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WHAT IS A CONTRACT?
I. Contract – A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. a. Contract = Mutual Assent (Offer & Acceptance) + Consideration b. Elements: i. The agreement in fact between the parties ii. The agreement as written iii. The set of rights and duties created by (1) and (2)
MUTUAL ASSENT (OFFER + ACCEPTANCE)
I. Intention to be bound a. Objective theory → Mutual Assent i. Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. b. Subjective theory → Meeting of the Minds i. Ray v. Eurice Bros.
- Rule: Absent fraud, duress, or mutual mistake, one having the capacity to understand a written document who reads and signs it, or, without reading it or having it read to him, signs it, is bound by his signature in law.
- (Held) There was no fraud or duress in the making of the contract, and any mistake regarding which specifications were part of the contract was unilateral on appellee builder’s part. Appellant owners intended that their specifications were to be used, and that was clearly stated in the contract that integrated those specifications. Appellee signed the contract and was bound by its contents. Appellee’s actual intent was immaterial because it had agreed in writing to a clearly expressed intent to the contrary. Parties have a “duty to read” what they are signing. Accordingly, appellee breached the contract. II. Offer a. §24: The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it b. Language, completeness of suggested bargain, context/all the circumstances, trade, number of persons to whom it’s made, fact determinative c. §26: Preliminary negotiations d. §33: Certainty e. §38: Rejection f. §39: Counteroffers III. Acceptance ( See §50 ) a. A manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. b. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. c. Acceptance by promise requires that the offeree complete every act essential to the making of the promise. d. §43: Power of acceptance i. Offeree’s power of acceptance terminated when offeror takes action inconsistent w/intention to enter into proposed contract & offeree acquires reliable info to that effect e. Mailbox rule – an acceptance (by the offeree) will in some circumstances be treated as effective as soon as it was dispatched i. Does NOT apply to option contracts → only effective by acceptance, NOT when the contract is mailed.
IV. Limiting power of revocation a. §36: Terminating power of acceptance i. Rejection or counteroffer by offeree ii. Lapse of time iii. Revocation by one of the parties iv. Death/incapacity of one of the parties V. Offer and Acceptance → BILATERAL contracts a. Bilateral contracts - An exchange of promises in which each party promises to do something for the other (future actions) b. Lonergan v. Scolnick i. Rule: If from a promise, or manifestation of intention, or from the circumstances existing at the time, the person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer. ii. (Held) D's ad in the paper was a mere request for an offer. The court here agreed with the trial court's finding that no contract had been entered into between the parties and found that the trial court's construction of the letters exchanged between the parties as inquiries and answers, rather than acceptance, was reasonable. Further assent on the part of D was required to show acceptance. c. Normile v. Miller i. Rule: A valid contract between two parties can only exist when the parties assent to the same thing in the same sense, and their minds meet as to all terms. This assent, or meeting of the minds, requires an offer and acceptance in the exact terms and that the acceptance must be communicated to the offeror. If the terms of the offer are changed or any new ones added by the acceptance, there is no meeting of the minds and, consequently, no contract. This counteroffer amounts to a rejection of the original offer. ii. (Held) The counteroffer by D, which stated that P had until 5:00 p.m. of the next day to accept, did not constitute a binding and enforceable option contract. D's counteroffer on P’s original offer was a rejection of that offer, which meant that the time for acceptance provision in P’s original offer was also rejected and did not become part of D's counteroffer. D then properly revoked the counteroffer by selling the property to P and thus gave P’s notice of that revocation. VI. Offer and Acceptance → UNILATERAL contracts a. Unilateral contracts – A contract created by an offer than can only be accepted by performance. b. Cook v. Coldwell Banker/Frank Laiben Realty Co. i. Rule: A unilateral contract is a contract in which performance is based on the wish, will, or pleasure of one of the parties. A promisor does not receive a promise as consideration for his or her promise in a unilateral contract. A unilateral contract lacks consideration for want of mutuality, but when the promisee performs, consideration is supplied, and the contract is enforceable to the extent performed. An offer to make a unilateral contract is accepted when the requested performance is rendered. A promise to pay a bonus in return for an at-will employee's continued employment is an offer for a unilateral contract which becomes enforceable when accepted by the employee's performance. ii. (held) The court affirmed the verdict, finding that the firm made a unilateral offer, which induced the agent to remain, and that the agent substantially performed by earning a high level of commissions. The firm did not revoke the first offer by making the second offer because the agent had substantially performed on the original offer. Testimony regarding other firms' bonus plans was irrelevant because the firm's offer was not ambiguous. c. Sateriale v. R.J. Reynolds & Tobacco i. Rule: [SAME AS Cook CASE] ii. (held) The court found that the Camel Cash certificates constitute an offer, whereby RJR promised to provide rewards to customers who purchased Camel cigarettes, saved Camel Cash certificates and redeemed their certificates in accordance with the catalogs’ terms.
