No Notice (Surprise) - Specific Notice - General Notice - Timely Notice No Choice (Oppression) - Adhesion - Market Uniformity - Important Good

or Service Unreasonable Substance - Unduly Burdensome - One-Sided

Process for Slow Processors. DeWayne Hubbert purchased a computer online from Dell Corporation. To make a purchase on the Dell website, Hubbert had to fill out information on five separate web pages. Each page included a blue hyperlink to the Terms and Conditions of Sale, which, in turn, provided, in all capital letters, that any dispute related to the purchase SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM. The last three web pages also stated that All sales are subject to Dells Terms and Conditions of Sale. Dell did not require customers to acknowledge or assent to its terms and conditions. It did include a copy of the terms in the box sent to purchasers, along with notice of its total satisfaction policy: i.e., purchasers could obtain a full refund if they returned their computers within 30 days. Hubbert did not return his computer and later sued Dell in state court, alleging that the company deceived him, and other customers, about the processing speed of the computer. Dell moved to enforce the arbitration clause. Who should prevail?

Process for Slow Processors. a) Dell, because the contract provided that disputes must be resolved through arbitration. b) Hubbert, because the term was not adequately communicated. c) Hubbert, because the term was unconscionable.

Process for Slow Processors. The trial court found that Dells online terms and conditions had not been adequately communicated to purchasers and were therefore not part of the contract. In Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill. App. 2005), the Illinois Appellate Court reversed, finding that repeated exposure to and the visual effect of the blue hyperlinks, along with the three warnings that customers would be bound by the terms and conditions, put the reasonable computer user on notice of Dells terms. The trial court also held that the arbitration provision was procedurally unconscionable because it was adhesive and not conspicuous, and substantively unconscionable because Dell unilaterally imposed arbitration and the arbitration service provider on its customers. The Appellate Court reversed this holding as well, holding that the blue hyperlinks and bold type rendered the term conspicuous, and that there was no evidence that the arbitration mechanism had in the past or would lead to an inordinate advantage for Dell.

Death on the High Seas. When Bobbi Jo and Joel Wallis booked their Mediterranean cruise with Princess Cruises, Inc., they received a packet containing ticket coupons and a Passage Contract. At the bottom of Coupon 01 of the ticket packet was the warning headline IMPORTANT NOTICE in 1/8 inch type, followed by this statement in 1/16 inch type:
THIS TICKET INCLUDES THE PASSAGE CONTRACT TERMS SET FORTH AT THE END OF THIS PACKET WHICH ARE BINDING ON YOU. PLEASE READ ALL SECTIONS CAREFULLY AS THEY AFFECT YOUR LEGAL RIGHTS, PARTICULARLY SECTION 14 GOVERNING THE PROVISION OF MEDICAL AND OTHER PERSONAL SERVICES AND SECTIONS 15 THROUGH 18 LIMITING THE CARRIERS LIABILITY AND YOUR RIGHTS TO SUE.

The warning headline and text was repeated four more times at the bottom of Coupon 04, Coupon 07, Coupon 08, and Coupon 09. Text of similar wording appeared across the top of the first page of the Passage Contract, located behind the ticket coupons. On pages six and seven of the Passage Contract was a paragraph headed 16. LIMITATIONS ON CARRIERS LIABILITY; INDEMNIFICATION. The sixth and seventh sentences of the paragraph read: continued on next slide

Death on the High Seas. (continued)

Carrier shall be entitled to any and all liability limitations, immunities and rights applicable to it under the Convention Relating to the Carriage of Passengers and Their Luggage by Sea of 1976 (Athens Convention) which limits the Carriers liability for death of or personal injury to a Passenger to no more than the applicable amount of Special Drawing Rights as defined therein, and all other limits for damage or loss of personal property.
The 1976 Amendments to the Athens Convention (to which the United States is not a signatory), in turn, define Special Drawing Rights as 46,666 international units of account.

In the course of the cruise, Joel Wallis disappeared overboard; his decomposed body later washed up on the Greek shore. Bobbi Jo Wallis sued Princess under a number of legal theories, and Princess moved for partial summary judgment that its liability was limited by its contract with the Walliss to $60,000. Should Princess prevail?

Death on the High Seas. a) Yes, because the terms were provided and cruises are not a necessity. b) No, because Princess provided insufficient notice of the liability limitation.

Death on the High Seas. The federal district court granted the motion for partial summary judgment. In Wallis v. Princess Cruises, Inc., 306 F.3d 827 (9th Cir., 2002), the Ninth Circuit Court of Appeals reversed, holding that the Walliss lacked the ability to become meaningfully informed of the contractual terms at stake (which it determined was a question of law). The court first asked whether the physical characteristics of the tickets provided sufficiently conspicuous notice that the relevant terms and conditions applicable to the contract, and found that they did. The court then determined, however, that the text of paragraph 16 did not provide passengers with an ability to become meaningfully informed concerning the content of the relevant limitation of liability because a passenger wishing to obtain such information would have to look up the Athens Convention, understand that paragraph 16 refers to Convention as amended in 1976, determine that the 1976 Protocol limits liability to 46,666 units of account per carriage, and find a financial source that it would enable conversion of that amount to U.S. dollars.

Old West. The Cody Country Chamber of Commerce sponsored mock gunfight performances on the streets of Cody, Wyoming, through a group called the Cody Country Gunfighters Club, for the purpose of promoting local tourism. To join the Club and perform in the gunfights, David Boehm was required to sign an application with the following exculpatory clause:
I shall perform as a Gunfighter entirely at my own risk and shall hold harmless and release the Cody Chamber of Commercefrom any and all claims and damages which said participant may incur from participation in any and all activities sanctioned by the Club.

