Contracts: Roy

Contracts Outline: Roy Fall 2010Knapp, Crystal, and Prince, Problems in Contract Law 6th EditionThompson

Contract- a promise the law will enforce A promise or set of promises for the breach of which the law gives a remedy

Contract Questions: 1) Is there a contract? (agreement in fact) 2) Is there an enforceable obligation? (agreement as written) 3)What are the terms? (rights and duties created by 1 and 2).

Offer and Acceptance-can be called a concurrence of wills or ad idem (meeting of the minds)…the obvious objection is that a court cannot read minds. Mutual Assent-legal doctrine in every contract each party must agree to the same thing, must know what the other party or parties intended, and must mutually assent to be in agreement

A bilateral contract - formed when the parties exchange promises of performance to take place in the future: Each party is both a promisor and a promiseA unilateral contract-only one party (the offeror) would be a promisor, and the offeree’s rendering of performance would also constitute her acceptance of the offer. *This affords maximum protection to the offerorImplied in fact - the circumstances imply that parties have reached an agreement, but it’s not expressly said. For example, by going to a doctor for a checkup, a patient agrees that he will pay a fair price for the service Implied in law (quasi-contract) the courts remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other.

In 1677 The English Parliament enacted what is commonly referred to as the “statute of frauds”-requires writing

Sources of Contract Law: Common Law The Uniform Commercial Code has become the major statue with general importance to all phases of contract

law. Applies in some variation in all states. o Revised in 1940 with the help of Professor Llewellyn- effort to make law applicable to commercial

transactions...*all or part of the UCC has been adopted and is now in force in every American state. o Prevails in Ks for the sale of goods (all things movable-most tangible things). Does not apply to land, but

goods associated with real estate may fall under Article 2. If a K involves both goods and services use “predominance” test

o Most provisions apply to anyone, but some require a person to be a merchant Restatement of Contracts 2nd-project began by the American Law Institute; “black-letter” statements of the

general rule; a secondary authority, but with a high persuasion level

Two approaches to Contract law:1. Classical Approach- Objective Theory of Contract- thoughts and intentions don’t matter–What would a

reasonable person have thought? Ray v. Eurice Bros- Duty to read rule.2. Modern Approach- tries to be fair, looks at intent of parties; progressive, but not in the sense that it replaces the

classical

The Restatement (2nd) §17 -a bargain in which there is a manifestation (expression) of mutual assent (agreement) to the exchange and a consideration; *K doesn’t require bargaining i.e. internet agreements in which you check a box (adhesive).

What promises ought to be enforced? (1) Formality (and the seal—in the old days it had to be written, signed, sealed, and delivered…over time the seal got watered down); (2) Consideration; (3) Foreseeable, justifiable reliance (in the absence of consideration); or (4) Charitable subscriptions What promises aren’t enforced? Promises made (1) under duress; (2) by children or by people who are not mentally competent; (3) that are unjust or that shock the conscience; or (4) as gifts.

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I. FORMING A CONTRACTa. OFFER- must create a reasonable expectation in the offeree that the offeror is willing to enter into a K on the basis of

the offered terms; there must be intent. Ct looks to language (definite and certain terms capable of being enforced), surrounding circumstances, and prior practice and relationship of parties

The broader the communicating media, the more likely it is that the cts will view the communication as merely a solicitation of an offer. It must be communicated to offeree so that offeree has knowledge of the offer

The following are important: (1) identity of offeree; (2) the subject matter; (3) the price The fact that one or more terms are left open does not prevent the formation of a K if intent is clear and there is

a reasonably certain basis for giving a remedy. The majority of jurisdictions and Art 2 hold that the ct can supply reasonable terms (presumption cannot be made if the parties have included a term that makes K too vague to be enforced)

i. INTENTION TO BE BOUND: Objective Theory of Contract1. Ray v. Eurice Bros. –P wants to build home; selected Eurices who signed contract with a clause stating

specifications. D then claimed he could not build the house. Trial ct. found a miscommunication: no K bc no meeting of the minds. Ct has to determine intent objectively; “absent fraud, duress, or mutual mistake, a party who signs a written contract with or without reading it is bound by his signature.” Duty to read-it doesn’t even matter if the specifications were attached bc it’s their duty to figure out what the specifications mentioned are. *Holmes-the law must go by externals.

ii. TERMINATION OF OFFER- Methods of communication: direct communication (or comparable means that the offer was made i.e. publication) or indirect communication if offeree receives correct information from a reliable source of acts that would indicate to an RPP that the offeror no longer wishes to make the offer

1. IT MUST BE AN OFFER TO BE ACCEPTEDa. Lonergan v. Scolnick: Mail correspondence about sale of land (ad placed in the paper). Ct found

only an invitation for offer. D told him to decide quickly because he expected to have a buyer within a week. D sold the property four days later, without knowing this, P responded that he accepted. Ct looks at words used-D’s language indicated no definite offer just a “first-come-first-serve” statement (even K that uses “offer” may not be held out legally as an offer). **here the ct was more inclined to rule for D bc of P’s lack of timely acceptance

o R. § 26- Preliminary negotiations are not an offer until promisor has made a further manifestation of assent. Must be mutual assent- meeting of the minds, reasonable.Series of communications –you use the offer where it crystallized and you reference everything that has happened up to that point

o R. § 25 - claiming that in order for the letter to be a final offer there had to be no ambiguity. It would have full force and single-mindedness on intent.

o §63 The “Mailbox Rule” - applies to post and probably faxes, not e-mail. Acceptance is valid when dispatched/sent, unless the offer provides otherwise. It must be properly addressed w correct postage.

If the mailbox rule is negated bc the method of acceptance used was not invited then the acceptance is effective on receipt

§65- medium of acceptance must be reasonable and thus invited by the offer.o §42 -revocation (act of recall or annulment-eliminates the power of acceptance) is valid

when received- it would be unfair to the offeree to have it effective before the offeree receives it; §40 – rejections and counteroffers are also effective upon receipt **OFFER, REJECTION, AND REVOCATION ARE ALL EFFECTIVE UPON RECEIPT

o The modern trend discards mailbox rule and focuses on need of offeree to have a firm basis for action in reliance on the effectiveness of her acceptance once it had been dispatched

2. COUNTER-OFFERS ERASE INITIAL OFFERSa. Normile v Miller: Seller rejects first offer with a counteroffer (mirror image rule-if acceptance

doesn’t mirror original then it’s a counter offer). Purchaser doesn’t accept or reject. 2nd purchaser then made an offer which was accepted. 1st purchaser (already being told “you snooze you lose,”) then accepts the counter-offer. After counter-offer the power of acceptance was then on 1st

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purchaser, who waited, thinking they had an ‘option’, which they didn’t. A contract is not an option unless there is a time attached to it.

3. REVOCATION OF UNILATERAL KSa. Petterson v Pattberg: Offeror revokes offer when Offeree attempts to pay off mortgage.

Any offer to enter into a unilateral K may be w/drawn before the act requested has been performed. If offeror can say “I revoke” before offeree accepts, however brief, offer is terminated (seen in §42). Classical Doctrine.

o Minority Modern View: D made performance impossible. If promisor is the cause of the failure of performance, he cannot take advantage of the failure. 

o § 32 – When in doubt, cts should conclude the offeror intended to allow the offeree to accept either by making a return promise or by rendering the performance requested by the offeror (Try to interpret every K as if bilateral if possible.) Exception: when offeror clearly only sought an act in exchange for the promise.

o § 45– If there’s consideration then it’s an option K as soon as offeree begins or tenders performance. Offeror’s duty only exists on the completion, but revoking right is gone. (Petterson might think that his quarterly payment was consideration for the promise to hold the offer open. That’s wrong. Making that quarterly payment was a preexisting legal duty).

o § 43— If I get an indirect communication of a revocation, and the information I get is reliable, then I can’t accept anymore.

o Objection to Unilateral Contract: It’s hard upon B that he should walk half way across the bridge and not get compensation, but hard cases should not make bad law. B is not bound to continue to cross the bridge, so if B is free-willed, why should A not be

4. LIMITATIONS ON OFFEROR’S POWER TO REVOKE: (1) Option K-distinct K in which offeree gives consideration for a promise by the offeror not to revoke; (2) Merchant’s firm offer: merchant in writing w assurance to hold offer open for stated time or reasonable time; (3) Detrimental reliance-if offeror could reasonably expect offeree to rely K is open for reasonable time; (4) Part performance-unilateral Ks aren’t solidified until complete performance, but once performance has begun, offeree is given reasonable time to complete performance

i. Izadi v. Ford - Deceptive Ford ad attempted to “bait and switch” customers. Deceptive ads will be viewed as binding offers. Objective- RPP’s interpretation of ad. Normally, ads are held to be not offers, but merely solicitations/ invitations for offers…decision made on policy grounds.

ii. Cook v Coldwell Banker-Er offers bonus program to be paid at the end of the year if ees sell certain amount. Changes pay date to March. P left before March, but after the end of the bonus year. D tries to revoke claiming P did not accept. § 45- can’t revoke after part performance b/c option K is created. Remedies: Relief of expectation interest, restitution or reliance (extent to which D has been enriched), specific performance (simplest)

iii. James Baird v Gimbel Bros-D sent sub-contractor offer to P to supply linoleum for construction project; P used offer in his general bid. D later revoked realizing mistake, but bid was placed and the general bid was accepted shortly after. Promissory estoppel cannot be asserted to compel an offeror to perform where the offer is not meant to become a binding contract until consideration has been received. PE is used to avoid harsh results allowing promissor to repudiate when promisee has acted in reliance. D offered in exchange for P’s acceptance, not in exchange for P’s bid on the general contract. **This case has since been overturned by Drennan v. Star Paving.

iv. Drennan v Star Paving Co-P was awarded the contract for a job; next day went to D & said he couldn’t do the price quoted ($7K changed to $15K). P looked for another K (lowest he could find was $11K). Judgment required D to pay the difference. Subcontractor’s bid to General used in reliance in preparing a big bid is enforced under PE. It must be “reasonably foreseeable” that General will use subs bid in his offer. If P would have known mistake it wouldn’t be enforceable. Modern **applying PE to an offer is known as the Drennan rule.