ii. (held) The court held that the inference of consideration was so overcome and rebutted that there was no question for a jury because the boy's guardian testified, in effect, that the note was the unenforceable promise of an executory gift. The court concluded that the boy was not a creditor, that his aunt was not paying a debt, and that the note was not given for "value received" even if the maker may have labeled it. l. Plowman v. Indian Refining Co. i. Rule: However strongly a man may be bound in conscience to fulfill his engagements, the law does not recognize their sanctity or supply any means to compel their performance, except when founded upon a sufficient consideration. Past or executed consideration is a self-contradictory term. Consideration is something given in exchange for a promise or in a reliance upon the promise. Something which has been delivered before the promise is executed, and, therefore, made without reference to it, cannot properly be legal consideration. ii. (held) The court held that assuming the former employees were told the payments were for life, there was not sufficient consideration to support the promise. The court held that the past services afforded the former employer did not provide sufficient consideration. The court also held that the former employer did not ratify any promises by local plant managers to make the benefits payable for life. m. Dohrmann v. Swaney i. Rule: The basic requirements of a contract are an offer, acceptance, and consideration. The determination of whether consideration is sufficient to support a contract is a question of law for the court to decide. Valuable consideration for a contract consists of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Any act or promise that benefits one party or disadvantages the other is sufficient consideration to support the formation of a contract. Whether a contract contains consideration is a question of law, which is reviewed de novo. Where the amount of consideration is so grossly inadequate as to shock the conscience of the court, the contract will fail. ii. (held) The Court held that circumstances existing when the contract was entered into were such that the terms of the contract should be set aside because the estate sufficiently showed that the contract should be considered void due to the grossly inadequate consideration provided the decedent from the neighbor, as well as the unfair circumstances surrounding the contract's creation.
PART IV: CONTRACT FORMATION → UCC
I. Mutual Assent II. Acceptance a. “Battle of the Forms” i. (1) Was a contract formed? (2) If so, what are the terms? ii. §2-204: (1) K for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes existence of K; (2) agreement sufficient to constitute K may be found even though moment of exact making undetermined; (3) if one or more terms left open, K does not fail if parties have intended to make K & there is reasonably certain basis for giving appropriate remedy iii. §2-207:
- Definite & seasonable expression of acceptance or written confirmation sent within reasonable time operates as acceptance even though states terms additional to or different from those offered or agreed upon, unless acceptance expressly made conditional on assent to additional or different terms;
- Additional terms become part of K unless: a. Offeror expressly limits acceptance to terms of offer b. They materially alter it c. Notification of objection given within reasonable time after they are received;
- Conduct by both parties which recognizes existence of K sufficient to establish K even though writings of parties do not otherwise establish: a. conflicting terms knocked out, relevant UCC gap filler used or if none, common law controls b. Response diverges too greatly = no contract c. If contract formed: i. Orally with forms to follow → terms of K are what parties agreed to before forms; terms in form analyzed under §2-207(2) ii. Via writings → terms are what are agreed upon in writings; additional terms §2-207(2) iii. K formed on conduct of parties → terms are those upon which writings agree and any other terms incorporated by UCC; all terms not agreed upon fall out iv. Last shot rule → party who sends last form before goods shipped usually has upper hand iv. Princess Cruises, Inc. v. General Electric Co.
