CONTRACTS OUTLINE ALCES 2012

I. Chapter 1. A Roadmap for Contract Law

a. Intent i. Rule: parties MUST intend to contract measured by objective manifestation of subjective intent (outward actions, not secret thoughts that matter) ii. Must be meeting of the minds 1. If someone is so intoxicated they don t understand the consequences of their actions no contract, even if appears they act reasonably b. Specific performance (the exception) v. substantive relief ($) (the rule) i. 2 different concepts of contracts ii. SP: in unique or other proper circumstances 1. Used if can t decide $ value (so unique) 2. Look at nature of the contract sometimes don t want SP (ex. Services) c. UCC: Every state has adopted Art 2 (except LA) covers sale of goods i. presumptive form/measure of substantive relief = the expectation interest d. Lucy v. Zehmer: dispute b/w 4 private citizens over a contract concluded in a casual atmosphere of a bar D sells P farm. D thinking it s a joke b/c there was no outward manifestation that a reasonable man would interpret as jest contract EXISTS i. Enforceable contract concluded? Was there intent to be bound? e. Northern Indiana Public Service Co. v. Carbon County Coal Co.: dispute b/w 2 companies over a long-term coal contract breach of contract f. CL: impossibility v. frustration i. Impossibility: physically impos for SELLER to follow through ii. Frustration: BUYER no longer has reason to buy g. Bilateral v. Unilateral Contract i. Bilateral: parties exchange promise for a promise mutuality of obligation (both parties bound) 1. Promise w/ pwr to termination obligation @will & w/o notice = illusory NOT a contract ii. Unilateral Contract: promise is given in exchange for an act 1. Rule of mutuality does NOT apply

II.

Chapter 2. The Bargain Theory of Contract

a. CONSIDERATION (generally promise only enforceable if there is consideration) i. A benefit received by the promisor or a detriment incurred by the promise bargain ii. Adequacy of consideration DOES NOT MATTER sufficiency DOES (price paid doesn t matter) doesn t have to be equal value but gross disparity = evidence of possible unconscionability, incapacity, fraud, or duress defenses iii. Nominal consideration = NOT consideration (okay for option contract though) iv. RS 2d 75: Consideration 1. Must be bargained for 2. Performance/return promise bargained for 3. Perform act or forbearance or create, modify, or distruct legal relation v. Bargain for? 1. Under RS 2d 71: bargained for if promise exchanged for promise 2. May consist of: a. An Act i. UNITATERAL Contract (Actual Act) 1. Accepted through performance

2. Ex. I promise to pay a reward for the capture of a criminal no one bound to promise to capture, but I am bound to pay (only 1 person tied) 3. Hamer v. Sidway: Uncle promises to pay nephew $5k if kid didn t drink/smoke/curse 4. Uncle on the hook to pay if nephew completes promise 5. BUT uncle can t sue nephew if N doesn t do it unilateral 6. Actual act or performance = sufficient for consideration (giving up legal right to do something else) ii. BILATERAL Contract (promise to act) 1. Exchange of promises sales contract b. A forbearance giving up the option to do something you otherwise could have done = sufficient for consideration i. Lake Land Employment Group v. Columber (P. 39): at=will employee signed non-competition agreement that he breached. Court finds consideration in fact that the employer cold have fired him immediately, but didn t b/c he signed noncompetition agreement 1. Dissent (& Alces): could have fired him 2 sec afterwards didn t really give anything up no consideration 2. Policy: court stretches to find consideration b/c they want to enforce non-comp & at-will contracts for public policy reasons ii. Petroleum v. Kendrick (P. 48): Petro gave up right to produce a diff grade of oil (subject to 5 days notices) court finds = s sufficient consideration c. Creation, modification, or destruction of a legal relationship vi. BEWARE: 1. Insubstantial Promises a. I promise to pay you $100 if I feel like it = insub. retain right to w/draw at anytime unenfor. b. MUST have some limitation on the right to w/draw i. I promise to pay you $100 if I feel like it, or if I don t get coffee in the morning -- not buying coffe = limitation so promise is substantial & enforceable ii. Petroleum Refractionating Corp. v. Kendrick Oil Co. (P. 48): K contracted to buy special grade oil from P, & let P retain right to stop shipment at anytime as long as P gave 5 day notice K breached 1. K argues that contract = unenforceable b/c P s right to stop production = no consid 2. Court: 5 day notice = restriction contract enforce & K liable 2. Past Consideration a. Promisor seeking to repay promise for benefit previously conferred (past act/benefit) b. EXCHANGE MUST BE BARGAINED FOR promising someone for something they have already done = NOT enforceable no bargain i. Harrington v. Taylor (P. 52): P saved D s life by throwing her arm (P s) in front of an axe that was going to hit D in the head

