Jayson J. ChristopherSummer 2010 / CWSL – Contracts II – Prof. Schwartz

Table of ContentsContracts II – Outline

I. Assent..................................................................................................................................................3

A. Mutual Assent.....................................................................................................................................................3II. Offer and Acceptance..........................................................................................................................3

A. What Constitutes an Offer:..................................................................................................................................3B. Terminating /Closing Offers................................................................................................................................5C. What Constitutes an Acceptance:.......................................................................................................................7D. Modes of Acceptance in General: RS2 § 60.........................................................................................................7E. INVALID MODE OF ACCEPTANCE.........................................................................................................................8F. Transacting at a distance : Mechanics.................................................................................................................9

III. Implied Contracts........................................................................................................................9A. Silence as Acceptance = Implied in Fact..............................................................................................................9B. Implied in Fact: (silence as acceptance doctrine - RS 69.1.a analysis is performed but without an offer)......10C. Implied in Law - Quasi Contract: (Principle of Unjust Enrichment)...................................................................11

IV. Formation..................................................................................................................................11A. Preliminary Negotiations...................................................................................................................................11B. Letters of intent (written) or Further Memorializations to Follow (oral).........................................................12C. Agreements to Agree.........................................................................................................................................12D. Indefiniteness....................................................................................................................................................12E. Gap Filling due to Indefiniteness.......................................................................................................................13

V. Statute of Frauds...............................................................................................................................13B. Categories of Contracts that are within the Statute of Frauds.........................................................................14D. APPLICATION TO Part performance..................................................................................................................14G. Application to UCC – 2-201 Statute of Frauds..................................................................................................15H. Exceptions Summary ("taken out" of the statute of frauds)............................................................................15

VI. Form Contracts – Battle of the Forms.......................................................................................16D. Definite and seasonable....................................................................................................................................17E. UCC 2-207 : Battle of the Forms Rule (modern)................................................................................................17F. 2-207.3 "Knockout Rule":.................................................................................................................................18

VII. Form Contracts – Unconscionability.........................................................................................19A. Unconscionability Regarding non performance terms in Adhesion Contract Setting:.....................................19

VIII. UCC Warranties.........................................................................................................................19B. Express Warranties:...........................................................................................................................................20C. Implied Warranties :..........................................................................................................................................20D. Warranty of Fitness for a particular purpose....................................................................................................20E. Exceptions..........................................................................................................................................................20

IX. Interpreting Written Contracts – Plain Meaning & Context Rules..........................................21A. Parol Evidence vs. Plain Meaning Rule..............................................................................................................21B. Plain Meaning rule.............................................................................................................................................21C. Plain Meaning Rule Analysis:............................................................................................................................22D. Context Rule(only applies to a written contract)..............................................................................................22E. Context Rule Analysis:.......................................................................................................................................22

X. Interpreting Written Contracts – Parol Evidence Rule.....................................................................231

A. Parol Evidence Rule (only applies to a written contract)..................................................................................23B. Application of Parol Evidence rule to Fully Integrated Contracts.....................................................................23C. Application of Parol Evidence rule to Partially Integrated Contracts...............................................................24D. Methods to determine integration...................................................................................................................24E. UCC 2-202 – states that parol evidence is admissible unless the other party can prove that the additional terms would certainly have been included in the written contract or that they contradict the agreement..........24F. Consistency Tests (split)....................................................................................................................................24G. Merger Clauses..................................................................................................................................................25H. Parol Evidence Analysis.....................................................................................................................................25I. Fraud Exception of the Parol Evidence Rule.....................................................................................................26J. No Oral modification Clauses (N.O.M. Clauses) - split btwn. Common law and UCC........................................26K. Merger Clauses - (split)......................................................................................................................................27

XI. Interpretation: Mistakes of Misunderstanding........................................................................27A. Interpretation:...................................................................................................................................................272. Common Terms :............................................................................................................................................273. Ambiguous Terms : When both parties apply different meanings to the same term.....................................27B. Purposive Language : Unforeseen situations.....................................................................................................28C. Trade Usage:......................................................................................................................................................29

XII. Mistakes....................................................................................................................................30A. In General:.........................................................................................................................................................30B. Mutual Mistake.................................................................................................................................................30C. Unilateral Mistake [mechanical mistakes]........................................................................................................32D. Transcription mistake [reformation].................................................................................................................33

XIII. Failure to Disclose, Concealment, Misrepresentation..............................................................33A. Non Disclosure...................................................................................................................................................33B. Full Disclosure Policy Arguments......................................................................................................................34C. Active Concealment –........................................................................................................................................34D. Misrepresentation –RS2 § 159 " a statement not in accord with the facts.......................................................34

XIV. Unexpected Circumstances.......................................................................................................34A. In General:.........................................................................................................................................................34B. Impossibility......................................................................................................................................................35C. Impractibility.....................................................................................................................................................35

XV. Performance Issues...................................................................................................................35A. Good Faith.........................................................................................................................................................35B. Substantial Performance...................................................................................................................................36

I. Assent A. Mutual Assent

1. Generally: i. Assent if found where the parties have an expectation that their promises would form a binding contract.

ii. Offeree must give assent to the offer’s terms. (classical) or Must objectively intend to form a contract (Modern).

iii. Lucy v. Zehmer - Court looks to outward conduct, unless subjective intent is disclosed and known to the other party. Subjective Mental assent is not necessary to K formation. Facts: Zehemer was trying to egg on Lucy and

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writes a contract on a napkin when he is drunk. Courts uphold the contract for the sale of land since the transaction took over 40 min. and lawyers concede that they weren’t too drunk.

iv. Mayol v. Weiner Companies - Courts must consider the K as a whole and cannot isolate an ambiguous term to determine the meaning of assent. Court must also consider the preponderance of the evidence regarding the manifestation of assent. Buyer tries to buy land but discovers that tenant has a purchase option that preempts buyers rights. Buyer backs out. Court award buyer deposit money bc/ a reasonable person assumes that they are buying clear title without options on it.

II. Offer and AcceptanceA. What Constitutes an Offer:

1. Definition: Offer is a complete document that only requires the other party's acceptance to become valid.

2. General: Many issues arise when trying to distinguish between and offer and an invitation for an offer.a. Uniform deceptive Trade practices act - You cannot advertise stuff that you do not actually have (remedy is

specific performance)b. FTC - Food regulations - If you advertise goods in the stores locality - then you must carry those goodsc. RS2 § 28 - Auctions: Auctioneers merely invites offers and are assumed to reserve right to sell. Policy protects

auctioneers from collusion (buyers conspire to bid low prices).i. When the hammer falls acceptance is made.

ii. If an bid is submitted while the hammer is falling, the auctioneer has the right to reopen the bidding.d. Hotel Reservations - If you make a reservation at a hotel, they have to give it to you. But a reservation at a

restaurant, or hair cut, then it is not binding.i. Court says intent is examined in the context

3. RS2 § 24 - What Constitutes an Offer.a. 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.i. Elements:

a. Material termsi. Subject Matter / Quality / Scope

ii. Identity of offereeiii. Quantity (only quantity cannot be imposed by the court and invalidates a

contract).iv. Price (note UCC can fill in prices based on market conditions at the time).

b. Open, not closedb. Firm Offer – is a offer that explicitly states that it will keep the offer open.c. UCC sec 2-205: Firm Offer - If offer by a merchant is written and signed (UCC allows letterhead or company

symbol as substitute), it is not revocable despite lack of consideration. Any firm offer is only irrevocable for a maximum of 3 months regardless of what it says. Afterwards it is revocable.

ii. NOTE: A non merchant cannot make a firm offer without consideration (bu can if consideration is given).

iii. UCC sec 2-104 – Merchant: is an expert/knowledgeable/sophisticated in the area of good dealt with

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d. RS2 § 29 – Single and Multiple Parties – offer can be given to a person, group, or class of people acting separately or together. All have the power of acceptance.

1. RS2 § 31 – Single and Multiple contracts – a single offer can specify a single or multiple contracts.

4. Unilateral offersa. RS2 § 30.1 - Offer can specify form of acceptance by performance.b. Rewards – Once performed the offer is closed to others.

1. To accept person has to know of the existence of the reward.

c. Cases – Carlill v. Carbolic Smoke Ball Co. - One who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification of acceptance if his purpose is to sell as much product as possible… performance is sufficient acceptance without notification.

5. RS2 § 26 – Unintended Offers and Jokes. (A sub-rule to RS 2 §24)a. A manifestation of the willingness to enter in to 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.

b. If a party has reason to know that the other party is joking then it is not an offer.c. Case: Lucy v. Zhemer – As a joke seller writes up a contract to sell land. Other party performs and sues for

specific performance.

6. Uncertain offersd. RS2 § 33 – Certainty of the Offer’s terms - An offer is not valid and is a preliminary negotiation if the terms of

the offer are not complete/certain (to allow something to be accepted).e. Where the subject matter or quantity is not determinable, then the K is uncertain and cannot be filled in.f. Where an agreement has a clear method for determining price, then the contract will not fail for

indefiniteness.g. RS2 § 33.2 if they are reasonably certain if they provide a basis fro determine the existence of a breach and

giving an appropriate remedy then they are offers. RS2§ 33.2 – Material terms must be certain.h. RS2 § 34 - Where a contract empowers a person to make a selection, then the terms are certain if there is a

definite choice of terms. Eg. The catering contract gave option of chicken or steak to be used at a set price.i. Advertisements - are not offers unless give very specific terms that include a specified quantity

and words such as “First come, First served.”ii. Lefkowitz v. Great Minneapolis Surplus Store. - An advertisement is an offer if it is clear, definite,

explicit, and leaves nothing open for negotiation; only acceptance of which will complete the contract.

iii. Fisher v. Bell / Ford Motor Credit Co v. Russell- Display item/ advertisement in a window with a tag/specific price is merely an invitation to bargain, it is not an offer. FACT: Display of a switch blade in a storefront window with $4 Shillings tag

i. UCC 2-204 – Preliminary Negotiations vs Contract – Price , quantity and terms = Contract. A price quotation is merely an invitation to an offer = Preliminary negotiations.. But if the parties reached an agreement to be bound, then an offer is found. Thus, a price quotation in response to a solicitation may constitute an acceptance where under UCC 2-311 – a contract does not fail for indefinetness.