- Rule: The test for inclusion or exclusion of the UCC is not whether contracts are mixed but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved or is a transaction of sale, with labor incidentally involved. The U.S. Court of Appeals (4th Cir.) deems the following factors significant in determining the nature of a contract: (1) the language of the contract, (2) the nature of the business of the supplier, and (3) the intrinsic worth of the materials. 2. (held) As a matter of law, the court ruled, services rather than goods predominated the parties' contract. GE's final price quotation was a counteroffer rejecting Princess' purchase order, and the terms and conditions of the price quotation controlled liability and damages in the transaction. The jury could only award damages consistent with the terms and conditions of GE's price quotation and could not award incidental or consequential damages. v. Brown Machine, Inc. v. Hercules, Inc.
- Rule: Because the term "offer" is not defined in the UCC, the common law definition remains relevant. An offer is made when the offer leads the offeree to reasonably believe that an offer has been made. An "offer" is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. The general rule is that a price quotation is not an offer, but rather is an invitation to enter into negotiations or a mere suggestion to induce offers by others. However, price quotes, if detailed enough, can amount to an offer creating the power of acceptance; to do so, it must reasonably appear from the price quote that assent to the quote is all that is needed to ripen the offer into a contract.
- (held) The quote constituted an offer that was not timely accepted. The court held that appellant's purchase order, which did not contain an indemnity clause, constituted the offer. The court construed appellee's order acknowledgement, which contained an indemnity clause because the acceptance was not expressly conditioned on the acceptance of those terms. The court held that those terms did not become part of the contract because the terms materially altered the agreement and were not expressly accepted by appellant.
LIABILITY IN THE ABSENCE OF BARGAINED-FOR-EXCHANGE
I. Promissory Estoppel A. Elements i. A promise was made;
a. UNLESS the exchange is not on fair terms ( §87 comment b )
- Consideration can be a promise, performance, legally sufficient act, or forbearance
- Must have consideration ( §42 ) a. The offeree in an option contract may give services or some other form of consideration instead of the payment of money
- “Nominal consideration” generally is not effective iv. Detrimental reliance
- Offer when offeror should reasonably expect to induce action or forbearance of substantial character on part of offeree before acceptance, and which does induce such action of forbearance, is binding as option contract to extent necessary to avoid injustice v. Berryman v. Kmoch
- Rule: There are three elements to be satisfied to invoke the doctrine of promissory estoppel: (1) a promise; (2) a detrimental reliance on such promise; and (3) that injustice can be avoided only by enforcement of the promise.
- (held) The court rejected the individual's claim of promissory estoppel. The individual's efforts and expense to find investors to purchase the land did not constitute acts that could have reasonably been expected as a result of extending the option promise. The court held that the individual's power of acceptance was terminated when he learned that the land had been sold to the third party. vi. Firm Offer → UCC
- If a merchant ;
- Offers to buy or sell goods in a signed writing; and
- The writing gives assurances that it will be held open ;
- The offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months ). b. Pre-Acceptance Reliance - promises become enforceable despite lack of consideration, on basis of reliance on promise i. Subcontractor bid revocable before acceptance; cannot argue reliance without offering valuable consideration to subcontractor to render the offer an enforceable contract ii. Drennan v. Star Paving Co.
- Rule: [SAME AS Berryman ABOVE]
- (held) The court affirmed the award of damages to P, since the loss resulting from any mistake fell upon the party who caused it. P had no reason to believe that D’s bid was in error and P was entitled to rely upon it. iii. Pop’s Cones, Inc. v. Resorts International Hotel, Inc.
- Rule: [SAME AS Berryman ABOVE]
- (held) The court found that P was not claiming breach of contract, but that P sought damages that resulted from its reasonable reliance on D’s promises. P suffered the loss of its prior location and its ability to earn profits during the summer season, out-of-pocket expenses including attorney fees, and expenses in finding an alternate location. Affording P all favorable inferences, its equitable claim raised a jury question, and D’s motion for summary judgment should not have been granted. c. Statutory Limits i. §87: An offer is binding as an option contract if it is made irrevocable by statute. ii. §2-205: An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be help open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
- Firm offer a. No consideration required (§2-205) b. UCC does not apply → look to common law
III. Liability for benefits received: The Principle of Restitution a. Restitution in the absence of a promise i. “Implied-in-law” (quasi contract)
- NOT a real contract a. No bargained for exchange present; no element of assent
- An obligation created by the law without regard to the parties’ expression of assent by their words or conduct a. Can assert quasi contract even without previous dealings
- Based on justice and fairness; remedy for unjust enrichment a. Conferred benefit to party b. Knowledge of benefit from the actual party c. Would be unjust to do so without payment ii. “Implied-in-fact"
- Where services are rendered by one person for another without his expressed request, but with his knowledge, and under circumstances fairly raising the presumption that the parties understood.