While playing the role of a bandit gunned down by sheriff deputies in a mock gunfight, Boehm suffered an injury to his eye. He sued the Chamber of Commerce alleging negligence, and the Chamber sought summary judgment based on the exculpatory clause. Should the contract language preclude Boehms tort suit?

Old West. a) Yes, because the contracts language clearly disclaims all liability on the part of the Chamber of Commerce. b) No, because the Chambers attempt to disclaim liability for its own negligence contravenes public policy. c) No, because the disclaimer is unconscionable.

Old West. The trial court granted the Chambers motion, and the Wyoming Supreme Court affirmed. The court explained that this type of exculpatory clause is unenforceable where the service or activity [is] considered suitable for public regulation and can often be a matter of practical necessity for some members of the public. As a result, the party offering the service or activitymaintains superior bargaining position of those seeking the service or participating in the activity. The court held that this case concerned a voluntary activit[y] that did not demand a public duty nor create a severe disparity of bargaining power. Boehm v. Cody Country Chamber of Commerce, 748 P.2d 704 (1987). The court held that the clause did not prevent Boehm from suing for willful or wanton misconduct a form of intentional tort but upheld summary judgment on cause of action as because Boehm offered no evidence that would support that claim.

Cell Phones Without Class. Vincent and Liza Concepcion entered into a contract with
AT&T Mobility LLC for the sale and servicing of cellular telephones. The fine print in the AT&Tdrafted agreement required that most disputes must be settled through arbitration, although it provided that AT&T will pay all arbitration costs for nonfrivolous claims and allowed customers to arbitrate small claims (under $10,000) via telephone or bring them in small claims court. It further specified that customers must bring any claims in their individual capacity, and notin any purported class or representative proceeding, and it similarly prohibited arbitrators from consolidating any suits into class action proceedings. When the Concepcions were charged $30.22 in sales tax for a supposedly free phone, they filed a class action claim against AT&T in federal court alleging fraud. AT&T argued that, under the contract, the Concepcions must arbitrate, and could bring only their individual claim rather than a class action. California law provides that contracts which exempt anyone from responsibility for his own fraudare against the policy of the law. Cal. Civ. Code 1668. The Federal Arbitration Act (FAA) provides that contractual arbitration provisions shall be validand enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. The Supreme Court has interpreted the FAA to prohibit states from discriminating against arbitration clauses in contracts as such but to permit litigants to raise any general state law defenses to contract enforcement that they might have even when that means an arbitration clause would be invalidated. Is the AT&T arbitration clause, which, if effective, would make it impossible for the Concepcions to bring any class action claim, enforceable?

Cell Phones Without Class. a) Yes, because the FAA protects the validity of the clause. b) No, because the clause is unconscionable.

Cell Phones Without Class. On a 5-4 vote, the U.S. Supreme Court overturned the Ninth Circuit Court of Appeals ruling that the term is unconscionable and held that California law, which would prohibit the enforcement of the arbitration clause, is preempted by the FAA. Writing for four members of the Court, Justice Scalia held, however, that California law would improperly interfere with fundamental attributes of arbitration that are protected by federal law, such as informality, cost effectiveness, and limitation of the stakes of any one case. Justice Thomas, concurring, viewed the California law as establishing a public policy against limits on arbitration. Thomas read the FAA as allowing state law actions that work to the disadvantage of arbitration clauses only when the state is concerned the formation of the contract (i.e., fraud or duress), not its substance, and so would enforce the contractual clause because Californias concern with its substance. Justice Breyer, writing for four justices, dissented. Breyer found the contract term was unconscionable under California law, and that refusing to enforce it was not inconsistent with the FAA because this would constitute the application of general unconscionability doctrine.

Benny Buyer calls Sally Seller and asks for price of widgets.

S responds: $10 per widget.

B Says: That sounds good. Next day, B sends purchase order for 10 widgets at $10, with boilerplate terms: - Delivery within 10 days. - 2 year warranty on widget performance. S sends acknowledgment of order for 10 widgets at $10/per subject to: - Delivery within 14 days. - No warranties (widgets sold as is). Widgets arrive 13 days after order was placed. B sends S check for $100. One month later, widgets malfunction.

Non-identical forms, 2d form not expressly conditional on assent - K under 2-207(1) - Proposal for changes evaluated under 2-207(2) [Benny/Sally hypothetical] Non-identical forms, 2d form is expresslyconditional on assent - No K under 2-207(1) - K can be created by conduct - Terms determined under 2-207(3) [ Leonard Peavar Co. possibility] Oral agreement followed by confirmatory memo - K under 2-207(1) - Proposal for changes evaluated under 2-207(2) [Klocek, Leonard Peavar Co. possibility]

I Wish I was an Oscar Mayer Weiner. Oscar Mayer Foods regularly purchased
from Union Carbide plastic casings used in manufacturing sausages. Oscar Mayer would submit a purchase order for a specific quantity of casings, and Union Carbide would send an invoice. The following clause appeared on the back of the invoices and also in a price book that Union Carbide sent to customers from time to time: In addition to the purchase price, Buyer shall pay Seller the amount of all governmental taxes that Seller may be required to pay with respect to the production, sale or transportation of any materials delivered hereunder. In 1980, Oscar Mayer threatened to buy from another seller which would not have to charge Chicago sales tax because the seller took orders at an office outside Chicago. Union Carbide responded by directing Oscar Mayer to submit orders to Union Carbides office outside of Chicago, and stopped charging sales taxes on Oscar Mayers orders. The Illinois Tax Authority decided that Union Carbide should have been charging taxes, and assessed Union Carbide for back taxes as well as interest thereon for its transactions with Oscar Mayer. Union Carbide is seeking reimbursement from Oscar Mayer, citing the indemnification clause on the invoice. Is Oscar Mayer liable?

