I. Elements of a contract

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A. Valid Consideration

1. Benefit/detriment theory (Hamer v. Sidway)

a. Consideration is a benefit to promisor or a detriment to promisee

b. While useful, this is not entirely valid.

2. Mutually bargained for exchange (Baehr v. Penn-O-Tex)

a. The consideration must have been given in exchange for the promise.

3. Consideration under seal (Dougherty v. Salt)

b. Documents utilizing a seal that states ‘consideration paid’ are not valid proof of consideration

4. Value of Consideration (Batsakis v. Demotsis)

a. The court will not look at, nor compare, the value of consideration given.

5. Moral consideration is no consideration. (Plowman v. Indian Refining Co.)

6. Past consideration is no consideration. (Plowman v. Indian Refining Co.)

B. Offer

1. Restatement §24 – “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”

2. Cannot require further assent from offeror (Lonergan v. Scolnick)

3. Effective on receipt.

4. Can be made by either party (buyer or seller).

5. End when they expire, are accepted, are revoked, are rejected, or are rejected by counter-offer.

6. The purchase order is usually the offer (Brown Machine)

7. Revocations of offers

a. Offers are fully revocable until accepted

b. An irrevocable offer (i.e. an option contract) must be supported by additional consideration

i. An option is a right to accept an offer during a set time.

ii. Options are rights, not obligations.

c. Revocations are effective on receipt.

d. Revocation can take the form of reliable information that the offeror has taken actions inconsisten with the contract (i.e. “you snooze, you lose” in Normile)

C. Acceptance

1. Acceptance is effective when it has been dispatched (i.e. mailed). (Mailbox Rule/Lonergan v. Scolnick)

a. Burden of mail getting lost is placed on offeror because he/she is in the best position to deal with it—they can set the terms, including the terms of acceptance.

2. What constitutes acceptance is determined by the offeror. Where a method is not specified, any reasonable method is acceptable.

a. In general, the manner in which offeror makes offer is a reasonable method for acceptance. (I.e.,if offeror mails it, it’s acceptable for offeree to respond via mail.)

3. Silence may, in certain cases, constitute a reasonable method of acceptance (Restatement §69)

4. Mirror-image rule – acceptance must be a mirror image of the offer, otherwise it functions as a counter-offer

a. Under common law, counter-offers are rejections (Normile v. Miller)

A. Restatement §90 Promise Reasonably Inducing Action or Forbearance

  1. “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.

  2. A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance. “

III. Restitution

A. Emergency Services (Restatement of Restitution §116; Credit Bureau Enterprises v. Pelo)

1. Provides for restitution to one furnishing emergency services in a situation where serious bodily harm or pain will otherwise result, provided the plaintiff acted “unofficiously”

B. Preservation of Goods (Restatement of Restitution §117) – a person is entitled to restitution if:

1. He was in lawful custody of the goods

2. It was reasonably necessary that the services should be rendered before notifying the owner.

3. No reason to believe owner did not require him to take such action.

4. He intended to charge for such services.

5. The rescued goods were accepted by the owner.

C. Contracts in Fact (Restatement of Restitution §107, Watts v. Watts)

1. It is inferred that a person who requests another to perform services for him or to transfer property to him thereby bargains to pay therefore.

D. Promissory Restitution (Restatement §86, Webb v. McGowin – block case)

1. Statuory Language:

“(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.

(2) A promise is not binding under Subsection (1)

(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

(b) to the extent that its value is disproportionate to the benefit.”

2. Why require benefit to the promisor under § 86?

a. Because it is an exception to classical contract law and we want to be careful where we require this exceptional burden.

b. We only want to impose this under very limited circumstances.

  • Webb v. McGowin (pg. 151) (promissory restitution)

Posture: Alabama Court of Appeals, 1936. Trial court dismissed case.

