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Contracts Case Text Outline page 1 Chapin Cimino for Contracts Law in Fall 2010 Contracts Outline Fall

2010 Chapter One: What are We Going to be Doing in this Course? Section 1: What is a Contract? Mutual Assent Hill v Gateway pg 25: A contract need not be read to be effective; people who accept take the risk that the unread terms may in retrospect prove unwelcome Terms inside Gateways box stand or fall together Manifested their agreement to the terms 2-204. Formation in General. (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual. Brower v. Gateway Lucy v. Zehmer Smith v Boyd pg 59: The custom is to have a written document; trade practices, prior practice between parties, whether written contract would be written up by the parties and statements made during negotiations ---Offer--Lonergan pg 67 A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. Restatement (Second) of Contracts 24 Illustration 1. A, a clothing merchant, advertises overcoats of a certain kind for sale at $50. This is not an offer, but an invitation to the public to come and purchase. The addition of the words Out they go Saturday; First Come, First Serve might make the advertisement an offer. Fairmount Glass Works v. Grunden-Martin Woodenware Co., pg 71 - Price quote is an offer if combined with additional terms Nebraska Seed Co. pg Leonard v. Pepsico Not enough hdetail in an ad does not constitute an enforceable offer merely by an expression of willingness to accept by the offerror.

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Lefkowitz Pg 79 - Where the offer is clear, definante or explicit, it constitutes an offer; the acceptance of which would complete the contract. ---Acceptance--LaSalle: Power of acceptance: Ever-Tite: You may accept by sending it back ; Performance as acceptance does not require notice. An offer may be revoked before acceptance by other party unless it is stipulated in the contract that performance wil accept the contract Davis v. Jacoby, - pg 118 Due to ambiguity Modern Rule R2K 30: When an offeror has indicated the mode/emans of acceptance other by promise or performance or both, that mode is binding on the offerree R2K 50: An offer may be accepted by offerree only by the way offeror requires ot

Hendricks: Notice of acceptance is required Agent within the scope of her authority Carlill: an advertisement that includes definite terms of acceptance is an offer in the form of a reward. If an offer is for a reward, offer must be accepted by performance. Court will not look into the value of consideration; consideration

---Problems with Acceptance--Dorton: assent required for the acceptance in the 2-207 proviso must be explicit in order to constitute acceptance. Terms are only accepted if included in implied terms in 2-207. Holding: Carpet retailer was not bound to arbitration clause because it materially altered the contract between Under UCC 2-207,

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Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332 (D.C.Ka) Facts: Claim against Gateway, Inc. on claims arising from purchases of a Gateway computer. Gateway brought motion to dismiss. Gateway asserts arbitration; files motion to dismiss. Did Klocek agree to the additional and different terms as part of the Standard Term agreement? Holding: Motion to dismiss denied. Rule: Conditional nature of acceptance must be clearly expressed in a manner sufficient to notify the offeror that the offeree will not move forward unless additional and different terms are included. Under UCC 2-207 nothing which requires another form before the provision becomes effective. In Hill and Pro-CD, 7t Cir. Concluded without support that UCC 2-207 was irrelevant because the cases involved only one written form. Battle of the forms but nothing in its language precludes aplicaiton in a case which involves only one form. Because is not a merchant, additional and different terms contained in the Standard Terms did not become part of the parties agreement unless expressly agreed to them. UCC 2-207 Varney v. Ditmars -Vague and indefinite terms means no meeting of the minds Dissent: It was possible to Nora Beverages, Inc. v. Perrier Group of America, Inc., -- page 187 203 Rule: Goods cannot be contracted with uncertain number. Services must include how long service will go. Therefore PGA cant reneg. None of the terms were fatal to contract. 33. CERTAINTY (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. Ucc gap fillers EMP 201 - 203

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---Consideration--Reed v. University of North Dakota and the North Dakota Association for the Disabled, Inc., 589 N.W.2d 880 (N.D. 1999)