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7. RS2 § 45 & 87.2 – Option Contractsa. RS2 § 45??If firm offer is given nominal consideration – then an option contract is created and offer cannot be

revoked under RS2 § 25.i. RS2 § 87.2 - where - reasonable reliance forms a unilateral contract to an extent that it enables

the injured party to collect reliance damages (if partial performance had begun in a unilateral offer, then expectation damages can be awarded).

ii. Ragosta v. Wilder - The court held that Ragosta merely engaged in preparation for performance and did not begin the performance actually invited; therefore an options K was not created. FACTS: Wilder counter offered for the sale of his shop if money was procured within a specific timeline. Ragosta got financing but Wilder revoked.

b. RS 37 - Under options contracts - a counter offer does not extinguish the option contract unless both parties agree to a modification that extinguishes the option.

8. RS2 § 87.2 - Contractor’s bidsa. RS2 § 87.2 - A bid is an irrevocable offer where - reasonable reliance forms a contract to an extent that it

enables the injured party to collect reliance damages (if partial performance had begun then expectation damages can be awarded).

i. Drennan v. Star paving- An advertisement is an offer if it is clear, definite, explicit, and leaves nothing open for negotiation; only acceptance of which will complete the contract. FACTS: Drennan used Star Paving’s bid of $7,100.00 to prepare his final bid and was awarded the contract. The next day Star Paving informed Drennan that it had underestimated the cost of the project and refused to do the work

B. Terminating /Closing Offers1. RS2 § 36 Generally: Termination of the power of acceptance occurs in 4 ways:

a. Lapse of offer RS 2 41 - Lapse of Time b. Rejection of offer / Counter offerc. Express Revocation of the offer prior to acceptance d. RS2 § 36.1.d - Death or incapacity of Offeror or Offeree

2. RS2§ 35 - Impossibility of performance – subject or person of the contract is destroyedi. Or Interveneing illegality of performance

3. Revocation:a. RS2 § 42 - By Direct Communication of Offeror – terminated when Offeree receives the offeror manifestation

of an intention not to enter in to the proposed contract.i. Must have a manifestation not to enter in to the contract

ii. Must be received by the offeree.b. RS2 § 43 – Indirect Communication - power of acceptance is terminated by his rejection of the offer, when:

i. Offeror takes action inconsistent with offer; and ii. Offeree acquires knowledge of this.

iii. NOTE: RS2§ 46 – Advertisements - Method of Revocation can be same as Offer , but has to be received.

4. RS2 § 41 - Lapse of Time

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c. Offeror may prescribe a time limit. Acceptance then has to be made within the prescribed time.i. NOTE: If trigger day is not explicitly specified, then the time period begins when offer is received.

i. HYPO. Offer good for 10 days from date on this letter (June 7). ii. RESULT: Here the time is explicit, therefore on June 17 offer is terminated no matter what. If

the K just said “open for 10 days” then the count begins on the day after received (triggered).d. Verbal negotiations - In Direct face to face or telephone conversations - acceptance must occur within the

course of the conversation unless the conversation discloses otherwise. e. Written negotiations - offer last beyond the course of the conversations and is determined by a reasonable

time.

5. REJECTIONa. General Rule is that Rejection takes the offer off of the table even if the offer would have otherwise been left

open. b. RS2 § 38 - Rejection - power of acceptance is terminated by his rejection of the offer, unless the offeror has

manifested a contrary intention.ii. How do we know when we have a rejection?

c. Objective Intentions (reasonable person) Test - We the offeror is justified in inferring from the word or conduct of the offeree that the offeree intends no to accept the offer or will take it under further advisement.

6. Counter Offera. General rule - It is a counter offer if it is a substituted bargain. A counter offer proposes new terms and is

distinguished from an inquiry because an inquiry does not propose new terms.b. RS 2 § 39 - Counteroffer -

iii. An offer that relates to the original offer, but proposes a substitute bargain differing from that proposed by the original offer.

iv. Must be capable of acceptancev. terminates a offer.

c. An offeror can stipulate in the offer that counter offers will not close the offer.d. Modern Rule - When it is unclear whether the offeror intended to leave the offer on the table, then the law will

assume that the offer is off the table unless there is reasonable evidence of Intent of the offeror to have the negotiations remain open.

7. Conditional acceptance as a Counteroffera. General rule - if the objective intent is to substitute the offer with another or put a condition on the

acceptance, then it is a counteroffer. But is the intent is determined that the person will accept the offer as is but is requesting as a sidebar something more, it is an acceptance with an accompanying request.

b. RS2 § 59 a conditional acceptance or a proposed acceptance that changes the terms is a counter offer.a. But if the new terms are implicit (eg. Marketable title for land) to the offer, then it is not a counter

offer.

C. What Constitutes an Acceptance:1. Definition: RS2 § 50 & RS2 § 562. General:

a. Classical K law - Mirror Image Rule ( Note: “Last Shot Rule “ conforms to this)

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b. Modern Law - look at Intent RPT - objective and outward conduct.i. RI DOT Rule: Absolving another party of a material obligation that benefits the other party

precludes this from constituting the change as a counter offer.ii. Immaterial conditions, changes to the offer upon acceptance is still acceptance (Material changes

are counter offers).c. Elements:

iii. Has power of acceptance (offer is directed to the offere)iv. Notice/ communication of acceptance.v. Present Manifestation of assent to the offer. (not Future)

vi. Accepted in the manner specified, or reasonable if unspecified.vii. Offer is open.

3. UCC MODES of ACCEPTANCE UCC 2-606a. Failure to reject in a reasonable time; or b. Act inconsistently with seller’s ownership (eg. Sells goods); orc. After a reasonable inspection or manifestation that the goods are conforming, or the nonconforming goods

are sufficient.

4. UCC § 1-201(3) - Agreement is defined as all of the assumptions, course of dealings, trade usage, and course of performance

D. Modes of Acceptance in General: RS2 § 601. International Filter Co v. Conroe Gin - Offer can control mode of acceptance and can waive notice of the

acceptance

2. Acceptance by act: Unilateral Contractsa. RS2 § 45 - If partial performance begins, then an options contract is created and Offeree must be given a

reasonable time to complete. If Offeree stops mid performance, then there is no consequence.b. Bishop v. Eaton - If offeree is in a situation where offeror is not in the position to observe the unilateral act,

then notice of acceptance must be given by a reasonable means and within a reasonable time. c. NOTE: Acceptance in a unilateral act is done when performance is completed. Upon partial performance the

offer cannot be revokedi. No inducement problems - law says that so long as offeree knew of the offer then inducement is assumed

constructively. ii. If you notify under the UCC then a bilateral K is formed

3. Subjective acceptance a. RS2 § 54 - Acceptance by Performance

i. Transforming a policy into a contractii. Eg. where Insurance companies - send you a form and waives acceptance- if you fill it out and then the

company subsequently accepts, then you have formed a binding contract.b. RS2 § 56 - Acceptance by Promise –

i. for a bi lateral contract you must notify or exercise reasonable diligence in notifying the offeror that you have accepted…or if offeror has already received acceptance by another manner.

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c. Use of a contractor's bid – RS2 sec. 87.a is this subjective and is notice required?? – a person who relies on a sub contractor’s bid when forming a contract binds the sub contractor to the bid.

4. Acceptance by conduct - RS2 sec. 60 - i. If an offer prescribes the place, time or manner of acceptance, its terms in this respect must be complied

with in order to create a binding contract.ii. If an offer merely suggests a permitted place, time or manner of acceptance, another method of

acceptance is not precluded iii. RS2§ 62 – Where an offer does not specify a means of acceptance, then partial performance operates as a

promise to render complete performance and a bi laterl K is formed.

b. Acceptance by Silence – see Implied contracts infra.

c. Acceptance by electronic agent – Indirect transactions between humans are valid contracts. Computer is considered as an agent or instrument that is ultimately controlled by a person.

5. Failure to notify offeree that his acceptance is too latea. UCC 2-509 – Risk of Loss: covers this issue and the risk of loss passes at different times depending on whether

a party is a merchant or not. i. If seller is s merchant - risk of loss is assumed when merchant receives the goods.

ii. NON Merchant -If seller is not a merchant - risk of loss passes on as soon as it leaves the seller's control.iii. If goods are held by a bailee to be delivered - risk of loss passes to the buyer on his receipt of title, or

acknowledges possession, or receipt of documents for delivery.iv. FOB – “Shipping Point” or “Frieght Prepaid by Seller” – Risk of loss passes to the buyer when the goods

are delivered to the shipping carrier.v. FOB “destination” or “freight prepaid by buyer” – risk o floss passes to the buyer when it reaches the

destination.b. Phillips v. Moor: Acceptance must come back in a reasonable time - if its questionable then offeror needs to

immediately notify that the time for acceptance was close. Facts: Contract for purchase of Hay. Person suggests that he would like more, but did not counter offer and accepted the terms as is. Hay was burnt – P sues says that D accepted = must pay regardless of it being burnt because it was already sold. Seller argues that the acceptance was not in a reasonable amt. of time = not acceptance.

E. INVALID MODE OF ACCEPTANCE1. Promise of Acceptance in the Future

a. A promise to accept in the future is not acceptance.b. Where Offeree says acceptance is valid only if Offeror acknowledges it, then this is a counter offer under RS2 §

39?