D promised to pay for her hospital bills, etc but didn t Court didn t enforce b/c NO BARGAIN 1. P acted before D promised to compensate c. Moral obligation (usually not enough on its own) i. SOMETIMES: courts enforce past consid if stems from moral obligation i.e. promisor is acing from a strong sense of duty towards promise (duty = moral oblig to pay for someone saving your life duty NOT = to save someone s life) ii. Webb v. McGowin (P. 53): P crippled for life in process of saving D s life D promised to pay for P s medical care, but D s heirs stopped paying Court enforces b/c moral obligation = sufficient consideration 1. Irreconcilable w/ Harrington case (above) [Diff jxn diff opinions] iii. Exceptions: (when moral obligation = enough) 1. Promises renewing obligation that would have been enforceable except for technicality (enough) 2. Ex. Debtor promises to pay debt that has been barred by SOL usually enforceable (P. 54) 3. Ex. Minor makes promise that is voidable for lack of legal capacity, but then renews promise upon reaching majority 4. Promises made to charitable orgs or in the context of property settlements propr to marriage(RS 90(2)) 3. Mere recital Consideration must actually be given can t just say there was consideration (does NOT have to do w/ adequacy) a. Board of Control of Eastern Michigan University v. Burgess i. P sues D for removing option to buy Court fins that D did not receive actual consideration no contract ii. OPTION = offer to buy that seller can t revoke 1. separate contract (separate from underlying contract) 2. contract to buy 3. it s own contract so MUST HAVE IT S OWN CONSIDERATION -- $1 is enough (nominal okay) 4. Firm offer: UCC 2-205: promise to sell = valid (P. 58) 4. No bargain the thing exchanged for must actually be part of bargain a. Fisher v. Jackson (P. 58): P gave up job for a new one doesn t count as consideration b/c new job didn t ask him to do that not part of bargain, just incidental decision on P s part b. Would = consid IF new job said in order to take this job you need to give up the old one. Not allowed to work for both c. Possibly also diff if reasonably understood by new job that P was giving up old job one university paoching a professor form another i. New univer knows that he can t work for both & doesn t want him to so they can claim his prestige b. RELIANCE (Promissory Estoppel)[RS 90 conflicts w/ 75 promises sometimes enforceable in absence of a bargain] i. If A promises B something & B REASONABLY relies on promise to his detriment contract is enforceable, EVEN w/o consideration) ii. 4 Elements of Promissory Estoppel: 1. Promise 2. Foreseeable Reliance not only by promise but by 3rd parties

3. Reliance in Fact need not be definite & substantial 4. Injustice Absent Enforcement remedy for breach may be limited as justice requires (RS 90) iii. Ricketts v. Scothorn (P.61): D promised granddaughter he would give her $ so she no longer had to work. Quitting job was NOT part of bargain not consideration, BUT she relied on the promise took action foreseeable action based on promise Court enforces contract: would be unjust to not give her the $$ iv. Cohen v. Cowles Media Co. (P. 67): P relies on D (editor) s promise that he would not reveal that P have him info D broke promise and P lost his job Court finds elements of estoppel are met & awards damages 1. Alces: no need for estop there is consider/bargain: I promise to tell you my info in exchange for your promise not to reveal my name v. Midwest Energy, Inc. v. Orion (P. 71): P operates gas station store & contracts w. D to franchise a food operation in store. P filled out app & was told to wait for approval in writing D s District manager told P to go ahead & presume contract would go through P reasonably relied on promise & built bigger store D does not approve contract 1. Majority: elements of PE met made promise, could foresee P would undertake great expense in relying on promise P actually did act, & it would be unjust not to compensate P for expense 2. Dissent: PE elements NOT met unreasonable for P to rely on oral promise of agent when contract said to wait for writing. Businesses should be insultated from promises made by employees vi. Damages account for extent of reliance put P back in position they WERE in, not in position they WOULD have been in if contract was performed 1. Midwest gets cost of remodeling the store awarded, but not of the anticipated profits from the franchise vii. Pros: allows more flexible allocation of the risk?? viii. Cons: makes pre-contract neg scary c. RESTITUTION INTEREST: Distinguish b/w restitution COA (he sued in restitution) & restitution damages (She recovered restitution damages, not expectation damages) (P. 80) i. COA: similar to a contract COA but not the same 1. Often used by P whose contract w/ D = unenforceable for some reason OR by party that hasn t had a contract-like interchange w/ another 2. GOAL: to get the thing/value of the thing that belongs to the P & is now (or was) in possession of D ii. Damages: P s recovery measured by the benefit that P s act conferred on D 1. Restitution damages recovered for breach of contract iii. Awarded when quasi-contract but NOT when P acting on volunteer basis 1. Quasi-contracts: parties would have bargained if they could have obligation a. Elements of quasi-contract: (P. 83) i. Benefit conferred upon D by P ii. Appreciation by D of such benefit iii. Acceptance & retention by D of such benefit under circumstances that would be inequitable to retain the benefit w/o payment b. Ex. Med tech saves guy having heart attack doesn t stop to ask him if he wants to be saved. Guy has to pay market value of saving his life b/c he would have contracted for that if he could have i. Takes benefit away form promise and gives it to promisor 2. Volunteer: could ve contracted but did NOT no intent no obligation a. Bailey v. West (P. 80)