Facts: In the course of his employment, plaintiff was non-negligently dropping 75-lb wood blocks off the 2nd floor of a warehouse. As he was about to push a block off the edge of the floor, he noticed defendant in a position where the block would’ve hit him and caused serious injury. He was unable to stop the block, so he jumped with the block in order to direct it away from the defendant. He saved the defendant from injury, but it resulted in serious injury for himself. In gratitude, defendant began paying him $15/week and promised to continue this payment for the rest of plaintiff’s life. He continued the payments for 8 years, but they stopped after his death. This action is brought against his estate for continuance of payments.

Holding: Enforceable contract. “Where the promisee cares for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit received…” Court notes that avoidance of serious injury is very much a material benefit, not just a sentimental one, so that it fits this doctrine.

Notes: cites benefit/detriment theory; strong evidence of voluntary assent

    • The court says the promise was not gratuitous because plaintiff took the money (i.e. he would’ve rejected it had it been a gratuitous promise).

    • Might be different if he had not already been paying for 8 years. For example, if money was left in his will.

  • Black’s: unjust enrichment. 1. The retention of a benefit conferred by another, without offering compensation, in circumstances where compensation is reasonably expected. 2. A benefit obtained from another, not intended as a gift and not legally justifiable, for which the beneficiary must make restitution or recompense.

Bilateral contracts are formed at the time of exchange of promises; i.e., after the offer and acceptance, but before performance.

  • In a unilateral contract, the promisor exchanges a promise for performance. There is no upfront exchange of promises.

    • The classic unilateral contract setting is a reward: i.e. $50 reward for a lost pet. You don’t want a promise that they will return your pet, you want your pet.

  • In a unilateral contract, offeror can revoke after performance has begun but is not completed. Offeree can decide not to perform. In other words, a unilateral contract is binding on neither party until performance is begun, at which point it is binding on the offeror.

  • Restatement § 45 Option Contract Created by Part Performance of Tender

  1. Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the when the offeree tenders or begins the invited performance or tenders a beginning of it.

  2. The offeror’s duty of performance under any option contract so created is conditional on completion for tender of the invited performance in accordance with the terms of the offer.

  • Petterson v. Pattberg (pg. 179) (unilateral contract under common law, 1928)

Facts: Plaintiff arrived at defendant’s house and announced his intention to pay off a mortgage, for which he carried the requisite cash. Instead of accepting the money, defendant stated that he had sold the mortgage to a third party, and that the plaintiff must now pay the plaintiff the total amount (w/o promised discount).

Issue: Was defendant allowed to withdraw his offer?

Holding: Yes, it is a fundamental principle of a unilateral contract that the offeror may revoke the offer prior to offeree’s full performance.

Dissent: The revocation is not valid because defendant would not allow plaintiff to perform. Defendant promised to accept plaintiff’s performance, and he could not revoke at the time that plaintiff showed up to ask him to accept.

  • “unclean hands” doctrine—you cannot come in and complain about a problem that you caused.

    • Applied to unilateral contracts in cases where the promisor prevents the promisee from performing

  • Cook v. Coldwell Banker/Frank Laiben Realty Co. (unilateral contract with substantial performance 1998)

Facts: Plaintiff was a real estate agent who worked for defendant pursuant to a verbal agreement. In March 1991 defendant announced a bonus program whereby agents could earn bonuses for achieving commissions over a certain amount. He announced that these bonuses would be payable at the end of the year. By September, plaintiff had already qualified for the bonus based on the amount of her commission. At a meeting in September, defendant announced that the bonuses would not be payable until March of the following year. Plaintiff asked if this meant the agent had to be “here” in March, and defendant confirmed that it did. In January 1992, Plaintiff took an offer to work with another real estate company. Defendant did not pay bonus, and plaintiff sued for breach of contract.

Issue: Did defendant have the right to revoke bonus agreement because it was a unilateral contract?

Holding: No, at the time that defendant altered the agreement, plaintiff had already substantially performed.

  • Enforcement of subcontractor bids under promissory estoppel

James Baird Co. v. Gimbel Bros., Inc. (1933)

Facts: Defendant knew that there was going to be a bidding for a general contract for a building. Defendant estimated their costs on a sub-job and submitted this price to several general contractors, noting that they would provide these prices if the general contractor’s bid was accepted and then the contractor promptly accepted the defendant’s offer. Defendant then realized that they had made a major mistake in the pricing and notified all the contractors—after plaintiff had already submitted a bid utilizing their price. Plaintiff’s bid was then accepted, but plaintiff did not alter their numbers based on defendant’s mistake. Sued for breach.