- Are “true” contracts iii. Express contract
- Agreement arrived by words, oral or written iv. Quantum meruit
- A reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract v. Quantum valebat
- When goods are sold without specifying any price, the law implies a promise from the buyer to the seller than he will pay him as much as they are worth b. Restitution § c. Restitution §116: An individual is entitled to restitution if: i. Actor acted “unofficiously” and with intent to charge therefor ii. Services were necessary to prevent the further suffering serious bodily harm/pain iii. Actor performing services had no reason to know that the other party would not consent to receiving them, if mentally competent iv. It was impossible for other party to give consent because of extreme youth or mental impairment d. Credit Bureau Enterprises, Inc. v. Pelo i. Rule: Unjust enrichment is an equitable principle mandating that one shall not be permitted to unjustly enrich oneself at the expense of another or to receive property or benefits without making compensation for them. ii. (held) The court found appellant had benefitted by the hospitalization and was therefore liable for medical services rendered to him. The district court had therefore properly determined that appellant was legally obligated to pay for those services based on an implied in law contract theory. e. Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co. i. Rule: A contract implied in law, or quasi contract, is one form of an enforceable contract; it is based on a tacit promise, one that is inferred in whole or in part from the parties' conduct, not solely from their words. A contract implied in law is not based upon the finding, by a process of implication from the facts, of an agreement between the parties. A contract implied in law is a legal fiction, an obligation created by the law without regard to the parties' expression of assent by their words or conduct. The fiction was adopted to provide a remedy where one party was unjustly enriched, where that party received a benefit under circumstances that made it unjust to retain it without giving compensation. The elements of a cause of action for a quasi-contract are that: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant has knowledge of the benefit; (3) the defendant has accepted or retained the benefit conferred and (4) the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying fair value for it.
THE STATUTE OF FRAUDS
I. Statute of Frauds – refers to the requirement that certain kinds of contracts be memorialized in writing, signed by the party to be charged, with sufficient content to evidence the contract. a. No consideration → compliance with SOF is not sufficient for enforcement b. Failure to comply with SOF → contract (even with consideration) is unenforceable c. Requirements i. Linking documents
- A memorandum may consist of several writings if one is signed and the others clearly relate to the same transaction (§132) ii. A “signed writing”
- Writing and signature need not be formal
- Can be electronic communication and signature
- Signed by the party to be charged
- Essential terms (relaxed by UCC)
- Subject matter of transaction
- Sufficient to indicate that there is a contract between the parties
- UCC §2-201 → Symbol to accept, intentional reduction to tangible form
- §134 → Intention/apparent to authenticate writing of signer d. Usually protects D i. D may raise SOF as affirmative defense → burden of proof shifts to P ii. Fake oral contract → P lying: D can assert SOF defense, contract is unenforceable iii. Real oral contract → D lying: D can assert SOF defense, contract is unenforceable e. Can injustice be avoided ONLY if by enforcement of promise? i. Promise is enforceable if action was induced by promise and if injustice can be avoided only by enforcement of that promise ii. To determine whether injustice can be avoided only be enforcement of promise:
- Availability and adequacy of other remedies
- Definite and substantial character of the action or forbearance in relation to remedy sought
- Extent to which the action or forbearance corroborates evidence of the making and the terms of the promise (by clear evidence)
- Reasonableness of action or forbearance
- Extent to which action or forbearance was foreseeable by promisor II. SOF → Common Law a. §110 Contracts covered: i. Executor-Administrator Provision
- A contract of an executor or administrator to answer for a duty of his decedent ii. Suretyship Provision
- A contract to answer for the duty of another
- Exception for writing requirement a. When the debt is being made for YOUR benefit b. When you are SECONDARILY LIABLE for contract iii. Marriage Provision
- A contract made upon consideration in marriage iv. Land Contract Provision
- A contract for the sale of an interest in land v. One-Year Provision