i. P took care of D s horse unasked, until D made clear P should not care for horse ii. P sues under restitution theory for expenses incurred while maintaining the horse b/c he thought D desired benefit iii. Court: P acting on purely volunteer basis (D never requested services & unreasonable to assume D could have if he had wanted) no restitution damages awarded

III.

Chapter 3. Negotiation and Formation of the Contract

a. Offer & Acceptance i. Offer = manifestation of willingness to enter into a bargain made so another person understands if he accepts the bargain contract 1. RP Standard 2. Most ad do NOT = offer merely solicitations for offers (unless super targeted) a. Ford Motor Credit Co. v. Russell (P. 92): Woman sues after realizing she is paying 13.5% financing rather than 11% as advertised i. Court: 13.5 % very clearly written in her contract & 11% was an invite to bargain not binding on seller ii. Offeree s pwr of acceptance is terminated: 1. IF offeree rejects offer & makes counter-offer [Mirror-Image Rule] a. Qualified acceptance = rejection & counter-offer i. Ardent (P. 112): P accepts D s counter-offer on the house purchase but in doing so changed the terms to include furniture in house 1. Court: no valid contract formed b/c change of terms = counter-offer, NOT acceptance D not bound ii. Acceptance may be valid despire conditional language IF acceptance clearly independent of condition iii. UCC 2-207 2. AT TIME specified in contract / end of reasonable time after offer is made a. UCC: 3 months max post offer 3. IF the offeror revoked the offer a. Davis (P. 97): Davis made offer on house seller send back offer w/ changes Davis send with different changes seller resend w/ more changes i. Davis wants to accept but before he can Seller revoked offer ii. Davis canNOT sue b/c no contract no meeting of minds 4. IF terms of the offer include a condition for acceptance & condition fails to occur a. Davis: offer conditional on buyer s lawyer reviewing contract (didn t occur) even if offer hadn t been revoked, NO contract iii. Mutual Assent = NECESSARY 1. Measured by objective not subjective standards outward manifestation of subjective intent 2. NO mutual assent IF parties have different understandings & BOTH or NEITHER party is at fault no contract a. BUT if one party knows of misunderstanding contract goes by unaware/negligent party s understanding (Weasel Rule) i. If RP would have would have assumed an objective manifestation of assent 3. Sheriffs Union v. County (P. 98): dispute over contract controlling salary increases contract BINDING b/c only the county is at fault in negligently understanding the contract