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v. Berryman v Knoch-P filed claim to make option contract bw him and D void. D approached to buy P’s land. Option K drafted for 960 acres for $10 consideration (never paid tho). Then P sold to a third party. D decides to exercise option. For Option K, consideration may be nominal (amount is irrelevant, formality is not), but it must be paid. Thus it was an offer to sale, subject to withdrawal and no PE because no requirement to do anything; under non-option K if optionee gains reliable notice the land is sold, then K is void (power of acceptance terminated when offeror takes definite action inconsistent with proposed contract §43). **Often, in regular K, you need more than nominal consideration, but in Option K it’s okay to be nominal.

vi. Pop’s Cones v Resorts Int’l Hotel-during preliminary negotiations; repeated assurances and promises to Pop’s. Ct. grants PE bc reliance was foreseeable. A promise that foreseeably induces action or forbearance and does produce that action or forbearance is binding if injustice can be avoided only be enforcement of the promise. Relaxed the strict requirement for a “clear and definite promise” in order to establish PE (modern). Whether P’s reliance was reasonable is for the jury.**Every business man faces risk that the substantial transaction costs necessary to bring about a mutually beneficial contract will be lost if the negotiations fail to yield a satisfactory agreement. It is difficult to find the degree of injustice necessary for recovery.

iii. TERMINATION BY OFFEREE Express rejection Counteroffer-same subject matter, but different terms serves as a rejection of original offer as

well as a new offer *distinguish mere inquiry Lapse of time- must accept within specified or reasonable time

iv. TERMINATION BY OPERATION OF LAW By death or insanity of either party By destruction of subject matter By supervening legal prohibition of proposed contract

b. ACCEPTANCE GENERALLY Only the offeree can accept- power of acceptance cannot be assigned Acceptance of offer for unilateral K: (a) completion of performance (starting performance make create an

option K so offer is irrevocable); (b) notice-not required to tell offeror he has begun, but must provide notice within a reasonable time of performance completion

Acceptance of offer for bilateral K: generally acceptance must be communicated (unless acceptance is waived in offer)

o Silence as acceptance §69 –highly limited circumstances Previous dealings can create a duty to speak thus if party doesn’t comment, inaction will be

treated as acceptance bc it’s reasonable under the circumstances If you take benefit of services offered when you had a chance to reject them

Method of acceptance-unless provided an offer invites acceptance in any reasonable manner Common Law rule-any different or additional terms turn acceptance into a counter-offer

o Distinguish between statements that make implicit terms explicito Grumbling acceptanceo Request for clarification

c. OFFER AND ACCEPTANCE UNDER UCC **For most businesses, a leisurely approach to contracting is too expensive and time consumingArticle 2 deals with transaction in “goods”-goods are generally defined as any tangible, moveable property (applies to both consumer and commercial sales of goods). Under the UCC a contract for the sale of goods of $500 or more must comply with the writing requirement of the UCC statute of frauds. Revised Article 2 raises the amount to $5,000”

Abandons mirror image rule-providing instead that a proposal of additional or different terms is effective as an acceptance unless the acceptance is expressly made conditional on assent to new terms. Reasons UCC changes CL mirror image rule (1) makes sense for business; (2) need for fast K formation; (3) common law would have buyer, as counter-offeror dictate the terms-last shot rule was seen as arbitrary, so it’s replaced with first shot (not all that much better).

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Exceptions: expressly conditional or large price difference

i. BATTLE OF THE FORMS- 2-207 (1) we view the seller’s acknowledgment of buyer’s purchase order as acceptance when it looks, acts, and quacks like an acceptance, even if it states an additional term; (2) additional term shall be a proposal for an addition.

1. Harlow and Jones v Advance Steel - Advance Steel wants to buy steel. Harlow sends sales form and places order with third party. Advance Steel mailed purchase order to Harlow w/ some minor revisions. (neither party signed or returned either form). Discrepancy on shipping dates. Ct finds K formed orally and subsequent events were fine-tuning. The Rule: moment of offer and acceptance is difficult to pinpoint, but full performance indicates they agreed to “something” thus it’s reasonable to assume they had an agreement. This is not necessarily a problem of mutual assent but a problem of agreement to terms. The Knock-Out Rule—we eliminate the dispute and focus on agreed provisions. Ct finds no material delay. (looks at “usage of trade”—seller says shipment between by Sept-Oct but that means Oct-Nov in trade terms). *If looking at this under classical doctrine-buyer’s purchase order that came back would be a counter-offer (a new offer) which would have been accepted by performance. **A signature on either form would have been manifestation of assent

ii. THE FIRM OFFER: 2-205: An offer by a merchant; the fact that there is no consideration will not make it revocable focus on time stated ….reasonable time (three months) not to EXCEED three months, not automatically three monthsHas to be signed some manifestation of assent *If there’s no authority there’s no promise if pop’s would have claimed that they guy making the promise wasn’t authorized they could have won on that

iii. TO APPLY THE UCC OR NOT1. Princess Cruises v General Electric-Princess scheduled a inspection and repair stop with GE. Terms

negotiated and finalized on GE’s last proposal. Delays. Common law applies here because UCC is inapplicable since this involved mostly services (predominance factor). Final judgment against GE in the amount of $231,925.00 based on GE’s last form. Last Shot rule (common law approach)-every form that changes is considered a counter-offer, therefore, the last one in is accepted by performance.

2. Brown Machine v. Hercules- P attempting to gain damages from D after settling w injured employee; clause limited acceptance to the terms of the form. Acceptance contained additional terms. Bc K is for sale of goods and bw merchants- 2-207(2)- new terms are part of K unless offer expressly limits acceptance to terms of the offer. Here, offer was expressly limited. So, no additional terms possible. Only way to get around this is for offeror to expressly assent- not infer, but expressly say okay to additional terms.**Under common law, a quote is not an offer, rather an invitation to enter into negotiations. A quote can be an offer if it reasonably appears that assent will constitute acceptance. Even if the quote was an offer, it wouldn’t be valid as the thirty day window had long since run.

iv. MODERN APPROACH UCC 2-207-Assent- in 2-207, means “explicit agreement”

2-207(1): Purported acceptance will be treated as acceptance, even if it contains additional or different terms (common law would have seen these as counteroffer). Exception- if offeree expressly conditions acceptance to additional or different terms- counteroffer/revocation of original offer.

2-207(2): What to do w/ additional terms. They are considered proposals. If bw merchants, part of K unless: (a) offer expressly limits acceptance to terms of offer; (b) additional terms materially alter it; (c) notification of objection to them has already been given- or given w/in reasonable timeo Test for material terms are terms that would not result in surprise or hardshipo Comment 4 typical clauses that normally materially alter: a.) Clause negating standard

warranties; b.) Clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery; c.) Clause reserving to the seller the power to cancel upon the buyer’s

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failure to meet any invoice when due; d.) Clause requiring that complaints be made in a time materially shorter than customary or reasonable

o Knock out rule-if there’s a conflict the conflicted terms are knocked out (majority) and terms are replaced with generic terms

2-207(3): If parties thought, but didn’t have, a K- the terms are those in writings which agree- knock out rule

Why did UCC want to change CL rule that a deviant acceptance is a counteroffer? 1. The business people think they’ve got a deal when the acknowledgement is sent off as a response to

the purchase order. When the law comes along and tells them something else, it goes against their ordinary understanding.

2. The common law defers contract formation for a couple of months and allows the parties to walk away from the contract scot-free long after it would commonly be understood to be binding.

3. What are the terms of the contract? Common law analysis would have the seller, as the counter-offeror, dictate the terms to the buyer. The buyer would thus implicitly accept the seller’s terms when the buyer accepts the goods. This used to be referred to as the “last shot” principle: whichever side sends the last form gets its preferred terms. This was criticized as being as arbitrary as can be. We need to find a rational way to figure out whose terms control rather than just picking the terms of the party that fires the last shot.

II. CONSIDERATION-additional requirement for a promise to be enforceable (Classical Doctrine).a. ELEMENTS: bargained for exchange between the parties and that which is bargained for must be considered of legal

value (traditionally stated-benefit to promisor or detriment to promisee.Bargained for exchange-requires the promise induce the detriment and the detriment induce the promiseThe modern test for consideration; detriment must be the price of the exchange. Ask if the promisor’s motive was to induce the detriment, if so then it will be treated as consideration.

Benefit to promisor need not have economic value; can be peace of mind or gratification Legal Detriment to promisee-if promisee does something he is under no legal obligation to do or refrains from

doing something that he has a legal right to do *need not involve any actual loss to the promisee or benefit to promisor (promisor must have primarily sought to induce the detrimental act by his promise

Legal Benefit to promisor- forbearance or performance of an act by the promisee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor.

The majority rule asks for detriment to promisee; first restatement and minority ask for either detriment or benefit to suffice, but second restatement §79 says this isn’t required anymore, just looks for something bargained for and given in exchange

i. BENEFIT/DETRIMENT TEST1. Hamer v. Sidway- Uncle promises (in front of a big party) some cash if his nephew won’t do “bad stuff”

like smoking, drinking, swearing, and gambling. Classical consideration- Benefit/Detriment Test= benefit to promisor or detriment to promise. Legal Detriment- someone forbears from doing something that they are legally entitled to do. In this case, boy refrained from drinking, smoking, swearing till 21 and here a promise without benefit to promisor is an enforceable contract. Consideration for a promise may consist of the abandonment of a legal right. If there is a smidgeon of trade the promise will be enforced, §81 even if consideration itself was the thing that induced the promise.

§ 81 - it doesn’t matter if the consideration itself was the thing that induced the promise. It’s still good consideration§ 71 -Consideration is bargained for. Old rule: “benefit to the promisor/detriment to promisee=enforceable;” don’t need that anymore. New rule: as long as there is consideration, adequacy is immaterial

Consider the §§ 71 and 81 together: If a transaction is 99% gift and 1% bargain, the “smidgeon” of exchange is consideration.

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The door is shut on dealing only with legal rights as a public policy; the law expects you not to engage in these activities anyways, so a contract to follow the law is not enforceable.

o General rule-promise to perform or the performance of an existing legal duty is not sufficient consideration

However, even though it is illegal a lot of people still engage in it, thus there is still a promise The same policy consideration is valid when offering additional incentive to someone already

obligated to do something (i.e. a teacher teaching a course)

2. Pennsy Supply v. American Ash Recycling –Pennsy subcontracted to do paving, original contractor suggested free AggRite for project. It was used. It cracked. Pennsy had to redo it and dispose of AggRite. Sued original contractor for disposal costs. Consideration is essential, it must actually be bargained for as the exchange for a promise. It wasn't a gift because American Ash received a benefit from the arrangement, which was the reason they were offering it free in the first place. "Complaint alleges facts which, if proven, would show the promise induced the detriment and the detriment induced the promise. This would be consideration." No requirement of bargain for exchange.

i. “Consideration requires bargaining. However, “bargain” does not mean an exchange of things of equivalent, or any, value, it means a negotiation resulting in the voluntary assumption of an obligation by one party under condition of an act or forbearance by the other. Consideration thus insures that the promise enforced as a contract is not accidental.

ii. APPLYING CONSIDERATION1. Dougherty v Salt: aunt’s promissory note to give boy $3,000 had no valid consideration. You are a good

boy no such thing as past consideration, thus what he has always done is not a promise for the future. “Is the promisor making a promise based on something they want to attain or on something they want to do for someone else?” The note was ruled an unenforceable gift.