- A contract that is not to be performed within one year from the making thereof b. §100 Exceptions: i. Suretyship Contracts
- Usually held not within the statute unless it was made to the creditor to whom the debt is owed
- The “debt of another” provision has also been held inapplicable when the promisor who has guaranteed payment of another’s debt did so mainly for his own economic advantage ii. Marriage
- Many statutes have restricted/abolished a breach of promise to marry
- To come within this class, the promise must be an actual “consideration” for the promise to marry and not just made on the “condition” or “contemplation” of marriage. iii. The “One Year” Clause
- A contract is not subject to the statutory provision if it is possible to be performed within a year, even though the prospect of such performance is remote
- The fact that a contract may be terminated within a year is NOT sufficient to remove the contract from the requirements of the statute a. ONLY performance will do iv. Lifetime Contracts
- Contracts measured by a lifetime are inherently capable of termination by full performance in less than a year c. Contract may not be enforceable per statute of frauds, however it is NOT ENTIRELY VOID i. What do we mean when we say that a contract is unenforceable? ii. The contract does not meet the requirements of a particular claim/doctrine/statute iii. Can be used as basis for a tort claim, not as a breach of contract claim 1. Contract law is not meant to penalize versus tort law which has that capacity d. §129: Part Performance i. Contract for transfer of land may be enforced notwithstanding failure to comply with statute of frauds if that party seeking enforcement, in reliance to promise made by seller, has changed his position so the only way to avoid injustice would be through enforcement e. §139: Enforcement by Virtue of Action in Reliance i. Promise that reasonably induces action is enforceable notwithstanding State of Frauds if injustice can be avoided only by enforcement of promise ii. Significant circumstances to determine enforcement:
MEANING OF THE AGREEMENT
I. Principles of Interpretation II. §203 Standards of Preference in Interpretation a. In the interpretation of a promise or agreement or a term, the following standard of preference are generally applicable: b. An interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect; c. Express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is given greater weight than course of dealing or usage of trade and course of dealing is given greater weight than usage of trade d. Specific terms and exact terms are given greater weight than usage of trade e. Separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated f. Joyner v. Adams i. Rule: The rule that ambiguity in contract terms must be construed most strongly against the party that drafted the contract rests on a public policy theory that the party who chose the words is more likely to have provided more carefully for the protection of his own interests, is more likely to have had reason to know of uncertainties and may have even left the meaning deliberately obscure. Consequently, the rule is usually applied in cases involving an adhesion contract or where one party is in a stronger bargaining position, although it is not necessarily limited to those situations. An adhesion contract (“standard form contract” or “boilerplate contract”) is where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms and is thus placed in a "take it or leave it" position. ii. (held) The court concluded that where the superior court found divergent meanings between the parties, it did not err in concluding that there was no meeting of the minds on the question of what conditions would trigger retroactive rent escalation. The court also concluded that the superior court erred in awarding judgment for lessee based on the rule that ambiguous contract terms were to be construed against the party drafting the contract where the contract was negotiated between experienced parties who occupied essentially equal positions of power. Lessee would be entitled to a favorable construction if lessor knew that lessee attached a certain meaning to the disputed language and lessee did not know of the meaning attached by lessor. g. Interpretive Principles i. How courts may handle different meanings
- Court may rule that word is unambiguous, so they will assume plain/ordinary meaning of word
- Court may rule that the word is ambiguous
- Court may rule that the word is reasonably susceptible to different meanings ii. Modified objective theory of contract interpretation – a party is bound by the other party’s meaning if the first party either knew or had reason to know of the second party’s meaning while the second party did not know or have reason to know of the first party’s interpretation iii. §
- Where parties have attached same meaning, it will be interpreted in accordance with same meaning