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a. County s interpretation was not reasonable Court not going to penalize sheriffs for that 4. BOTH misunderstand no contract: Firefighters Union v. County (P.98): Salary increase = not contract b/c BOTH parties neg in forming a reasonable understanding of the terms terms = nonsense no meeting of minds MUST HAVE MEETING OF THE MINDS offer & acceptance = same 1. Mirror Image Rule: UCC 2-207 Offer MUST be properly accepted 1. Any manner/medium reasonable in the circumstances unless unambiguously indicated otherwise by language: UCC 2-206(1) 2. RS 2d 50(1) : generally, cannot frame offer so that silence expresses acceptance a. EXCEPTION: if parties previous dealings create reasonable expectation that offeree will give notice of any intent not to accept 3. Accept through partial performance OPTION CONTRACTS 1. Ordinary offers can be revoked at anytime BEFORE acceptance options are offers accompanied by an additional promise (w/consideration) to jeep the offer open for a specific period of time 2. OPTION CONTRACT CANNOT BE REVOKED 3. RS 2d 87 (1)(a): an offer is a binding option contract if: a. In writing & signed by offeror b. Recites a purported consideration for the making o the offer i. RS doesn t require actual payment of consideration BUT most jxn hold mere recital is NOT enough need nominal consider c. Purposes an exchange of fair terms w/in a reasonable time Firm Offers: UCC 2-205 1. Like option contracts EXCEPT no consideration needed 2. Need a writing and assurance instead 3. Must be made by a merchant 4. Can t remain open longer than 3 months w/o some kind of consideration 5. Mid-South v. Shoney s (P. 118): bacon sale. Seller says willing to fix price & not raise hen w/o 45day notice. Buyer never actually accepts terms (affirmative nor performance). 3 months later B sends purchase order argues acceptance by perfcormance & raised prices = breach a. Court: Not a breach b/c i. Longer than 3 months so firm offer window CLOSED ii. Not even a firm offer b/c it would ve been a requirement contact BUT there was NO exclusivity no consideration no good faith NO CONTRACT (just agreement to agree) iii. INSTEAD: new contract w/ order (offer) & shipment (acceptance by performance) 1. Buy accepted goods at higher price bound to price b/c objective manifestation of intent = to pay higher price a. Can t take goods and then argue about price Mailbox Rule: Acceptance = effective when POSTED dispatch o valid acceptance = immediate contract 1. Exceptions: acceptance of an option contract/sale of international gods b/w merchants effective upon RECEIPT 2. Everything else (rejections, offers, revocations): affective wen they reach the person for whom they are destined (Received does NOT nec mean read) 3. Problems:

a. Overtaking rejection if A sends an acceptance to B, but then before it arrives A calls B to reject the offer acceptance binding i. Contract was formed when the acceptance was mailed (can t reject now) b. Overtaking acceptance if A mails a rejections but before B receives the letter, A calls to accept acceptance effective b/c rejection only valid upon receipt (which hasn t happened yet) c. Overtaking revocation if B posts an offer, and then shortly after revokes it, A s acceptance is still valid as long as te acceptanc was posted before receipt of revocation 4. These issues easily avoided by offeror requiring receipt of acceptance before it is valid as a term ix. Unilateral Contract Acceptance accepted by performance 1. Once actual performance begins, the offer becomes an option contract promisor can t revoke offer, even though promise is not bound to complete the performance (never promised to complete) 2. BUT if offer makes I ambiguous whether a promise or performance constitutes performance, starting performance creates an obligation to finish performance x. Promissory estoppel can be used to keep an offer open (sometimes) 1. RS 2d 87 (2) : an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce it, is binding as an option contract o the extent nec to avoid injustice 2. 5 elements of PE MUST be met: a. promise (bid) b. foreseeability of reliance c. reliance (accepted bid and use it) d. injustice absent enforcement (P will lose $ b/c D didn t honor bid) 3. rarely use accept in construction cases a. subcontractors make bids to general contractor, who uses those bids to calculate overall bid to buyer relies on subcontractors bid irrevocable offer b. Arango Construction v. Success Roofing (P. ): subcontract made low bid, contractor used it in his overall bid contractor awarded contract & then subcontractor revoked offer b/c he realized he made a mistake in pricing i. Court: sub has to honor contract b/c general relied on it ii. Policy: if subs are allowed to revoke offers they might lie about prices inefficient for market c. Statute in many states: general must name subs and use them if awarded contract b. Negotiation & Closure i. RS: terms of the contract must be reasonably certain by which it is meant that they provide a basis for determining the existence of a breach and for giving an appropriate remedy ii. UCC 2-204 (3) intent to be bound and a reasonably certain basis (terms) to grant relief is the a contract and an agreement to agree 1. The presence of one (intent to be bound OR reasonably certain grounds) can sometimes indicate the presence of te other