2. Failing to reject an offera. Phillips v. Moor - Acceptance must come back in a reasonable time - if its questionable then offeror needs to

immediately notify that the time for acceptance was close.

3. RS2 § 68: What constitutes Receipt of Revocation, Rejection or Acceptance-a. acceptance is valid when authorized person, drop place, or actual possession.

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4. RS2 § 30 - Forms of Invitation for Acceptancea. § 30.1 - offer may provide conditions on how to accept HOW DOES THIS DIFFER FROM RS2 § 60???b. § 30.2 - any reasonable method unless otherwise indicated by language or circumstances

5. Acceptance when there is doubt that an Offer is being madea. Modern law - favors the offeree -now acceptance does not have to match exactly.b. RS2 § 32 - In course of doubt an offer is interpreted as inviting the offeree to accept either by promising to

perform the offer requested or by rendering the performance, as the offeree choosesi. RS2 § 62 – If Offeree begins to perform under a contract that invites either performance or promise, then

partial performance creates a bi lateral contract and Offeree cannot stop work and Offeror cannot revoke.c. UCC § 2-206-1 - Unless otherwise unambiguously indicated by the language or circumstances…an offer to

make a contract shall be construed as inviting acceptance by any manner reasonable under the circumstances.

F. Transacting at a distance : Mechanics1. Generally: Offers, revocation, etc – are effective on receipt and acceptance is effective on dispatch2. RS 63.a -Mailbox rule - As general rule acceptance wins - effective on dispatch even if acceptance is lost in the

mail.a. RS2 § 63.b – If option contract created that has a specified duration, then the acceptance is only valid if

received before the deadline ends. RS2 § 41.1 - If a deadline is stated, then the acceptance must reach the offeror before or one the deadline.

b. RS2 § 66 – Mail box rule only applies if properly addressed; but if c. RS2 § 67 - if the letter arrives despite wrong address then the mailbox rule is applicable.d. RS2 § 68 & 40 - Offer can be revoked, effective when received by authorized place, or person even if the

Offeree doesn’t know about it.

3. Rationale - both parties are interested in having performance as soon as possible -otherwise the contract had not been posited.a. Note: evidentiary problems - in a dispute how does a party prove this?

i. Email – not yet resolved in either common law or statutes.

4. Contractual liability is assigned upon acceptancei. Eg. Someone accepts an insurance policy before it was received by the agent - the insurance is valid.

5. If acceptance is conditioned on a time limit - then the time limit begins upon receipt of the offeri. eg. This offer is good for ten days - the ten day count begins when the offeree receives the offer

6. Confused Offeree- Both acceptance and rejection is sent a. If both an acceptance and rejection is sent by the mail, the rejection is only valid if : (1) The rejection is

received by the offeror and (2) the offeror has relied on the rejection or has sold to someone else.b. Normally the acceptance is valid upon dispatch and rejectin upon receipt.

III. Implied Contracts9

A. Silence as Acceptance = Implied in Fact1. General Rule: Silence does not constitute acceptance.2. RS2 §69 – Acceptance by Silence or Exercise of Dominion - Where an offeree fails to reply to an offer, his

silence and inaction operate as an acceptance in the following cases only:a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason

to know that they were offered with the expectation of compensation.b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by

silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (you need objective manifestation of assent = conduct)

c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

3. An offeree who does any act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. Not if the act is wrongful as against the offeror it is an acceptance only if ratified by him.

4. 39 USC 3009 - statute that denies a situation where a company just send you things – if you do this it is treated as

a gift.

5. RS2 sec. 69.1.a - one party takes benefit of offered services with reason to know of expectation of compensation. When circumstances will result in an injury, a silent party must clarify its position or assume the cost liability. Court applies.

a. Laurel Race Courses v. Regal const b. Louisville Tin and Stove v. Lay

6. RS2 sec. 69.1.c - Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. If offeree has benefit of waiving notice of acceptance, then they must explicitly reject the offer.a. Cole v. Holloway **CLARIFY THIS

7. If the insurer is under a duty to perform and fails to do so in a reasonable time, then a duty springs out of the consensual relationship and a quasi K is formed so that the injured party may recover damages. a. Kukuska v. Home Mutual Ins. Co

B. Implied in Fact: (silence as acceptance doctrine - RS 69.1.a analysis is performed but without an offer)1. Actual contract is imposed because mutual assent is implied from one party's conduct (forms the offer) and the

other party's knowledge that they are receiving a benefit. Here the elements or a proper contract is found by implication. (Examples: Auction, repeated performance)

2. Elements:a. Actual K existed either expressly or implied by course of performance or conduct. b. Offer can be found and is certain, acceptance may be unclear.

3. Damages = Expectation damages

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C. Implied in Law - Quasi Contract: (Principle of Unjust Enrichment).1. Where there is no contract, a fictional contract is imposed by the courts on to a party that has unjustly enriched at

the expense of another. No evidence or elements of a valid contract is found or needed.2. Elements:

a. Benefit received; andb. Unjust Enrichment (without compensation).

3. Damages = restitution damages

4. Principle of Unjust Enrichment - people should not be unjustly enriched at another's expense.c. Two Categories:

i. Involuntary acceptance of the benefit & if so, the court look at context to see if a need justified the act of conveying the benefit; or

ii. Voluntary acceptance - is unjust when there is evidence that the benefactor expects compensation.d. Note: Restitution damages awarded - court do not say or find any contract or any elements that constitute a

contract.. Restitution is both the application of unjust enrichment and a term used to describe the actual damages

e. HYPO: Contract performs half work can cannot finish. Can recover restitution for expenses paid. If Owner refuses contractor succeed under a quasi contract.

5. Officious Intermeddler Doctrine – blocks quasi contracts unless, (only used in the special rescue context) if a

person performs necessary labor during a rescue without the recipient's request or consent, then rescuer can get compensation if either:f. Action was taken to necessary to prevent serious bodily harm.g. Receipt lacked ability to consent.h. Rescuer had no reason to think that the injured party wouldn't consent.

6. TEST NOTE: we can bring action under Silence as Acceptance (expectation damages bc/ contract is inferred) or Unjust Enrichment (restitution damages bc/ no contract is inferable). Discuss this on the exam.

IV. Formation – Problems of IndefinitenessA. Preliminary Negotiations

Differences between a preliminary negotiation and a Contract:

Preliminary Negotiations Contract

Characteristics: Indefinite terms Classical K Law – Black and white – sets a high standard for definite terms, all else are indefinite

Modern Standard: If we cannot tell what the party's obligations are to each other they will not be supported.

If parties agree to agree, then they can only walk away if they have a good faith reason not to enter in to the contract.

Characteristics: Definite Terms Classical K Law – Black and white – sets a high standard for definite terms, all else are indefinite

Modern Law: Lower standard. If the contract has the basic material terms of a contract, the party’s basic obligations are knowable, then the court looks at intent and fills in the gaps

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1. Preliminary Negotiations - Vagueness: if substantial details necessary to the functioning of the contract are missing (performance terms as opposed to auxiliary terms), then it is too vague to enforce. Courts will fill in auxiliary terms but not performance.a. NOTE: the threshold is whether the court must determine performance required for any party…if both party’s

performance are established then the basic material body is found and the rest can be filled in.2. RS2 § 33 – Certainty

a. See page 4. “Uncertain offers” supra. 3. Lonergan v. Scolnick - If offeree knows or has reason to know that the offeror is merely inviting a bargain, it is not a

bargain and the offeror reserves the right to sell until he has made a further manifestation of assent. FACTS: Scolnick (D) sought to sell certain real property and placed the following ad in a Los Angeles paper: ‘Joshua Tree vic. 40 acres for $2,500, . . . need cash, will sacrifice.’ Sold land after P inquired. Valid bc/ no offer.

4. Regent Lighting v. Cmt Corp - If a proposal reserves the right not to accept an order or conditions the acceptance, then the proposal is merely an invitation to submit an offer but is not itself an offer.

B. Letters of intent (written) or Further Memorializations to Follow (oral)1. Letters of Intent / Further Memorializations are on the border

i. Classical K - it is a binding contract if the parties intended it to be binding at that time and were not looking forward to later agreement. Basically says that there are they are not legally enforceable because they are either found as contract or not.

ii. Modern law – may obligate a party to negotiate in good faith but does not necessarily find a contract. 1. Clarify this more in OFC do we have to do a good faith analysis.

a. KMGA v Vesta - KMGA and Vesta form a Letter Agreements to supply natural gas for Kansas, 3 letters, 3 prices for 3 different pipelines. Letter was to serve as a valid K until an actual K is formed, however if no agreement can be formed, then the letter becomes null. 5 Months of negotiations failed when Vesta pulls out of negotiations. Result pulling out of the negotiations was an act of bad faith and KMGA could recover.

C. Agreements to Agree1. Situation: Renewal Clauses where the renewal terms are incomplete such as the price terms.2. Remedies: Generally the court fills in the gaps with reasonable market values (similar to the UCC gap fillers).3. Leases: should courts enforce reasonable rents or market prices?

a. Berg Agency v. Sleepworld-Willingboro, Inc. - lease that contained terms on price and space and time need not have terms on maintenance, insurance, assignment, etc. to be complete: contract

b. Moolenaar v. Co-Build Companies, Inc. - goat herder wanted to lease his land for another period at the same price with reasonable increase, but landlord wanted to raise it from $375 to $17,000 per month: court said it could should enforce a reasonable rent even though that was a performance term, but see above -

D. Indefiniteness1. General Rules:

a. UCC - 2-204.3 - GENERAL RULE - If parties intended to make a contract and there is a reasonable basis for an appropriate remedy then a contract does not fail for indefiniteness. Terms can be left to be agreed upon later when the agreement is otherwise adequate.

b. If you are in preliminary negotiations then there are no contractual obligations, the threshold is firmly established by indefiniteness.

