Is There a Contract?

Is There a Contract?

CONTRACTS – SMALL OUTLINE

SPRING ‘08

CONTRACTS

MACINTOSH

SPRING 2008

IS THERE A CONTRACT?

OBJECTIVE THEORY OF ASSENT

WHAT IS AN OFFER?

WHAT IS AN ACCEPTANCE?

TERMINATING THE POWER OF ACCEPTANCE

CONSIDERATION

BARGAINED-FOR EXCHANGE

PROMISE AS CONSIDERATION

CONSIDERATION SUBSTITUTES

PROMISSORY ESTOPPEL

RELIANCE AND OPTION CONTRACTS

DEFINITENESS

ALTERNATIVES TO CONTRACT

ARTICLE 2

WHEN DOES ARTICLE 2 APPLY?

CHANGES IN THE RULES OF FORMATION

SOFTWARE CONTRACTS

IS THE CONTRACT ENFORCEABLE?

STATUTE OF FRAUDS

SCOPE AND REQUIREMENTS OF THE STATUTE

PROMISSORY ESTOPPEL AND PART PERFORMANCE

E-CONTRACTS

CAPACITY

PRESSURE IN BARGAINING

PRE-EXISTING DUTY

DURESS AND UNDUE INFLUENCE

ACCORD AND SATISFACTION

MISTAKE

MISREPRESENTATION AND CONCEALMENT

ADHESION CONTRACTS

UNCONSCIONABILITY

GAP-FILLERS

WHAT ARE THE TERMS OF THE CONTRACT?

PAROL EVIDENCE RULE

Statement of the rule
RS 213: Where parties to a K / express an agreement / in writing / with intent that it embody the full and final expression of their bargain (i.e. it is an “integration” any other expressions made prior to(or oral expressions made contemporaneous to) the writing are inadmissible to vary its terms
i.e. applies only to terms that seek to vary, contradict, or add
UCC 2-202: a party cannot contradict, but can add consistent additional terms unless:
A merger clause
Courts find it to be a complete/exclusive statement of terms
Process: Judge uses to determine what’s admissible; jury decides whether part of agreement
1) Is the writing a final expression of 1+ terms?
NOTE: a merger clause, though not disp, strongly suggests complete
Yes  integrated  evid of prior agreemts not admitted to contradict writing
No  PER doesn’t bar things here, since there’s not yet a K
2) Is it intended as a complete and exclusive final expression?
Yes  completely integrated it cannot be contradicted or supplemented
No  partially integrated  it cannot be contradicted, but may be supplemented by consistent additional terms
(3) Why is the extrinsic evidence being offered?
Contradict? (If so, PER will bar where writing is integrated)
Add? (PER will bar where writing is completely integrated)
Reform? (to correspond w/ understanding, if mut mistake, e.g. Bollinger)
Establish invalidating clause? (PER won’t bar b/c 214 says it’s ok)
Interpret? (if ambiguous, PER won’t bar)
Method for making determination above
4-corners test: If it’s complete on face, then it’s presumed complete
like Wigmore “aid”: was the matter mentioned or dealt with in writing? (Gianni)
Restatement approach: Look at all evidence of intent (Masterson v. Sine)
only exclude oral collateral agreements if likely to mislead
Williston: Would such parties naturally/normally include the extrinsic matter in writing?
If so, then extrinsic evidence is inadmissible
Other items: admissibility and credibility, construction against the drafter or provider
No Oral Modification clause: trad not effective since any prior agreement can be modified later. Still, courts may admit and let jury decide whether modif.
UCC 2-209: No-OMCs are valid, to explain or supplement.
Zipper clause = integration clause + no-OMC = no reps outside of writing
Purpose
Preserve what parties intended when drafting the final K
Prevents fraud (re suspect oral agreements), shields jury from unreliable/irrel matter
Encourages more efficient market transacting, by upholding writings
Judicial efficiency
PER will not apply to the use of evidence to show:
modifications/additions after the writing
writing was a sham or contained falsities
fraud in inducement (or promissory fraud, duress, mistake…)
agreement was subject to a condition (RS 217)
some collateral agreement (suff. distinct, not integ – RS 216)
Rules: RS 209, 210, 213, 214, 215, 216, UCC 2-202

AMBIGUOUS LANGUAGE

Vagueness v. Ambiguity
Vagueness: applicability in marginal situations is uncertain
Ambiguity: two diff connotations, such that an item is both appropriate / inappropriate
Interpretation issues
Objective interpretation, or construction in favor of less culpable party
But where terms ambiguous and parties understand differently, there’s no K unless one of them should have been aware
Raffles: attached diff meanings re Peerless, ct couldn’t pick right one
Osward v. Allen: Swiss coins; ct saw no reason to choose b/w
Plain meaning rule
Before extrinsic evidence can be admitted, court must find ambiguity (WWW)
BUT PG&E: EE may only be excluded when it’s feasible to determine meaning of words from instrument itself. Admit if R susceptible to meaning argued
Portions of K might be ambiguous even if K as a whole is unambiguous on face
Hurst: though K unambiguous on face, didn’t exclude ev re TU on horse meat
Subjective intent
Fragaliment Importing: chicken traders didn’t define terms; actions were contrary to objective meaning of chicken (that had at least some TU)
Rules: RS 201, UCC 1-303