Dougherty compared with Hamer-both promises to a younger relative-the promise in Dougherty was made more formally than the one in Hamer, but the latter was enforced and the former was not. Why? No consideration. If there was a promise in the note would that be enforceable? “if you are a good boy” There would be a bargain, but the terms are difficult to prove. If the terms are specific, they are either met or they are not

Lawyer’s role in counseling:o Executed Gift- property law provides inter vivos/causa mortis. o Testamentary Note- she could make a will, a “last testament” of her desires (freely revoked).

Bequet is not payable until the debts of the estate have been satisfied; should the estate have insufficient assets, an enforceable promissory would take priority over a mere testamentary gift.

o Gift in Trust-if your client presently has the funds to make the gift to her nephew, but does not wish to give him (or his guardian) present control, she could create a trust on his behalf

2. Batsakis v Demotsis – Greek woman needed $. Took out and signed for a loan. Cts will not inquire into the adequacy of consideration, only the sufficiency. Fairness isn’t always relevant; not the court’s place; Court doesn’t value what she received only that she received it. Doesn’t have to be an equivalent exchange. “Mere inadequacy of consideration will not void a contract” Restatement §75: no requirement of equivalence in the values exchanged. §79(e) gross inadequacy may be taken into account.

o Illusory promise- promise that makes performance entirely optional w/ promisor no matter what promise does- not an enforceable promise, obligation must be imposed on promisor. (Restatement §77a)

o Mutuality of Obligation- both parties must be bound, or neither is bound. Not really needed in K so long as bargained for exchange exists. If consideration is met, that is enough (Restatement §79c)

3. Plowman v Indian Refining Co- Ps argue there was valid consideration in an offer for company’s retirement plan. Neither past-Consideration nor Moral Consideration are valid. Condition of the

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promise- is not consideration, simply a requirement in order to receive benefit. No benefit to employer when they went to pick up checks. However, strongly a man may be bound in conscience to fulfill his engagements, the law does not recognize their sanctity or supply any means to compel their performance, except when founded upon a sufficient consideration.

III. ABSENCE OF BARGAINED FOR EXCHANGE: Promissory Estoppel and Restitutiona. DOCTRINE OF PROMISSORY ESTOPPEL § 90 - promise reasonably inducing definite and substantial action;

applies to Ks w out consideration when (1) promise was made that promisor should reasonably expect to induce reliance on part of the promisee; (2) the promise actually did rely on the promise; (3) enforcing promise is the only way to avoid injustice i. PROMISES WITHIN THE FAMILY:

1. Kirksey v Kirksey – D promised sister-in-law a home after her husband died. She lived there 2yrs and was kicked out. A purely gratuitous promise will not be enforced. This case shows traditional unwillingness to inject this new doctrine into the courts. Dissent: P’s loss and inconvenience were sufficient consideration to render D’s promise enforceable.**Today, the doctrine of PE might allow enforcement of K bc Kirksey reasonably relied upon defendant’s promise to her detriment. PE considered only when consideration is not present.**Kirksey might have come out differently if P had been booted out of the house immediately upon arriving. Then she would have incurred a detriment, but no benefit at all. The facts as they are show that she got at least two years’ worth of good livin’. That’s something, and that might be all that was really promised. The letter itself was pretty vague.

It is easier to enforce a definite, clear promise unlike the vague one in Kirksey; Also easier to enforce a promise if trade (reciprocity) is involved (the facts in Kirksey described a conditional gift. “I’ll give you a present if you’ll come and get it.”) It doesn’t take much to add consideration to the picture. Say you add this sentence to the brother-in-law’s letter: “I am very lonely.” Now you have a bargain. This would push strongly towards enforcement of this promise.

2. Greiner v Greiner-Mrs. Greiner made promise to son for land; attempt to put all her children on equal footing. He moved a long way and gave up his homestead in reliance of the promise. She later refused to give him land. Mother argues no consideration bc she received no benefit from his moving. Ct. agrees, but uses PE to enforce bc son reasonably relied to his detriment.

3. Wright v Newman – P seeks child support. Ct. enforces “implied promise” w/ PE. D’s actions (name on birth cert.. last name, established relationship) implied a promise to support child even though he was not the father. P and her son relied upon D’s promise to their detriment bc P refrained from identifying and seeking support from the child’s natural father (Reliance doesn’t have to be bargained for). An injustice would result if D were allowed to walk away. Under PE reliance need only be reasonable, doesn’t require exhaustion of all other means. Policy if you assume parenthood of a child you better be pretty sure of your commitment because the child is relying on it, but the flipside of policy is do you penalize benevolence of helping out a child and then requiring continuance. Dissent: The majority fails to state how she is prevented from instituting a child support action against the natural father. P has not alleged, nor does the record reveal, that she does not know the identity of the natural father or that he is dead or unable to be found. D left when P’s son was 3. So, she has made it 7 years without him. She’s doing fine with or without her promised support.

ii. CHARITABLE SUBSCRIPTIONS--Modern Theory- cts used PE to legally enforce “gifts” to charitable institutions. To enforce a charitable subscription, you needed to est. that there was a promise to give some property to a charitable institution and that promise was supported by consideration or reliance.***§90(2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance

1. King v Trustees of Boston University- Ct. finds consideration in MLK’s promise to transfer title of papers and to give BU property when he died. There was a bargain for exchange (not necessary, the action has to be foreseeable and detrimental though) b/c King wanted papers to be kept w/ scrupulous care at BU. BU did this and organized them as well. So there is a promise and there is consideration (charitable exchange). Court found for BU. ***PolicyComment b to §90 suggests that whether a promise should be enforced may depend in part on

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“the extent to which the evidentiary, cautionary, deterrent, and channeling functions of form are met.”Urges charities to adhere to prudent business methods, the court noted that informality exposes donors to the risk of unforeseen tax problems. The court observed charities that are successful in obtaining court enforcement of casually made pledges my suffer harm. Potential donors could become more reticent about making gifts. In connection with the court’s admonition about the dangers of informal practices by charities.

iii. PROMISES IN COMMERCIAL CONTEXTS1. Katz v Danny Dare- P worked for 25 years, D was P’s brother-in-law; P was injured; D knew it had to

fire him or make him retire; D reached a reasonable pension decision. 3 years later D rescinded. Ct ruled for P using PE §90 finding he reasonably relied on promise to his detriment and injustice only avoided by enforcement- ct likes “fairness.” *Reliance must be Reasonable* PE’s 3 elements: 1) a promise producing reliance; 2)a detrimental reliance of such promise; and 3) injustice can be avoided only by enforcement of the promise

In some cases a change of position might be viewed as financially beneficial can nonetheless support an action for promissory estoppel as detrimental reliance: “All jobs are not the same, and work involves more than one’s daily bread” and the weekly paycheck. Certain jobs have higher levels of stress and anxiety. Vastoler increased his salary but was forced to absorb additional stress and emotional trauma. Therefore, the presence of detrimental reliance in this case is a sufficiently disputed issue for the trier of fact.

2. Shoemaker v Commonwealth -P secured a loan with bank and was bound by contract to keep insurance on the home. Insurance lapsed and bank said it would add it to premium (threat more so than a promise); house burns down. Case deals w/ reasonableness of reliance. Court found there was enough material evidence to support a jury finding either way on RPP standard, therefore PE is upheld. Policy-forces the banks to be more definite on their terms and explanations, which is good for the borrower. Consider the following:

o “At that point I was in no financial situation to do so on my own.”-fishy? If she couldn’t afford it on her own what made her think she could pay for it through the bank. Furthermore, did the Shoemaker’s premium go up? It doesn’t appear so. This should have been a red flag for Shoemakers.

o The bank’s “promise” implied no duration: Open price term—the restatement is somewhat willing to fill in terms based on what’s

reasonable (we talked about this in the context of offer and acceptance). The bank focuses on saying it’s not a promise because it falls under a contractual

obligation, if it does require the promise focus it cannot be found to have been breached because they did initially go out and get the insurance.

**PE has been applied to enforce a wide variety of promises in commercial situationso It should not be thought that the mere mention of PE will cause a court to roll over and play

dead. They have denied recovery when D failed to make a promise on which liability could be based or when P failed to establish detrimental reliance

§90 Comment E: This section is to be applied with caution for promises to procure insurance. Liability could be large in relation to the promise. Promise to use reasonable efforts. Rather reliance is justified or unjustified, for how long, potential benefit to promisor (there is a benefit that’s why they make it in the first place)o Illustration 13: “A, a bank, lends money to B on the security of a mortgage on B’s new home.

The mortgage requires B to insure the property. At the closing of the transaction A promises to arrange for the required insurance, and in reliance on the promise B fails to insure .Six months later the property still uninsured, is destroyed by fire. The promise is binding.”

b. RESTITUTION-no promise, but one party has been unjustly enriched/benefited, look for restitution.i. Credit Bureau Enterprises v. Pelo- Pelo was hospitalized against his will for mental illness. Under duress signed

approval. Ct finds even w out an express/implied K he has to pay for involuntary services bc he was unjustly enriched. Generally, restitution doesn’t have to be paid when service is forced, exception: if services are deemed necessary and if it was impossible to gain assent (i.e. youth or mental impairment).