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a. If a contract is too indefinite then we are involved in preliminary negotiations, if we have definiteness then offer and acceptance is validated and the contract is enforced.

b. Modern Law - if intention to make the contract and it was formed poorly the court looks to see if the parties intended to form a contract. Looks at conduct and what was discussed. Therefore modern law lowers the standard for definiteness. There may be a valid reason to leave some terms indefinite until a later date - reflects the reality of how business is conducted and contracts are made.

c. Classical K Law - Cheever - there is either definite terms or not, intentions are not considered. The agreement between Academy Publishers and Mrs. Cheever left out necessary terms such as due date, page numbers, and terms for breach and is, therefore, unenforceable. If a contract lacks these terms, it may not be enforceable regardless of intent of the parties to have entered into the agreement.

d. Saliba-Kringlen Corp. v. Allen Engineering Co. - sub refused to do the work as stated in bid because some terms were missing: court said that standard industry auxiliary terms needn’t be contracted over if the performance terms are covered, and enforced the bid

E. Gap Filling due to Indefiniteness1. UCC GAP FILLER PROVISIONS:

a. 2-305.1 - Price - UCC fills in a (reasonable) price if it is left out. Under UCC 2-305 – Price is calculated to be market value at the time of delivery.

b. 2-308.a - Delivery - unless otherwise agreed, the place of delivery is the sellers place of business or if no place of business , then his residence

c. 2-309.1 - Timing - UCC will fill in a reasonable time.i. 2-309.2 - successive (at will)contract without specifying the end date, then it lasts for a reasonable time

unless a party terminates.d. 2-310.a - Paying and Shipment - If K does not specify when a party must pay, then payment is required at the

time and place where/when the buyer receives the goods.

2. Determining Reasonable Terms to fill in gaps: (only for goods contracts??? What about services?? Do we analogize the rationale on the test?)e. If the courts cannot determine the parties intent, then they may fill in the gaps with what is fair.f. Courts can have a broad discretion to determine the dynamics of the party's relationships, but they don't

exercise this and normally the courts just impose a reasonableness standard by looking at market, industry practice, etc.

V. Statute of FraudsA. Statute of Frauds

1. The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed by the defending party. If not signed or the contract is not in writing then it is unenforceable.(note each state had their own version). Thus a contract may be “within” or “outside of” the statute of frauds.

1. Extent of writing:a. Essential terms, price parties, scope duration.

2. For UCC - essential terms are: quantity and parties

3. Policy: Functions as defense against Mutual assent aspect of formation.4. Evidentiary function: Provides evidence

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a. Encourages people to write contracts5. Preventive function - prevents inconsiderate / not well thought out contracts6. Critiques:Courts do not like and Do not want writing requirement (formalization requirement) to negate the

parties intent.

B. Categories of Contracts that are within the Statute of Frauds.1. CATEGORIES: This can be remembered by the mnemonic "MY LEGS": Marriage,

one year, land, executor, goods, surety; or Marriage, one year, land, executor, guarantor, sale.

2. Marriage: Contracts in consideration of marriage.3. One Year: Contracts which cannot be performed within one year of the contract's formation. Or Must

expressly state that the contract cannot be performed in one yeara. NOTE: If the contract can be complete within a year then statute of frauds applies. If there is no way, then the

contract is within the statute of frauds. (if express terms stipulate that the performance cannot happen within time requirement - analysis carefully to see if the one year can be met).

b. Rationale -we can't trust people's memories regarding contract terms that are older than a year.c. Flaw - this issue of time is relevant only to the time period between contract formation and litigation -

therefore the rule had no basis4. Land: Contracts for the transfer of an interest in land. Land deeds, easement, mortgages. (not licenses or leases

under a year)a. Part performance exception for Land - partial performance takes contract out of statute of frauds

i. If seller actually conveys the land to buyer - then buyer cannot get out.ii. If buyer wants to enforce a oral contract and partially performs, then buyer must have partially

performed by either:a. Made improvements on the land; orb. Taken possession and paid a portion of the price

5. Executor: Contracts by the executor of a will to pay a debt of the estate with his own money.6. Sale of Goods - Contracts for the sale of goods above $500. (See application to statute of Frauds infra).7. Guarantor/Surety - Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or

other obligation. Here the surety contract wants to be in writing.a. Exceptions:

i. No legal obligation - Debtor has to have a legal obligation to the creditor for the requirement to apply.a. HYPO: A says "I guarantee B's obligation to C." B never obligated anything to C - therefore no

legal obligation exists and the statute of frauds does not apply.

C. Remedy:1. VOIDABLE by the party which the enforcement is brought.

a. If one party has signed but the other hasn't - then the only party that can get out of the contract is the one who did not sign it.

2. Damages:a. Failure to conform (put in to writing) Does not bar restitution damagesb. If met (K is in writing), then expectation damages may be givenc. Reliance Damages: SPLIT:

i. Classical - no relianceii. Modern - reliance is given. Therefore oral contracts in violation of the statute of frauds gives reliance.

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D. APPLICATION TO Part performance

A statute of frauds defense may also be effected by a showing of part performance, upon showing of one of two different conditions.

1. If the parties have taken action in reliance on the agreement, then part performance does not take an executory portion of contract out of the Statute of Frauds. a. Each performance constitutes a contract that falls outside the Statute of Frauds and was enforceable to the

extent it is executed. b. But the unexecuted portion of the contract falls within the Statute of Frauds and is unenforceable. c. Result - only the executed portion of the contract can be recovered, and the doctrine of part performance

does not remove the contract from the statute. 2. OR if partial performance and grounds for estoppel exists then these two combined can make the contract

effective.

E. Application to Specific PerformanceIn an action for specific performance, an agreement to convey land must satisfy the Statute of Frauds. The Statute is satisfied if the contract to convey is evidenced by a writing or writings containing the essential terms of a purchase and sale agreement and signed by the party against whom the contract is to be enforced. If there is no written agreement, a court of equity can specifically enforce an oral agreement to convey only if the part performance doctrine is satisfied. In a majority of jurisdictions, part performance is proven when the purchaser pays the purchase price, has possession of the land, and makes improvements on the land, all with the permission of the seller. No jurisdiction is satisfied by payment of the purchase price alone.

F. Application to Modifications1. UCC 2-209 - mods do not need to be supported by consideration2. Under common law and UCC, the Statute of Frauds also applies to contract modifications where the modification

alters the contract or transforms it in to a contract that falls under one of the statute of frauds categories.3. HYPO: UCC - K for goods for $400 is modified to a K for goods for $1000 - RESULT: now the statute of Frauds must

be met.a. ALTERNATELY: UCC - K for goods for $400 is modified to a K for goods for $450 - RESULT: does not need to be

in writing.4. HYPO: A makes an oral agreement to lease a car from party B for 9 months. Immediately after taking possession

party A decides that he really likes the car, and makes an oral offer to party B to extend the term of the lease by 6 months. Although neither agreement alone comes under the Statute of Frauds, the extension modifies the original contract to make it a 15-month lease, thereby bringing it under the Statute.

G. Application to UCC – 2-201 Statute of Frauds1. 2-201.1 - Basic Rule- $500 - contracts for the sale of goods where the price equals $500.00 or more fall under the

statute of frauds under the Uniform Commercial Code .2. NOTE: The most recent revision of UCC § 2-201 increases the triggering point for the UCC Statute of Frauds to

$5,000, but as of 2006 no U.S. state has adopted revised Section 201.3. JJC: is email and electronic communication technically writing and satisfies this? – not yet decided.

H. Exceptions Summary ("taken out" of the statute of frauds)An agreement may be enforced even if it does not comply with the statute of frauds in the following situations:

4. 2-201.2 - Exceptions - that cover Statute of Frauds

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a. Merchant Confirmation Rule, under the UCC. If one merchant sends a writing sufficient to satisfy the statute of frauds to another merchant and the receiving merchant has reason to know of the contents of the sent confirmation and does not object to the confirmation within 10 days, the confirmation is good to satisfy the statute as to both parties.

b. Last form is sent - but one party acts like it is okay - and then wants to get out due to no writing. Party to seek can enforce under this exception and get out of the statue of Fraud requirement.

i. Note - this allows a party to accept by conduct and then you have to apply 2-201.3.c because conduct can only be part performance

5. 2-201.3.a - Specially Manufactured Goods

a. The goods specially manufactured for the buyer and the seller either i. Substantially began manufacturing them, or

ii. entered into a third party contract/ arrangement for their manufacture, and iii. the manufacturer cannot without undue burden sell the goods to another person in the seller's ordinary

course of business.

6. 2-201.3.b - Admissionsa. Here during the court proceedings, the defendant admits the existence of the contract even though the K is

not in writing.

7. 2-201.3.c - Part Performance a. Distinction: here one party has substantially performed where in 201.3.a and 201.2 any performance is

sufficient.b. If either: a. payment has been made and accepted (by seller) or b. received and accepted(by buyer) - then the

contract is taken out of the statute of Frauds and the other party is held liable. i. NOTE: This is only is applied to the actual goods either received or paid for. Any remaining contractual

items are still under the statute of frauds requirement. If it is oral and statute is not met, then you get no damages for the rest

ii. Damages are applies accordingly (expectation for items outside, restitution for the goods already delivered)

8. Admission of the existence of a contract by the defendant under oath,9. Promissory Estoppel can be applied when the charging party detrimentally relies on the otherwise unenforceable

contract.10. Modifications: The Uniform Commercial Code does not have this requirement for contract modification11. Securities transactions do not require writing - it is all electronic now.