a. Sunprinting (contra see dissent): year long contract for paper that is renewed every month. Doesn t specify whether the price agreed to in the the 1st month will continue to govern the rest of the contract b. Dissent: intent to be bound clearly exists, fill in missing term ( reasonable price ) i. Correct under UCC 2-204 & in terms of policy 1. We don t want to let parties out of a contract they clearly intended to be bound by b/c technicality 2. Under UCC: writing NOT nec for a contract P needs to show that writing is merely a memorialization of terms already agred upon (contract existed, writing just a formality) a. Situation Management v. Malouf (P. 137): Sit relied upon past dealings to assume that no writing nec. 2 comps had a long relationship and had previously gone a whole year performing w/o a contract. D encourages P to rely on their being a contract by telling P to go forward with a diff deal that D knew could only happen if D/P contract was in place i. Market turned & D tried to get out of contact by saying no writing ii. Court: says writing is just a formality (P wins) 3. A letter of intent may or may not count as intent to be bound. Matter of fact, not law a. Arnold Palmer v. Fuqua (P. 142): Sum judge NOT granted as to there being a contract i. There was a memo w/ finalized terms but it said it was a letter of intent and that it was CONDITIONAL on the approval of both parties lawyers Palmer should have had notice that he shouldn t rely on it 4. RS 2d 27: to determine if contract or agreement to agree consider: a. Extent to which express agreement has been reached on all terms o be included b. Whether the contract is of a type usually put in writing c. Whether it needs formal writing for full expression d. How detailed the contract is intended to be e. How much $$$ involved f. How common the contract is g. Whether a standard form contract is widely used in similar transactions h. Whether either party takes any action in prep for performance iii. No promise until one is actually made 1. Determining factor of promise: objective manifestation of objective intent 2. Subjective state of mind determines NOTHING. Bound by what you say/do (objective intent) a. Empro v. Ball-Co (P.147): Empro negotiates to buy Ball-Co but has not yet committed leaves means of escape in letter of intent BUT when Ball Co tries to sell to someone else, EMpro claims break of contract i. Court: no breach Ball-Co could only act based on mojective manifestation of intent: seemed like Empro didn t have intent to be bound--? No contract b. Could doesn t want to infer a promise too light b/c otherwise parties will be afraid to negotiate slows commerce 3. An agreement to agree in the future is NOT a contract

a. City of Kenani (P.153): City enters 55 yr. lease contract w/ businessman. Agreed to agree to future rental terms @ 5yr intervals i. After 10 yrs., city tries to raise rent 7x amount argues businessman is bound b/c he had previously agreed to future rent hikes ii. Court: agreement to agree to negotiate every 5yrs for a reasonable price NOT a contract to pay whatever price city asks reasonable market price if parties cant agree c. Good Faith in Contract Formation i. UCC 1-203: general obligation of good faith on all parties ii. No obligation to negotiate in good faith 1. Rancine v. Dept of Parks and Recreation (P. 160): P trying to renegotiate contract w/ D, but then D changes mind P argues bad faith but Court says no duty to negotiate in good faith a. This is neg of new contract past contract insignificant iii. Exceptions: statutory req or parties agre to be bound to particular process/contract req 1. New England d. Problems w/ Standard Form Contracts i. UCC 2-207 ii. Knock-out doctrine 1. Zamke iii. Contracts made and then confirmed by writing 1. Step-Saver iv. Courts divided as to whether you are bound by a contract you read but didn t understand 1. Carnival v. Can be extended to non sale items vi. 2-204 v. 2-207 1. Hill v. Gateway vii. 2-211 : Subordinate parties are not bound by unreasonable terms in a form contract 1. only works for insurance contracts 2. C&J Fertilizer e. The Statute of Frauds i. Purpose: Decide if the contract is ENFORCEABLE ii. Formal requirement that can be used as an affirmative defense 1. Ardente iii. Intention is to prevent fraud people claiming there was a contract when there really wasn t but also furthers fraud b/c lets weasels go on a technicality iv. Requires signed writing for: 1. Contracts for the transfer of an interest in land including long term leases, mortgage, easement (RS 2d 110) 2. Contracts that cannot be performed within 1 year (BUT contracts of indefinite performance don t count) a. Expressed limitation that contract can t be performed w/in a year b. C.R. Klewin (P. 3. Sale of goods $500+ (UCC 2-201) 4. Contracts in consideration of marriage 5. Contracts by the executor of a will to pay debt of the estate with his own money 6. Contracts in which one party becomes a surety (acts as guarantor) for another party

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a. writing acts as consideration RS take SOF more seriously than UCC Writings may be combined to met the requirements 1. Migerobe (P.233) a. UCC 2-201(1) As applied to merchants 1. Conagra v. Nierenber (P. 237) a. UCC 2-202 (2) Promissory estopped is displaced by SOF 1. Lige Dickson (P. 246) a. UCC 2-203 (3)

IV.