Facts: Jace Reed was on hockey scholarship to UND. As a result of a 10km (6.2mi) race he participated in for the NDAD he suffered extensive damage to his kidneys and liver as a result of dehydration. Reed required one kidney and two liver transplants. Reed wants to execute his legal rights, NDAD says no. Reed says proper consideration was not given for him to release his legal rights. Holding: A valid release exonerated NDAD from liability for its alleged negligence. Rule: Promise without sufficient consideration cannot be enforced. The consideration can be any detriment suffered to the offeree and any benefit toward the offeror. In order to find; Note: Court analyzed wrong consideration pattern. NDADs consideration was to be looked at, not Reeds because he was the one who wanted to breach therefore NDAD DID provide proper consideration by allowing him to run in the race. [[Court looked at Reeds consideration]] Kirksey v. Kirksey, 8 Ala. 131 (1845) Consideration and Family Facts: wrote letter to -sister in law saying move here and I will give you place to raise family. proceeded to move her out of the house he gave her and into a worse one and then kicked her off his property all together. Did provide necessary consideration to to hold her place on his land by moving and leaving her own land and possessions Holding:

Contracts Case Text Outline page 5 Though the inconvenience sustained by moving to s residence 60 miles away would be consideration, the s promise was merely a gratuity and an action will not lie for its breach. Judgment reversed. Rule: No consideration for a gift, nadum practum. Hamer v. Sidway, 27 N.E. 256 (Ny. 1891) Consideration and Family

Facts: Uncle William E. Story promised Nephew William that if he did not drink any liquor, will not smoke, will not play cards or billiards until you are 21, I will give you $5,000 on that day. Promise allowed that he could play cards for fun. Nephew William said he would carry it out. Uncle William died before paying Nephew William; executor of Uncle Williams estate refused to pay the promised $5,000. Was Nephew abstaining from drinking and smoking consideration to sustain uncles promise? Holding: Yes. Nephew William abandoned his right to drink and smoke until the age of 21 for the $5,000. Rule: Peppercorn Theory: Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party or is of any substantial value. It is enough that something is promised, done, forborne, or suffered by the promisee as consideration for the promise made to him. Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise. 79. ADEQUACY OF CONSIDERATION; MUTUALITY OF OBLIGATION If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or Alaska Packers Assoc. v. Domenico, 117 F. 99 (9t Cir. 1902) Consideration and Contract Modification

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Facts: Enforceability of an employers written agreement to modify an employment agreement by increasing employees minimum salary. Employer contents that modification agreement is not enforceable lacking proper consideration. -appellant owned salmon packing factory in Alaska paying $50 per sailor/fisherman plus two cents for every red salmon caught. Libellants asked for a raise alleging cannery supplied bad nets Holding: When consented to demand of a pay raise, under the circumstances was given without consideration. [He had no time to get new workers] It was based solely upon libellants agreement to render exact services and none other which they were already under contract to render. Rule: Pre-existing Duty Rule: Rendering exact services that one is already contracted to do is not consideration. Promises made under coercion or duress are not legally enforceable. To modify the contract there needs to be new consideration; agreeing again to do the work already promised is not enough Angel v. Murray, 322 A.2d 630 (Ri. 1974) page 269 - 277 Consideration and Contract Modification Facts: and others against for illegally paying James L Maher $20,000. Superior Court (trial court) entered judgment that Maher had to pay back all the money. Maher provided the city of Newport with refuse collection service under a series of 5 year contracts starting in 1946. Trial justice found Maher was not entitled to extra compensation because original contract already required him to collect refuse generated by the city and therefore included 400 additional units. [Following Alaska Packers]

Contracts Case Text Outline page 7 Holding: Maher was entitled to extra compensation. Judgment reversed. Rule: Prexisting duty rule does not apply under provisions made in R2K 89 Ovation if parties agree and its fair and equitable, court wont require new consideration Modern trend appears to recognize the necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of performance. See UCC 2-209(1) and R2K 89 UCC 2-209(1) An agreement modifying a contract [for the sale of goods] needs no consideration to be binding. The validation does not validate modifications made by coercion. Restatement (Second) of Contracts 89 [Ovation] 1. Parties must voluntarily agree the promise modifying the original contract was made before the contract was fully performed on either side 2. The underlying circumstances which prompted the modification were unanticipated by the parties 3. The modification is fair and equitable ---Promissory Estoppel--Ricketts v. Scothorn, 77 N.W. 365 (Neb. 1898) pg 292 - 298 Facts: Action was based on promissory note which read: May the first, 1891. I promise to pay Katie Scothorn on demand, $2,000 to be at 6 per cent annum J.C. Ricketts. J. Ricketts, maker of the note, was grandfather of . Early in May, he called on her at the store and said none of my grandchildren work, and you dont have to. cried. Holding: Induced but not required to quit thus it was a gift. There was no consideration because this was a gift, however recovered judgment against the as executor of the last will and testament of John C. Ricketts, deceased due to estoppel. Rule: Estoppel, not consideration, can make a contract enforceable. Estoppel is defined to be a right arising from acts, admissions, or conduct which has induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged.

