? Or box-top? Hill v Gateway (1997)P purchased computer over phone, came in box with terms. Must return in 30 days otherwise accept. Rolling contract OK-even if small burden.

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Terms How should one begin to ascertain the meaning the meaning of terms in the parties' agreement?

UCC 1-303 (Course of Trade, Performance, and Usage of Trade)

303)(d) "a course of performance or course of dealing between the parties or a usage of trade in the vocation or trade in which they are engaged or should be aware is relevant in ascertaining the meaning of agreement"

-may give particular meaning to specific terms-may supplement or qualify the terms

Usage of Trade: any practice or method of dealing regularly observed in a trade.

Course of Dealing: conduct of previous transactions between the parties that establishes a common basis for a particular transaction.

Course of Performance: sequence of action after or under the agreement in dispute

NOTE: UCC rejects using a dictionary or legal definition approach and rather uses the commerical context in which the terms were used.

Terms

What if the construction of course of trade, performance, and trade usage are not consistent with each other?

UCC 1-303 (Course of Trade, Performance, and Usage of Trade)

303)(e) the course of trade, performance, and trade usage should be construed as consistent with each other when reasonable.-When not reasonable, the following order:(1) express terms (2) course of performance (3) course of dealing (4) trade usage

NOTE: Only after the parties have not agreed after examining their language or inferring from other circumstances does the UCC fill in points that parties have not considered and in fact agreed upon.

Terms Carnival Line v Shute (1991)Clause that forum state would be far from P. No duress, so controls.

Unsure of how this one fits in....

Interpretation Reasonable Expectation doctrine Restatement 211 (Standardized Agreements)

If one party had reason to know that other side would not consent to K if term was in it, that term is excluded.

C&J Fertilizer v Allied Mutual Insurance (1975)Break-in at plant, P of limited education. Definition of burglary was extremely limited. P could not have expected this.

Extremely rare, usually only enforced when different bargaining power.

Interpretation Contra Proferentem Rule holding that in instances of contractual ambiguity, should be construed against drafter.

Encourage drafters to write comprehensibly. All things equal, better to hold source of confusion liable.

Statute of Frauds

SoF What is subject to the SOF's requirement of sufficient writing signed by defendant?

Restatement 110 (Classes of Contracts Covered)

UCC 2-201 (SoF)

110) Transfer of land, $500 or more, not to be performed within 1 year, long-term leases, creditor-debtor dealings, consideration for marriage.

2-201) K for sale of goods of $500 or more, quantity not enforced above stated amount Exceptions: -w/ merchants confirmation within reasonable time and receiver has reason to know of its contents unless objection w/in 10 days or receipt -specially manufactured goods, that are not suitable for sale to to others, and before notice of repudiation the seller makes a substanital beginning or commitment for procurement, and the circumstances reasonably indicate that the goods are for the buyer. -admittance in pleadings, -payment has been made/ accepted (performance)or goods have been received and accepted

C.R. Klewin v Flagship Properties (1991)P contracted D to build. Agreement publicized and taped. Began performance within a year, but then wanted to get out of. Because oral contract did not specify that was impossible to do in a year, statute of frauds did not apply. example: after phone order for 100 widgets, the seller sends a confirmation that names the quantity, B fails to object and had reason to know of the contents example: The partial acceptance of 4 fridges substitutes for a writing signed by the buyer but the 6 units which have not been accepted are not supported. example: Buyer sends a check for $2,000 for 4 machines and the seller cashes it, this substitutes for a signed writing on 4 machines.

The point: many judges think statute of frauds old fashioned, so will restrict use greatly. Unless a contract specifies performance will not begin in one year, then even if practical impossibility to perform in a year, Courts will say could be performed in a year. NOTE: Just because the SOF does not apply to the confirmation letter, the seller must still prove that there was an oral K made.

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SoF What type of writing required for the SoF?