Chapter 4. The Contents of the Contract

a. Parol Evidence Rule (PER) i. UCC 2-201: Terms w/ respect to which the confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement byt may be supplemented by evidence of: 1. Course of performance, course of dealing, or usage of trade; AND 2. Consistent additional terms unless the court finds the record to have been intended also as a complete and exclusive state of the terms of the agreement ii. Terms in a record may be explained by evidence of course of performance/dealing/usage of trade w/o a preliminary determination by the court that the lang used is ambiguous iii. Prevents introduction at trial of any evidence that would contradict or add to the terms of the writing 1. Baker v. Bailey (P.257) a. PER requires that in the absence of fraud, duress, or mutual mistake, all extrinsic evidence msut be excluded if the parties have reduced their agreement to an integrated writing 2. CONSISTENICY = key only INCONSISTENT evidence excluded iv. INTERGRATED WRITING: did the parties intend the writing to be their final agreement? 1. Merger Clause: evidence that the contract is integrated but not dispositive a. Consider the circumstances surrounding the contract formation and what the merger clause is intended to pertain to 2. A contract can never be FULLY integrated b/c there will always be things you don t consider 3. Traynor s Rule: a. Does extrinsic evidence directly contradict the writing? If not, then allow it b. Is the evidence likely to mislead the jury? If not then allow it c. Did parties intend their writing to be a complete integreated? If yes, then extrinsic evidence NOT allowed i. BUT in order to decide whether they intended it to be complete, you first have to examine extrinsic evidence ii. Traynor subverts the PER by saying in order to decide whether to examine extrinsic evidence you have to examine the extrinsic evidence (circular) v. UCC 2-202 1. Combines PER and interpretation final written expression

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2. Terms in an integrated writing may not be contradicted by extrinsic evidence but may be explained or supplemented by: a. Code hierarchy b. Evidence of consistent additional terms i. Some courts: consistent unless negates a term 1. Nanakuli ii. Other courts: if it interferes w/ the harmony of the terms not consistent 3. if additional terms are such that, if agreed upon, they would certainly have ben included in the document in the view of the court, then evidence of ther alleged making must be kept from the trier of fact Equitable relief 1. PER can be avoided if P is seeking equitable relief 2. Reformation = type of equitable relief where the contract terms are changed to reflect the intent of the parties a. Thompson v. Estate of Coffield (P. 268): seller wants to reserve rights to mines on property (some right mentioned in contract some not). Seller says there are unrecorded leases & evidence shows that buyer knows about them. Writing is integrated PER should apply BUT seller seeking reformation allows extrinsic evidence to be introduced Problems with PER 1. Enables fraud weasel escapes a. Baker v. Bailey (P. 257): Baileys have 1 acre of land on Bakers land. Contract says that if Bakers required to provide water to Baileys (but doesn t require them to provide water if Baileys sell land) i. Both admit that reason for not requiring Bakers to provide water to new owners was so that Bakers could make sure they liked the new people but this isn t in the conract ii. PER no inclusion of extrinsic evidence Bakers get to buy the Bailey s land for SUPER cheap! 2. Object of contract is to vindicate the parties inent PER often frustrates that goal a. Masterson v. Sine (P. 259): M sold his house to his sister-in-law S w/ option to purchase it back at the same price before 1968. M ent bankrupt. Creditors want to collect on his option i. Is there evidence that option was personal b.c M wanted to keep the house in the family? Contract does NOT say this! ii. Traynor: key is whether the parties intended the contract to serve as an integrated agreement 1. Since no statement dealing with family, it is NOT certain that it would have been in the deed Extrinsic evidence can be introduced Good things about PER 1. Creates stability parties know what will be enforced terms are written down 2. BUT might create in stability since parties usually think they understand the terms but courts sometimes see things differently No PER?? still go by objective manifestation of parties subjective intents (not radical) 1. MCC Marble v. Ceramica (p. 309): No PER in Europe under CISG. Parties wanted to put their oral agreement for tile in writing used form contract. Court: if you can t ready it you cant be intended to agree to it