VI. Form Contracts – Battle of the FormsA. Terms:

1. Performance terms - terms that specify the performance that each party must rendera. Examples: Subject Matter, price, quantity, delivery terms, payment terms

2. Non-performance Terms - everything else (most preprinted terms are non performance terms)b. Examples. Warranties, notices of default,

B. Situation:

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1. Parties create a standard form - weighs the non performance terms heavily in their favor. Usually the performance terms are agreed upon.

2. Characteristics/Problems of the termsa. Written in sophisticated/technical language. Often inaccessible to the layperson.b. Not negotiated, heavily slanted towards the drafter.c. Recipient weighs that balance of taking a risk that the terms will likely never come in to play, generally I a one

shot transaction; therefore the burden of costs to hire a lawyer is outweighed by the low risks.

C. Battle of the Forms1. Definitions: In commercial transactions the purchase order and sales orders often conflict, creating a battle of form

contracts each has been accepted by the other party.d. Purchase orders - often serves as the contract for purchases between a commercial buyer and seller. Sent by

buyer.e. Sales Order (or Acknowledgement) - often serves as the acceptance contract for the purchase and is sent by

the seller.

2. NOTE: if seller does not sent back a form and accepts the buyer's purchase order, then it is enforced as a straight forward contract.

3. NOTE: If contract is for goods or services, then you must first apply the predominant factor test –or discuss the goods and services portions as severed contracts.

4. Purpose – To dispense with the mirror image rule / Last Shot scenario and provide a more equitable remedy.

5. Issues:a. Is a their a contract where assent can be found?b. what terms are allowed?c. To what extend are the terms enforceable?

6. Classical Law

d. "Last Shot" Rule – last person who sent the form prior of performance governs by their contract.e. Mirror image rule applied - where the acceptance did not match the offer, no contract was formed, however if

the last form was accepted by conduct or expressly, then it is a valid counter offer and its terms would rule.

D. Definite and seasonable 1. Material terms are accepted. Example: where the offeree sends back a form that mirror the offer’s performance

terms. 2. HYPO: Buyer sends PO. Seller’s acknowledgment expressly conditional on new terms. Buyer pays for goods. 3. Result – valid contract with the new terms.

E. UCC 2-207 : Battle of the Forms Rule (modern)1. Only applied to a forms context - otherwise the court is more strict.2. 2-207.1 – If you have a definite and seasonable expression of acceptance, then a contract is formed and an

acceptance found even if it includes additional terms.3. Exception - not valid if acceptance is expressly conditional/requires further assent to these new terms, but conduct

may constitute assent.

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a. NOTE: Here this says that it is acceptance unless it expressly requires further assent (flips the mirror image rule around)i. Where there is actual negotiation between the parties, no acceptance is found.

ii. Cases. Koehring Co. v. Glowacki. / Columbia Hyundai v. Carhill Hyundai1. Test:

a. Is the transaction outside the battle of forms?b. Would a reasonable person think that they had a deal?

i. If yes - then a contract is enforced.ii. If No - then there is no contract - it is deemed a preliminary negotiation.

4. 2-207.2 If you find definite and seasonable expression of acceptance (btwn. merchants) a contract is found.

a. Additional terms or different terms - (considered additional proposals) are also included unless.b. Exceptions:

i. 2-207.2.a - Offeror expressly limits the acceptance to the offer (offer is only valid if acceptance is mirrored clause). If new terms materially alters the contract, then no contract is found .

ii. 2-207.2.b - Materially alter - something that causes surprise or hardship to the contract. Whether a

reasonable merchant would agree to the terms.a. Eg. Provisions that negate standard implied UCC warranties. Is a refund an implied

warranty.b. Eg. Time period to make claims is substantially shortened to be unreasonable

1. Not materialc. Eg. Force Majeur clause is slightly altered is not a material alteration.d. NOTE: Slight changes in prices or time periods are allowable bc/ not material.

i. Exception: If one party is a non merchant, then the a contract found must include the original price unless the other party accepts a change to the price.

iii. 2-207.2.c - Objections - other party gives notification of objection, then the additional or different

terms are not allowed.1. NOTE: Buyer can send his purchase order and expressly object to any further additional or

different terms prior to Seller’s acknowledgment which may contain the differences. However the contract will still be found and the terms will be dropped out.

F. 2-207.3 "Knockout Rule":

1. Even if the material terms are different, a contract is found when both parties act as if there was a contract. Where the terms agree, they are used, where they conflict, they are eliminated and the court imposes standard UCC stuff.

2. NOTE: UCC likes to find contracts so the rules are very loose - matches the way business is ordinarily done.3. Eg. To refute a implied warranty provision is a material alteration - here the court will fill in the standard UCC

warranties. 4. Two situations:

a. Situation 1: No definite and seasonable expression of terms.i. Here the terms that agree are used, and the conflicting terms are filled in by USS gap fillers.

b. Situation 2: Where the response has a provision where acceptance is expressly conditioned upon acceptance

of the changes of the changes.i. Majority Rule: If the offeree wants to make their changes then they must exactly state the language

in the UCC verbatim. "this contract is expressly made conditional on assent to the additional or different terms…." (UCC 207.1 & 2-207.2).

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a. Summary: A definite and seasonable expression of acceptance is acceptance unless if a response form specifically states that the acceptance is expressly conditional on the changes to the K.

b. Critique - the premise is that the parties do not read the forms therefore the problem still exists. Most contracts are implemented by lower level employees, therefore they are not empowered to negotiate or modify the contracts.

ii. Minority Rule: Zemke - if the offeror would reasonably believe within the commercial context that

the offeree's reply form objectivly manifests an assent to a valid contract under offeror's terms. (Check this !!!) we don't need to know for the exams

c. Critique - the Zemke test is too hard to apply.

VII. Form Contracts – Unconscionability A. Unconscionability Regarding non performance terms in Adhesion Contract Setting:

1. Classical K law - Duty to read therefore you are responsible (no longer applied)2. Modern K Law - you are only bound to reasonable fine print terms. Note if you read and agreed to the terms

(even if you didn't really understand, then apply normal unconscionability - either procedural or substantive or both).

3. RS2 sec 211 - standardized agreements a. RS2 sec 211.3 - if fine print has unreasonable non performance terms(unknown terms outside expectations)

then you are not bound by them.i. Comment f: Outside of reasonable expectations terms are:

1. Bizarre, oppressive, etc.2. Hidden from view.3. Didn't have opportunity to read

B. Analysis:

1. Performance terms or boiler plate non performance terms?a. If performance terms then apply normal unconscionabilityb. If Non performance terms - then apply 211.3 - Ask if the party has read it?

i. If no - Ask if terms are unreasonable and outside expectations? Eg. Bizarre of oppressive?ii. If yes - then apply regular unconscionability test to see if the party is bound.

2. Sardo v. Fidelity - Jewelry store owner seeks insurance policy to cover jewelry. Insurance issues a contract that

explicitly states securities, not jewelry. Owner did not read contract and accepted until store was robbed of the jewelry. Basic Rule: In order to reform a contract in the absence of fraud, it must appear that the minds of the parties have met and that a mutual mistake of the parties produced a contract which neither party intended to make. In this case the contract can be reformed to conform to what the parties intended

a. Classical K Law applied - Duty to read - where a party does not read a contract, they are not relieved of its terms.

3. Weaver v. American Oil - Uneducated lessor signed contract that indemnified Gas company and also held harmless for any negligence on the part of the Gas Company. The exculpatory provision was bizarre (it is bizarre to hold him responsible where someone else burns him) and oppressive (he could not be expected to pay such damages

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because he only made a few thousand dollars a year). Further, Provision was hidden - had no heading. Basic Rule: To enforce an indemnify clause regarding non performance adhesion clauses the person seeking to enforce carries the burden of proof to establish that the other party knowingly and willing entered in to and accepted it.

VIII. UCC Warranties

A. In General:1. Warranty is a promise that good or service will meet and perform under certain specifications.2. Seller's of goods provide the warranties, breach of a warranty constitutes a breach of contract3. Three Types of Warranties

a. Express Warrantyb. Implied Warrantyc. Warranty of Fitness for a Particular Purpose

B. Express Warranties:1. UCC 2-313 – express warranties - If a party makes an express promise regarding a thing or provides a sample -

then what they supply must conform with what they provide.a. Eg. a sample, what about a brochures???b. You don’t have to use the words guarantee or warrant.

i. Puffery won't constitute a warranty a. Eg. Salesman tells you that this is his favorite.

C. Implied Warranties :2. UCC 2-314 - Warranty of merchantability

a. Goods shall be merchantable is implied in a contract for goods.b. 2-314.2 - Merchantable means: a,c,d - quality is consistent and in accords with industry specifications.c. In contract description

i. Are fit for ordinary purposesii. Are within variations permitted within industry standards

D. Warranty of Fitness for a particular purpose

1. UCC 2-215 - Implied warranty that come in to play wher the seller has reason to know that the buyer is buying for a particular purpose. Where buyer relies on seller's advice regarding what good is adequate for the purpose and subsequently buys that good, then the seller implicitly warrantes the reccomendation.a. No explicit promise has to be made for this to be effective.b. Does not depend on good or bad faith?? Because we assume that the seller as a merchant is knowldegable

about the goods.c. Hypo: Buyer wants running shoes. Seller reccomends Nike marathon shoes.

iii. Result: Here seller has implicitly and automatically warrants that the Nikes are fit for running.