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§116: Elements for restitution (modern doctrine): (1) Act unofficiously w/ intent to charge; (2) Services were necessary to prevent other from suffering serious bodily harm or pain; (3) Supplier of services had no reason to know receiver would not consent (if mentally competent); (4) It was possible for other to give consent**the classical approach held no bargain then no recovery

ii. Commerce v Equity- Equity (sub-contractor for World, general contractor) hired subcontractor Commerce for stucco work. Upon completion, World gave Equity a list of remedial work; refused partial payment. Equity stopped work and filed suit. World filed for bankruptcy. Equity then sued Commerce. Owner is not liable under an implied in law claim even when subcontractor wasn’t paid by a bankrupt general contractor bc they have to account for where all payments went to define an unjust enrichment for the implied in law contract. To impose a quasi-contract action (restitution) against owner, subcontractor must (a) exhaust remedies against General (b) prove owner’s receipt of benefit conferred w/out paying consideration to anyone.Implied in Fact requires interaction between the parties; receiver knows a benefit is being conferred. (look for offer, acceptance and consideration). Implied in Law requires no interaction; windfall benefit on the part of the receiver. (look for unjust enrichment)

Quasi-K Elements: (1) P has conferred benefit on D; (2) D has knowledge of benefit; (3) D has accepted or retained benefit conferred; (4) Unfair to allow D to keep benefit w/out paying. **Restitution rests on idea of promoting justice

iii. Watts v Watts-unmarried cohabitants; (she took his name, filed tax together, took out life insurance policies, and his wealth greatly increased); they split, she got nothing. She files for restitution asserting her right to half property/wealth gained during relationship. P basically claims she filled the role of “domestic engineer,” (but in the words of Beyonce “if you like it you should put a ring on it”.) Ct. finds unjust enrichment b/c she did a lot of things during years that allowed him to work and build business. Ct also finds K implied in fact b/c actions of parties imply agreement to share. The court held that marriage was not necessary to provide relief for both parties and that if not, ones side would be unjustly enriched and the other impoverished.

c. PROMISSORY RESTITUTION-Promise made after benefits have been rec’d.i. Mills v Wyman- Classical Approach- sick son taken care of by nurse, father later writes and promises to pay. Not

enforceable promise b/c no consideration. “Past” or “moral” consideration is not valid. Moral obligation is sufficient consideration under the following circumstances: debts barred by the statute

of limitations, debts incurred by infants, and debts of bankrupts. In such cases, enforcing promises based on preexisting equitable obligations may be enforced because they merely remove an impediment created by the law to enforce debts that are due, but which public policy protects debtors from being compelled to pay.

ii. Webb v Mcgowin-Modern Approach- Webb throws 75 lbs blocks off 2nd floor. Webb saves M’s life by falling w/ block. M promised to pay him for saving his life. Once P saved D from death or harm (material benefit) and subsequently agreed to pay him for the service rendered (moral consideration) it became an enforceable contract (Material Benefit Rule-minority). Under Classical Doctrine this would not be enforceable b/c no consideration. Material Benefit Rule: R. § 86: (1) A promise made in recognition of a benefit previously rec’d by the promisor from promisee is binding to extent necessary to prevent injustice. (2) Promise is not binding: (a) if promisee conferred benefit as a gift or if promissory hasn’t been unjustly enriched; (b) To extent that value is disproportionate to the benefit.

MBR is close to restitution, but borrows from K law. Restitution is an intent to charge. MBR is not same, but promisee expected to receive value. Under MBR: promisor must receive benefit and must not be a gift

Grounds to require payment: (1) express promise to pay; (2) contract implied-in-fact (i.e. hailing a cab), must be a reasonable charge; (3) if someone is unjustly enriched.

IV. STATUTE OF FRAUDS (SOF)-defense to the enforcement of a K.a. §110 and UCC

Contracts for the sale of goods $500 + (mentioned in restatement but really covered by the UCC-article 2) Contracts not to be performed within 1 year of the making Contracts for the sale of an interest in land Contract of an executor to answer for a duty of his decedent

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Contract make upon consideration of marriage Contract to answer for the duty of another

o R. 131- Memo req’ments: (a) id subject matter, (b) sufficiently indicate K, (c) contain essential termso R. 132- Several Writings- at least one signed and others clearly indicate relation to same transaction.o R. 133- Except for consideration of marriage, a writing may be anything.o R. 134- symbol may be acceptable for signatureo R. 136- memo can be made b/f or after agreement/K is formedo UCC 2-201(39)- signed” includes any symbol…w/ intention to authenticate writing.o UCC 2-201: Sale of Goods SOF: (1) sale of goods; (2) $500 or more; (3) Need quantityo Exceptions: (i) merchants exception: writing sent in confirmation if not rejected w/in 10 days; (ii) specially

manufactured goods; (iii) if admitted in pleading, testimony, or ct; (iv) part performance- made and accepted or rec’d an accepted. §129; (v) Promissory estoppel §139

b. ANALYZING SOF:1. Is K w/in statute of frauds? If not then P is free to prove her K by any combination of relevant evidence, written

or oral, direct or circumstantial2. If yes, is there sufficient memo/writing? If yes, then there is no bar to enforcement and the case may proceed in

normal fashion. **It’s not the case that it has to be in writing…all you need is a sufficient memoranda, some sort of writing amounting to the evidentiary purpose.

3. If not, any exceptions applicable?Yes, there is still hope bc of exceptions such as performance or reliance by P

i. Crabtree v. Elizabeth Arden- employment at Arden Co (D) K based on 2yrs and specific salary increases. Pay-roll change card prepared, initialed, and forwarded to payroll department. P’s second salary increase wasn’t approved. SOF writing requirement is satisfied by parol linking several documents, some signed and others unsigned together. Affirmed for P bc the writings taken together combined all the essential terms of the K. *SOF requires a signature to authenticate information, but it doesn’t require a single document.

Analysis: (1) Is K under SOF? Yes b/c it can’t be performed w/in 1 year: for 2 yrs. Just b/c a K can be breached w/in 1 year doesn’t take it out of SOF. (2) Sufficient Writing? 3 writings w 1 unsigned that contains essential terms. R. 132- Memo can consist of several writings if one is signed and others clearly indicate that they relate. *memo must be signed by party being enforced against, memo can be anything. Cts are LENIENT and want to enforce agreements.

iii. Winternitz v. Summit Hills Joint Venture- Oral agreement to renew lease for 2 years. P claimed that D orally agreed to renew the lease and permitted him to assign it, provided the assignee was financially sound. P began payment of new rent agreed upon. No problem was foreseen then D later refused to allow it. P was forced to renegotiate his sales contract in light of new terms. P sued for breach of oral agreement. Ct found for P on malicious interference argument. No signed writing exists thus it’s under SOF. An oral K unenforceable under SOF may be enforced w respect to doctrine of part performance K for transfer of an interest in land will be enforced if party seeking enforcement reasonably relied, and changed his position so that injustice can only be avoided by specific enforcement; isn’t applicable in a suit for damages, only for specific performance.

R (2nd) §766(A): “One who intentionally and improperly interferes with K performance bw another and 3rd party is subject to liability.”

R (2nd) §767: Intentional interference evaluates is met by considering the following factors: (a) nature of conduct, (b) motivation, (c) interests of the other with which the actor’s conduct interferes, (d) interests sought to be advanced by actor, (e) social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) direct cause of interference (g) relations between the parties.”

iv. Alaska Dem. Party v. Rice- P asked to return to former position as exec director for 2 years. P later informed she would not get the job. PE used as exception to SOF if existence of promise is clear and convincing; also forbearance must be reasonable and foreseeable, and enforcement must be the only way to avoid injustice. What is different about §139 (than §90): Easer to get “benefit of bargain” damages, more detailed- gives cts more guidance, applied when K conflicts w/ SOF, applied when not sufficient writing. *Perhaps easier to enforce b/c agreement already exists.

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c. THE SALE OF GOODS: new text of §2-201 added subsection (4) clarifying relationship bw article 2 SOF and traditional 1yr general SOF and increased threshold amount for coverage from $500 to $5,000.

i. Buffalo v. Hart- oral agreement for Buffalo to buy 5 tobacco barns by 4 installments. Buffalo made 1st $5,000 payment and check was given to D and accepted. Later it was mailed back, torn up and called a “revoked” offer, (attempted repudiation), but there was already an agreement. Analysis: is K under SOF: Yes, over $500. Is there a sufficient writing: NO, check was not signed by Hart, only Buffalo. (SOF requires a signature of party against whom enforcement is sought).

2-201(3)c Exception: Enforceable if goods or payment is:1) Made and accepted; or- Ct seems like it would have accepted this. Mrs. Hart accepted the $5,000

check. But she sent it back- could argue that she didn’t accept. Roy: keeping check for few hours is closer to outright rejection. Fact intensive

2) Received and accepted- Ct accepts this part b/c Buffalo” received and accepted” the barns- he held them out as having possession.

Ct finds there’s enough evidence to uphold SOF part performance exception. **Buffalo only paid a portion of full payment, so he will not get all 5 barns b/c they are divisible. If asserted K is for one unit, part payment is sufficient to enforce entire K.

Merchant-a person who deals in goods, holds himself out as having knowledge or skill peculiar to the practices or goods involved…may be attributed by his employmentFor UCC 2-201 to apply, one of the merchants must send a “confirmation of K” in writing w/in a reasonable period of time after K was formed. Confirmation must be received by the other party (person w reason to know about it). If confirmation meets requirements, it’s treated as sufficient to comply with SOF against recipient merchant even though the recipient has not signed any writing showing the existence of K. Rationale is that the practice of objecting to an improper confirmation ought to be familiar to any person in business. §2-201(2) comment 4- if receiving merchant fails to object, there is sufficient evidence to conclude that a real transaction may have occurred bw the parties.

By reducing the required contents of the writing to a bare minimum, §2-201 (1) makes enforcement

possible on the basis of very fragmentary notations of terms, authenticated perhaps by only initials or even a printed letterhead. “A term agreed upon” may be omitted from memorandum, thereby implicitly allowing enforcement even in the absence of a writing stating the price term., sometimes based on published price list or market price. o This is problematic where obviously the parties at the outset cannot set a fixed quantity

(although they may set a maximum or minimum), but the courts have generally permitted enforcement so long as the term “Requirements” or “output” or some functional equivalent appears in the writing. **Revised Article 2 uses the term “record” rather than “writing,” but otherwise only makes minor changes

Cts have generally taken the view that where the asserted contract is for one unit of the goods in question, even a payment of only part of the price will be sufficient under §2-201 (3) (c) to validate the entire K (since the goods cannot be apportioned).

In the early days of SOF, it appears that D wasn’t permitted to assert the statutory defense if in fact he admitted making the agreement, the rule developed that even oral admissions in ct wouldn’t preclude D’s raising the statutory bar. Fundamentally, it was felt that D shouldn’t be deprived of his statutory right by anything but a voluntary admission. A question raised in §2-201(3)(b) is the issue of what constitutes admission:

The majority view is that PE can operate as an exception to §2-201 by virtue of §1-103. However a substantial minority of decisions have concluded that the exceptions specifically listed in §2-201 displace any common law exceptions including estoppel

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V. INTERPRETATION AND PAROL EVIDENCE RULE -need to know terms to determine if a breach has occurred; if the final writing was intended to be a full and final agreement, evidence of prior oral or written agreements cannot be introduced. Williston- conservative-reluctant to admit evidence outside of the four corners of the writing by applying the plain meaning rule; Corbin-liberal- the writing is not given a magic, unique, compelling force, the court should focus on the intent of the parties.Oral agreement can modify if it (1) is collateral or (2) doesn’t contradict any express or implied provisions of written K.Justifications- witness testimony is messy and expensive; provides certainty w writing; efficiency reasons

Under the subjectivist view, if the parties attributed materially different meanings to contractual language, no contract was formed. Cts reasoned that the formation of a K required a “meeting of the minds.”