b. Terms of the Contract

i. FILL THIS IN
c. Implied Terms & Implied Covenant of Good Faith i. Extremely rare for contracts to contain every single promise b/w parties 1. Usually courts called upon to supplement express contracts w/ temrs of their own devising 2. Esp when parties clearly intended a contract that lacks some crucial terms a. Haines v. City of New York (P. 316): NYC assumed obligation of constructing a sewage system and agreed that all costs of construction and subsequent operation, maintenance, and repair shall be at expense of NYC. i. B/c NYC wanted to prevent discharge of untreated sewage by residents into creek (not stated in contract though) ii. Modification: village agreed to reimburse city for specified amount representing the expense of changing the location of certain sewer lines iii. Haines plans to build home on lot needs sewer connection NYC says no (can t sustain it) H sues arguing that contract is perpetual in duration and obligates NYC to accommodate future needs iv. Court: NYC obligated to maintain existing plants, but NOT required to expand plant/build new facilities 1. City not perpetually bound 2. Law will NOT imply that a contract calling for continuing performance is perpetual in duration b. In the absence of an express term fixing the duration of a contract, the courts can look at intent & surrounding circumstances to supply missing term if fair ii. RS 2d 204: a term which is reasonable in the circumstances is supplied by the court iii. Judicial supplementation: default terms / gap fillers (many codified) 1. EX: UCC 2-504 describes where the seller is required or authorized to send the goods to a buyer and the contract does not require him to deliver them at a particular destination iv. Implied obligation of good faith & fair dealing: originate in case law, adopted by UCC 1-203, generalized by RS 2d 205 1. Controversial 2. Particularly salient in exclusivity contracts (i.e. output, requirements contracts) UCC 2-306 (1) defines exclusivity in terms of good faith v. Centronics Corp. (seller) v. Genicom Corp (buyer) (P. 320): C charges G with breach of implied covenant of good faith in refusing, during arbitration, to release a portion of the escrow fund claimed to be free from dispute 1. Court: grants summary judgment to G 2. Court cannot insert provision in the contract where such a provision does not exist vi. RULE: in a contract that gives one party a degree of discretion sufficient to deprive the other party of a substantial proportion of the agreement s value, the intent to be bound raises an implied obligation of good faith to observe reasonable limits in exercising that discretion vii. Claim for relief from violation of implied covenant of good faith raises 4 questions: 1. Does agreement give D a degree of discretion that equals power to deprive P of substantial portion of agreement s value?

2. Does competent evidence indicate that the parties intended by their agreement to make a legally enforceable contract? 3. Has the D exercise of discretion exceed limits of reasonableness? 4. Is the cause of damage = D s abuse of discretion? Or does it result from events beyond the control of either party? viii. Shell Oil Co. v. HRN, Inc (P. 330): whether fixed price by a refiner for the sale of its gas under an open-price-term contract with its dealers was in good faither as required by 2.305(b) of Texas Business and Commerce Code 1. Shell claims petroleum producer had been selling them overpriced fuel under the terms of their respective lease agreements with the producer brought various claims against producer, including breaching duty of good faith in setting fuel prices. 2. Court: posted price was both commercially reasonable & nondiscriminatory producer didn t violate duty of good faith, even if producer had subjective motive to replace dealers with producer-operated retailers in favor of Shell ix. Danahue v. Federal Express Corp (P. 340): at-will employee sued for wrongful termination 1. Court: an employee could not sue for breach of implied duty of good faith and fair dealing for an underlying claim of termination of an at-will relationship d. Express & Implied Warranties i. Express warranties: oral or written promises or affirmations of fact made by one party to the other during the formation of the contract can enter the final bargain (particularly if there is reason to believe that the other party would not have agred unless such a promise was given) ii. Implied warranties: 1. UCC: a. 2-312(1)(a): Title conveyer shall be good b. 2-314(1): the goods shall be merchantable c. 2-315: the goods shall be fit for a particular purpose iii. Carpenter v. Chrysler Corp (P. 348): Carp bought car that, unbeknownst to him, had been driven around with the odometer disconnected, car had tons of problems and Chrysler didn t fix them 1. UCC 400.2-313(1)(a) provides: an express warrenty is created by an affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain a. Seller doesn t have to use expressed terms or have specific intention to make a warranty b. P must plead & prove: i. D s sale of the goods to P ii. D s representation to P that the goods were of certain kind or quality iii. D s representation induced P s purchase of, or was a material factor in P s decision to purchase the goods iv. Nonconformity of the goods to the representations made v. P s notice to D within a reasonable time of discovery of the goods nonconformity, of such failure to conform vi. P s damages 2. A seller may puff his ware or express his opinion about the quality and value of his goods even to the point of exaggeration w/o incurring warranty obligation