E. Exceptions20

1. UCC 2-316 - Allows seller to get out of both the express and implied warranties

2. 2-316.1 - Applies to express warranties:a. Where a contract has both express warranties and a boiler plate clause at the end that says no warranties,

then the warranties still are applicable. (the contradicting boilerplate clause does not negate the warranties if expressly given previously)

3. 2-316.2 and 2-316.3 - Applies to implied warranties:a. 2-316.2 - to Negate the implied warranties, the contract must make obvisous that the the implied warranty is

not honoredi. To negate the warranty of merchantability -0then you must explicitly state that implied warranty of

merchantability is gone.b. 2-316.3.a - Certain language will get rid of all the implied warranties

i. Ex. You take goods as is or you take good without any warrantiesii. Note: this circumvents 2-316.2 requirements

iii. 2-316.ca. Courts can remove implied warranties if they are inconsistent with course of dealing s or course of

performance that gives evidence that there are not warranties.b. Does not mention express warranties

IX. Interpreting Written Contracts – Plain Meaning & Context Rules (only applies to a written contract)

A. Parol Evidence vs. Plain Meaning Rule1. Parol Evidence Only applies to prior or contemporaneous evidence2. Cannot be applied to admit extrinsic evidence (evidence used to show the meaning of the terms of a contract).

Here the Plain Meaning Rule is used.3. Parol evidence is only used to prove side bar agreements.

B. Plain Meaning rule 1. Definition: when a contract is unambiguous on its face, a disputed terms meaning must be determine solely by

looking/referencing the contract alone. No extrinsic evidence will be admitted. (extrinsic evidence - outside evidence of the surrounding circumstances, context, industry practices, etc.)a. Basically: If the court thinks the terms are clear on the face ot the written K, then it is a question of law and

the court will imposed a judgment.a. if the court thinks that the terms are ambiguous, then it is a question of fact for the jury whom can then

consider extrinsic evidence. b. Williston - Objective - and Holmes - argue pro plain meaning. Williston doesn't care about intent, court

should go with what it says. But can consider evidence of the context to clarify how a reasonable person would view the terms. Parties should take care in writing their contracts.

2. Reasons for the Plain Meaning Rule:a. Prevents fraud and filters out bad claims.b. Protects the integrity of the contract - as a policy we want people to trust contracts that they form and use

them.c. Judicial Economy - allow the judges to easily decide cases.d. Can be seen as a forcing rule - forces parties to writ down their agreements. It is clearer and more efficient to

judge written contracts.

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3. Reasons not to use the plain meaning rulea. Words seldom are clear without understanding the context in which they were formed. The words may seem

clear but when a conflicting situation arises, the application may be unanticipated, thus the meanings are not clear because it gives rise to the argument.

b. NOTE: If you have extrinsic evidence then must do at least two analysisesc. if you have parol evidence problems, you must go through both the parol evidence analysis, and either the

plain meaning analysis or the context analysis.d. If the extrinsic evidence results in that there is no parol evidence problems, then you must go through the

plain meaning or context analysis.

C. Plain Meaning Rule Analysis:1. Q1: Is the face of the written K ambiguous?

a. If yes - then the interpretation goes to the jury and they consider the extrinsic evidence.b. If no - then the judge interprets the contract in accordance with the plain meaning rule (applies a resolution

consistent with the language of the K).

2. Cases: Steuart v. Mc Chesney - a. The plain meaning rule ( when a written K is clear and unequivocal, its meaning must be determined by its

contents alone - bc/ K is a pure expression of manifested intent) should be applied unless the language used in the agreement is fairly or reasonably susceptible to being understood in more than one sense so as to be regarded as ambiguous. Therefore where the meaning is clear there is no need to admit any extrinsic evidence.

b. Right of First Refusal clause is in dispute over the application of the formula in a real estate clause. The interpretation of the meaning is the difference between a tax assessment value of the property at 8K and the market value which would be 70K more.

D. Context Rule(only applies to a written contract)

1. Situation is same as plain meaning - court is asked to decided whether the contract is ambiguous.a. A court should first consider whether a contract is ambiguous in light of extrinsic evidence, if is then it is a

question for the jury, if not then it is a question for the judge.

2. TEST NOTE: Modern Law has abandoned the plain meaning rule in favor of the context rule, but this is a split.a. Here our focus is on the ambiguity of the contract, evidence is broader and applied in a broader context (of

the contract) that the parol evidence which is only used to determine contemporaneous sidebar agreements and its evidence is narrowly accepted only relevant to side agreements.

E. Context Rule Analysis:

1. Q1: Is the contract ambiguous in light of extrinsic evidence? (Alternatively - In light of extrinsic evidence, is there more than one reasonable way to interpret the contract?)a. If yes, then the jury considers the evidence and decides the interpretationb. If No, then the judge decides and imposes the only reasonable interpretation of the contract in light of the

extrinsic evidence. (says that this is the only reasonable interpretation).

2. Arguments in favor: a. Does the same thing as the plain meaning rule but

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b. Corbin – Subjective - argues for Context rule - intent of a meaning must be first be determined. Parties do not always know the law and are not always sophisticated. It is more efficient to interpret contracts because the parties themselves know what they intended. Words are never clear without context.

c. UCC - adopts the context ruled. Restatements - also adopt the context rule

3. Arguments against :

c. The context rule negates the plain meaning rule completely and rejects the notion that a contract can have a plain meaning. Taken further, it rejects that words can have plain meanings, therefore the laws themselves cannot have plain meanings so how then can we hold people to them.

X. Interpreting Written Contracts – Parol Evidence RuleA. Parol Evidence Rule (only applies to a written contract)

1. Definition of Parol Evidence: a. Evidence of contemporaneous oral agreements or earlier oral/written agreements.

2. Definition of Parol Evidence Rule: Once parties have formed an integrated agreement, neither party may introduce evidence that contradicts or supplements the terms that are essential to the current contract in dispute.a. RS2 – 214 - Scope of application – evidence of prior or contemporaneous agreements and negotiations are

allowed for the purpose of determining the meaning of a term/clause of an agreement.b. you would then apply either the plain meaning, or context rule (SPLIT – on test do both).

3. Circumstances of application

a. Applicable in interpreting the original written agreement.i. Parties have a written agreement but disputes that the written agreement is incomplete to the whole

agreement.b. Oral agreements were made off to the side. (collateral agreement). Contract may have been “subject to” but

did not include this in the writing.c. NOTE: this is distinguished from Modifications which parties are free to do later.

4. Parol evidence is either: (simplified version)

a. Contemporaneous (existing at the same time) evidence; orb. Oral/ written collateral agreements

5. Characteristics of Parol evidence:

a. Witness testimony.b. Oral agreementsc. Collateral agreements in writing

6. Judicial Function of Parol evidence rule :a. Determines or allows evidence of the collateral agreements in certain situations.b. Why do we have a parol evidence rule?

i. Policy: filters out bad claims or unsupported arguments and moves the judges to weigh in on this before it can go to a jury1. Pros- protects from fraudulent claims of side agreements

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2. Cons - May produce unjust results due to its rigidity. Much business is done by side agreements that induce them to enter in to the bargain, if they can't prove this then they are deprived of something that may have been substantial to the agreement despite a contract seeming integrated. Most people don't know of the law so they are not protecting their interest adequately when they are entering in to contracts.

B. Application of Parol Evidence rule to Fully Integrated Contracts1. Determine what is the parol evidence (note the rule only considers agreements)2. RS2 - 228 Integration - An agreement is integrated where the parties adopt a writing or writings aas the final and

complete expression of the agreement. It is a question of Law to be determined by the trial judge.3. RS2 - 237 Parol Evidence Rule - after K's are integrated, no other agreements or oral agreement relating to the

same subject matter can be made.a. RS2 § 216 - Consistent / Supplemental terms - additional terms that are consistent may be allowed.b. RS2 § 215 - Contradictory terms - any evidence that introduces terms that contradict the contract is not

allowed!c. RS2 § 213.1 - Inconsistent terms- a binding integrated agreement discharges prior agreements that are:

inconsistent, or R S2§ 213.2 - “within its scope.”i. NOTE : Evidence is allowed if it is used to explain a term, not to materially alter a integrated

contract – because an integrated contract is complete on its face. **Partial integration is different.

4. RS 2 - 240 - Exceptions to integration - where additional agreements are admissible.a. An oral agreement is not superseded or invalidated by a subsequent or contemporaneous integrations not a

writing agreement by a subsequent integration relating to the same subject matter if the agreement is consistent with the integrated contract and:

i. Is made for separate consideration, orii. Is such an agreement as might naturally be made as a separate agreement by the parties situated as were

the parties to the written contract.

C. Application of Parol Evidence rule to Partially Integrated Contracts1. RS2 - 239 - Where a K is partially integrated, Parol Evidence is always allowed if consistent with K.

D. Methods to determine integration1. Intent test - What did the parties intend

a. Majority -Williston - Objective Approach- Narrower approach - looks at the face of the contract itself - if it looks complete then the court will inferr that this was what the parties intended. Easier because the judges have something concrete and formal to base their decision on.

b. Modern Trend - Split - Corbin - Subjective Approach - Broader approach - We look at the face of the contract and the surrounding circumstances including the parol evidence. NOTE this is hard to do bc requires court to infer a party's intent subjectively. Also Corbin's approach lets in more evidence.

c. Cases: Mitchell v. Lath, Masterson v. Sine E. UCC 2-202 – states that parol evidence is admissible unless the other party can prove that the additional terms would

certainly have been included in the written contract or that they contradict the agreement. 1. Meaning of Language - is derived from its commercial context (not plain meaning)

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2. Evidence may be allowed in to (1) explain or (2) supplement the agreement.a. Test1 –Consistency - If it contradicts/inconsistent then it is not allowed.b. Test 2: Certainly be included test: Terms are allowed, unless a party can prove that they would have been

certainly included in the original i. Less restrictive threshold than parol evidence. Terms can be clear, but trade usage etc may explain

them better as in Frigaliment. Court looks to the commercial context which the terms are used.ii. Terms not certainly included can be closer to the subject matter of the agreement rather than terms

naturally excluded.

F. Consistency Tests (split)1. Hunt v Doliner case - Impossibility Approach to Test consistency - Terms are inconsistent if it is factually

impossible for the parol evidence terms to co exist with the written contract. a. Focuses on what to let in >>> lets more evidence in because most evidence offered is not impossibleb. Eg. There cannot be two different purchase prices, therefore the evidence would be factually impossible and

thus inconsistent.