I Wish I was an Oscar Mayer Weiner. a) Yes, because Oscar Mayer had implicitly incorporated the tax term into its offer. b) No because the tax term was Union Carbides proposal for an additional terms that was never accepted.

I Wish I was an Oscar Mayer Weiner. The Seventh Circuit, in an opinion by Judge Richard Posner, concluded that the indemnity clause materially altered the terms of the parties agreement and hence it did not become part of the contract under 2-207(2). Union Carbide Corp. v. Oscar Mayer Foods Corp., 947 F.2d 1333 (7th Cir. 1991). As Union Carbide conceded for purposes of 2-207 analysis, Oscar Mayers purchase orders were the offers, and Union Carbides invoices were the acceptance (and the price book was either an unaccepted offer or a nonoffer price quotation). Because both parties are merchants or pros under UCC 2-104(1), additional terms in the acceptance become part of the parties contract unless those terms materially alter the agreement (unless the offeror consents to the material additions). If the term materially alters the contract, the acceptance is still effective but the term is not: the contract is enforceable minus the term the offeree tried to add. The court concluded that the tax clause materially altered the contract because it Oscar Mayer chose to buy from Union Carbide based on Union Carbides representation that no tax liability existed. If a tax increase showed up on an invoice, Oscar Mayer would have to pay but might then decide to cease buying casings from Union Carbide To assume responsibility for taxes shown on an individual invoice is quite different from assuming an open-ended, indeed incalculable, liability for back taxes.

Combustible Thermostats. In 2008, East Kentucky Power Cooperative (EKPC) submitted a

purchase order to Comverge for 2,500 programmable thermostats. The PO contained basic terms of the sale, including item description, quantity, unit price, and total price, and also included these provisions:
These terms and conditions as set form on this order are the only terms and conditions that govern this transaction. Any action to enforce this purchase order shall be brought in the Eastern District of Kentucky.

In response, Comverge sent its Sales Order Acceptance which accepted EKPCs offer, but also stated:
Our acceptance of Purchasers order is conditioned upon Purchasers agreement with these terms and conditions. With the exception of price, product type, and quantity, we reject any terms and conditions in Purchasers order which are different from or additional to these terms and conditions. The parties agree that the appropriate courts sitting in Northern District of Georgia shall have sole and exclusive authority to hear and adjudicate any dispute arising out of this agreement.

Comverge subsequently shipped to EKPC 2,500 thermostats which were installed in homes in Kentucky. After several Comverge thermostats burst into flames, EKPC removed all of the thermostats and filed a breach of warranty suit against Comverge in the Eastern District of Kentucky. Comverge filed a motion to dismiss or transfer the suit to the Northern District of Georgia. How should the court rule?

Combustible Thermostats. a) The court should rule for Converge, because its forum selection clause was part of the contract formed when EKG accepted delivery of the thermostats. b) The court should rule for EKG, because Converges accepted EKGs offer which made clear that it would not agree to Converges forum selection clause. c) The court should rule for EKG, because neither partys forum selection clause was part of the contract, thus allowing EKG to file suit in any proper forum.

Combustible Thermostats. Comverges Sales Order Acceptance was not an acceptance under 2-207 because it stated terms additional to or different from those offered by EKPC and expressly made [its acceptance] conditional on [EKPCs] consent to the additional or different terms. 2-207(1). East Kentucky Power Cooperative v. Comverge, Inc., 2011 WL 1226747 (E.D. Ky. 2011). The district court rejected Comverges argument that the Sales Order Acceptance amounted to a counteroffer which was accepted by EKPCs receipt of the thermostats. The district court observed that this would return sales agreements to the pre-UCC last-shot rule. The court instead looks to 2207(3) and finds that the writings between EKPC and Comverge did not form a contract because each form made the partys agreement conditional on assent to the conflicting forum selection clauses. Since the parties conduct recognizes the existence of an agreement, the terms of the contract are those on which the forms agree (quantity, price, delivery, and other terms) and the UCC gapfillers for terms on which the parties disagree. Without any governing forum selection clause, EKPC is entitled to bring this action in this district, where it resides and does its business and where the damage allegedly occurred.

Lost Negatives. Newsweek Magazine contacted photographer Daniel Miller to express an interest in buying Millers photos of the subject of a possible profile. During a phone conversation with Newsweeks photo editor, Miller agreed to send 72 negatives to Newsweek the same day by courier, and Newsweek agreed to pay Miller a standard rate of $100-$200 for any photo used in the article. Newsweek ultimately did not run the story, and Millers photos were not used. Newsweek never returned the negatives, which were presumed lost. Miller brought suit against Newsweek for compensation based on the following provisions which were in a Delivery Memo accompanying the negatives:
Negatives may be held for 14-days approval. A late fee of $5 per week per negative will be charged after such 14-day period. Recipient agrees that the reasonable minimum value of any lost or damaged negative shall be no less than $1500.

If the court concludes that Article 2 governs this transaction, must Newsweek pay damages consistent with these provisions?

Lost Negatives. a) Yes, because Newsweek is a merchant and the terms in question were not material. b) No, because Newsweek never agreed to the terms in question.

Lost Negatives. The U.S. District Court for the District of Delaware first concluded that the parties formed a contract during the telephone conversation between Miller and Newsweeks photo editor. Miller v. Newsweek, Inc., 660 F. Supp. 852 (1987). The parties had agreed on quantity, delivery, and price. Thus, contrary to Millers assertion, the Delivery Memo was not an offer in response to Newsweeks invitation, but rather a written confirmation of an existing contract under 2-207. And, [t]he fact that the confirmation contains additional terms has no effect on the validity of the original acceptance. Both parties are merchants with respect to the purchase of photographs, thus the late penalty and liquidated damages provisions become part of the contract only if they do not materially alter the agreement. The court concluded that the clauses especially given the size of the penalty and damages as compared to the value to Newsweek of the photos would surprise Newsweek and work an undue hardship.