UCC 2-201 (SoF)

Restatement 132 (Several Writings)

201)Writings must be sufficient to show contract has been made, signed by party against whom performance sought, specify quantity, many documents may be combined where one would not work alone . -A writing is not insufficient because it omits or incorrectly states a term agreed upon -The K is not enforceable beyond the quantity of goods shown in such writing 132)Signature need not be manual- letterhead suffices (RS 132)

Migerobe v Certina USA (1991)P contracted to buy watches from D- oral contract. Integration of D's documents enough to show contract- two signed.

In this regard 2-201 functions as an evidentiary rule. Main concern finding a contract existed.

SoF Exceptions to Statute of Frauds written requirement

UCC 2-201(2) & (3) (SoF)

Exceptions:-Parties concede to K in court-Between merchants: Receiver doesn't object to confirmation in 10 days-Goods Specially manufactured and not suitable for sale to others and the seller has made either a substantial beginning of manufacture of commitments for their procurement-Performance: Made and accepted payment, or received and accepted goods

ConAgra v Nierenberg (2000)Farmer said would sell grain orally, confirmation was sent, didn't respond in 10 days, then tried to sell to someone else. Court did not allow statute of frauds to be used as a defense b/c of confirmation exception.

Evidentiary rule once again

SoF Statute of Frauds v Promissory Estoppel

UCC 2-201 (SoF)

Restatement 139 (Enforcement by Virtue of Action in Reliance)

When the statute of frauds conflicts with promissory estoppel (ie, relied upon oral contract), UCC should win. Otherwise, would undermine statute of frauds entirely.

Lige Dickson v Union Oil Co. (1981)Oral contract to purchase asphalt. D raised price, P sued. P relied on representations, but since unwritten, statute of fraud said no contract.

When the statute of frauds seems to help committ fraud Revised UCC may allow PE to overcome Statute of Frauds, but demands more "substantial reliance.”

SoF Can you orally modify a written ccontract governed by the SoF?

UCC 2-209 (Modification, Recission, and Waver) Restatement 149 (Oral Modification)

UCC 2-209(3): If there has been acceptance of the goods, you can introduce parol evidence to show that the contract was orally modified

149) the modified contract would take place of the old one

In Brookside v. Mama Rizzo’s, the court allowed Brookside to show that the contract had been orally modified because the amount was over $500 and the goods had been accepted.

This only works for goods delivered in the past. This cannot be shown for goods to be delivered in the future.

Assignment/Delegation May the seller or buyer delegate their performance to a 3rd party?

UCC 2-210 (Delegation of Performance; Assignment of Rights)

Restatement 318 (Delegation of Performance of Duty)

210) (1) Buyer and seller may always delegate their performance,- unless they agree otherwise or-unless the other party has a substantial interest in having the original promisor perform or control the acts required by the K.

318) yes, unless contrary to public policy or terms of his promise OR the obligee had a substantial interest in particular person perform

example: A contracts with B to make cookies, B then delegates his performance to make cookies to C

In Contemporary Mission v. Famous Music Corp.,

Policy: delegation of performance is recognized as a normal and permissible incident of K for the sale of goods so long as there is no substantial reason why the delegated performance will not be satisfactory as personal performance.

Assignment/Delegation Does delegation to a 3rd party relieve the original party from duty to perform or liability?


Restatement 318 (Delegation of Performance of Duty)

Restatement 329 (Repudiation by Assignor and Novation with Assignee)

210) (1) No delegation of performance relieves the party delegating of any duty to perform or any liability for breach

318) unless obligee agrees otherwise does not discharge duty or liability

329) where obligee agrees to to accept performanse by the delegated person, the K is said to be "novated" aka the obligor is relieved of liability for performance and drops out of the picture

In Contemporary Mission v. Famous Music Corp., the transfer of its record to ABC to not get it off the hook.

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Assignment/Delegation

Can you delegate a duty to someone if the other party really wanted the original promisor to do it?


Restatement 318 (Delegation of Performance of a Condition)

If the party has a substantial interest having the original promisor perform. . . .then NO

Example: You contract with a certain brain surgeon

Assignment/Delegation What should a party do if it is worried about the 3rd party's ability to perform?