Issue: Was there a contract?

Holding: No bilateral contract as there was no acceptance prior to revocation. No unilateral contract—use of the bid does not constitute performance.

Notes: Rejects promissory estoppel because this isn’t a gratuitous promise; it’s not a charity—it’s a business. They had the ability to exchange, and it is not fair to bind one party and not the other. Either both should be bound, or neither should be bound.

Drennan v. Star Paving Co. (1958)

Facts: Defendant submitted a subcontractor bid to plaintiff, which plaintiff then used in his submission of a general contractor bid for a job. After receiving the contract for the job, plaintiff stopped by defendant’s office, where defendant stated that he had made a mistake in calculating the bid and he would have to charge twice as much. He refused to do it for the original bid price, so plaintiff spent several months trying to find the best bid for the sub-job, eventually hiring a firm for several thousand dollars over the amount he had anticipated in his original bid.

Issue: Is this a valid claim under promissory estoppel?

Holding: Yes, not only should defendant have expected plaintiff to rely on his promise, he desired plaintiff to do so. Plaintiff then relied on the promise to his detriment.

Limits to this application of promissory estoppel:

    • Not valid if the contractor knew or should’ve known the bid was a mistake

    • Not valid if the bid specifically notes that it’s revocable

    • This ruling increases the bargaining leverage of the general contractor, which was already greater to begin with. Hand’s rule, on other hand, provides leverage to the subcontractor and promotes mutuality—both need to be bound to each other. Traynor’s rule focuses on the interests of the ultimate client. It keeps costs down.

UCC Firm Offer provision: §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 held 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.

    • “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge of skill peculiar to the practices or goods involved in the transaction or to whom such knowledge of skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

    • “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities, and things in action.

  • Notes:

    • Not all contracts for goods are going to be “goods” under the U.C.C.

    • Things that aren’t goods: real property, services, patents

CISG Article 16

  1. Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has displaced an acceptance.

  2. However, an offer cannot be revoked:

    • If it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or

    • If it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

  • Princess Cruises, Inc. v. General Electric Co. (1998)

Issue: What form governs?

Holding: The contract is primarily for services, and the UCC therefore does not apply in this case. For this reason, the Final Price Quotation is a counteroffer, rejecting all previous offers, and is applied. [Common Law]. Judgment as a matter of law for defendant.

“Predominance test” is used to determine whether transaction is governed by the UCC or common law:

    • Nature of the business

    • Intrinsic worth of goods v. services

    • The language of the contract

The common law favors the seller due to mirror image/last-shot rule.

    • Last shot rule – the last form that is sent is the last counteroffer and governs the transaction

  • About the battle of the forms:

  • Advantages of standard forms:

    • Businesses develop standard forms to save time and money, impose discipline on the sales force, ensure uniformity within and outside the company, and facilitate comparisons.

  • Drawbacks:

    • No bargaining for the other party

    • Nobody reads them

  • U.C.C. §2-207 is attempting to deal with 2 questions:

    • When a contract is formed

    • If so, what the terms are

    • Annihilates mirror image and last-shot rules

  • Brown Machine, Inc. v. Hercules, Inc. (pg. 231)

  • Posture: Missouri Court of Appeals, 1989. Jury verdict for Brown Machine at trial court.

Dale R. Horning Co. v. Falconer Glass Industries, Inc. (1990)

      • uses “surprise or hardship” to test materiality of additional terms (would the term’s “incorporation into the contrac without express awareness by the other party result in surprise or hardship?”)

        • some confusion as to whether this is really a disjunctive test, since ‘surprise’ alone would hardly be enough, but this is how it’s used here.

      • Attempts to limit consequential damages are generally material alterations

  • Levels of transaction evidence:

    • Trade usage evidence – what are the trade/industry practices?