- Where parties have attached different meanings, it will be interpreted in accordance with meaning attached by one of them if at the time the agreement was made a. That party did not know of any different meaning attached by the other and the other knew meaning attached by first party b. That party had no reason to know of any different meaning attached and other party had reason to know meaning attached by first party
- Except as stated in this Section, neither party is bound by meaning attached by the other, even though result may be failure of mutual assent
- Looking for least blame-worthy iv. Noscitur a sociis – the meaning of a word in a series is affect by the others in the same series; or a word may be affected by its immediate context v. Ejusdem generis – a generally term joined with a specific one will be deemed to include only things that are like the specific one. vi. Expressio unius exclusio alterius – if one or more specific items are listed, without any more general or inclusive terms, other items although similar in kind are excluded vii. Ut magis valeat quam pereat – an interpretation that makes the contract valid is preferred to one that makes it invalid viii. Omnia praesumuntur contra proferentem – if a written contract contains a word or phrase which is capable of two reasonable meanings, one of which favors one party and the other of which favors the other, that interpretation will be preferred which is less favorable to the one by whom the contract was drafted ix. Interpret contract as a whole – writing(s) that form part of the same transaction should be interpreted together as a whole (every term should be interpreted as a part of the whole and not as if isolated from it) x. Purpose of the parties xi. Specific provision is exception to a general one xii. Handwritten or typed provisions control printed provisions xiii. Public interest preferred h. Frigaliment Importing Co. v. B.N.S. International Sales Corp. i. Rule: When one of the parties is not a member of the trade or other circle, his acceptance of the standard must be made to appear by proving either that he had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred. ii. (held) The district court held that plaintiff's reliance on the fact that the contract forms contained words with a blank not filled to negate agency was wholly unpersuasive where the clause's purpose was to permit filling in an intermediary's name to whom commission would be payable. D’s subjective intent that it could comply with the contracts by delivering stewing chicken coincided with objective meaning of "chicken," which had at least some usage in the trade; and P did not sustain its burden that "chicken" was used in the narrower rather than in the broader sense. i. Court’s interpretive aids for determining if terms are ambiguous i. Extrinsic evidence ii. Prior negotiations iii. Trade usage - general meaning placed on the word by people in the business
- Different parties, different contracts
- Rule : trade customs and evidence of the parties’ intent when the parties have actual knowledge of the custom or the custom is so pervasive that constructive knowledge is justified, provided the trade custom is neither illegal no in conflict with public policy
- When to substitute trade usage when contract is ambiguous? a. Trade customs are evidence of the parties’ intent when the parties have actual knowledge of the custom or the custom is so pervasive that constructive knowledge is justified, provided the trade custom is neither illegal nor in conflict with public policy. A trade custom is pervasive when one can assume that the parties executed the k with implicit reference to the custom iv. Course of performance - actions of parties in carrying out contract at issue (same parties, same contract)
- Sequence of conduct between parties to transaction that exists if a. Agreement of parties with respect to transaction involves repeated occasions for performance by party and,
contradicts the writing Prior oral or written negotiation/agreement that supplements the writing Yes Yes (§216.1) No Evidence of subsequent negotiations/agreements (oral or written), even if contradictory Yes Yes Yes – parties are allowed to introduce evidence of subsequent modifications Contemporaneous oral negotiation/agreement Yes No No – we’ll assume writing is more authoritative Couse of performance, course of dealing, or usage of trade to explain or supplement (ALWAYS ADMISSABLE) Yes Yes Yes * if parties don’t want to be bound by usage of trade they can specifically negate them in their agreement Any prior oral or written negotiation/agreement that explains the writing Yes Yes. Evidence admissible IF after the court concludes the term is ambiguous. BUT courts disagree to what extent extrinsic evidence is admissible to determine whether the term is ambiguous.