ARTICLE 2: WARRANTIES

Questions to ask
Has the seller made a W to this buyer?
Was the W been effectively disclaimed? Was it broken? (What did it promise?)
Is there a privity problem?
What is the buyer’s remedy? (Was it limited by agreement? Can damage be proved?)

TITLE

if you are a seller of goods, you warrant to buyer that the title you’re conveying is good and transfer is rightful (i.e. you’re not exposing them to any colorable claim or interest in goods)
Disclaimer
Very difficult. Only under circs giving buyer reason to know seller doesn’t claim to bestow title. (“Seller makes no warranty as to title”… maybe.)
Moore v. ProTeam: disclaimer (“all Ws per UCC are hereby excluded”) ineffective b/c discussed limited liability rather than what title was transferred
Rules: UCC2-312, 2-403

EXPRESS

Statement of the rule
Created when seller does something affirmative (but more than mere puffing) to create buyer expectations about characteristics of the performance of goods
Relates to the goods
Part of the basis for the bargain (natural tendency is to induce purchase)
If it might have played a role, seller must show buyer didn’t rely
This doesn’t require specific words or intent
If the buyer furnishes specs, then buyer is giving seller a W
HOWEVER
It might be considered as a modification, which needs no consideration to be binding
Even if you show W, you need to show the breach caused the loss
Rules: UCC 2-313

IMPLIED

Implied Warranty of Merchantability
If a seller is a merchant re goods of the kind, there will be an implied W that goods are merchantable (fit for such ordinary purposes as it will ordinarily be used)
Unless it’s excluded or modified
merchant = deals in goods of kind or by occ holds self out as having k/s peculiar to those involved in txn
Interpreted broadly
Shaffer v. Victoria: W on food extended to shattered wine glass
Casino Case: free drink was incidental to sale that had previously occurred
Implied Warranty of Fitness for a Particular Purpose
Unless excl or modif, there’s an implied W that goods are fit for particular purpose if:
At time of K / seller has reason to know / a purpose for which goods req’d AND
Buyer is relying on seller’s skill or judgment to select/furnish suitable goods
Webster v. Blue Ship Tea Room: fishbone didn’t breach since soup wasn’t unwholesome
Rules: 2-104, 2-314, 2-315

DISCLAIMERS AND REMEDY LIMITATIONS

Exclusion or modification of warranties (UCC 2-316)
Express Ws: disclaimer is nearly impossible. Only way to avoid is not to make them.
Bell Sports v. Yarusso: “primary fxn is to reduce harmful fx of blow to head” = W
BUT, you can try to use PER to address them (e.g. mpg statement)
Implied Ws: boils down to whether you can prove buyer knowledge.
Merchantability: must mention “m” and if written, must be conspicuous.
Cate v. Dover: didn’t disclaim b/w not distinguished by color/size/font
Fitness: in writing & conspicuous (such that R buyer ought to have noticed)
“there are no Ws which extend beyond the descr. on the face hereof.”
Buyer failure to examine: usually must rise to the level of refusal (e.g. not rush)
Post-sale disclaimers are ineffective since not a basis for bargain
Bowdoin v. Showell: instrx manual delivered later (even if previous shipmt)
Remedy limitations (UCC 2-719)
You can make agreements to limit/alter the measure of recoverable damages.
There must still be minimum adequate remedies (fair quantum) for B
Time limitations: generally enforced unless unconscionable (Bell Trading)
Limit conseq damages: will survive, unless unconscionable (e.g. consumer gds)
If remedy fails of its essential purpose, and if party is deprived of substantial part of bargain, you must abandon and just substitute Art. 2 remedy provision.
Fails of ess purp: seller unsucc in repair/repl, or unR delay… (Pierce v. Catalina)
E.g. exploding micro is replaced. But you’re hurt. You bargained for safe micro.
Rules: UCC 2-316, 2-719

NOTICE, BURDEN OF PROOF, AND PRIVITY

Notice
Buyer loses UCC rights if he fails to give seller notice of B within R pd of time after it should have been discovered
Burden of proof
P has burden re: a) creation of W, b) breach, c) causal cxn to injury, d) fact/ext of injury
Flippa v. Mode O’Day Frock Shop: P didn’t show spider in pants breached IWF
Privity
before suit, establish there’s a K b/w parties (privity)
2-318: Seller’s W extends to any [nat person] who is in buyer’s family/hh OR guest IF:
R to expect such a person may use/consume/be affected by goods AND
They’re injured in person by B of W
Alt interps: nat person / any person (extends to prop/corps)

HAS THE CONTRACT BEEN PERFORMED?