      • Who should bear the risk when deviating from this standard?

    • Course of dealing evidence – evidence about past transactions between these parties

    • Course of performance – how did these parties act under this contract in the past?

    • Language of the contract

  • Solutions to this problem:

    • Industry standard forms decided on by trade groups (resistant to new entrants)

    • Master agreement between two companies (exclusionary effect on new agreements

  • Knock-out rule

    • §2-207(3) – when both parties make assent expressly conditional on their conditions, both forms are thrown out.

    • There is a contract due to performance, and the terms are drawn from (a) terms both parties agreed on in their forms and (b) gap-fillers from the UCC and trade practice.

New §§2-206 and 2-207

    • No “express conditional acceptance” allowed to add additional terms; now all additional terms would require express assent

    • No way to ensure that your policy terms are always included in the transaction

  • CISG; Relevant articles 18 & 19

    • Article 19 takes the common law view. Acceptance with changed or additional terms is a counter-offer, UNLESS the new terms o not materially alter the contract.

    • A counter-offer may be accepted by behavior but not by silence or non-action.

  • Shrink-wrap Contracting

  • Hill v. Gateway 2000, Inc. (pg. 255)

  • Posture: Seventh Circuit, 1997. Trial judge refused to enforce arbitration agreement, D appealed.

  • Facts: P bought a computer from D, that was shipped to their home. Included in the box was a list of terms of sale that stated that if the computer was not returned with in 30 days the terms were accepted. One of the terms was an arbitration agreement. A dispute arose about the computer, and P claims the terms of sale are not valid and they are not subject to the arbitration agreement.

  • Issue: Are the terms included in a shipped product part of the contract for the sale of said product?

  • Holding: Yes. “Practical considerations support allowing vendors to enclose the full legal terms with their products.” A contract need not be read to be effective.

  • Notes:

    • P claims that the terms do not govern as the contract was completed at the time of purchase.

      • No, because part of the sale was a warranty, and so it could not be completed at this point.

    • P differentiates from ProCD based on software, merchant, and executory contract classifications.

      • Court rejects all of the above as invalid reasons.

    • Court says §2-207 does not apply, instead applies §2-204 and says that the offeror controls the manner of acceptance

  • Klocek v. Gateway, Inc. (pg. 259)

  • Posture: U.S. District Court (D. Kansas), 2000.

  • Facts: P brings suit against D based on a purchase of a computer. A dispute arose over technical support. D moves to dismiss, as there is an arbitration agreement in the terms, which are provided in the same way as in Hill but with 5 days to return the computer instead of 30.

  • Issue: Are the terms included in the box valid parts of the contract?

  • Holding: No, Hill was decided poorly. In Hill and ProCD, the seventh circuit noted that U.C.C. § 2-207 did not apply, but offered no support for that conclusion. This court determines that they do apply. Seventh Circuit also erred in determining that the vendor controlled the offer. This court determines that the offer was made by the buyer/P and accepted with shipment of the computer. This means that the terms included in the box are considered ‘proposals for additions to the contract’ under the U.C.C., as P is not a merchant. These additional terms can only be accepted by express consent. Because express consent cannot be based on silence or non-action, keeping the computer cannot be construed as express consent of the additional terms.

  • Notes:

    • Says §2-207 does apply with only one form; looks to comment 1, which states a contract can be formed with verbal communications and followed by one or two forms.

    • The purchase order is the offer (Brown Machine)

    • Because Gateway proceeded with the transaction, its terms were not an express conditional acceptance.

    • Keeping the computer for more than 5 days is not express assent.

  • Why would you put an agreement to agree clause in a contract?

    • the longer you look ahead, the greater the uncertainty. Nobody knows which way the market is going to move.

    • You know and trust the other party and you want to preserve the ability to remain in a relationship with them.

  • Open price terms

The common law is not amenable to open price terms

      • Walker v. Keith (1964)—not under UCC as real estate

        • No contract to be enforced as it leaves out an essential and material term—the amount of rent. Because the agreement did not stipulate a rent or a definite method of determining the rent, the court cannot step in and provide a term that the parties themselves could not agree to. It would be paternalistic and inequitable to do so, and would open the door to repeat opportunities.