Is Parol Evidence Admissible?

Separate Transaction

The Transaction Described in Writing

Resolve Ambiguity

Mistake, Formation Defenses

Existence of Term

Unintegrated

Partially Integrated

Completely Integrated

The Unfunded Escrow Account. John and Betty Jo Belzel hired Fountain Hill Millwork Building Supply Company to construct their home. The Belzels bank agreed to finance the construction and provide scheduled payments to Fountain Hill based on costs incurred. The bank required the Belzels to place $40,000 in escrow in case there were unanticipated costs in excess of the loan amount. The Belzels did not have the cash on hand to make the escrow deposit. In lieu of the Belzels escrow payment, Fountain Hill agreed to defer a scheduled payment of $40,000. In exchange, the Belzels executed a written promissory note for $40,000 payable to Fountain Hill in 90 days. At the time of execution of the note, the Belzels and Fountain Hill orally agreed that the Belzels would not be liable for the $40,000 if the mortgage and any direct payments by the Belzels covered the total cost of construction. The written promissory note did not mention this oral agreement, nor did it mention that the promissory note was given in exchange for Fountain Hills promise to defer the $40,000 payment. The Belzels paid Fountain Hill $8,000 directly for an unanticipated expense. The mortgage was sufficient to cover all other costs of construction, and Fountain Hill was paid in full. Despite these payments, Fountain Hill sued the Belzels on the unpaid note. Does the parol evidence rule bar the Belzels from introducing evidence of their oral agreement?

The Unfunded Escrow Account. a) Yes, because the oral promise concerning the condition of payment concerned a matter that naturally would be included in a contract to pay $40,000. b) No, because the note was not integrated.

The Unfunded Escrow Account. In Fountain Hill Millwork Building Supply Co. v. Belzel, 587 A.2d 757 (Pa. Super. Ct. 1990), the Pennsylvania Superior Court found that the note was not integrated as it did not set forth the essentials of a simple contract. The note did not state when payment was due or Fountain Hills obligation in exchange for Belzels promise to pay. The court concluded that because the cognovit note was not the entire contract between the parties, parol evidence was permitted.

Two Yards Short. The Pittsburgh Steelers professional football team, a National Football League
franchise, planned to build a new stadium and started selling stadium builder licenses (SBLs) that would grant the licensee the right and obligation to purchase season tickets for their assigned seats. In October 1998, Ronald Yocca received a brochure (SBL Brochure) from the Steelers. It included a diagram of the general locations of the sections in the stadium and showed that the Club I Section was located within the twenty-yard lines. The brochure explained that any person interested in purchasing an SBL would be required to submit an application ranking their preferred sections, along with a nonrefundable deposit equaling one-third of the purchase price of the desired seat. The brochure also stated that no SBL applicant was assured the right to purchase an SBL and that the applicants first seating preference was not guaranteed. SBL applicants would be given their actual seat assignments in the spring of 2001 when the seats had been installed in stadium. Yocca submitted the application with the deposit and was assigned a seat within the Club I Section. In September 1999, the Steelers sent Yocca a Stadium Builder License and Club Seat Agreement (SBL Agreement), an Additional Terms and Conditions of Stadium Builder License and Club Seat Agreement, and a set of diagrams that showed the Club I Section now included seats between the ten-yard lines. The SBL Agreement contained an integration clause: Entire Agreement; Modification. This Agreement contains the entire agreement of the parties with respect to the matters provided for herein and shall supersede any representations or agreements previously made or entered into by the parties hereto. No modification hereto shall be enforceable unless in writing, signed by both parties. Yocca signed the agreement and paid the remaining deposits. He was assigned seats at the eighteen-yard line, and he sued. Does the parol evidence rule preclude him from introducing the SBL Brochure as evidence in support of his claim?

Two Yards Short. a) Yes, because the SBL brochure contradicted the terms of the final agreement. b) No, because the SBL brochure was written, not oral testimony. c) No, because he intended to use the SBL brochure to resolve an ambiguity concerning boundaries of the Club 1 seating area. d) No, because he intended to use the SBL to support his allegation that the Steelers committed fraud.

Two Yards Short. The Pennsylvania Supreme Court held that the SBL Agreement represented the parties contract for the sale of SBLs as it was a promise to actually sell a specific number of SBL seats in a specific section. The SBL Agreement merger clause explicitly stated that it contained the entire agreement. The court thus found that the parol evidence rule barred the admission of any evidence of previous oral or written agreements regarding the sale of SBLs, including the SBL Brochure. Yocca v. Pittsburgh Steelers, 854 A.2d 425 (Pa. 2004).

The Separate Arbitration Agreement. Jennifer Ritter bought a car from Grady Automotive Group. The purchase contract contained a merger clause stating that [n]o oral representations are binding unless written on this form and all terms of the agreement are printed or written herein. Ritter simultaneously executed a separate document stating that all disputes arising out of the sale and related transactions, such as negotiations and financing, would be arbitrated. Several months later, Ritter was involved in an accident and sued Grady Automotive in court for defects in the car. Grady Automotive moved to compel arbitration, citing the arbitration agreement. Ritter argued that the merger clause in the purchase contract rendered the arbitration clause invalid. Does the parol evidence rule bar Grady Automotive from introducing the arbitration agreement as evidence?

The Separate Arbitration Agreement. a) Yes, because the language of the purchase contract establishes that it was a completely integrated agreement. b) No, because the arbitration agreement does not contradict the purchase agreement.