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Action taken on reliance of a promise may be sufficient for contract enforcement Midwest Energy, Inc. v. Orion Food Systems, Inc., 14 S.W.3d 154 (Missouri. Ct. App. 2000) -Page 306-313 Facts: operates a chain of service station convenience stores in Southeast Missouri. is a South Dakota Corporation developed recipes and equipment for several fast food systems for which it issues franchises to local outlets. Ted Ries was district sales manager for Orion Midwest undertook construction of substantial building in Fruitland, MO estimated to cost $800,000. Midwest declared Breach of Contract and wants Promissory Estoppel against . Holding: Promissory Estoppel enforced Rule: Promissory Estoppel (1) A promise (2) Foreseeability of reliance (3) Reliance (4) Injustice absent enforcement Restatement (Second) of Contracts 90 A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. Pavel Enterprises, Inc. v. A.S. Johnson Company, Inc., 674 A.2d 521 (Md. Ct. App. 1996) pg. 313 Facts: Pavel prepared a bid for the NIH Work of demolition, mechanical, heating, ventilaton and air conditioning work. August 5, Johnson verbally submitted quote for $898,000 for HVAC component. PEI submitted $1,585,000 for entire project. NIH informs PEI that bid would be accepted. PEI refused to permit Johnson to withdraw. Holding: Although theory of promissory estoppel is available to general contractors, it is not applicable to facts in this case because there was no reliance due to doing subsequent bid shopping. Rule: A party can only rely on an offer for a reasonable amount of time; in this case a month goes beyond reasonable before relying on an offer. Affirmed

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Remedial Considerations --Defenses Statute of Frauds Radke v. Brenon, 134 N.W.2d 887 (Minn. 1965) page 338 Facts: wants to sell land equally among all ten neighbors. appeals from a judgment of the district court decreeing specific performance of a contract for the sale of real estate where court concluded that the s have wrongfully and improperly failed and refused to deliver a deed of the property to . alleges Statute of Frauds since it is a sale of land thus t must be in writing. Holding: s letter is the writing and constituted consideration because a mathematical computation made between 212 and 262 can be made since someone dropped out of the deal especially since paid more than what he was originally expected to. Rule: Restatement (Second) of Contracts 131 A. Writing Construed Liberally: 131 2nd Restatement: Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of party charged, which a. (a) reasonably identifies the subject matter of K, b. (b) is sufficient to indicate K had been made, and c. (c) states with reasonable certainty the essential terms of the unperformed promises McIntosh v. Murphy, 469 P.2d 177 (Hi. 1970), page 352
(moves to Hawaii for at-will job but gets fired)

interviewed twice during a visit to Southern Cali. April 1964 told of possible employment within 30 days if he was still available. said he was. April 1964 notifies that job would begin Mon April 27. sent telegram that he would arrive in Honolulu on Sunday April 26 and began work as Asst. Sales Manager instead of Sales Manager. Rule: Restatement (Second) of Contracts 139