    • U.C.C. §2-305 provides that an open price term will not prevent enforcement of a contract for sale, if the parties intended to be bound by their agreement. However, there is an exception in §2-305(4) that states that the contract is not enforceable if the parties did not intend to be bound unless the price was fixed by agreement.

      • Williston believes that an agreement to agree creates a legal nothing, because at any point either party is free to not agree.

      • Restatement § 33(3) is also more amenable to open price terms. However, if it’s vague enough it may indicate an intent to not be bound.

      • UCC §2-204 test for enforceable contract: (1) contracts intended to make a contract (2) there’s a reasonable method of providing relief

    • Why do some courts see commercial lease agreements to agree as different?

      • The agreement was there for the benefit of the lessee.

      • The parties didn’t put it there for nothing.

      • The lessee shouldn’t be deprived of their benefits.

  • Letters of intent

    • Reasons for letter of intent:

      • Set ground rules

      • Set some basic terms

      • Provide company with assurance that you intend to go forward with negotiations

      • You still have an out if you discover problems with the transaction

    • may be enforceable as a contract (Quake Construction, Inc. v. American Airlines, Inc., 1990)

    • factors relevant to determining whether the parties intended to be bound by the letter:

(1) whether the type of agreement involved is usually one put in writing;

(2) how many details are contained in the letter;

(3) the amount of money involved;

(4) whether the agreement requires a formal contract; and

(5) whether the negotiations indicated that a formal document was contemplated at the completion of negotiations.

    • UCC §2-204(3): “Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.”

    • Restatement (Second) § 27: “Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances many show that the agreements are preliminary negotiations.”

    • After Pennzoil v. Texaco, letters of intent are now incredibly long and detailed, although they remain short and to the point in other countries. The utility of the letter of intent has been reduced by this decision due to the increased risk that a court would find a contract from such a letter. Quake is a decision made in the wake of Pennzoil and reflects the changed common law attitude towards letters of intent.

  • 3 theories of interpretation:

    • Subjective – whatever the parties actually meant (famous Peerless case is an example).

    • Objective – has nothing to do with what the parties meant; instead it relies on a reasonable interpretation of language and actions, regardless of the parties’ intention. Policy goals: fairness and efficiency. Problems: it does not allow two parties to agree on a term that is not the reasonable interpretation and can enforce a term that neither party meant.

    • Modified objective – Restatement §§ 201-204. The reasonable meaning governs, but the intentions of the parties can overrule the reasonable interpretation if they agree on what they meant. When they disagree, if Party A knows Party B’s meaning, Party B’s meaning will govern. If both are unaware of the other’s meaning, the court will determine the meaning.

  • Maxims of interpretation (Patterson)

    1. Noscitur a sociis – “words of a feather”/context

    2. Ejusdem generis – general term joined w/ specific term deemed to include only things that are like the specific one

    3. Expressio unius exclusio alterius – if only specific terms are listed, other similar items are excluded

    4. Ut magis valeat quam pereat – an interpretation that makes the contract valid is preferred

    5. Omnia praesumuntur contra proferntem – construe against the drafter

    6. Interpret contract as a whole

    7. Purpose of the parties

    8. Specfic provision is exception to a general one

    9. Handwritten or tpe provisions control printed provisions

    10. Public interest preferred

  • If there is no mutual understanding of a contract:

    • Did either party know or should’ve known the other party’s meaning? If so, the dispute should be resolved in favor of the innocent party. (Joyner v. Adams, 1987)

    • Finding against the drafter when there is ambiguity may be appropriate in contracts of adhesion or where one party has no chance to amend the contract. (Although the Restatement rejects this view).

  • Frigaliment Importing Co. v. B.N.S. International Sales Corp (pg. 360)

  • Posture: U.S. District Court, Southern District of NY, 1960.

  • Issue: What definition of chicken should be used?

  • Holding: Defendant’s. Plaintiff had the burden of showing that the word chicken was used in the narrower rather than the broader sense, and it has not done so.