2. Alaska Northern Development v Alyeska - different approach - Reasonable Harmony approach - Terms are inconsistent if they are not in a reasonable harmony with the terms of a contract.a. Focuses on what evidence to filter outb. More restrictive approach - despite an ambiguous rule, it is more strict.c. NOTE judges have discretion on what approach to apply

G. Merger Clauses1. Typical clauses that state that the contract is fully integrated. (intended to calrify that the K is an integration)

a. These are given weigh to the extent of the fact and circumstances that support the enforcement of it.b. The mergers clauses do not defeat parol evidence …parol evidence still gets tested to be let in.c. Cases: ARB v. E-system, Seibel v. Layne

H. Parol Evidence Analysis1. Is the Contract in writing? – parol evidence only applies to written contracts.2. It is parol evidence?

a. If it is not then it may be admissible as extrinsic evidence, but must do plain meaning/context analysis.b. If it is parol evidence then continue

3. Is the evidence being used to prove that written contract did not represent the final and complete

statement of their agreement?a. If it is not then it is inadmissible. (parol evidence does not apply to prove breaches of performance under the

K, rather that there was alternative performance under a side bar agreement that may have been breached.)b. If yes – then it is parol evidence then continue

4. Does the evidence contradict or it is consistent?a. If it contradicts, then it is not admissibleb. If it is consistent or supplements, then it may be admissible and continue to determine integration.

5. Was there Partial or Full integration?:

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a. Partial integrationi. A partial integration is a contract that is complete on its face as to the material terms, but other terms

could be included. (has material terms defined but the immaterial terms that are necessary for completion are missing).

ii. ADMISSIBILITY TEST:1. Are the terms consistent with the terms of the K?

a. If they are then it is admissible2. NOTE: this lets in more evidence, because the contract was less carefully formed, therefore it is more

plausible that the parties missed some things that may have been important; thus the contract assumedly does not represent the complete intentions of the parties.

b. Full integrationi. Full integration is - An agreement is integrated when the parties adopt the writing or writings as the final

and complete (excusive) expression of the agreement. It is a complete written contract where the material terms are fully defined.

ii. RS2 § 209.3 – where a written agreement reasonably appears as complete, it is fully integrated unless other evidence establishes that the writing was not a final expression of agreement.

iii. If there is full integration then parol evidence is admissible only if:1. Consistency element - Are the terms consistent with the integration? - The terms do not contradict

express or implied conditions of the written agreement; and2. Naturally excluded element- Would the terms be naturally excluded from the agreement? - if the

subject matter of the terms are of such a nature that would be naturally excluded, then this prong is met.

3. IF both exceptions are met, then the evidence is admissible.iv. NOTE: this makes it harder to let evidence in because the contract is complete therefore more care was

taken to produce the contract assumedly if the parol evidence was important then it would have been included in the original contract.

I. Fraud Exception of the Parol Evidence Rule1. Parol evidence can be admitted only to prove the existence of fraud, duress, mistake. The terms are not in dispute,

rather the evidence is used to bring prove affirmative defenses.a. This is a situation where a K appears integrated, but the party wants to invalidate the whole contract

(rescission) not recover for breach.

2. Doctrine of Promissory Fraud - the promise itself is fraudulent (party never intended to keep the promise when the contract was formed. Essentially a party is lying about there intent. Parol evidence is accepted to prove promissory fraud. Here court have various remedies and can choose which to apply. a. How do we prove this - look at conduct which is completely inconsistent with the asserted intent.

b. Fraud in general - is distinguished bc fraud usually concerned a misrepresentation of fact that induces a party

to enter in to a contract. The substance of the K was materially misrepresented.

3. Remedies for the Promissory Fraud Exceptiona. Restrict the relief to a rescission.b. Award damages based on Tort theoryc. Award damages based on Contract Theory. (based on the value of the promise).

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J. No Oral modification Clauses (N.O.M. Clauses) - split btwn. Common law and UCC 1. Parol evidence is inapplicable to agreements made after the written K bc/ parol evidence only admits to prior or

contemporaneous statements.a. These types of agreements may be subject to the statute of frauds.(req. to be in writing).b. Parol evidence doesn't apply to modifications because mods are made later.

2. Common law - N.O.M. clauses are meaningless - therefore you don't even need parol evidence to refute the clauses because they are invalid on their face. The reasoning is that if party's later modify a contract, then it is assumed that the modification also intends to modify the original N.O.M clause.a. Earlier common law - 1. parties can perform mid stream changes, and oral mod is a later K, and 3??? Page 608

3. UCC 2-209 - if you have a N.O.M. clause then you must have it in writing. Without it in writing, then it is considered a waiver (which can be rescinded when no reliance exists and reasonable notice is given).a. No consideration neededb. If K was for a sale of goods & includes n.o.m. clause then it modifications must be in writing.

K. Merger Clauses - (split)

1. CASES: Sabo - parol evidence is allowed to claim promissory fraud.a. Dannan case - parol evidence is not allowed if merger clause specifically confronts the elements of promissory

fraud that the parol evidence is trying to combat.i. Generally merger clauses cannot be used to exclude parol evidence otherwise a person could circumvent

the whole rule just by adding in a clause.ii. Where a party is not relying on the other's party's representation and explicitly says so, then any parol

evidence naturally fails because they admit to no rely on any side bar deals.

XI. Interpretation: Mistakes of Misunderstanding

A. Interpretation:1. General Introduction: Interpretation Issues

i. Classic K : OBJECTIVE THEORY OF CONTRACTS - a contract is judged by outward objective facts as interpreted by a reasonable person, rather than any subjective intention. Provides Judicial Efficiency, but may not always reflect the true intention. Objective facts include:

a. what the party said when entering into the contractb. how the party acted or appeared = content is manifested through conductc. Circumstances and context surrounding the transaction.

ii. Policy - court tries to reflect the party's intent. d. Intent (Objective) - what appears by the face of the contract and the surrounding circumstances.

Reasonable Person's Interpretation.iii. Modern K - Intent (Subjective) - What did the parties' mean mentally. If it is different than the objective

interpretation, then it may look unreasonable to a uninterested party; therefore the court must find a justified reason to determine this intent.

a. The most reasonable interpretation is given the most weight

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b. If both parties agree on an unreasonable interpretation then it is enforcedc. If both parties have reasonable but different interpretations then K is revoked.

2. Common Terms : i. Most common terms to look for to see if offer is intended:

a. 1. Subject matter; 2. Price; 3.Payment Terms; 4. Quantity*; 5. Quality; 6. Duration; 7. Scope. b. Quantity must be ascertainable – either specific of under output K a duration (Eg. all oil you make

next year)

3. Ambiguous Terms : When both parties apply different meanings to the same term ii. RS2 § 201 : Whose Meaning Prevails

a. § 201.1 - If both parties ascribe meaning (even if not reasonable, and is entirely subjective), then the meaning is enforced.

b. § 201.2.a – (Actual Knowledge Analysis) Did only one party know of the other party's interpretation/meaning? Then the meaning known by both parties is applied (Innocent party's interpretation is adopted bc/ the other person is trying to take advantage; therefore the knowledgeable party is at fault.)

i. Bad faith situations

c. § 201.2.b – (Reasonableness Analysis) If parties attached different meanings to a term (in good faith) - the meaning is attached to one party at the time the interpretation was made, then determined by test: (b) one party has not reason to believe other than the reasonable meaning.

i. Good Faith situations

iii. RS2 § 20 : Effect of Misunderstandinga. § 20.1.a - There is no manifestation of assent to exchange if the parties attach materially different

meanings to their manifestations and neither party know or has reason to know the meaning attached by the other.

b. This is the codified version of the Peerless rulec. Raffles v. Wichelhaus - Peerless Rule – When both parties reasonably misunderstand a material term,

the contract is voided. Buyer and seller did not know there were two ships named the “peerless” – shipment was on a latter arriving ship than expected by the buyer.

B. Purposive Language : Unforeseen situations1. What happens when both parties did not foresee a situation, did not take in to account, did not anticipate?2. Generally: Court must look at the overarching purpose/context to assign meaning to a sentence. Court has two

options to apply a term to an unforeseen situation in order to enforce a K:a. Court may have to figure out how to apply a term when the circumstances had changed; orb. Court can enforce an implied term

i. Terms that logically follow - effectuates the parties intent. ii. Terms that would be logical if presented, however the parties had not contemplated it. Court

construct what is fairiii. If difficulty was foreseen - court impose what would be the logical agreementiv. Supply an omitted term??

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3. Lawson v. Martin Timber Co - Despite clear/plain language, court must look at context and ultimate goal of the K. Two year lumbar K with provision that extends a year if High water occurs during the performance. Lawson refuses to extend the time bc/ half of land had high water. Court looks at both purpose of K and intent of parties.

1. Supplying and Omitted Essential Term : a. RS2 §204 - Generally - court does what is reasonable in the circumstances supplied by the court. Distinction:

i. Omission is when the word is ambiguous at the time the K was made, ii. Supplying the term occurs when an unforeseen circumstance occurred that was not contemplated at

the time the K was made so the court has to imply a term to fit in so that the K can be applied to the present context.

b. Court takes a two prong approach:i. Imply a Term

ii. Interpret the ambiguous term.c. Two questions that the court asks prior to determine which course to take:

i. What is Intent - What would the parties have done if they had foreseen the issue at the time the contract was formed?; or alternatively

ii. What is best from a policy issue in terms of fairness, method?2. Haines v. City of New York - If no duration for performance under a contract is specified, the court may

determine the duration of the contract by looking to the intent of the parties at the time of contract.Developer and City wants water treatment systems expanded under a 50 year old K with NYC (who wants clean water from their stream)

C. Trade Usage, Course of Performance, Course of Dealings: 1. General – Plain language is trumped by trade usage.

a. RS2 §221 - Usage supplements the agreement if a reasonable person has reason to know usage or reason to know of the other party's intention that is inconsistent with normal usage

b. RS2 § 222 - Trade usage terms are assumed unless specified otherwise.c. If party's do not reasonably know trade usage terms - then apply Peerless and contract is voided.