Contracts Case Text Outline page 10 promise which promisor should reasonably expect to induce action or forbearancewhich does induce act. or forb. is enforceable notwithstanding SOF if injustice can be avoided only by enforcement of promise. If justice so requires, Promisorry estoppel can supersede statutes. Retention of Statute of Frauds is justified on three grounds: (1) The Statute still serves an evidentiary function thereby lessening the danger of perjured testimony (the original rationale) a. An oral contract was okay if under a year b. If its going to be over a year it must be a writing (2) The requirement of a writing has a cautionary effect which causes reflection by the parties on the importance of the agreement (3) The writing is an easy way to distinguish enforceable contracts from those which are not, thus channeling certain transactions into written form --- Fraud, Misrepresentation, Non-Disclosure--Halpert v. Rosenthal, 267 A.2d 730 (Ri. 1970) pg 363 Facts: appealed decision from jury finding for . -vendor sought damages for breach by -vendee in sale of real estate. countersued for return of his deposit. Feb. 21, 1967, parties entered into real estate agreement where agreed to sell house to for $54,000. paid deposit of $2,000 to . Agreement provided delivery of the deed and payment of the balance by June 30, 1967. On three separate occasions, asked about termite issue to which and real estate agent denied forthright. May 17, 1967, termite inspection found termites infested home. Holding: may retain deposit and does not have to move into house. Rule: innocent misrepresentation of material facts is grounds for rescission of a contract where a party relies to his detriment on the misrepresentation. [Old R2K 476] Party had one of two options: rescind the contract to recover what he has paid [Contract Action] affirm the contract and sue for damages in an action for deceit [Tort Action]. Dicta: Court believes fraud should not be used under innocent misrepresentation. Swinton v. Whitinsville Savings Bank, 42 N.E.2d 808 (Mass. 1942) pg 368 Facts -appellant sued to recover for s alleged fraudulent concealment in the sale of a house to . appeals an order by court below which sustained s demurrer to s declaration. Sept 12, 1938 the sold a house for and family. Aug. 30, 1940 was when learned of the issue and

Contracts Case Text Outline page 11 made many expenses to repair damage done by termites. s never asked for information concerning termites. Holding There is no defense to enforcement of an agreement based on nondisclosure (silence) Rule: Buyer beware Silence does not always mean concealment; concealment = benefit and detriment. We will not hold liable for then every seller would be who fails to disclose non-apparent defect known to him in the subject of sale which materially reduced its value and which the buyer fails to discover. Weintraub v. Krobatsch, 317 A.2d 68 (NJ 1974) pg 371 Facts: Mrs. Weintraub (-seller) owned and occupied a home she put in hands of real estate broker. Krobatsches (-buyer) were interested in home, found it suitable. June 30, 1971, entered into agreement with to sell the property for $42,500 A deposit of $4,250 was sent by purchasers to escrow account pending closing the transaction. Purchaser requested fumigation and it was done. August 25, 1971, the s entered the house, unoccupied, and described in their petition that roaches were running in all directions. Through s attorney, contract was rescinded saying that rejected rescission [first seeking specific performance but changed it] seeking damages in the sum of $4,250, representing the damaged held in escrow. Holding: Judge finds for and Ct. App. Affirms. Rule: Rejects Swinton calling it out of touch with times Statement may often be found that if either party to a contract of sale conceals or suppresses a material fact which he is in good faith bound to disclose then his silence is fraudulent Even in the presence of innocent concealment, judge will be called on to determine whether, in light of the full presentation before him, the concealment or nondisclosure was of such significant nature as to justify rescission. Fraudulent concealment or nondisclosure are grounds for recission. ----Unconscionability--Williams v. Walker-Thomas Furniture Company, Reprehensive but not unconscionable conduct done by the

Contracts Case Text Outline page 12 If you sign a contract, reador not, party is bound. Williams II Reasonableness and fairness test, terms of th contract must be considered in light of the circumstances existing when the contract was made. But when a party of little bargaining power, signs a commercial unreasonable contract with little or no knowledge of its terms, they might not have enough say in the matter. Dissent: Congress through statute, should protect public from exploitative contracts Discover Bank v. Superior Court of Los Angeles, pg 435 Class actions waivers may be unconscionable if it is not practical for individual to pursue claims on an individual basis. California Law: class action waivers are not necessarily unconscionable; class action ban is exculpatory (clears a party of guilt) Threadgill v. Peabody Coal Co., 526 P.2d 676 (Co. Ct. App. 1974) Rule: A party is bound to usage in trade if party had actual knowledge of the existence of the trade usage or it is a well established practice. [Gap filler] Holding: Trade practice is well established. liable. Rule: parties cannot contract away potential liability of their own negligence UNLESS there is an express and unequivocal agreement Holding: Ct. agrees. Case remanded to decide if was negligent. Nelson v. Elway, 908 P.2d 102 (Co. 1995) Terms represent final complete integration [Traditional approach to P.E.R.] Rogers v. Jackson, 804 A.2d 379 (Maine 2002) page 474 Looking at the entire agreement, the oral contract must not be repugnant and is therefore consistent with the terms of the agreement Frigaliment Importing Co., Ltd., v. B.N.S. International Sales Corp., 190 F. Supp. (SDNY 1960) page 499. Rule: Intrinsic factors: (1) Look at Contracts (2)Look at language of the negotiations; Extrinsic Factors (1) Trade Practice Random House, Inc. v. Rosetta Books LLC pg 509 Rule: Objective extrinsic evidence; interpretation done by third party in New York. Custom/Trade Practice is the only extirnisc evidrence allowed. Vs. Trident Center Rule: Objective/Subjective extrinsic evidence allowed in California