CONDITIONS

Questions to ask
Was the party’s duty conditional?
If so, what is the event on which it was conditioned?
Was it a promissory condition?
RS § 224:Condition
Event / not certain to occur / which must occur / unless its non-occ is excused / before performance of a K becomes due.
Exc: event that must occur before K can form (unless neither bound until then)
Exc: certain to occur (e.g. passage of time)
Exc: events that extinguish a duty after perf has become due (cond subsequent)
Illust. re condition / duty / promissory cond:CO wants to make SO ship with next wind.
Condition: sailing with next wind a condition of CO’s duty to pay premium. (If SO does not, CO won’t have to pay but has no right to damages caused by delay.)
Duty: make SO promise to sail with next wind. (If SO does not, CO has right to damages, but will still have duty to pay premium.)
PC: make SO promise to sail with next wing, and premium payable only on condition that SO do so. (Entitled to damages and won’t have to pay.)
make event a cond of your duty; have other undertake to make it occur
SUBSEQUENT
RS: event that terminates obligor’s duty of immed perf or paying damages for B
PRECEDENT
Fact/event that parties intend must exist before there’s a right to performance
Luttinger: though close to securing financing, not enough  return dep
Express: GR re construction = owner payment is not CP to GC’s duty to pay SC
(Peacock Constrxn v. Modern AC: ambig prov that didn’t exp shift risk from owner to SC = absol prom to pay (and not CP of paymt by owner)
Oral agreement: you might have independent conditions that don’t contradict
Hicks v. Bush (p. 690): H transferred shares, but B said they orally agreed no merger until funds raised.  two indep’t conditions.
Interpretation of conditions
Timing of performance
Is prov a strict cond, or just means of meas time? (Stewart – “usual manner”)
Satisfaction
Courts applies interps that will avoid forfeiture/UE (apply “honest sat” test)
Mattei
Gibson v. Cranage: Ok to have painting paymt conditioned on satisfxn
But usually you’ll want to avoid risks by using 3rd party satisfxn as the std
Comparison re interp of unconscionability
Unconscionability: re unfairness at time K was made
excuse of cond: re unfairness that would occur later if cond were excused
RS § 225 Effects of the Non-Occurrence
Perf of a duty subject to condition is not due unless condition occurs or is excused.
You can suspend or discharge duty (orally or writing), even if obligor isn’t aware
Unless excused, if it becomes too late for condition to occur, obligor can treat duty as discharged and K is terminated
Non-occurrence – in itself – is not a breach UNLESS a party causes that to happen
Rules: RS § 224, § 225

CONSTRUCTIVE CONDITIONS OF EXCHANGE

A party’s failure to render perf (or sometimes failure to offer it, or prospective failure to perf) might be an excuse for non-performance of a duty undertaken by the other party
Thus, ct will supply terms under which duties are conditioned on perf to be given in return. This grants a party the security of not having to perform unless the other does
Cts generally construe to impose a duty rather than a condition
If event is a condition of obligee’s duty, then strict compliance applies
* ex* K says “selection by buyer to be made before 9/1.”
If seller’s duty cond’l on sel.before 9/1, it’s too late / duty disch
If duty on buyer to sel. by 9/1, then B and now liab for damages
CCE = buyer’s subst perf = also a cond of seller’s duty
Types of covenants
Mutual and indep: either can recover for injury (though usually duty not discharged)
Cond’l and dep: perf of one depends on perf by other (not liab until then) (Kingston)
Concurrent: mutual conditions to be performed at same time (look at nature/circs)
Morton v. Lamb: promises to deliver/pay = to be perf at same time
Tender: offer of perf, accompanied by present ability to make that offer good
One who sues for non-perf must have perf, or have been ready to
Jud pref: order that results in concur conditions on exchange (RS 234)
Performance requiring time: usually use periodic payments

MITIGATING DOCTRINES

Prevention
One who prevents occurrence of condition of his duty may be precluded from later asserting non-occurrence of that condition
Duty of GF usually covers this
Excuse by B: obligor can excuse by committing B that causes non-occ (duty then absol)
Waiver, estoppel, election
Waiver: “Int’l relinq. of a known rt” excuse of nonoccurrence of a condition of a duty
Obligor whose duty is conditional may promise to perform despite non- or delay
May occur by conduct (McKenna v. Vernon: A of paymt w/o cert.)
You can only waive if condition is for your benefit
Different from modification since avoids reqs (assent, writing, consid/reliance)
Retraction: if you waived, can retract before time for cond, unless they relied
if it’s after, even if no reliance, it’s treated as an election
Estoppel
Ex: we get a waiver, then GC who changed position in reliance on cert; we have to give them more time to obtain cert (owner is estopped from retracting)
Election
Choice (to disregard or take advantage of non-occurrence of condition)
Made after time for condition to occur
binding on party that makes it, even w/o reliance by other