Williston presented a systematic, objective theory of contractual interpretation-words and conduct should be interpreted in accordance w the standard of a reasonable person familiar w the circumstances rather than in accordance w the subjective intention of either of the parties.

a. PRINCIPLES OF INTERPRETATION 1. Joyner v Adams- Property owner Ks w/ builder “to develop” lots. Both parties thought “develop” had different

meaning. A party is bound by the other party’s meaning if the first party either knew or had reason to know of the second party’s meaning while the second party did not know or have reason to know of the first party’s interpretation. When two sides have opposing intentions, it is up to the finder of fact to determine which one had reason to know the other side’s position. Ct ruled against the party w more knowledge. Parties must present evidence showing other party had reason to know of meaning. E.g. usage of trade. Very fact intensive.

*The only situation where the ambiguity falls in favor of the non-drafter is in cases of unequal bargaining power or an adhesion contract. The parties here are of equal bargaining power.

If there is failure of mutual assent to a term, K may still be valid if that term wasn’t essential If one party has more information, then that party is held to higher standard. E.g. A knows of B’s

meaning, and B has reason to know of A’s meaning. In a case where the court finds that neither party knew or had reason to know of the other parties

intent, the contract would be void as there was no meeting of the minds. This policy keeps one side from misleading the other. Court eventually held for defendant.

Interpretation to aid them in giving meaning to expressions of contractual agreement:o Meaning of a word in a series is affected by others in same serieso General term joined w specific one will be deemed to include only things that are like the

specific oneo If one or more specific items are listed w out any more general or inclusive terms, other items

although similar in kind are excludedo Interpretation that makes the K valid is preferred to one that makes it invalido Written K contains a word or phrase which is capable of two reasonable meaning,

interpretation will be preferred which is less favorable to the one by whom the K was drafted (favors party w less bargaining power)

o Handwritten or typed provisions control printed provisionso **This battery of maxims is never fired all together, just intended to help make prudent

choices, useful guides for reasoning and justification for his conclusion. After all that it may be appropriate for a ct to conclude that the parties did not make an enforceable

agreement. (“ct should not strain to apply principles of interpretation to fill the gap, but should instead strive to achieve a just outcome”)

B. RESTATEMENT’S VIEW OF INTERPRETATION R. 201: Whose Meaning Prevails?R. 201(1): If parties attach same meaning to a term, the term means what the parties have given it.R. 201(2): If parties attach different meanings, the term means what one party thinks if:

a) that party did not know of any different meaning by the other, and the other knew the meaning attached by the first party.

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b) That party had reason to know of any different meaning attached by the other, and the other had reason to know of the meaning attached by the first

R. 201(3): IF the parties attached different meanings to a material term of the K, but 201(2) doesn’t’ apply, then no K exists b/c there is no mutual assent.**Has reason to know- modified objective standard- RPP- doesn’t mean they knew, only that a RPP would have known.

202: Rules in Aid of Interpretation:(1) Look at purpose of parties to determine words and other conduct(2) Interpret writings as a whole(3) If general language, interpret it accordingly, but if technical term, use technical meaning.(4) Part performance- any course of performance accepted or acquiesced in w/out objection is given great weight in

the interpretation of the agreement.(5) To determine manifest intention: course of performance, course of dealing, usage of trade.

203: Standards of Preference in Interpretation: To interpret a term:(a) use interpretation that is reasonable, lawful, and effective(b) Order of weight: Express terms, course of performance, course of dealing, and usage of trade.(c) Specific/Exact terms greater weight than general(d) Separately negotiated over standardized.204: If parties have a K, but left out an essential term, the court may supply a reasonable term205: Parties have a duty of good faith and fair dealing206: The meaning of a term is preferred that operates against the party who supplied the words.207: Meaning that serves public interest is generally preferred.208: If a K or term is unconscionable, the court may refuse to enforce it.

222: Usage of Trade: usage having such regularity of observance in a place, vocation, or trade. May include system of rules regularly observed. Usage of trade should be used to give meaning or supplement or qualifies a parties agreement, unless they agreed otherwise.223: Course of Dealing: a sequence of previous conduct b/t parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

UCC 1-203: Obligation of good faithUCC 1-205: Course of Dealing and Usage of Trade in understanding and interpreting a K.

2. Frigaliment Importing Co v B.N.S. Int’l Sales Corp- First look at language, but “chicken” is ambiguous. So, look at evidence to interpret. Ct concludes that burden rest on P to prove that D’s general interpretation was inaccurate; holds for D/seller by dismissing the complaint.**Dictionaries give both meanings

P’s argument-small, young chicken D’s argument = anything but goose, duck, turkeyNegotiations - used chicken instead of huhn (language disparity); Trade usage -perfect chicken is obvious;Size -older birds do not come in that size so bc he specified size that’s clearly what he wanted ct says this isn’t logical

Expert- chicken is everything (Trade Usage); Department of agriculture regulations governed the K so the dept’s definition should apply –(ct says incorporated in K so clearly not external)Conduct- P didn’t really object, it only became inconvenient laterPrice – P paid a certain price that could only be considered good business if it was for the actual chx that was delivered

**The language discrepancy – huhn v chicken; obviously here testimony threw this argument out, but how much weight does a ct give language in an international contract A party is bound by other party’s meaning if first party either knew or had reason to know of second

party’s meaning, while second party didn’t know or didn’t have reason to know of first party’s intention.

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Holding- A party who seeks to interpret a contract’s ordinary terms in a narrower sense than is used in everyday trade has the burden of proof to establish that meaning. And parol evidence is admissible to show the meaning of an ambiguous term and its usage in a contract. K depends.

Plain Meaning Rule- must stick to four corners of document in interpretation unless term is ambiguous, and then may look at extrinsic evidence. The Restatement prefers, reasonable, lawful, and effective meanings. In interpreting, ct prefers(in this order of importance): Express terms, Course of Performance, Course of Dealing, and Usage of Trade. Also, negotiated terms are given greater weight than standardized terms.

Maxims of Interpretation- Primary Purpose; Interpret K as a whole; Construed against drafter; Negotiated terms control over standard “boilerplate”; Terms that validate the offer preferred: an interpretation that makes the K valid is preferred; Public interest preferred

Contract scholars have consistently rejected the idea that words can have only one precise meaning Cts have often held that where a written K is facially clear a court should not look for its meaning

beyond its “four corners.” Ct is permitted to receive extrinsic evidence to determine whether there may be in the agreement a latent ambiguity, but cts should not seek to impose on the writing a meaning beyond any reasonable understanding of its terms.

Usage of Trade (what’s done in the industry normally if both parties are aware); Course of dealing (what’s been done in the past); Course of performance (the way that the parties perform in this K). o How do we prioritize? What is most probative of the issue of meaning? (1) What they

actually do is indicative of what the mean, course of performance (what they actually do should be distinguished from what other people do); (2) course of dealing –these parties interacted before –history is bound to be repeated, human nature (we would really like it if past dealings are directly related to current dealings i.e. same goods/ same process); (3) Usage of trade- more general

3. C&J Fertilizer v Allied Mutual- P purchased a burglary policy. After P’s premises were burglarized, D denied coverage bc no visible marks or physical damage. The court held that the definition of “burglary” stated in this policy comports neither with the concept a layman might have of that crime, nor with a legal interpretation. A K term in an adhesion K will not be enforced if strict enforcement of that term results in forfeiture. An insurance company tenders the insurance upon a ‘take it or leave it’ basis. Policy holders do not read the detailed, cross-referenced, standardized, mass-produced insurance forms, and would not understand them if they did. The courts have therefore adopted the doctrine of reasonable expectations.

Reasonable Expectations Doctrine- a party is not bound to non-dickered boilerplate terms where party making terms had reason to believe that adhering party would not have agreed to terms, had he known of the terms. In this case, P could reasonably have expected the burglary policy to cover this burglary where the police, as well as the trial court, found that it was an outside job This is a contradiction of duty to read rule.

3 things to look for to determine if term violates R.E.D.: (1) Bizarre/Oppressive; (2) eliminates dominant purpose of transaction; (3) Boilerplate overrides dickered term. Adhesion K : must have this to apply RED

o Standard Formo Inequality of Bargaining Powero Consumer Must Accept or Reject (i.e. no bargain- take it or leave it)

Unconscionability: Gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not

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in fact assent or appear to assent to the unfair terms. The court held that in this case the plaintiff’s evidence demonstrated that definitional provision was unconscionable.

Notes: The doctrine of reasonable expectations as applied to insurance policies has been adopted by more

than half the states. o Many jurisdictions have substantially limited the reasonable expectations doctrine by requiring

a presence of ambiguity. An ambiguous policy should be construed against the insurer and in favor of the insured.

o Noted three variations on applying the doctrine: when there is ambiguity, when the “fine print” undermines more prominent expectations, and when overall circumstances or premium charged suggest reasonable expectations are negated.

§211 Restatement is narrower than a full-fledged version of doctrine of reasonable expectations: “The black letter formulation reflects a conservative approach in its recognition of an exception to the rule that standardized agreements will be enforced as written. It is narrowly drawn to assess the situation from the drafter’s perspective where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, not part of the agreement.

The doctrine of reasonable expectations appears to apply to adhesion contracts generally. The Restatement formulation, although it narrows the doctrine by focusing on expectations of the drafter, broadens the principle to cover all standardized contracts, not just insurance agreementso Contract of adhesion is a combination of the use of standard form documents, presentation of

demands on a take-it-or-leave-it basis. Involves the following: (1) printed form containing many terms (2) purported as a K, (3) drafted by one party, that party commonly enters into this type of transaction, (4) form is presented to adhering party w representation that terms must be accepted, (5) parties have dickered over whatever terms are open to bargaining and doc is signed, (6) adhering party enters into few transactions of the type, (7) principle obligation of adhering party is the payment of money

c. PAROL EVIDENCE RULE –involves the admissibility of evidence of oral agreements; parol evidence is not admissible to contradict or vary terms of written agreement (gives parties certainty)

3 ways evidence may come in: (1) Interpret; (2) Supplement; (3) Contradict Adherents to the “four corners” approach argue that to permit consideration of extrinsic evidence on the

threshold question of integration is to do exactly what the parol evidence rule is designed to avoid; proponents of the other view argue that one cannot know the intent of the parties simply by looking at the document

Parole Evidence Exceptions: (parole evidence rule can only be fully understood in light of its exceptions)-exceptions are allowed bc the allegation is the contract itself is voidable regardless of writing

To explain/ interpret agreement- classical cts first require ambiguity from 4 corners b/f interpreting. Modern cts don’t; they allow all evidence in.