(5) demand assurances from the assignee (UCC 2-609)

Assignment/Delegation How do you construe a prohibition of assignment of "the contract"?


Restatement 322

210) (3) unless the circumstances indicate otherwise, it only bars delegation of performance

322) (1) Same as above

In Contemporary Mission v. Famous Music Corp., there was a non-assignability clause in the Virgin K. The Ct. held that it barred delegation of performance.

Assignment/Delegation How do you construe an assignment of "the contract" or of "all my rights under the contract'?


Restatement 328 (Interpretation of Words of Assignment; Effect of Accpetance)

210) (4) assignment of all rights and unless circumstances indicate otherwise, it is also a delegation of performances.

328) operates as a promise to perform delegated duties and and acceptance of the assigned rights

Assignment/Delegation May the rights of the seller or buyer be assigned to a 3rd party?


Restatement 317 (Assignment of a Right)

210) (2) All rights of seller or buyer can be assignedUnless the assignment would:1. materially affect the duty of the other party2. increase the burden or risk imposed on the other party3. impair the other party's chance of obtaining return performance4. the parties have agreed to no assigments

317) A contractual right can be assigned. . . Unless it would:ANY of the above OR- materially reduce its value to obligor- the assignment is forbidden by statute or is inoperative on grounds of public policy

example 1: A contracts to sell B "all B's requirements of widgets from Dec. 1 to Jan. 1". . . B then assigns its right to C. Assuming they have different requirements, this could not be assigned b/c it would materially affect A's duties.

example 2: A sells to B per B's quality standards. B assigns to C, who has much higher standards. . . (this increases the burden) or the Sally Beauty Products case where Ct. found K to distribute could not be assigned to wholly owned subsidiary of a direct competitor. . . (increase risk)

example 3: Seller who has continuing obligation in regard to goods already delivered under K by which Buyer is to pay at least part of price at future dates. . .(such an assignment may diminish the seller's interest in continuing performance)

Note: the following two rights can be assigned even if the parties have agreed otherwise:-a right to damages for breach of whole K-a right arising out of the assignor's due performance of its entire obligation

example: A fulfills its obligation to to tender or deliver and B wrongfully rejects. A may assign its right to payment even if the agreement prohibits assignment.

'Assignment/Delegation The other party consented to assignment/delegation, can they object later?

Restatement 323 (Obligor's Assent to Assignment or Delegation)

-A term of a contract manifesting obligor's assent is effective despite any subsequent objection

-manifestion after the formation of the contract is effective if made for consideration or if change of position takes place in reliance on the manifestation

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3rd Party Beneficiary What 3rd parties are covered by expressed and implied warranties?

UCC 2-318 (Third Party Beneficiaries of Warranties Express of Implied)

3 Alternatives to extend expressed and implied warranties:

(A) any natural person who is in the family or household of the buyer or who is a guest in his home if it reasonable to expect that such a person may use the good and is injured in person by breach of warranty.

(B) any natural person who may reasonably be expected to use the good and who is injured in person by breach of the warranty.

(C) any person who may reasonably be expected to use the good and who is injured by breach of the warranty.

Note: Alternative C is quite broad as it allows a corporation to sue and the person does not have to be injured in person. Alternative A seems to limiting in terms of parties.

Note: The 3rd party steps into the shoes of the buyer, if there are terms that limit the warranty then they will apply to the 3rd party too. Limits on physical injury are usually invalid.

3rd Party Beneficiary Can members of the public sue a government contractor for consequential damages?

Restatement 313 (Government Contracts)

(2) No, not subject to contractual liability for consequential damages resulting from performance or failure to perform.

A contracts with the city to maintain a certain pressure for the fire hydrants. A member of the public cannot sue b/c failure to maintain pressure led to his house burning down.

3rd Party Beneficiary What 3rd parties can sue to for breach of K?