SUBSTANTIAL PERFORMANCE

Full performance: discharges duty, but nonperf doesn’t nec = B (maybe past due/disch)
Specific performance: where CCE don’t operate with same effect, court can insert a condition
Substantial performance
If one’s perf is CC of other’s duty, injurer must show only subst perf before he can recov
injured must show the perf was a material B before she can suspend own perf
questions to ask
Has the defaulting party done enough to trigger?
Willfulness: consider, but it’s not dterminative (Kirkland)
Or from the other side, can the other party stop performing now?
measuring
RS 241: Whether behavior comports w/ GF/FD, weighed ag. lost ben, forfeiture
sometimes no SP if structural defects, or if defects exceed certain % of K price
recovery
diminished value rule: recover K price, less damages from incompl perf (Plante)
cost of repair

DIVISIBLE AND SEPARATE CONTRACTS

depending on circs, you might be able to break the K down into corresponding pairs of performance, and regard each part as agreed equivalent
Gill v. Johnstown Lumber – when consideration for work done is apport’d/apportionable in K, that K will be interp’d as divis/severable in case of part perf
Severable: if part to be performed by 1 party consists of several/distinct items, and price paid by other is apportioned to each item or left to be implied by law
Entire: consideration to be paid is single and entire, although subject may consist of several distinct and wholly dependent items

RESTITUTION FOR A DEFAULTING PLAINTIFF

ML: breacher can recover if other has been enriched.
Britton v. Turner: recov for 9 mo. work was not recov on K; restit basis for value of ben
Acceptance of part perf was like assent
GR: pay for service renders, unless you expressly agree otherwise
Willfulness: not an absolute bar to restitution, but argument against recovery is strong
Kirkland v. Archbold (p. 716): P failed to fully repairprop. Don’t treat N B like a willful B (where punishment = forfeiture of value of work completed).
Recov = value of work done - damages suffered due to incompl work
Re sale of goods, it’s a more limited right to restitution (than for services)

BREACH IN THE COURSE OF PERFORMANCE

Total breach: Injured terminates K and chooses damages in place of remaining subst rts under K.
Damages: loss suffered from not receiving perf (assume neither will perform)
GR: breach by nonperf doesn’t  claim for total B (exc: installmt Ks)
Repud + B by non-perf = can treat as total (even if B would have been partial)
Partial breach: doesn’t terminate. Performs on one side.
Damages: loss from delay/defect perf (but assume both will continue to perform)
Once a party elects to continue K, can’t thereafter elect to term K
Determining whether it was treated as total/partial
Accept / retain = partial, still must [pay] (conduct = promise to pay despite nonocc)
Manifestations of assent (fact-based)
this will only waive subsequent Bs if it justifies obligee in believing subseq perfs will be accepted despite defects
Breach can be re implied duty, too (GR, cooperation)
Will also look at substantial performance, and sometimes determine first material B
Questions to ask
1) Has there been a material (uncured) breach?
No  this is not “nonocc” of CCE and you must keep performing, treat as partial
Yes  choice of either continue perf (treat as partial) or suspend (total)
Materiality: look at extent party is deprived of benefit it expected (RS 241)
Walker v. Harrison: although frustrating to have tomato sign, not mat  so H did the first mat B by not paying when W didn’t fix
K&G Construction v. Harris: SC’s bulldozer messed up site = mat B re workmanlike (cost >2x payment due)
2) Has the injured given the breacher an adequate amt of time to cure deficiency?
3) Is the breaching party able and willing to cure?
Only a right to cure in two sits:
Term for perf hasn’t yet expired (notify, then conform tender in time)
Time has expired (notify then cure)
No cure within R time  injured may terminate
4) What will the impact be upon the breaching party?
If injured already perf’d, then risk of forfeiture (so cts will allow time for cure)
5) If there is material B and if there is no cure, what rights does the injured now have?
K is at an end. Injured can terminate. If she sues, claims will be for total breach
Hindrance and prevention
Conduct that prevents performance will excuse non-perf by other party
Mere difficulty is not enough (Iron Trade v. Wilkoff: reducing supply of rails)
New England v. Loranger: Alleged B by SC made it nec for GC to finish job at greater expense. SC was possibly asked not to complete the job
Looked at grds for term, defenses (B by telegram)
Cooperation: promisor’s undertaking normally gives rise to an implied oblig
Rules: RS § 237, § 241, § 242

ANTICIPATORY REPUDIATION