The Separate Arbitration Agreement. In Ritter v. Grady Automotive Group, Inc.,

973 So. 2d 1058 (Ala. 2007), the Alabama Supreme Court allowed Grady Automotive to present the arbitration agreement as evidence. The court applied the Mitchill v. Lath test and concluded that although merger clause creates a presumption of complete integration, the parol evidence rule does not bar introducing the arbitration agreement as evidence. First, the court explained that the arbitration agreement was collateral to the purchase contract because it was of a different nature. The purchase contract only covered the purchase of the automobile, but the arbitration agreement covers the sale and related transactions, such as negotiation and financing. The court likened the arbitration agreement to Ritters separately executed financing agreement: although the financing agreement was collateral to the purchase, the merger clause clearly does not render it invalid. Second, the arbitration agreement did not conflict with any of the terms in the purchase contract because it makes no mention of disputes between the parties. Third, the court points out that, although it would have been proper to include the arbitration agreement in the purchase contract, it was not so related and the parties would not ordinarily be expected to embody the arbitration agreement in the purchase contract. Thus, the court allowed Grady Automotive to introduce the arbitration agreement as evidence.

The Topless Tennis Player. Anatasia Myskina, a Russian professional tennis player, agreed to do a photo shoot for the cover of Conde Nast Publications Gentlemans Quarterly (GQ) magazine. On the day of the photo shoot and before any photographs were taken, Myskina signed a release stating that she hereby irrevocably consent[ed] to the use of [her] name and the pictures taken of [her] on [that date] by [Conde Nast] . . . and others it may authorize. The photographer, Mark Seliger, first took photographs for the GQ cover, in which she was depicted as Lady Godiva nude on horseback, except for her hair and nude-colored underwear, which covered key places (the Lady Godiva photographs). Then, Seliger asked if he could take more photographs for himself of Myskina topless in blue jeans (the topless photographs). She agreed on condition that the topless photographs would not be published anywhere. Conde Nast used the Lady Godiva photographs for its magazines and licensed another publisher to use both the Lady Godiva photographs and the topless photographs. May Myskina introduce evidence of the oral agreement in an effort to stop publication of the topless photographs?

The Topless Tennis Player. a) No, because the alleged oral agreement contradicts the written contract. b) Yes, because the alleged oral agreement was made subsequent to the signing of the written agreement.

The Topless Tennis Player. In Myskina v. Conde Nast Publns., Inc., 386 F. Supp. 2d 409 (S.D.N.Y. 2005), the District Court for the Southern District of New York ruled that the oral agreement not to publish the topless photographs was barred by the parol evidence rule. The court stated that, although the Release did not contain an explicit merger or integration clause, its language (I, the undersigned, herby irrevocably consent . . .) showed the parties clear intention that the Release comprehensively governed the issue of consent.

WWW Associates PG&E Soper Frigaliment Amtel

either party shall have the right to cancel indemnify wife chicken directly or indirectly solicit, recruit, or attempt to persuadeto leave 35 percent of gross receiptson License Agreements Swiss coin collection

Beanstalk

Oswald

Interpretation Aids: Dictionary definition Inferences from other terms in the contract Trade custom/usage Inferences from market conditions/surrounding circumstances Course of performance Course of dealing Parol evidence Interpretive presumptions: i.e., contra proferentem Burden of proof (?)

The Prepayment Penalty. Trident Center (Trident) obtained a loan from Connecticut General Life Insurance Co. (Connecticut General) to finance construction of an office building complex. The terms of the contract stated an interest rate of 12.25% for a term of 15 years and provided that Trident shall not have the right to prepay the principal amount hereof in whole or in part for the first 12 years. The contract also gave Connecticut General the option of demanding prepayment of the loan, along with a 10% prepayment fee, if Trident were to default on the loan within the first 12 years. Four years into the loan period, interest rates declined sharply, and Trident wished to prepay the loan and obtain cheaper financing elsewhere. It filed a lawsuit against Connecticut General seeking a declaratory judgment that it was entitled to prepay the loan if it added a 10% prepayment fee. Connecticut General filed a motion to dismiss Tridents lawsuit, and Trident objected on the ground that it was entitled to present evidence supporting its interpretation of the contract. The U.S. District Court granted Connecticut Generals motion, and Trident appealed. How should the appellate court rule?

The Prepayment Penalty. a) The court should affirm, because any evidence presented would contradict the plain language of the contract. b) The court should reverse, because language has no fixed meaning, and Trident should have the opportunity to try to prove that the its interpretation is the most reasonable interpretation of the contract.

The Prepayment Penalty. The U.S. Court of Appeals for the 9th Circuit reversed, and ordered the District Court to allow Trident an opportunity to present extrinsic evidence as to the intention of the parties in drafting the contract. The court wrote that [i]t is difficult to imagine language that more clearly or unambiguously expresses the idea that Trident may not unilaterally prepay the loan during its first 12 years. It also expressed the view that the language of the contract was not reasonably susceptible to Tridents claim that it had the right to accelerate payment; rather, the contract made clear in several places that this option belonged only to Connecticut. Nonetheless, the court held that it was bound by the California Supreme Courts ruling in Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. requiring the admission and consideration of extrinsic evidence if one side is willing to claim that the parties intended one thing but the agreement provides for another.

Not Such a Bon Voyage. Debbi Krenkel and her husband George needed a break from
their long days at Krenkels DayNite Food Store in Neptune, New Jersey, and decided to treat themselves to a relaxing vacation at the luxury Atlantis Bahamas Resort, owned by Kerzner International Hotels. After running their credit card and checking their passports, the resorts agent asked them to sign a onepage form before he would hand them their room keys. Entitled Acknowledgment, Agreement and Release, the eight paragraph document stated that they would be liable for a specified daily room rate for the dates of their stay, allowed them to select a newspaper to be delivered to their room, and, further down the document, provided that:
I agree that any claims I may have against the Resort Parties resulting from any events occurring in The Bahamas shall be governed by and constructed in accordance with the laws of the Commonwealth of The Bahamas, and further, irrevocably agree to the Supreme Court of The Bahamas as the exclusive venue for any such proceedings whatsoever.