- see Frigaliment chicken case ● To determine term meaning, court considers: o Govt regulation o Trade usage (expert testimony) o Communications between during negotiations o Sensible operation of the k - Price of chickens - seller would not sell chickens at a loss o How the word "chicken" is used in the k o Course of performance o Dictionary definition o Could have considered previous agreements between the parties (but none in this case) Contemporaneous written agreement Yes Probably, yes. Because probably part of the same agreement. a. §210 : Complete Integration vs. Partial Integration i. Complete integration – a writing that is intended to be a final and exclusive expression of the agreement of the parties
- “Four corners”/plain meaning a. If writing appears complete, presumed complete b. Ohio relies on the plain meaning in a contract
- CAN allow evidence to interpret the agreement
- CANNOT allow evidence of prior OR contemporaneous agreements that supplement or contradict the agreement
- Merger clause – states that the writing is intended to be final and complete; all prior understandings are deemed to have been “merged” into or superseded by the final writing ii. Partial integration – a writing that is intended to be final but not complete because it deals with some but not all aspects of a transaction between the parties
- CAN admit evidence of consistent additional terms to supplement the agreement
- CANNOT admit evidence to contradict the agreement
- §216(2): NOT completely integrated if writing omits a consistent additional agreed term which is: a. Agreed to for separate consideration or, b. Such a term as in circumstances might naturally be omitted from writing
b. Exceptions → parol evidence CAN be admitted: i. To exclude evidence offered to interpret or explain the meaning of the agreement ii. To agreements, whether oral or written, made after the execution of the writing iii. To evidence offered to show that effectiveness of the agreement was subject to an oral condition precedent iv. To evidence offered to show that the agreement is invalid for any reason, such as fraud, duress, undue influence, incapacity, mistake, or illegality v. To evidence that is offered to establish a right to an “equitable” remedy, such as “reformation” of the contract vi. To evidence introduced to establish a “collateral” agreement between the parties vii. Court must allow for parol evidence to determine parties’ intent outside the written memorialization of agreement
- When contract does not provide a term necessary to fulfill parties’ expectations
- When bad faith served as a pretext for exercise of contractual right to terminate
- When contract expressly provides party with discretion regarding its performance c. Exceptions for Extrinsic Evidence i. Extrinsic evidence CAN be added in order to create a more perfect understanding of contract
- Parol evidence of a warranty is admissible on ground that warranty us collateral to contract of sale a. Collateral meaning “relating to distinct subject matter” i. Court here said that the warranty here is NOT collateral because warranty acts as one of the terms of sale and NOT a separate, independent contract and the breach of warranty would NOT result in its recission d. The Corbin view (as opposed to restrictive view) i. First looks at all the evidence to determine what evidence is relevant to the parties’ intent and the extent of integration. ii. After the intent of the parties has been determined, the court then applies the parol evidence rule and excludes any evidence that contradicts or varies the meaning of the agreement iii. Parol evidence can only be admitted unless terms are found to be AMBIGUOUS in preliminary finding
- At what point should a court stop considering what to admit as extrinsic evidence? a. Needs to consider the offered evidence and must decide if language can be reasonably susceptible to needing further examinations i. Making moves to aid in what the intent of the parties was ii. Must fall within scope of claim e. Thompson v. Libby i. Rule: Where a contract includes all that is necessary to establish the parties' rights and obligations, it is presumed that the parties have introduced into it every material item and term; and parol evidence cannot be admitted to add another term to the agreement. ii. ( held ) The Court held that it was improper for the trial court to admit parol evidence of a warranty. Parol contemporaneous evidence was inadmissible to contradict or vary the terms of a valid written instrument. Because the parties deliberately put their engagements into writing in such terms as to create a legal obligation, without any uncertainty as to the object or extent of such engagement, it was conclusively presumed that the whole engagement of the parties, and the manner and extent of the undertaking, was reduced to writing. There was nothing on its face to indicate that the contract was a mere informal and incomplete memorandum. Furthermore, no new term, forming a mere incident to or part of the contract of sale, could be added by parol evidence. f. Taylor v. State Farm Mutual Automobile Insurance Co. i. Rule: [SAME AS Thompson ABOVE]
- Rule: In New Jersey case law, the implied covenant of good faith and fair dealing is applied in three general ways, each largely unaffected by the parol evidence rule: (1) the covenant permits the inclusion of terms and conditions that have not been expressly set forth in the written contract. The covenant acts in such instances to include terms the parties must have intended because they are necessary to give business efficacy to the contract; (2) the covenant is utilized to allow redress for the bad faith performance of an agreement even when the defendant has not breached any express term; and (3) the covenant permits inquiry into a party's exercise of discretion expressly granted by a contract's terms.