Restatement 302 (Intended and Incidental Beneficiaries)

(1) Must be an intended beneficiary and either:-performance satisfies obligation of promisee to pay the beneficiary (Pay my Creditor)-circumstances indicate the promisee intends to give the beneficiary the benefit of the promised performance (Donee Beneficiary)

In Lawrence v. Fox, Lawrence was an intended beneficiary Holly had an obligation to pay Lawrence

Note: Many can be incidental beneficiaries, but few are intended

3rd Party Beneficiary Can the parties make the right of a 3rd party intended beneficiary irrevocable?

Restatement 311 (Variation of a Duty to a Beneficiary)

(1) can put in terms that discharge or modification of a duty to an intended beneficiary ineffective.

3rd Party Beneficiary Can the parties change the agreement so there is no longer an intended beneficiary?

Restatement 311 (Variation of a Duty to a Beneficiary)

(2) in the absence of an irrevocable term, parties retain the power to discharge or modify the duty to the intended beneficiary(3) Unless, the intended beneficiary learns of the duty and justifiably relies on it first, brings suit on it, or manifests assent to it at the request of a party

3rd Party Beneficiary What kind of defenses can be made against an intended beneficiary?

Restatement 309 (Defenses Against the Beneficiary)

1. if the the K was voidable or unenforceable at the time of formation2. if the K ceases to be binding in whole or part b/c of impracticability, public policy, non-performance of a condition, or present or perspective failure of performance3. limited b/c of beneficiaries own conduct or agreement

Conditions What is an implied condition Restatement 237 (Effect on Other Party's Duties of a Failure to Render Performance)

In a bargain that is an exchange of promises, it is implied that the promise that comes second in the timeline will only be performed if the promise that comes first in the timeline is performed.

(this was in the notes only)

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Repudiation What can a seller do when the buyer revokes acceptance of goods or repudiates the contract?

2-703 (Seller’s remedies in general)

(a) withhold delivery of such goods;

(b) stop delivery by any bailee as hereafter provided (Section 2-705);

(c) proceed under the next section respecting goods still unidentified to the contract;

(d) resell and recover damages as hereafter provided (Section 2-706);

(e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709);

(f) cancel.


Repuditaion What can a buyer do when a seller fails to make delivery or repudiates?

2-711. (Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods)

( 1) buyer can cover or recover for damages for non delivery (2) recover or replevy the goods (3) hold the goods and resell if goods are in buyer’s possession.


Conditions What is a condition in a contract? Restatement 224 (Condition Defined)

A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.


Conditions What happens if a condition in a contract is not met?

Restatement 225 (Effects of the Non-Occurrence of a Condition)

The contract can be broken by the person whose performance is dependent on the condition.

In Merritt Hill Vineyards v. Windy Heights Vineyards, there was a condition in the contract that the seller must provide proof of insurance and mortgage confirmation by closing. This condition was not met, and the contract was able to be cancelled by the buyer.

Conditions Is it a condition, or is it a promise? Restatement 227 (Standards of Preference With Regard to Conditions)

A term should be interpreted as a promise unless the event is within the obligee’s control or the circumstances indicate that obligee has assumed the risk.

*cmmt b:the test is whether a particular interpretation would have avoided the risk of forfeiture at the time the contract WAS MADE.

In Howard v. FCIC, the clause about not disking the destroyed crops was unclear, and was decided to be a promise, rather than a condition which would have caused total forfeiture of Howard’s remedy.

Conditions What if a condition causes substantial forfeiture to one of the parties?

Restatement 229 (Excuse of a Condition to Avoid Forfeiture)

A court can excuse the non-occurrence of a condition unless its occurrence was a material part of the agreed exchange.

In Jacobs…

Conditions Can a condition be waived? Restatement 84 (Promise to Perform a duty in spite of non-occurrence of a condition.)

An obligor can waive a condition, and if the condition is not met by the obligee, the contract can still stand.


Conditions What is a contract holds that the seller’s performance must be to the buyer’s satisfaction?

Restatement 228 If it is practiceable to determine if a reasonable person would be satisfied, that standard should be used.

In Morin Building Products v. Baystone Construction, it was more practiceable to use an objective standard because the contract would not likely have considered aesthetics upon approval.