  • Notes:

    • In §1-205, UCC describes trade usage much more liberally than the common law as stated above. Puts the burden back on the new entrant to the trade industry.

  • Adhesion Contracts

  • C & J Fertilizer, Inc. v. Allied Mutual Insurance Co. (1975) – “outside door” robbery case

  • When does a term frustrate the reasonable expectations for the insured party?

    • Bizarre or oppressive;

    • Eviscerates the nonstandard terms explicitly agreed to; OR

    • Eliminates the dominant purpose of the contract.

  • When does the reasonable expectations doctrine apply?

    • Insurance contracts;

    • That are true contracts of adhesions; AND

    • Where the insured did not receive full and adequate notice AND it frustrates their reasonable expectations.

  • Two bases for terms to be implied:

    • Implied in fact – represents, in the court’s view, what the parties agreed to

    • Implied by law – imposed regardless of the parties’ intentions and may actually contradict the parties’ intentions or modify express terms

  • The duty of good faith – is an implied term in every contract under the UCC & in the common law (Restatement)

  • Wood v. Lucy, Lady Duff-Gordon (1917)

Issue: Need a contract explicitly say what each party will do in order to be enforceable?

Holding: No, the P's duties are easily understood from the written agreement and from the nature of his business, which is to handle such endorsements. There is no reason to assume that the contract was an unfair contract, or one that placed the D at the P's mercy. Therefore, it makes sense to enforce it.

  • Is there instances where someone would enter into a contract knowing that the other party is not obligated to do anything?

    • For example, a young filmmaker who signs an exclusive contract with a movie studio, knowing that they have no obligation to even look at their work

    • In lady duff-gordon, both parties are economically powerful and it would be very unlikely that she intended to be at his mercy, unlike the example, supra, with the filmmaker

  • Leibel v. Raynor Manufacturing Co. (pg. 435)

Posture: Kentucky Court of Appeals, 1978. Trial court dismissed one count of P’s complaint, from which P appeals.

Issue: Was reasonable notice required and, if so, what does that mean?
Holding: Yes, and it means a sufficient amount of time as determined by a jury. The trial court erred in determining that the relationship was not governed by the UCC. The relationship between the parties was not, as in Buttorff, for personal services but for goods, and is therefore covered by Kentucky’s adoption of the UCC. The UCC requires reasonable notice of termination in a contract for an indefinite period of time, and this reasonable notice must provide P time to recoup some losses.
Notes: UCC §2-309—termination section

  • Good Faith

  • Merchant’s good faith is honesty in fact and adherence to

    • You cannot contract out of the honesty-in-fact requirement

  • Locke v. Warner Bros., Inc. (pg. 444)

Posture: California District Court of Appeal, 1997. Trial court entered summary judgment on all four counts for defendant.
Facts: P sued Clint Eastwood at the end of the actors’ long-term relationship. As part of the settlement of that suit, Eastwood facilitated a deal between P and D, wherein D would either allow P to direct movies or pay her a fee. D paid the fee, but did not produce any of P’s scripts or give her any other work to direct. P found out later that D had a secret arrangement with Eastwood whereby he would payout any loss that D suffered. P alleges that (1) violated the implied good faith term by not considering any of her work seriously and (2) defrauded P when bargaining because they never intended to actually work with her.
Issue: Is there a genuine issue of fact on violation of good faith principles?
Holding: Yes, P presented enough evidence that a reasonable trier of fact could find that D did not use good faith when deciding whether to produce her work and also that they fraudulently entered into the contract because they never intended to work with her to begin with.