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Dealing w/ Ambiguity Four Corners Objectivists Hybrid objective/subjective R2K 201 Meyer contracts of adhesion are read against the drafter. 187. Lauvetz - Restatement 211 and see comment f Restatement 211 Standardized Agreements (1) Except as stated in subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing. (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement

Remedies, Expectation Damages, Limitations to Money Damages Jacobs & Youngs v. Kent A. Not a material breach but improper 1. no apt and certain words that require strict compliance 2. No apt and certain language that says Reading pipe would be conditional on contract B. Very disproportionate (tearing out all the pipe and replacing it) C. Entitled to the difference between KV (value of house with Reading pipe) AV (value of house with Reading and Cohoes pipe) D. Promises 1. Consideration of justice and presumable intention will make a promise independent or dependent 2. Independent promises term that is not a condition a. Gibson, Jacobs b. Art 3. Dependent promises term that is a condition a. Utility O.W. Grun Roofing pg 731 Doctrine of Substantial Performance (Tx. Common Appeals 1925):

Contracts Case Text Outline page 14 Contractor must have in good faith intended to comply with the contract, and shall have substantially done so in the sense that: 1. the defects are not pervasive, 2. do not constitute a deviation from the general plan contemplated for the work, and 3. are not so essential that the object of the parties in making the contract and its purpose cannot, without difficult, be accomplished by remedying them. Such performance permits only such omissions or deviations from the contract as are 1. inadvertent and unintentional, 2. are not due to bad faith 3. do not impair the structure as a whole, 4. and are remediable without doing material damage to other parts of the building in tearing down and reconstructing This was harsh as far as remedies and damages are concerned which is why courts try to apply divisible contract rule Divisible contracts is a mitigation doctrine which reduces the risk of forfeiture in that important class of cases in which it is proper to... give a party who has performed one of these parts the right to its agreed equivalent just as if the parties had made a separate contract with regard to that pair of corresponding parts 240 Hawkins (NH. 1929) [Hairy Hand Case] pg 800 Issue: Was the damages awarded to the plaintiff ($3,000) to excessive? Analysis; The Tri Ct allowed the jury to consider damages for pain and suffering and positive ill effects of the operation on plaintiffs hand and that instruction was wrong. Not in Tort-land, there is no pain and suffering, the compensation goal in K is only to put in as good as position as would have been in if no breach. Compares hand to a machine built and warranted for certain work when damages is the difference in value between the machine you wanted and the machine you have + incidental damages that parties knew or should have known would result from a failure. The pain and suffering was going to happen whether the hand was perfect or not, natural result of a serious surgery that plaintiff was willing to take on to get the hand fixed. (Price willing to pay). New trial buddy. Leingang v. Mandan Weed Board pg 808 It was wrong to use modified Net profit approach as the measure of damages. It derived a profit margine of 20% by subtracting four categories of expenses reported on Leingangs schedule and attributed to the weed-cutting business, from the weed-cutting income reported ot the IRS. Trial court chose insurance, repairs, supplies, and car/truck expenses The value of the contract consists of (1) the partys reasonable expenditures toward performance, included costs paid, material wasted, and time and services spent on the contract, and (2) the anticipated profits. Thus, a party is entitled to recover for the detriment caused by the s breach, including lost profits if they are reasonable and not speculative.

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Overhead prices are not measured because the evidence established that those expenses were constant whether or not the contract was performed. Panorama Villiage Homeowners Assn v. Golden Rule Roofing, Inc. p.g. 812 Consequential Damages: s Repair costs were added to the award. Professor says See Jacob &Youngs to see how contractor followed all the steps to get out of cost of performance damages. See Weed Board To see what you do in the service context where its hard to assign value if there is no substitution of performance,. Record indicates that the roofs were substantially inferior to what Golden Rule had contracted to proive and that the installation defects directly affected the performance and life of the roofs, which clearly reduced their value.

Chapin Cimino for Contracts Law in Fall 2010 Contracts Outline Fall 2010