Breach What if a seller does not deliver after buyer pays, and the goods have been identified in the K?

UCC 2-716(3) (Buyer’s Right to Specific Performance or Replevin)

If you can’t cover for the goods, you can replevy them. (this was in the notes only)

Repudiation What happens if one party repudiates the contract?

Restatement 253(2) (Effect of a Repudiation as a breach and on other parties’ duties)

A repudiation of the contract discharges the other party’s duty to perform and gives him a right to commence suit for breach of the entire contract.


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Breach How do you determine if a breach is material?

Restatement 241 (Circumstances Significant in Determining Whether a Failure is Material)

There are 5 factors to look at. LOOK AT THEM!

In K&G v. Harris, the subcontractor’s destruction of the wall of a the contractor’s house was a material breach of their duty to perform in a workmanlike manner.

Breach How does the party who has been breached know if their remaining duties are discharged?

Restatement 242 (Circumstances significant in determining when remaining duties are Discharged)

(b) if a delay would cause problems making suitable arrangements or

(c) if performance by a certain important day is not fulfilled…

DISCHARGED!

In K&G v. Harris, the contractor could not break the contract immediately after the breach. There is usually a period for cure unless performance cannot be done because time is passed.

Breach Can a seller cure improper delivery?

UCC 2-508 (Cure by Seller of Improper Tender or Delivery)

Seller can cure if…

time for performance has not expired and buyer has been timely notified


breach If the other party has an uncured material breach, do I still have to perform?

Restatement 237 (Claims for Damages for Total and for Partial Breach)

If the other guy materially breached, you don’t have to perform.

In K&G v. Harris, the contractor did not have to pay the subcontractor after the wall was destroyed because it was a material breach.

Repudiation How can you tell if the other party repudiates?

Restatement 250 (When a Statement or act is a Repudiation)

If the party (a) makes a statement that they will commit a breach or (b) a voluntary affirmative act which renders the obligor unable to perform.

The stud-owner in Taylor v. Johnston repudiated his horse husbandry contract by selling his stud horse to another party after he made the stud contract with the mare owner.

Breach Can repudiation be retracted? Restatement 256 (Nullification of Repudiation or Basis for Repudiation)

If the other party has not relied on the repudiation, it can be retracted.

In Taylor v. Johnston, the horse stud owner retracted his repudiation and tried to arrange for the mares to be bred.

Breach

When is it proper to seek assurance that a contract will be performed?

If no assurance is given, is it a repudiation?

UCC 2-609 (Right to Adequate Assurance of Performance.)

Restatement 251 (When a Failure to Give Assurance may be treated as repudiation)

2-609) When there are reasonable grounds for insecurity

251) the obligee can treat non-assurance within a reasonable time as repudiation

In Koch Materials v. Shore Slurry, the plantiff had one of their deals assigned to another company, and rightfully demanded assurance of proper performance. When assurance was not given, the plaintiff rightfully judged it as a repudiation.

Breach If a party breaches unwillfully, can he have some leeway?

Restatement 241(e) (Circumstances in Determining Whether a Failure is Material)

If a party accidentally breaches in good faith, it may not be judged as a material breach.

In Jacob and Youngs v. Kent, the builder mistakenly put in the wrong brand of pipe. This was judged not to be a material breach in order to avoid overly harsh consequences.

This was a Cardozo decision. He gave the builder a bit of leeway by imposing his own moral standards on this case.

Reliance

If a party’s purpose is frustrated/made impossible, and the party has already spent money in reliance of the purpose as a down payment/advance to the other party, can he get restitution?

Restatement 272 (Relief Including Restitution)

If you’ve spent money in reliance on a contract which becomes frustrated/impossible, you can get some money back.

(this was in the notes)

Purpose of remedies What is the "central objective" behind our system of contract remedies?