The Krenkels asked the agent if the agreement only applied to water sports activities, and he said yes. They then signed the agreement below bold, capitalized letters stating READ BEFORE SIGNING. The next day, Debbi was seriously injured when she slipped and fell on an outdoor path in the pool lagoon area. Is she limited to filing suit in the Bahamas? Would your analysis be different if the Krenkels had previously visited the Atlantis three years earlier and signed a similar standard form contract? (Hint: Your analysis should combine the doctrine developed in the Standard Form Contract cases with the interpretation doctrines developed in this section.)

Not Such a Bon Voyage. a) No, because the best interpretation of the forum selection clause combined with the resort agents explanation was that the clause did not pertain to accidents on the premises of the resort. b) Yes, because the written agreement is not limited to accidents involving water sports.

Not Such a Bon Voyage. Debbi Krenkel filed suit in Florida District Court. The district judge ruled that the forum-selection clause was valid and applicable to Krenkels lawsuit, and his decision was affirmed in Krenkel v. Kerzner Intl Hotels Ltd., 579 F.3d 1279 (11th Cir. 2009). The appeals court concluded that the clause was not hidden or ambiguous and their prior trip put them on notice of the clause. Concerning substance, the court held that the clause clearly did not confirm with the desk agents representation.

A Snow Job. Polaris Industries, Inc., a snowmobile manufacturer, shipped its

vehicles in disposable containers but was considering using returnable containers instead. ConFold Pacific, Inc., wanted to produce these returnable containers and conducted a reverse logistics analysis of Polariss shipping needs. The analysis was governed by a Mutual Non-Disclosure Agreement-Logistics Consulting Version, a contract that was prepared by ConFold and executed by Polaris. The preamble of the agreement stated that ConFold and Polaris [were] desirous of exchanging information for purposes of both companies developing future business with each other. The agreement protected information relating to [ConFolds] proprietary software systems, documentation, and related consulting services, and contained an integration clause stating that it was the entire Agreement between the two parties concerning the exchange and protection of proprietary information relating to the program. Two months after the agreement was signed, Polaris requested proposals for designs of returnable containers from several firms, including ConFold. Polaris did not accept any of the proposals, but, several years later, it designed a returnable container and handed its design to another manufacturer. ConFold alleges that Polaris used its design and breached the non-disclosure agreement by disclosing its design to another firm. Does the Mutual Non-Disclosure Agreement cover ConFolds design?

A Snow Job. a) Yes, because the clear purpose of the agreement was to prevent Polaris from making unauthorized use of ConFolds trade secrets and intellectual property. b) No, because the ConFold container design did not pertain to proprietary software or consulting services.

A Snow Job. In ConFold Pacific, Inc. v. Polaris Industries, Inc., 433 F.3d 952 (7th Cir. 2006), the Seventh Circuit decided that the agreement did not cover ConFolds design. The trial court concluded the agreement was ambiguous on its face, because of the preambles reference to future business. However, the Seventh Circuit stated that a more natural reading was it expressed a hope, rather than a commitment, of future business.
The court pointed out that the title of the contract, Mutual Non-Disclosure Agreement-Logistics Consulting Version, and the text, protecting ConFolds proprietary software systems, documentation, and related consulting services, implied that the nondisclosure agreement only covered the reverse logistics analysis. Furthermore, the integration clause, by referring to the program must have referred to the only program between the two parties: a software program used in reverse logistics analysis.

Turning to extrinsic evidence, the court noted that ConFold had used the same nondisclosure agreement with a logistics firm that did not design containers, and that ConFold had a confidentiality agreement specific for design but did not ask Polaris to sign it.

The Los Angeles Angels of Anaheim. City of Anaheim (Anaheim) and Disney
Baseball Enterprises (Disney) entered into a stadium lease agreement in connection with Disneys purchase of the California Angels Major League Baseball team. Section 11(f) of the agreement required Disney to change the team name to include the name Anaheim therein. Shortly after executing the lease, Disney renamed the team the Anaheim Angels. Seven years later, Disney sold the team to defendant Angels Baseball. In early 2005, Angels Baseball changed the teams name to the Los Angeles Angels of Anaheim. Anaheim sued, alleging the name change and Angel Baseballs systematic removal of the name Anaheim from the teams road jerseys, tickets, merchandise, and souvenirs breached section 11(f). Trial testimony revealed that, during negotiations, Disney had rejected Anaheims request to specify the team name as Anaheim Angels. According to Anaheim, section 11(f) was intended to provide Disney with the flexibility to change the team mascot or to reverse the ordering of the city name and the mascot name (i.e., to make possible the moniker Angels of Anaheim), but that no one on either side had considered the possibility that the team name might be changed to have two geographical identifiers. Disneys negotiators did not directly contradict this recollection, but they testified that they sought maximum flexibility in naming rights in order to maximize the potential market value of the team should Disney decide to sell it, as it ultimately did. Which side should prevail?

The Los Angeles Angels of Anaheim. a) The team, because the name Anaheim remained in the team name as required by the contract. b) The city, because including the name Los Angeles in the team name constituted a breach of contract.

The Los Angeles Angels of Anaheim. The trial court sent the issue to a jury, and the jury returned a verdict in favor of defendant Angeles Baseball, L.P.. The City of Anaheim appealed, challenging several of trial courts evidentiary rulings and jury instructions. A California Court of Appeal panel upheld the jury verdict, ruling that the trial courts rulings on the admissibility of evidence and jury instruction did not constitute an abuse of discretion. A dissent disagreed and further argued that Anaheim should have prevailed as a matter of law, as no reasonable jury could haveinterpreted the lease to allow for an oxymoronic team name that renders the name of Anaheim de facto invisible. City of Anaheim v. Angels Baseball, L.P., 2008 WL 5274631 (Ca. Ct. App. 4th Dist., Div. 3, Unpublished).