Requirements Contract, UCC §2306

  • Empire Gas Corp. v. American Bakeries Co. (pg. 455)

Posture: Seventh Circuit, 1988. Jury award for P.
Facts: D entered into a contract with P whereby P would provide the amount of converters necessary for P to convert their fleet of vehicles to propane. The contract called “for approximately three thousand [converters]…more less depending upon requirements of buyer.” D also agreed to purchase propane from P. As it turned out, D requested zero converters, as they decided immediately after signing the contract to not convert their fleet. They were unable to give any reason for the change. The trial judge read UCC §2-306 to the jury without any interpretation, which is the issue on appeal.
Issue: What are the terms of the UCC in regard to this situation?
Holding: The UCC’s term about “unreasonably disproportionate to any stated estimate” was made to apply only to over-ordering of a product. Because the judge did not interpret this for the jury, a new trial is required unless a reasonable fact find could not disagree about whether D used good faith. In a requirements contract, D may be excused in purchasing a zero quantity if there is a good faith reason, which is somewhat less than that required for impracticability but more than a change of mind. Since D has not explained their decision with any reasonable justification, no fact finder could find that they did not violate the implied good faith terms.

  • Notes: You cannot curtail your requirements under a requirements contract because it’s now a losing contract.

  • UCC §2-313 – Express warranties

    • The seller does not have to have the intent to create an express warranty

    • Usually a written or oral statement by the seller or manufacturer of a consumer product concerning the quality or nature of the goods

    • Mere “puffery” of sales talk will not serve as a basis of binding commitment

    • The majority view is that no particular reliance on the seller’s statements need be shown; they are regarded as part of the description and hence part of the bargain.

  • UCC §2-314 – Implied warranty of merchantability

    • Seller must be a merchant under §2-104

    • Implied warranty that the goods are of good quality and are fit for the ordinary purposes for which they are used

    • Most frequently applied tests: whether the goods would “pass without objection in the trade” or “are fit for the ordinary purposes for which such goods are used.”

  • UCC §2-315 – Implied warranty of fitness for a particular purpose

    • Created only when the buyer relies on the seller’s skill or judgment to select suitable goods and the seller has reason to now of this reliance

    • Does not require any showing of defectiveness in the goods

    • Seller need not be a merchant

    • Most, but not all, courts hold that the buyer’s particular purpose must be one other than the ordinary use of the goods

  • UCC §2-316 – Disclaimers of warranty

    • The express warranty is inoperative if it cannot be construed to consistent with the express warranty. (i.e. you cannot expressly guarantee something and then disclaim that guarantee in your terms and conditions.)

    • Subject to the parol evidence rule §2-316(1)

    • To disclaim the implied merchantability, the language must mention merchantability and (in the case of a writing) be conspicuous (equivalent language has frequently been held as inadequate). §2-316(2)

    • To disclaim the implied warranty of fitness for a particular purpose, the code says it may say that “there are no warranties which extend beyond the description on the face hereof.” §2-316(2)

    • May also disclaim implied warranties with an “as is” disclaimer. §2-316(3) ( does not include a conspicuousness requirement, but most courts have held that one should be implied)

  • UCC §2-312 – Implied warranty of title

    • Provides that the seller makes a warranty of good title, a warranty of freedom from encumbrances, and a warranty against infringement

    • Also, a merchant seller will be liable if goods sold to a customer are subject to a rightful claim that the goods infringed the patent or trademark of a third party. §2-312(3)

  • UCC §2-607(3)(a)

    • Provides that when the buyer has accepted the goods the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy

    • Holds even if seller is aware of some general problem with the product line

  • UCC §2-318

    • Governs horizontal privity

    • Jurisdictions have adopted one of 3 variations in section

  • Bayliner Marine Corp. v. Crow (pg. 485)