Restatement 356 "The central objective behind the system of contract remedies is compensatory, not punitive"

Purpose of remedies When might punitive damages be available in a contracts case? Restatement 355 Only when there is a tort connected with the breach, as well

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Measure of damages in general

What is the general framework for which

Restatement 347

Subject to limitations stated in Sec. 350-53, the injured party has a right to damages based on his expectation interest as measured by:(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus(b) any other loss, including incidental or consequential loss, caused by the breach, less(c) any cost or other loss that he has avoided by not having to perform

Lost volume sellers What is a lost volume seller? U.C.C. Sec. 2-708(2)

A lost volume seller is a seller who cannot effectively mitigate his damages after a breach because he would have made the second sale anyway. This is often the case when the seller has an unlimited (in theory) amount of products to sell, as opposed to someone who is selling something unique.

Reliance damages Under what circumstances can an aggrieved party pursue reliance damages?

Restatement 349

Reliance damages include "expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed."

Expectation damages

When a part to a contract has been aggrieved in some manner, what damages may he be owed to place him in the position he would have been in had the contract been fully performed?

Incidental and Consequential Damages

What is the difference between the two?

U.C.C. 2-715 (Buyer's Incidental and Consequential Damages)

Incidental damages are those incurred by reasonable inspection or delivery costs or other expenses directly related to the breach. Consequential damages are those indirectly related damages which the seller could reasonable have foreseen at the time of exchange.

In Manourchehri v. Heim (the X-Ray case that we didn't talk about in class), the buyer claimed $2,500 in lost business. These were consequential damages.

Specific Performance When is it warranted instead of monetary damages?

U.C.C. 2-716(1) (Buyer's Right to Specific Performance or Replevin)

The U.C.C. says that specific performance is available when the "Goods are unique or in other proper circumstances." Obviously this is open-ended, and it's more instructive to look at a case. One thing that might trigger specific performance is if it is very difficult or impossible to figure out damages. Know this, though - specific performance as a remedy is quite rare.

The mall case of Walgreen Co. v. Sara Creek Property Co. covers a specific damages case. Walgreen drug store does not want Phar-More to come into an empty storefront at the mall, which would break its contract that says it is the exclusive pharmacy at the mall. The mall developer just wants to pay damages, but Walgreen does not feel that this is adequate.

Judge Posner wrote the decision in this case and gave a very good description of when and why injunctions might be the proper remedy ("Here damages would be a costly and inaccurate remedy"), mostly relating to trying to keep the overall efficiency balanced.

Liquidated Damages What limits does the Restatement place on liquidated damages clauses?

RST 356(1) (Liquidated Damages and Penalties)

Liquidated damages must be "reasonable." The Restatement believes that high liquidated are against public policy. This is also because they usually go against the buyer and favor the seller (who is attempting to keep his damages to a minimum).

Liquidated Damages

What does the U.C.C. think about using liquidated damages to enforce penalties for non- or under-performance?

U.C.C. 2-718(1)

Using the same "reasonableness" mandate as the Restatement, the U.C.C. says that liquidated damages clauses should not be used as a penalty: "A term fixing unreasonably large liquidated damages is void as a penalty."

Cover What does "cover" mean for a buyer seeking a remedy for a breached contract?

U.C.C. 2-712 ("Cover"; Buyer's Procurement of Substitute Goods")

An aggrieved buyer may try to "cover" his damages by purchasing comparable goods on the open market. This way, he still meets the "essential need" of fulfilling a third-party contract that he has made. He then can seek the price difference between the cover goods and the contract as his remedy. (together, of course, with any incidental and consequential goods)

This comes up in the KGM Harvesting Company v. Fresh Network case. This is when the seller breached on his delivery of lettuce and sold to someone else instead.

A buyer who covers waives the right to sue under 2-713. You can't cover, then try to sue under 2-713 because the market price suits you better.

Market Price Damages What is the difference between market price differential and cover?

U.C.C. 2-713 (Buyer's Damages for Non-Delivery or Repudiation)

To recover under 2-713, an aggrieved buyer simply uses the difference between the market price and the price of the goods that he were not delivered.

Note that the market price used is the market price "when the buyer learned of the breach."

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UCC - Restatement Field Guide

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