Oral or written agreements made after the execution of the writing To evidence offered to show that the effectiveness of the agreement is subject to an

oral condition preceding To show agreement is invalid: fraud duress, mistake, undue influence, incapacity,

illegalityo Fraud in the execution- lying to get a signature, i.e. they don’t know they’re

signing a K (always an exception)o Fraud in the inducement- entered into agreement b/c misrepresentation of facts

were made (not usually an exception) To establish a “collateral” agreement- agreement outside scope of integrated

agreemento Classical: must be completely different subject mattero Modern: not as strict

Promissory Estoppel

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i. Thompson v Libby- D claimed P breached an oral warranty regarding log quality. Classical court uses Parol Evidence Rule to prevent testimony from coming in to supplement the agreement. Ct used 4 corners approach and found K to be integrated. Parol evidence is admissible if it relates to a subject distinct from that to which the writing relates; it is inadmissible to vary or contradict the terms of a valid written K. If a writing contains on its face a complete expression of the whole agreement, i.e. it includes terms sufficient to render it legally binding, it is presumed that the parties have introduced into it every material item and term. Policy- Parol Evidence Rule is founded on the inconvenience and injustice that would result if matters in writing, made with consideration and deliberation and intended to embody the entire agreement of the parties, were subject to the uncertain testimony of slippery memory.***Whether the contract is integrated is a question of law and must be determined from the four corners of the instrument.

**Prior negotiations aren’t allowed to contradict a writing, bc those negotiations should be embodied into the writing, whereas subsequent changes or oral conversations could alter the writing. We give deference to the writing bc we want to effectuate the intent of the parties (they wrote it for a reason) and give certainty to these types of transactions to allow reliance on writing

Integration-completeness and finality, determined from the “four corners” approach (look at the document on its face); all prior understandings are deemed to have been merged into or superseded by the final writing.Partial Integration – intended to be final, but incomplete.

**Classical court is less likely to distinguish bw full integration and partial integration, they just ask if it is integrated at all.

ii. Taylor v State Farm- P signed a release from “all contractual claims” in exchange for $15,000, but now wants to sue. Claims he can for bad faith is a tort and not a “contractual” claim. Ct applies the modern (corbin) view: ask first is it reasonably susceptible to opposing party’s meaning…look to document to determine ambiguity. Then, if term is reasonably susceptible, the extrinsic evidence is admissible to determine meaning introduced by parties and the extent of integration in the document. After intent is established, parol evidence rule excludes any extrinsic evidence that contradicts or varies the written document. Reason for modern approach is- words have different meanings, so four corners is not always acceptable. Here the ct says extrinsic evidence was properly admitted by necessity to aid interpretation.

Concurrence: The concurring opinion is concerned that the majority opinion does not provide enough guidance for subsequent cases dealing with this same issue. Every agreement will have to be presented to the court. Bargain for Exchange- State Farm is getting security in terms of peace of mind and Taylor is getting $15,000

Is language ambiguous? Ambiguity – “all contractual rights, claims, and causes of action…” “contractual” applies

to all and bad faith is a tort claim

Classical (Restrictive Modern (Corbin)1) Ambiguity (plain meaning/four corners)2) Evidence in/out

if the language is unclear, ambiguous, or vague

if no ambiguity parol evidence excluded

1) Reasonably susceptible (ct considers parol)2) Evidence in/out

Restatement §214(c) Interpretation-way to get extrinsic evidence in**Ct must stop short of contradiction

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Problem: what appears plain and clear to one judge may not be so plain or clear to another *parallels SOF concern one party could subsequently alter contract by coming up with something later **(goal is to honor intent from K’s creation)

Problem: The reason parties reduce things to writing is to avoid problems and this view admitting the parol brings the question repeatedly, what’s the interpretation of the agreement.

Integration: Classical likely to say “it is what it is”…this is the entire agreement of the parties.

Integration: Modern will consider parol; considers if it is partially integrated (this is it for the writing but it’s incomplete)

The differences between the views only have a shade of difference: reasonably susceptible (possibility of second meaning) v ambiguous. The important difference is under the modern view, in the first step the court considers parol evidence. So under the modern view whether parol evidence is entered you look at everything.

Integration and Interpretation are separate terms: integration is trying to figure out, is this everything. Thus, integration is a preliminary question. Whereas interpretation is analyzing parties’ intent.Interpretation and Supplementation are sometimes used interchangeably: analyzing interpretation used integration framework/analyzing supplementation use ambiguity/susceptible framework

Notes: Thompson dealt w what is sometimes referred to as “supplementation” of the written agreement.

Taylor involves a case of interpretation. Extrinsic evidence offered in Taylor did not show a separate agreement, but rather conduct and other background circumstances. The two cases illustrated the ongoing tension between two opposing views of the parol evidence rule.

**Some jurisdictions still use the classical view, thus the tension is one that still exists today. The four corners approach and the Plain meaning approach –all courts will allow extrinsic evidence to interpret a K w a patent or facial ambiguity, the point of the difference is that “plain meaning” adherents will not allow use of extrinsic evidence to uncover latent ambiguity

o California Supreme Ct: “If words had absolute and constant referents, it might be possible to discover contractual intention in the words themselves and in the manner in which they were arranged. Words however, do not have absolute and constant referents.” This rule chips away at the foundation of our legal system by giving credence to the idea that words are inadequate to express concepts.

o Some scholars want a return to the traditional approach bc it gives parties the incentive to negotiate written agreements carefully. Other writers defend the modern approach bc the intention of the parties can only be determined in context, not from the words of a document. Some authors conclude that evaluation of the benefits depends on the level of transaction. A number of scholars have even called for complete abolition of the rule

iii. Sherrodd v Morrison-Knudsen- - P is subcontractor, D is gen contractor. Contracted to do earthmoving work-bid was made in reliance on miscalculation. Written K-quantity “LS” for lump sum. P signed bc D allegedly told him if not he wouldn’t be paid for work already done and told him a deal would be worked out. K specified no verbal agreement or changes would be effective unless reduced to writing and signed. P was paid according to the written contract. Fraud exception doesn’t work here (reasoning is a little circular). If evidence conflicts, you can’t use the fraud exception. If want to bring in an oral argument, have to use the fraud exception. **Any reliance is contradicted by terms of written K. If there was an oral agreement it obviously wasn’t executed. Evidence to contradict is NEVER allowed. P claims fraud in inducement related to subject matter of K. Ct does not provide exception for fraud in the inducement. Policy: certainty that a signed K is binding.

Note: a majority of fraud is fraud in the inducement- not allowed as exception. This brings up debate over Efficiency v. Fairness: It’s fair to allow fraud to be an exception.

But, it’s efficient to allow parties to a K certainty.

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Economic Duress could have been a possible exception in Sherrodd.

**The Court recognizes that there is an exception to the parol evidence for fraud. However, the Court determines that the exception does not apply under these facts because the fraud directly relates to the subject of the contract. Because the alleged fraud contradicts the terms of the written contract, it is inadmissible under the parol evidence rule.

Fraud in inducement -false statement of fact that induces the party to enter into the agreement. Ex-a party lies about the instrument itself, thinks they’re signing a receipt and are really signing a contract. Fraud in the execution-manifest assent to something, but they’re really not giving any sort of assent. (p. 392).

Dissent: Fairness is not met. Fraud should be applied bc it rewards the fraudulent party creating injustice

Notes: Consistent w the dissent in Sherrodd, a number of cts take the view that not even the combination

of a merger clause and a specific disclaimer can shield a party from a claim of fraud At a deeper level the opinions reflect a fundamental disagreement about values. Fraud generally

is an exception. Some courts make the distinction between fraud in the inducement and fraud in the execution. Fraud in the inducement is not an exception in this case.

Professor Knapp: the stricter view of the parol evidence rule represented by Sherrodd embodies a flawed world: “At the most basic level, it’s the difference between a world that runs on paper, and a world that runs on face-to-face communication-between a world that says ‘I don’t believe it unless I see it in writing, and I won’t do it unless a writing tells me to,’ and a world that says, ‘if you assure me this is so, I will take you at your word and rely on that, as you well know’.”

Professor Mooney laments on the “new conceptualism” –judicial tilt away from the underdogs, back toward the privileged beneficiaries of classical contract law, is, of course, the new conceptualisms ‘most troubling feature of all.

Based on your studies, does it seem to you that Sherrodd might have had more success if he had attempted to proceed on either a mistake or a duress theory?

iv. Nanakuli Paving v Shell Oil- Paving Co (P) enters into long term asphalt purchasing K w Shell Oil (D). D later increased the price. P sued claiming customary trade practices implied requirement for price protection. P wants to supplement a price protection term to the K. This is a K for sale of goods falls under UCC 2-202. UCC does not require ambiguity to allow parole evidence in. 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 they are so prevalent that the parties would have intended to incorporate them (reinforced by routine practices and D’s past performance).

Concurring: This case shouldn’t be extended to deal with unfair dealings, only allowing uncontradicted custom and usage as a necessary predicate for interpreting the contract based on the course of performance or for a finding based on good faith that the seller was required to price protect.

UCC Cts will look at 3 things:1) Course of Performance- ways parties have conducted themselves in past w/ regard to particular

K at issue. (no clear statement of how many acts are necessary- in this case, every time D could have done so, twice, he did)

2) Course of Dealing- how parties have behaved re: each other in past contracts3) Usage of trade- (1) establish that trade exists, then establish that party is member of that trade

and (2) should know about it.

Note: If K is fully integrated, may not offer 3 things to contradict, but may to supplement or interpret. Evidence that contradicts will NEVER be admitted @ common law or UCC.

PER Exam Q Outline

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I. Make argument for/against each w/ conclusion to eacha. Supplement

i. Complete integrationii. Partial integration

b. Contradictc. Interpret

i. Classical- ambiguous- 4 cornersii. Modern- reasonably susceptible

II. Exceptions to PER- even if you determine evidence will come in, say that it could still come in under an exception.

1) Agreements made after execution of writing2) Oral condition preceding3) Invalid: fraud, duress, etc.4) Promissory Estoppel5) Collateral Agreements- parts of K w/ separate consideration6) Reformation-mistake

III. Conclusion: Note that just b/c evidence comes in, doesn’t mean they win---jury will decide.**Also: If hypo has mixed goods and services, do analyze under both UCC and CL.