Posture: Supreme Court of Virginia, 1999. Jury award for P, D appeals.
Facts: P was invited by the local dealer of D’s boats to test drive a fishing boat. P inquired as to the maximum speed of the boat, and the dealer provided P with some of D’s literature that stated that the boat had a max speed of 30 mph if it had a certain type of motor (which this one did not) and was carrying around 600 lbs of equipment. P was also given a brochure that stated that the boat “delivers the kind of performance you need to get to the prime offshore fishing grounds.” P purchased the boat, along with 2,000 lbs of additional equipment. P found that the maximum speed of the boat was only 13 mph, and immediately notified the dealer. For the next 12 to 14 months, the dealer worked with P, making adjustments and repairs, and eventually getting the boat up 17 mph. A rep from D’s company wrote P to state that the representations made at the time of purchase were incorrect and the max speed of the boat was 23 to 25 mph. P sued, alleging breach of express warranty, implied warranty, and implied warranty of fitness for a particular purpose.
Issue: Is there sufficient evidence to uphold the jury verdict?
Holding: No. There was no express warranty as the literature did not refer to the specific boat P was purchasing. The statement in the brochure was merely an opinion of the seller and cannot create an express warranty.
No breach of implied warranty as P did not present evidence that the boat would not “pass without objection in the trade” nor “are fit for the ordinary purposes for which such goods are used.” The subjective view of the P that the boat was not adequate for his needs is not sufficient to prove that it would not pass w/o objection in the trade. His own uses of the boat for 850 engine hours shows that the boat was fit for use as an offshore fishing boat, since he used it for this purpose.
As to implied warranty for fitness for a particular purpose—there is not adequate evidence that the dealer was aware that the buyer required a boat with a max speed of 30 mph and would not purchase the boat otherwise.

  • Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co. (pg. 526)

Posture: Supreme Court of Alaska, 1978.
Facts: P entered into a contract with D to ship several thousand tons of pipes to be used in building a pipeline from Houston to Alaska. P immediately ran into many problems:

      • D misrepresented the amount and type of materials to be loaded in Houston, resulting in a 27-day delay in loading

      • Because of extra materials, the ship was slow in its route

      • Ship was caught in the tail of a hurricane for 9-days

      • D refused to promptly sign a contract addendum authorizing the use of an additional barge, causing the barge to be held up at the Panama canal for days.

When the boat finally reached one of its stops in California, D insisted on the boat being unloaded at an unagreed-upon port before P could inspect the goods, hence voiding their insurance. D then cancelled the contract. P then submitted an invoice, and D noted that it might take months to approve any payment. P notified D that they were facing bankruptcy due to the debts the undertook to perform the contract. They then had their attorney inform D of their precarious situation and negotiate on their behalf. Eventually P signed an agreement to accept a fraction of the invoice amount in exchange for their giving up their right to sue. They then sued for breach of contract, alleging that the settlement agreement was signed under duress and was invalid.
Issue: Was there valid evidence of duress?
Holding: Yes, Totem presented evidence of duress. Duress exists when (1) one party involuntarily accepted the terms of another; (2) circumstances permitted no other alternative; and (3) such circumstances were the result of coercive acts of the other party. Totem has stated a genuine issue of fact.

  • Restatement §174 – Physical duress

  • Restatement §175 – Economic duress

    • Void if meets 3 elements:

      • A wrongful or improper threat

      • A lack of a reasonable alternative

      • And actual inducement of the contract by the threat

  • Odorizzi v. Bloomfield School District (pg. 535)

Posture: California District Court of Appeals, 1966.
Facts: School teacher was arrested and charged with homosexual activity (which was apparently a crime). The principal of the school and superintendent of the District came to P’s apartment shortly after his release, and persuaded him to sign a resignation letter. They said they were trying to help him and had his best interests at hear, that he had no time to consul an attorney, and that if he did not resign immediately they would suspend and dismiss him and publicize the charge, but that if he resigned the proceedings would not be publicized. P had just been released from custody, was extremely upset from the entire arrest process, and had not slept in 40 hours. P claims fraud, mistake, or undue influence in voiding his resignation.
Issue: Did P make out a case for undue influence?
Holding: Yes. In essence, undue influence involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object.
Notes: General characteristics of overpersuasion: (1) discussion of the transaction at an unusual or inappropriate time; (2) consummation of the transaction in an unusual place; (3) insistent demand that the business be finished at once; (4) extreme emphasis on untoward consequences of delay; (5) the use of multiple persuaders by the dominant side against a single servient party; (6) absence of third-party advisers to the servient party; (7) statements that there is no time to consult financial advisers or attorneys.

  • Restatement §177(1) – Undue influence

    • Defines as involving “unfair persuasion of a party who is under the domination of the person exercising the persuasion or by the virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.”

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