Eminem Now for Sale on iTunes. Prior to the invention of digital music downloads,
record company Aftermath acquired to exclusive rights to the works of recording artist Marshal Mathers, better known as Eminem. The contract contained a so-called Records Sold provision, which provided that the artist would receive between 12% and 20% of the adjusted retail price of all full price records sold in the United States through normal retail channels. The contract also contained a Masters Licensed provision, which provided that [n]otwithstanding the foregoing, the artist would receive 50% of revenues earned on masters licensed by [Aftermath] to others for their manufacture and sale of records or for any other uses. When the industry invented digital downloads as a way of distributing music, Aftermath entered into a licensing agreement with Apple Computer, Inc. that permitted Apple to use the master recordings (masters) of Eminems songs to sell digital downloads to consumers through its iTunes on-line store. Aftermath paid Eminem royalties according to the Records Sold provision. Eminems assignee brought suit for breach of contract, claiming that the Masters Licensed provision entitled it to half of the revenues Aftermath received from Apple. The parties agreed that neither side had contemplated the invention of digital download technology at the time of contracting. A federal district court judge found the contract ambiguous and reasonably susceptible to either interpretation and denied both parties motions for summary judgment. At trial, Aftermaths expert witness testified that, according to music industry custom, the Masters Licensed provision concerned the use of recordings only in third-party products, such as multiple-artist compilation albums, movies and television commercials. The jury returned a verdict for Aftermath, and Eminems assignees appealed to the 9th Circuit Court of Appeals. How should the appellate court rule?

Eminem Now for Sale on iTunes. a) It should uphold the verdict for Aftermath because there was sufficient evidence for the jury to conclude that Aftermaths interpretation corresponded with industry custom. b) It should rule for Aftermath because, as a matter of law, its interpretation was the most reasonable given all the evidence. c) It should rule for Eminems assignee, because the Aftermaths contract with Apple fit the definition of a license and, according to the contract, the Masters Licensed provision operates notwithstanding any other provisions.

Eminem Now for Sale on iTunes. In F.B.T. Productions, LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010), the court held that the district court erred by not granting the plaintiffs motion for summary judgment given that Aftermath had licensed the Eminem masters to Apple: The parties use of the word notwithstanding [in the Masters Licensed term] plainly indicates that even if a transaction arguably falls within the scope of the Records Sold provision, F.B.T. is to receive a 50% royalty if Aftermath licenses an Eminem master to a third party for any use.The provision is admittedly broad, but it is not unclear or ambiguous. The court found that Aftermaths evidence of how the Masters Licensed provision had been applied in the pastdid not cast doubt on its application to permanent downloads.

A Fortune in Cash Registers. Orville Fortune worked as a salesman for The National Cash Register Company for 25 years. NCR paid him a weekly salary plus a bonus based on sales in his territory. In 1968, First National, a regular customer, signed an order to purchase $5 million worth of registers over the next four years, which would be worth a total bonus of $92,079.99. Two months later, NCR sent a letter to Fortune terminating his employment under a term of his agreement that provided that either party could terminate at will and without cause. The Company retracted the termination when it realized his continued employment would help with the First National order, and kept Fortune in the job until June 1970 when it fired him. He never received any bonus payments for First National cash registers delivered after he was fired. Fortune has sued National Cash Register for breach of contract on the ground that the company breached an implied covenant of good faith in the contract. Is such a claim available given the terms of the parties agreement? And, if it is, is there sufficient evidence to support a finding of bad faith breach?

A Fortune in Cash Registers a) Yes, because Fortune could prove that the company fired him to avoid paying him future bonuses on the account. b) No, because the employment contracts are terminable at will unless otherwise provided, so National Cash Register may fire Fortune for any reason.

A Fortune in Cash Registers. In Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (Mass. 1977), the trial court upheld a jury verdict for fortune, the court of appeals reversed, and Supreme Judicial Court of Massachusetts reversed the appellate court, reinstating the jury verdict. The high court held that, although the contract is clearly a terminable-at-will employment contract, an employer cannot terminate an employee in order to avoid paying bonuses due. We do not question the general principles that an employer is entitled to be motivated by and to serve its own legitimate business interests However, we believe that where, as here, commissions are to be paid for work performed by the employee, the employers decision to terminate its at will employee should be made in good faith. The court further found that Fortune had offered sufficient evidence to support a verdict in his favor, pointing to the timing of both dismissals and Fortunes successful 25 years with the company. (The court also observed that there was sufficient evidence to support a verdict against Fortune as well, but that the standard of review supported upholding the jury in such a situation.)

Payment for Popcorn. In 1973, Baker Popcorn Company agreed to buy farmer James Ratzlaffs entire popcorn crop for $4.75 per hundredweight. The popcorn was to be shipped in multiple installments, and payment was due upon delivery of each. If Baker failed to pay on delivery, Ratzlaff had the option to cancel the contract. Ratzlaff shipped popcorn twice under the agreement, but neither time did Baker pay or did Ratzlaff request payment. When deliveries stopped, Baker called about the delay and Ratzlaff claimed to have equipment problems and never mentioned Baker's failure to pay. One week later, Ratzlaff terminated the agreement on the grounds that Baker had failed to make payment at time of delivery. Ratzlaff sold the remaining crop at twice the amount he would have received from Baker. In a suit by Baker against Ratzlaff, what result under the Uniform Commercial Code?