3. BUT, if representation is a statement of fact, a petition alleging such a misrepresentation may sufficiently state a claim for breach of express warranty or fraudulent misrepresentation 4. Carpenters win iv. Express warranties once given cannot be disclaimed v. Vlases v. Montgomery Ward & Co. (P. 354): breach of implied warranty in sale of 1day-old chicks that were sick and infected V s other chickens. P wins. 1. Court: P filled his burden to prove that the chickens delivered to P w/ disease 2. D argues: an action for breach of implied warranty doesn t apply to sale of chicks where there is no human skills, knowledge, or foresight which would enable the producer or supplier to prevent the occurrence of this disease a. Court says this only matters for claim of negligence, not warranty 3. UCC breach of merchantability vi. Massey-Ferguson, Inc. v. Utley (P.357): MF = manufacturer of farming machinery, Utley = farmer. U defaulted on payments, MF sues & U claims defense of breach of implied warranty. 1. MF claims no breach b/c says in contract that no warranty 2. Court: U wins b/c MF breached warranty express disclaimers of warranty MUST be CONSPICUOUS and normal font isn t enough 3. Magnuson-Moss Act negates legal effect of UCC 2-316 AKA NO SELLER/SUPPLIER MAY DISCLAIM OR MODIFY AN IMPLIED WARRANTY IF a. Seller makes any written warranty b. OR w/in 90 days of sale, supplier enters into a service contract w/ the consumer relating the product e. Modifications i. RS 2d 73: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration ii. When a party merely does what he has already obligated himself to do, he cannot demand an additional compensation therefor, and if, by taking advantage, he secures more, the law will not enforce it 1. Unenforceable because lacks consideration (improper modification) 2. Pre-existing duty cannot sere as consideration iii. Unclear if consideration is necessary in modifications iv. Angel v. Murray (P.363): city made modifications to contract w/ M for removal of refuse. Citizens sue claiming illegal 1. A modification of a contract is itself a contract, which is unenforceable unless supported by consideration 2. Did this modification to contract ($10k increase twice) have consideration? 3. Preexisting duty rule: an agreement modifying a contract is not supported by consideration if one of the parties to the agreement does or promises to do something that he is legally obligated to do or refrains or promises to refrain from doing something his is not legally privileged to do a. Aka if you have to do something anyways canNOT = consideration b. Primary purpose: prevent hold-up game i. Courts won t enforce contracts procured by coercion or duress hold parties to original words 4. Modern Trend: RS 2d 89D(a) promise modifying a duty under a contract not fully performed on either side is binding if: a. The modification to the contract was made before the contract was fully performed on either side b. the modification is fair & equitable

v. vi.

vii.

viii.

c. and the circumstances that prompt the modification are unanticipated by the parties when the contract was made 5. COURT: Defendants win increases/modifications okay UCC 2-209: the test of good faith may in some situations require an objectively demonstrable reason for seeking a modification Brookside Farms v. Mama Rizzo s, Inc (P. 376): B sues MRI for breach of contract to purchase 91,000 lbs of basil. Court: grants sum judge in part for B 1. Req contract: 1 yr. term, deliveries 5 days / week. MRI pay w/in 15 days 2. Price: seasonally based 3. MRI asked BF to remove stems agreed for 50cents/lb increase a. Even though contract specifically said no verbal modifications b. Transaction forms then reflected new price 4. MRI check bounces BF sues for portion of contract not yet executed and for check amount a. MRI contends BF breached by raising prices w/o written contract b. Court: SOF req only SOME writing Asmus v. Pacific Bell (P. 385): ??? Once an employer's unilaterally adopted policywhich requires employees to be retained so long as a specified condition does not occur-has become a part of the employment contract, may the employer thereafter unilaterally terminate the policy, even though the specified condition has not occurred? 1. Yes-an employer may unilaterally terminate a policy that contains a specified condition, IF the condition is of indefinite duration & employer effects the change after a reasonable time, on reasonable notice, and without interfering with the employees' vested benefits 2. Accepted modification by continuing to work 3. PB gave enough time & warning & didn t interfere w/ employee s vested benefits **Employer may terminate a unilateral contract of indefinite duration, as long as its action occurs after a reasonable time and is subject to prescribed or implied limitations, including reasonable notice and preservation of vested benefits***

V.

Chapter 5. Legal Regulation of Contracts

a. Misrepresentation & Mistake of Fact b. Public Policy & Illegality c. Unconscionability Chapter 6. Remedies

VI.