VI. SUPPLEMENTING THE AGREEMENTa. POSTPONED BARGAINING: “AGREEMENT TO AGREE” –determining a missing term in the future

i. Walker v Keith - parties have a lease. Original K - 10 year $100 a month; option to extend for another 10 years under same terms except rental price, but no definite way to determine new rent. Ct uses Classical Approach- if a material term is missing, K not enforceable. Rent is material, and it was not set w enough certainty. Ct will not be paternalistic and insert a term.

R. 33- wants “reasonable certainty.” Says a term left open may show agreement. This is a budge away from Classical towards UCC.

UCC 2-305: (Modern Approach) “Open Price Term” will not prevent intention to be bound. If parties later fail to agree, ct may enforce reasonable price. If one party has power to fix term- must be done in “good faith.” If parties intended not to be bound unless a price was fixed- no K.

ii. Quake Construction v American Airlines- D expanding O’Hare Airport, orally informed P that a written K would be received shortly; to aid P in securing subcontractors D sent P a letter of intent. Later D told P he was terminating the arrangement. To determine if a letter is binding cts look at intent: (is agreement generally put in writing, amount of details the agreement contains, amount of money involved…etc) A letter of intent can be binding; Ct found this letter to be ambiguous so it grants entrance of parol evidence. General Arguments FOR intent to be bound: parties intended to enter into written agreement and parties have begun to act upon those expectancies. Arguments AGAINST: letter lacks lots of specific terms that would be needed for written K. No agreement yet.

R. 27: Even though a formal written K is contemplated, a showing of intent can still be a K.

b. ELECTRONIC CONTRACTING: classical contract formation is based equal bargaining power and a bargaining process, but that changes with electronic contracts

1. Shrinkwrap Terms -package informs the purchaser that the product contains the seller’s contract terms and that use of the product constitutes the purchaser’s agreement with those terms

2. Clickwarp (clickthrough Terms)3. Browsewrap Terms

i. Brower v Gateway –P is not happy with computer because customer support isn’t 24/7 like promised; the arbitration clause in the shrink-wrap is at dispute here. P doesn’t have to abide by shrink-wrap agreement when arbitration clause is obscure or expensive. Ct finds agreement when P kept the comp past the 30 day warranty period. P argues it was a “take it or leave it arrangement,” but ct explains this is the benefit from online purchases and P had the option to send it back within the 30 days and buy it elsewhere. Also, the fact that the buyer didn’t read or understand the terms is irrelevant and doesn’t invalidate the contract. Duty to Read.

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Rolling Contract - at some point there’s a contract amidst negotiation doesn’t result in offer or acceptance, no stopping point until form is submitted; court focuses on the form; “rolling” refers to what happens before and once form is sent that is the offer and what happens after is either acceptance or rejection

Language of material alteration: if it does fall under 2-207; the court could apply subsection 2 then court would conclude the terms do materially alter; however subsection 2 applies only to merchants, not to consumer-merchant; only one form thus no battle of the forms. Merchant-consumer requires expressed assent (action or inaction)

Policy: Cashiers/Phone operators cannot be expected to read legal documents to customers before ringing up sales…droning voice would anesthetize rather than enlighten many potential buyers and oral recitation would not avoid customers assertions (whether true or feigned) that the clerk did not read terms X to them, or that they did not remember or understand it. Writing provides benefits from both sides of commercial transactions; Customers are better off and so our Vendors. Argument in line with Brower: there may be times when the consumer wants to be bound later; they would want the opportunity to send the computer back and be able to rescind on their end.

Two lines of reasoning: (1) these contracts take place on a rolling place; vendor is master of offer; (2) traditional way, contract takes place when customer makes offer

c. IMPLIED TERMS: SUPPLEMENTING THE AGREEMENTClassical Approach: Before the court implies an agreement, there must be a bargain for exchange (thus, courts would imply consideration).Modern Approach: If the parties acted like there was an agreement, the court will find a way to make an implied agreement. Two Types:

Implied-in-fact: A term agreed to in some meaningful sense by the parties themselves. Implied-in-law: A term not found in the parties agreement, even broadly viewed, but imposed on the

parties by law.Three Bases: (1) Statute (2) Common law precedent (3) Court discretion Gap Fillers : Terms implied-in-law by the UCC.

1. Reasonable Efforts: Where one party has an exclusivity agreement under a K, it is implied he will use reasonable effort in executing the contract. See Wood v. Lady Duff

2. Reasonable Time: (UCC § 2-309(1)) If parties don’t agree upon a time for delivery, then delivery must occur within a “reasonable time.”

3. Reasonable Notice: (UCC § 2-309(3)) - Termination of a contract(other than a set event) without notice will be considered invalid.

Reasonable notice: (1) Industry Norm; (2) Terms provided for in parties’ present and/or prior agreements.

1. Wood v. Lady Duff Gordon- Lady made exclusive agreement w Wood to acquire half of Wood’s profits from his endorsement of Lady. Wood says Lady broke K by doing her own promotions and withholding profits. A promise may be lacking and yet the whole writing may be instinct with an obligation imperfectly expresses so as to make a contract. Unless D gave his efforts she wouldn’t get anything. She wouldn’t want half of nothing; without the court’s implied terms this agreement would lack business efficacy. The court implied, as a matter of fact, the term reasonable efforts because of parties’ intentions. ** Remember Wright v. Newman- promise to pay child support- there ct implied term as a matter of fairness, not intention. It’s not uncommon to have a contract that is one sided (i.e. Nanukuli –presumably they could use someone else, but in actual K it was one-sided; historically courts have issue w one-sided Ks). Ct finds Lady liable for breach of K.

Professor Eisenberg takes the position that agreements in which one party makes only a nonbinding illusory promise frequently reflect a rational bargain and ought to be enforceable according to their terms. The party making the nonillusory promise, he asserts, has in effect bargained for a chance to show that his performance is attractive (analogy of “money back” guarantee-seen in UCC §2-326 sale on approval)

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What if the situation were reversed? The implied obligation would go both ways (implied obligation of reasonable efforts)…trouble in trying to prove what “Best Efforts” look like…a little/a lot…it would be hard to make standard certain.

This case applies Implied in Fact

2. Leibel v. Raynor Manufacturing- verbal agreement for exclusive dealer distributorship for garage doors: D was to provide product and P was to sell it. P borrowed money and began business; 2 years later D terminated relationship. Under UCC (predominance test) ct finds P was entitled to reasonable notice. Appeals ct rejects the summary judgment finding and sends it to trial. UCC 2-309 requires reasonable notice (based on the circumstances) to terminate if no termination privilege is in K. This is an implied in law term- all about fairness, implied the way it should be.

Notes: Gap-filling provisions of Article 2: §2-308 (place of delivery); §2-310 (time of payment); §2-509

(risk of loss); §2-513 (buyer’s right of inspection)—supported on the basis that terms are “fair” and “just.”

Some of the implied by law obligations are imposed by the UCC are mandatory and may not be varied even if the parties expressly agree otherwise, but for the most part rules are gap-fillers-subject to preemption by parties’ express agreement.

Code also justifies implied terms on grounds of economic efficiency-most parties would voluntarily choose them for themselves, thus fewer terms to bargain out

In gauging reasonable notice comment 8 to UCC §2-309 refers to a related factor: whether there has been sufficient or reasonable time to find a substitute arrangement

Written K allowed termination immediately if sales decline (no notice required)…would such a provision give in effect. Ct would honor this explicit intense. “Except on the happening of agreed event.”

d. Implied Obligation of Good Faith: One party to a K claims to be acting in ways either expressly permitted or at least not forbidden and the other party complains such conduct is improper and actionable. **Restatement (2nd) §205 echoes UCC by extending duty of good faith and fair dealing to every K--Cts are unanimous that once a K is concluded terms will be deemed to include an obligation of good faith that is binding on both parties (honesty in fact and observance of reasonable commercial standards of fair dealing in the trade).

Implied obligation of Good Faith (§2-306)- no definition, must determine on a case by case basis. **Common theme in bad faith is willfulness- people doing things purposefully. Not needed to show a specific term is violated on its face, you are showing the a party tried to deprive the other party of the fruit of the term. FORM OF BAD FAITH CONDUCT MEANING OF GOOD FAITH

1) Seller concealing a defect in what he is selling Fully disclosing material facts2) builder willfully failing to perform in full, though otherwise substantially performing

Substantially performing w/out knowingly deviating from specifications

3) contractor openly abusing bargaining power to coerce an increase in the K price

Refraining from abuse of bargaining power

4) hiring a broker and then deliberately preventing him from consummating the deal

Acting cooperatively

5) conscious lack of diligence in mitigating the other party’s damages

Acting diligently

6) arbitrarily and capriciously exercising a power to terminate a K

Acting w/ some reason

7) adopting an overreaching interpretation of K language

Interpreting K language fairly

8) harassing the other party for repeated assurances of performance

Accepting adequate assurances

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1. Seidenberg v Summit Bank- Ps sold business to D including joint obligation to work together. D terminated Ps employment. P claimed D failed to honor its obligations (which P alleges gives rise to an inference of bad faith). Parol evidence is permissible to evaluate a breach of good faith. Good faith isn’t limited to situations where on party exploits a weaker party, but it is a factor. P’s bad faith allegations survive dismissal. Ct says the presence of bad faith is found in the eye of the beholder (“I KNOW IT WHEN I SEE IT”)—not really an answer bc it was a half-answer in the first place and it should go to the jury. To determine good faith performance, ct must consider expectations of the parties. It would be difficult, if not impossible, to make that determination without considering evidence outside the written contract. Therefore, in determining whether a breach of the covenant has occurred, a court must allow for parol evidence. **Generally obligation of good faith is implied in law (implied in every K) mandates that neither party do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, but it does turn on the parties’ intent

Allowing Parol Evidence- performance of parties helps evaluate intent (four corners).Con- allowing something completely outside the specifically written K

Applied to prohibit (1) variations to integrated written instrument; (2) contradictions to express terms.

PER cannot inhibit the application of the implied covenant of good faith and fair dealing because that covenant is contained in all contracts made by operation of law. (General Rule- good faith can’t override an express K term)

**Covenant has been applied: (1) covenant permits the inclusion of terms and conditions which haven’t been set forth (i.e. terms the parties must have intended along the lines of business efficiency); (2) allow redress for the bad faith performance of an agreement even when the defendant has not breached any express term; (3) covenant has been held to permit inquiry into a party’s exercise of discretion expressly granted by a contract’s terms

**important to note in what types of cases this obligation of good faith applies Ways in which the doctrine of good faith may come into play: (1) court may be persuaded that in

order for K bw parties to have business efficacy, it is necessary to imply terms; (2) covenant of good faith may permit a finding of breach even where no express term has been violated; (3) notion of good faith has often been applied to judge the appropriateness of a party’s exercise of some type of discretion expressly granted to it by the terms of a K.