Payment for Popcorn a) Ratzlaff breached the duty of good faith and fair dealing. b) Ratzlaffs actions did not constitute a breach of the duty of good faith and fair dealings.

Payment for Popcorn. The trial found Ratzlaff breached the duty of good faith, and the appellate court affirmed. The court of appeals observed that the 2003 amendments to Article 1 of the U.C.C. include an expanded definition of good faith: Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. 1-201(20). The court then concluded that sufficient evidence supported the trial courts finding that the defendant had breached its obligation of good faith. His failure on delivery of either load of popcorn to demand payment, his failure in the subsequent telephone conversations with [Baker] to demand payment, and his hasty resale of the popcorn to another buyer at a price nearly double the contract price, provided the trial court with ample evidence upon which to find an absence of good faith. Baker v. Ratzlaff, 564 P.2d 153 (Kan. App. 1977).

The Los Angeles Angels of Anaheim (Reprise). In addition to claiming that changing the name of the Anaheim Angels to the Los Angeles Angels of Anaheim violated section 11(f) of the contract in question, the City of Anaheim alleged that the name change and Angels Baseballs systematic removal of the name Anaheim from the teams road jerseys, tickets, merchandise, and souvenirs breached the implied covenant of good faith and fair dealing. Should the court treat this claim differently than Anaheims claim that the name change breached the express provision of 11(f)?

The Los Angeles Angels of Anaheim (Reprise). a) Yes, because even if the name change did not breach explicit provisions in the contract, it did breach the teams duty not to interfere with the citys reasonable expectation of marketing benefits. b) No, because if the city did not have a right to enjoy a team name that did not include the designation of Los Angeles, it did not have any reasonable expectation of the greater marketing benefits that it would enjoy without that designation.

The Los Angeles Angels of Anaheim (Reprise). The trial court provided the
following instructions to the jury:
In every contract or agreement there is an implied promise of good faith and fair dealing. This means that each party will not do anything to unfairly interfere with the right of any other party to receive the benefits of the contract; however, the implied promise of good faith and fair dealing cannot create obligations that are inconsistent with the terms the contract.

City of Anaheim claims that Angels Baseball, L.P. violated the duty to act fairly and in good faith. To establish this claim, City of Anaheim must prove...[t]hat Angels Baseball, L.P. unfairly interfered with City of Anaheims right to receive the benefits of the contract.

The jury returned a verdict for the defendant. The Court of Appeal affirmed, holding that the jury rejected Anaheims argument that ABLPs conduct was objectively unreasonable and breached the implied covenant. No legal basis therefore exists to overturn the jurys decision on this issue. The dissent called the name Los Angeles Angels of Anaheim a farce: [T]he Franchise has, in effect, been allowed to get away with a literalist absurdity that deprives the city of any meaningful identification with the team. City of Anaheim v. Angels Baseball, L.P., 2008 WL 5274631 (Ca. Ct. App. 4th Dist., Div. 3, Unpublished).

Dealer Tank Wagon Price. Donald Casserlie leased a Cleveland (Ohio) gas station from Shell Oil Company, a gasoline distributor, and operated the station as a franchisee. Casserlies contract provided that he would buy gas only from Shell and would pay Shell a price, including delivery costs, set by Shell at the time of delivery. Shell set the price (known as the dealer-tank-wagon price (DTW) because it included delivery costs) based on market factors including competitor prices. Shell also sold Shell-branded gasoline to non-Shell-owned gas stations in Cleveland, charging the rack price which did not include delivery costs. The rack price was often substantially lower than the DTW price. In fact, the DTW prices were too high for dealers to remain profitable and compete with the non-Shell owned gas stations. Casserlie and other Cleveland-area Shell lessee-dealers sued Shell, alleging that it had engaged in bad faith in setting the price. The dealers argued that Shell had not satisfied the Uniform Commercial Codes requirement of honesty in fact because it set the price with the intent of driving them out of business so that it could take over operations of the leased stations. Does the UCC require that Shell act in good faith both objectively and subjectively? (Hint: You should consider both the general requirement in the UCC of good faith as well as the specific provision governing open price terms.) Does Shell meet both standards?

Dealer Tank Wagon Price. a) The court should rule for Casserlie because Shells discretion to set prices under the franchise agreement must be exercised so as not to put franchisees at a disadvantage relative to Shells other customers. b) The court should rule for Shell because non-franchisee prices do not include delivery charges and the requirement of good faith and fair dealing does not require that Shell ensure that franchisees earn a profit.

Dealer Tank Wagon Price. The Ohio Supreme Court upheld the lower courts grant
of summary judgment in favor of Shell Oil. Casserlie v. Shell Oil Company, 902 N.E. 2d 1 (Ohio 2009). The Casserlie court held that only the objective standard applied in this case because it was under 2-305. It then concluded that the DTW price was objectively reasonable because the price was set within the range of competitors pricing in the region. The price did not need to be the same as the rack price because jobbers and dealers are not similarly situated buyers jobbers picked up the gas at the terminal, and dealers received delivery. Finally, the price did not need to be low enough to ensure the dealers made a profit. A good faith price under section 2-305 is not synonymous with a fair market price or the lowest price available. The dissent observed that the broader definition of good faith, which includes both objective and subjective components, should apply because the UCC does not envision a different good faith standard for open price terms than for other terms in the agreement. The dissent then concludes that the dispute should be remanded to the trial court to consider the evidence under the subjective standard. The dissent ends by warning [a]fter this opinion becomes public, all franchisees in Ohio should watch their wallets very carefully because their franchisors will no longer be held to subjective good-faith standards. Instead, the law of the ocean applies: the big fish are free to consume smaller fish at will. Apparently, not until the waters are exclusively inhabited by a few great white sharks will the majority decide they need a bigger boat or a more robust interpretation of the UCC. (This may count as the most creative reference to Jaws.)