- (held) Ps’ claim of a breach of the implied covenant of good faith and fair dealing is not precluded merely because the parties' possessed equal bargaining power, or because Ps were not financially vulnerable during the contract's formation, or even if the plaintiffs negotiated the contract with the assistance of highly competent counsel. These are factors that the trier of fact may consider in weighing the sufficiency of Ps' claim, but they are not the only factors. Also, it was concluded that the parol evidence rule had no impact upon the ability of Ps to substantiate either their claim that they had a reasonable expectation of a continued relationship (notwithstanding the expressed right of Summit to terminate), or their claim that Summit failed to perform its contractual obligations in good faith. And lastly, while the appropriate level of bad faith may be difficult to define and may also vary depending upon the nature of the alleged breach and the type of business engaged in by the parties, Ps’ allegations of bad faith and ill motives are sufficient to survive dismissal vi. Applications of the Good Faith Principle
- A court may be persuaded that in order for the contract between the parties to have “business efficacy,” it is necessary to imply terms not expressly incorporated in the agreement. It will not imply any term that conflicts with the express terms of the parties’ agreement.
- A court may permit a finding of breach even where no express term of the agreement has been violated
- To judge the appropriateness of a party’s exercise of some type of discretion expressly granted to it by the terms of a contract vii. Warranties
- §2-313: Express Warranties a. Any affirmation of fact/promise made by seller to buyer which relates to goods and becomes part of basis of bargain i. Any description of goods which is made part of basis of bargain creates warranty that goods will conform to description ii. Any sample/model makes warranty that goods will conform to sample/model b. It is not necessary to create an express warranty that seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make warranty, but an affirmation merely of the value of goods or statement purporting to be merely seller’s opinion or commendation of goods does not create a warranty i. THIS IS NOT THE CASE FOR IMPLIED WARRANTY – IT DOES CREATE A WARRANTY
- Implied Warranties a. §2-314: Merchantability i. Warranty that goods shall be merchantable is implied in contract for sale if seller is merchant with respect to goods of that kind ii. In order to be merchantable, the goods must pass without objection of trade
- Reasonable public would purchase
- Fit for ordinary purpose (no proof from Crow)
b. §2-315: Fitness i. When a seller has reason to know any particular purpose for which goods are required and that buyer is relying on seller’s skill/judgment to select goods, there is an implied warranty that goods are fit for that purpose ii. No need to show good was defective iii. Purpose must be one other than ordinary use of good (some courts) c. §2-316: Disclaimer of Warranties i. Disclaimer of an express warranty is inoperative if disclaimer cannot be construed as “consistent” with terms in contract that would create the express warranty
- Subject to parol evidence rule (§2-202) a. Only when we have terms of completely integrated contract
- To disclaim merchantability – language must mention merchantability and in case of writing must be conspicuous a. Disclaimer will be effective if contract states, “There are no warranties which extend beyond the description on face thereof”
- “As is” disclaimer – one should be implied to carry out section’s purpose of avoiding surprise to buyers (no conspicuous requirement) a. When buyer examines goods as he desired/refused to examine, there is no implied warranty with regards to defect b. Implied warranty can be excluded/modified by course of dealing/performance/usage of trade 3. Bayliner Marine Corp. v. Crow a. Rule: VA statute provides that, in all contracts for the sale of goods by a merchant, a warranty is implied that the goods are merchantable. In order to prove that a product is not merchantable, the complaining party must first establish the standard of merchantability in the trade. b. (held) The court held that buyer failed to establish a breach of an implied warranty of fitness for a particular purpose because the evidence failed to show that he made known to the sport fishing boat manufacturer the particular purpose for which the goods were required. The evidence showed that the boat manufacturer did not know that a boat incapable of travelling 30 miles per hour was unacceptable to the buyer.
AVOIDING ENFORCEMENT
I. Objective test – whether a reasonable person would assume that party was assenting a. Doctrines to go behind the contract to determine assent/intent of parties are known as “policing doctrines” II. Duress – exists where (1) one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such circumstances were the results of coercive acts by the other party a. Wrongful threat or act, lack of reasonable alternatives, actual inducement of contract by threat b. Duress of goods c. Economic duress – (1) a wrongful or improper threat, (2) a lack of reasonable alternative, and (3) actual inducement of the contract by the threat i. Restitution required when there is evidence of unequal bargaining (gain for one party) d. Totem Marine Tug & Barge, Inc v. Alyeska Pipeline Services Co. i. Rule: Duress exists where: (1) one party involuntarily accepts the terms of another, (2) circumstances permit no other alternative, and (3) such circumstances are the result of coercive acts