Seidenberg courts treatment of PER- bc the obligation of good faith is an implied term rather than an express one, the PER will ordinarily be irrelevant to the issue of its existence and application (I’m confused on the application of this rule to the obligation of good faith)

2. Morin Building Products Co v Baystone Construction- GM, third party, hires Baystone (D) to build an addition. D hired Morin Building (P) to supply and erect the aluminum walls. K said: “aluminum siding; all work subject to approval of architect; acceptability rests strictly with GM; custom shall not be relevant.” GM rejected P’s work, so D hired another subcontractor to replace it and refused to pay P. P sued for the balance and won and D appealed.

RPP standard applied in determination of satisfaction in commercial construction projects when K involves commercial quality, operative fitness, or mechanical utility which other knowledgeable persons can judge. Good faith standard is employed when K involves personal aesthetics or fancy.

Here K was for factory, not usually a thing of beauty, but K specifically refers to “artistic effect.” Ct says there’s more than a suspicion that the artistic-effect and quality-fitness clauses were not intended to cover the aesthetics. Jury considered the RPP standard and it’s unlikely P intended to bind himself to a higher and perhaps unattainable standard since it seems impossible to achieve a uniform finish with mill-finish aluminum. **If a uniform finish was important GM could have gotten such a finish by specifying painted siding. K is ambiguous and qualifications are hedged around circumstances that seem to suggest the parties did not intend to subject Morin’s rights to aesthetic whims. (it seems to me they kind of side with D, but since

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facts and K are vague and inconclusive they defer to lower court’s opinion).

Subjective: good faith (aesthetics) vs. Objective: restatement §228 (functional)Good Faith- If in fact they really wanted it to be uniform so that they were honestly dissatisfied then the good faith standard is met (pretty lenient standard when you think about how fickle people are which is why there’s a preference for the objective standard).

o EX of need for subjective is painting a portrait (added support is if an extra fee is paid as consideration) … if they don’t like it then they shouldn’t be stuck with it bc it’s up to their content with the performing party’s job (presumably the performing party thinks they can please you).

Objective- Restatement §228 – preference for objective standard when it’s practical to do so (practical refers to when something is functional as contrasted with something is artistic, specialized fanciful use)

One of the tricky situations: there are situations with functional purpose with an aesthetic aspect (i.e. painting a house)**there is a lot of Code and Restatement overlap (for testing purposes you must differentiate, but recognize you can borrow from one or the other as seen by the judge in this case)

Notes: Ks frequently contain express terms that obligate one party to perform to the “satisfaction of the

other.” Indeed if pure discretion were the test, the party whose performance was conditioned might be held to have made only an illusory promise, defeating K as a whole. One of two approaches (described in Morin): either the obligor’s declaration of dissatisfaction will be judged by a standard of reasonableness or at minimum held to standard of honest dissatisfaction

o Comment a to §228 indicates that the subjective standard should be used only where the agreement leaves no doubt that it is only honest dissatisfaction that is meant and no more

§228 indicates a preference for the objective test may be justified in part by the desire to avoid forfeiture as the denial of compensation that results when the oblige loses his right to the agreed exchange after he as relied substantially as by preparation or performance on the expectation of that exchange

P’s burden of establishing D was honestly dissatisfied may be difficult, but it’s not impossible

VII. Warrantiesi. Bayliner Marine Corp v Crow- P bought boat, had problems because wasn’t satisfied with performance (speed of the

boat). He was given documents “prop matrixes” (described capacity to travel 30 mph) and a brochure (advertised “the kind of performance you need to get to the prime offshore fishing grounds”). The ct held mere opinions of a product aren’t express warranties (docs here referred to a slightly different boat and the brochure was simply an opinion).. Despite P’s allegations he couldn’t use the boat, the ct found no evidence showing the trade standard of merchantability or that the boat was unfit for offshore fishing to conclude that the boat violated the warrant of merchantability.

Express Warranty - §2-313created when seller makes an affirmation of fact or a promise to the buyer that becomes part of the bargain basis

Warranty of Merchantability - §2-314 all goods are sold containing an implied warranty that such goods are merchantable (trade standard fit for ordinary purposes) **must have a merchant involved selling the god

Warranty of Fitness - §2-315 – provides when a seller has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is…an implied warranty that the goods shall be fit for such purpose o As a threshold matter the buyer must prove as a threshold matter that he made known to the seller the

particular purpose for which the goods were required

Notes: Examples: Cell phone service restricted to Oxford MS—breaches warranty of fitness bc it’s not the purpose of a phone

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Go shopping and employee gives you a particular shoe-white, bright neon tennis shoes “everyone uses this shoe for job interviews,” you take the person’s advice and go to your interviews---assuming you don’t get a job (resolve the ambiguity that surrounds “why they didn’t choose me”-someone gives you a tip, it was the shoes); does the implied warranty of fitness “reason to know” –you relied on the sales person’s skill and judgment to get a job. The shoes otherwise work, but not in the context you were seeking them for (comment §2-315)

o It’s really unreasonable to rely on the seller’s adviceo Would be different if the seller claimed to have special knowledge (i.e. used to work in that field or has

lots of those employees in the store) –really talking about specialized skill and judgment, without this added knowledge the seller’s skills would only be applicable to the shoe’s standard function

Validity of disclaimers of warranties (§2-316) –disclaimer is inperative if it cannot be construed as consistent with the terms in K that would create the express warranty... if an oral warranty the application may depend on the application of the parol evidence rule

o To use boilerplate language to overcome a specific provision in the code, it needs to be specific and conspicuous (especially if we are talking about the warranty of merchantability).

o Most common is the “as is” disclaimer Bayliner distinguishes between a type of factual representation about the quality of goods that may give rise to an

express warranty and “mere puffery” or sales talk that will not serve as a basis for a binding commitment To be considered a basis of the bargain §2-313(3) –the agreement requires clear affirmative proof Implied warranty of fitness is different from implied warranty of merchantability bc it is not limited to

merchants and it is created only when the buyer relies on the seller’s skill or judgment to select suitable goods for the buyer’s particular purpose and the seller has reason to know of this reliance; also the breach of warranty doesn’t require a showing that the goods are defective in any way—merely that the goods aren’t fit for the buyer’s particular purpose

ii. Caceci v Di Canio Constr Co- Ps brought suit against builder of their home five years after the home was constructed alleging Ds violated the implied warranty of merchantability by building on an unstable foundation. NY courts recognize the Housing Merchant warranty, which imposes a contractual liability to build new homes with skillful performance and quality. Thus, CL rule of Caveat Emptor may not be invoked. Ct held, in regards to new houses, construction must be done in a skillful manner free from any material defects (it’s immaterial whether builders had actual knowledge of the defect bc the builders are in a much better position than buyers to ensure the proper quality of the home. An implied warranty of merchantability will be read into all construction contracts for new homes.

A clear majority of jurisdictions have recognized an implied warranty of quality in the sale of a new home by a builder-vendor; “clearly every builder-vendor holds himself out, expressly or impliedly, as having the expertise necessary to construct a livable dwelling.

Caceci ct states that the builder-vendor must construct a house “Free from material defect and in a skillful manner;” may have two separable components-a warranty of habitability and a warranty of skillful or sound construction; different bw implied warranty of skillful construction and the implied warranty of habitability is that the former warranty focuses on the manner in which the work is performed while the latter reflects the “end result” expectation that the home will not have any major defects which render it unsuitable for habitation; implied warranty of skillful or workmanlike performance may include defects that do not render the house uninhabitable

Some states have enacted legislation providing for implied warranties of quality in the sale of new homes Most courts view disclaimers with suspicion and will refuse to enforce a disclaimer unless it is conspicuous,

specific, and the result of a mutual agreemento A disclaimer is considered void against public policy if it attempts to disclaim compliance with

applicable building codes or if it permits the home to be unsafe Add to list of implied terms: common law warranty of home

o A home would only be a good if it is movable (a modular home)

Summary of WarrantiesExpress Warranty UCC § 2-313

Any affirmation of fact or performance Words “warranty” or “guaranty” not required.

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Doesn’t have to be intended Opinions and mere puffing are not a warranty Affirmations of fact that can be verified Timing: facts and circumstances determinative. Normally, statements post-K aren’t warranties.

Implied Warranty of Merchantability- UCC § 2-314suitable for its ordinary purpose Sale must be made by merchant who deals in goods of that kind Goods must pass within trade Goods must be fit for ordinary purpose Consumer expectations, not personal preference.

Implied Warranty of Fitness for a Particular Purpose- UCC § 2-315 individual’s expectations must be communicated Seller must have knowledge of particular purpose Buyer must have relied on seller’s skill and judgment Not required that merchant involved Not that goods are defective, just not what buyer needed

Applying the Parole Evidence Rule to warranties- may present a problem when trying to introduce express warranty. Determine if there is complete integration and warranty will vary terms, so can’t come in. Then use fraud exception. Classical courts will not allow because it’s fraud in the inducement. But some modern courts will allow. If it was partial integration, much less problem getting express warranty in.

Implied warranties have no problem with the Parol Evidence Rule Implied warranties can be disclaimed or modified if expressly contracted so. Courts view this with suspicion, so

boilerplate won’t cut it- need dickering. Implied warranties exist in contract to construct a house.

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Promissory estoppel serves as a “consideration substitute” in contract law that renders certain promises otherwise lacking in consideration binding and enforceable. In such cases, the promisee’s reliance is treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promissor from denying the existence of a contract for lack of consideration.

Legal PrinciplesRestatement (Second) of Contracts §90 – Promise Reasonably Inducing Action or Forbearance(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

ElementsIn general, the elements of promissory estoppel are:1) a promise reasonably expected by the promissor to induce action or forbearance,2) action or forbearance by the promisee in justifiable reliance on the promise (i.e. “detrimental reliance”), and3) injustice can be avoided only through enforcement of the promise.

RemedyThe available remedy is usually limited to only that which is necessary to avoid injustice.

Summary§ 90 applies to contracts without consideration when: (1) A promise was made that the promisor should reasonably expect to induce reliance on the part of the promisee, (2) the promisee actually did rely on the promise, and (3) injustice can only be avoided if the promise is enforced.

Limitations on the application of § 90: (1) We’ll only make the promise binding when justice requires it. (2) We may limit the remedy as justice requires: promises enforced under § 90 are without consideration and can lead to a partial enforcement as opposed to a promise with consideration which will lead to full enforcement. When there is no reliance, § 90 and promissory estoppel do not apply. Often in § 90 situations, it’s enough to protect the reliance interest and not the expectation interest.

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