2. UCC § 1-201(3) - Agreement is defined as all of the assumptions, course of dealings, trade usage, and course of performancea. This is an expansive definition beyond ordinary K law.

a. Heriarchy of Terms – **only relevant when in conflict with each otheri. First priority - Course of performance

ii. Second priority - Course of dealingsiii. Last in priority - Trade usage

b. Course of dealings - UCC § 1-205 - Course of dealing is a sequence of previous conduct between the parties is regarded as the common basis of understanding for interpreting their expressions and other conduct (regardless of reasonableness of how terms are applied )

i. NOTE: this is a backward looking application - apply when trying to determine meanings or goods - we look to the past conduct between the parties.

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c. Course of Performance - UCC § 2-208 - Course of repeated occasions for performance by either party with knowledge of the nature of the performance, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

iv. NOTE: We are looking at the present contract - this is a forward looking application - apply when forming a new K

D. Test for Trade Usage, Course of Performance, Course of Dealings:1. Policy: To what extent should extrinsic evidence of (Trade usage, course of performance, and course of dealings)

be allowed/admitted:a. Main focus is on maintaining consistency within the contract itself.b. Does not care if contract is integrated or if a term is ambiguous.

2. Three approaches (similar but not the same a plain meaning rule): 3. Approach 1:

a. Always admissible: when a party wants to interpret the express terms of a contract, but if the extrinsic evidence conflicts with the express terms, then you must go with the express terms.

1. Post Consistency Test Caveat: The evidence always is allowed in, but its power is restricted and the court reserves the right to overturn a jury decision based on extrinsic evidence if the evidence is found to be inconsistent.

4. Approach 2: (Majority / restatement)a. We can only admit if the extrinsic evidence is consistent.

i. Pre - Consistency Test Requirement - evidence is consistent as long as it does not totally negate (an exact opposite meaning of the term).

ii. Distinction - here it is restricted off the bat and not let in unless it passes the consistency test - judge pre filters.

5. Approach 3: a. We can only admit if the extrinsic evidence it is in reasonable harmony.

i. Reasonable Harmony Test- if the terms lack reasonable harmony with the extrinsic evidence then it is not let in. CLARIFYYYYYYYY – not inconsistent?????

ii. Tends to exclude more evidence.

d. Nanakuli v Shell Oil .- Trade Usage - everyone in the industry practices price protection, but no one wrote this in to the contract. The main bidder in the contracts were normally the government, but didn't allow escalation clauses in the contracts, therefore all the GC's needed such clauses. Here the context is very influential.Course of performance - Here everyone gets price protection as a default, on the previous two occasions Shell provided price protectionShell argues- that they waived and gave price protection as a courtesy. With a waiver you can always change your mind; therefore it does not in this case have to waive again.Jury decides that this is a course of performance evidence and shell loses.

e. Frigaliment Importing Co. v. B.N.S. International Sales Corp.- Court first looks to Contract to derive meaning. A party who seeks to interpret a contract’s ordinary terms in a more specific sense than is used in everyday trade has the burden of proof to establish that meaning. Dispute over the word “chicken” bc/ ambiguous to the type. D was new to the industry, therefore P must prove that D knew of the meaning of the term. Court looks at outward facts, conduct, and conditions.

f. Flower City v. Gumina - Trade terms are assumed but if party is reasonable in not knowing, then Peerless is applied and contract is void. Noobie painting subcontractors did not know a common industry implication that painting a room meant the hallways and closets as well.

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g. Foxco Industries, Ltd. v. Fabric World, Inc..- If a party is part of a trade then they are expected to know trade usage terms which will trump the plain language meanings. Manufacture sent in an order, initially objected to but accepted anyways and another order was made – buyer made new stipulation regarding “flawless” seller did not think that buyers meaning was in accordance with industry terms so didn’t ship the goods.

XII. MistakesA. In General:

1. Four Categories: a. Mutual mistake: Shared Mistaken Assumptionsb. Unilateral mistake: Mechanical error - Error on the part of one party’s thought processc. Transcription mistake .d. Misunderstanding: Semantic error. – This is Interpretation (Supra)

B. Mutual Mistake

1. Definition - A shared mistaken tacit assumption.2. RULE: There is no contract if there is a difference or misapprehension as to the substance of the thing bargained

for, or if the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold.

3. Situation: Both party's are mistaken when entering in to a contracta. Common law Elements (Sherwood):

i. Shared Mistake concerns the substance of the contract.

4. Tacit Assumption - An assumption that includes the underlying agreements or statements made in the development of a logical argument, course of action, decision, or judgment that are not explicitly voiced nor necessarily understood by the decision maker or judge.

b. Often, these assumptions are made based on personal life experiences, and are not consciously apparent in the decision making environment.

154.b SpectrumTacit Assumption Bargaining| -Sun will rise-----------------------------------------------------------------------------------------------------Locked Safe-|

5. ANALYSIS - do RS2 § 152, then RS2 §154:a. Essential questions:

i. Was the mistake regarding the substance of the contractii. Was a party adversely affected?

iii. Did the parties share the mistake or was a party gambling or objectively appear to be gambling?

6. RS2 § 152 – Tacit Assumptiona. 152.1 - (must look at RS.154 as well) - b. Elements:

i. Shared Mistake as to the basic assumption on which the contract was made (the substance of the contract); and

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ii. Mistake has a material adverse affect on the party seeking to void the contract.

7. 154.a - the contract itself assigns the risk of any errora. Example "as is" clausesb. Case: Lenawee v. Messerlies

8. Exception (Rs 154.b): not a tacit assumptiona. Test - Did the adversely affected party has a limited knowledge of the mistake but was gambling that the

outcome would favor him?b. Result - if at least one party was gambling then if both parties were gambling - then the contract wouldn't be

rescinded. If one party was gambling, then the parties are still held to the contract because the other party should have investigated.

c. Note: Court must determine whether both parties were mistaken or was one party gambling because neither party had full knowledge.

d. Nester v. Michigan - wrong estimate of amount of pine now wants to get out claiming mutual mistake.e. Sherwood v. Walker - If Sherwood was gambling that the cow was fertile, then dissent says contract is

enforced.f. Wood v. Boynton - dealer gambled about what the stone was –turned out to be a diamond

9. Damages:

a. Rescission - if the contract was clear but was wrong, then contract is rescinded.b. EG. Contract for sale of land that is zoned for commercial use. Subsequently land is discovered to be zoned

only for residential.c. Everett v. Estate of Sumstad - Party buys a locked safe at an auction. Later discovers $30K. Here there was not

a mutual mistake because both parties were gambling, therefore the contract cannot be rescinded.a. Griffith v. Brymer - Clear cut mutual mistake - Party licenses a room solely for the purpose to see a procession.

The king gets sick and procession is canceled just before the contract but both parties did not know. Both parties were mistaken and the substance of the bargain was to view the procession. Therefore the elements are met and 154 doesn't apply because there is no evidence that any of the parties were gambling. Thus contract can be rescinded.

d. Wood v. BoyntonMutual mistake of sale of an uncut diamond where both parties thought it was a topaz. If we apply 154 then we would find that the dealer was gambling on the stones value. Bc/ 154 is met, then the contract is not rescinded.

e. Firestone v. Union LeagueParty thinks that they are buying a Bierstadt painting for $500K. Four years later and after the statute of limitations had run, the painter was discovered to be someone else and painting was worth $50K. Under 154.b market is constantly shifting and both parties knew that actual painter was never proven; therefore both parties were gambling. Since everyone knew of the risk contract can't be rescinded.

f. Lenawee v. MesserlyTransaction for land of 600 sq feet. Wrong septic tank was previously installed and the correct one needs a septic tank that doesn't fit. Health board condemns the property therefore the property has a negative worth. Buyers want to rescind the contract. Although this case would pass the 152 and 154.b analysis, the express "as is" clause denies any rescission under 154.a

g. Beachcomber v. BoskettMutual mistake over a coin. Here the coin was a fraud but both parties did not know it.

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C. Unilateral Mistake [mechanical mistakes]1. Characteristics:

a. Here there is a mistake in the bargaining process where one party did not really agree or give assent to the terms because one party made a mistake in offering a term

b. Typically someone writes something down wrong - now wants to get out of the contract that incorporated the mistake.

i. Eg. Typically an accidental offer is accepted

2. RS 2 § 153 - When a mistake of one party makes a contract voidablea. ELEMENTS:

i. it was a mistake regarding a basic assumption upon which the defendant made the contract; andii. Adverse material effect on the mistaken party; and

iii. Mistaken party doesn't bear the risk of the mistake (RS2 154); AND

i. Effect of the mistake would make the enforcement of the contract unconscionable; orii. The other party has a reason to know the mistake or it is his fault that caused the mistake.

a. Speckel v. Perkins - Lawyer refuse to settle for $50 then mistakenly counters a settlement for $50K, but meant $15K

b. Nolan Ryan Baseball Card - kid had 40K cards, says he thought the sale was $12 when tag said 1200. He had a reason to know that there was a unilateral mistake because he traded cards.

3. RS 2 § 154 - a party bears the risk of its mistake when:

a. The risk is allocated by the agreement of the parties; ori. HYPO: A sells land to B. Both do not do a title search. K says A makes not guarantee as to condition of title. B

buys. Title is defective. ii. RESULT: B cannot void the contract.

b. Party is aware when the contract is made; orc. Allocated by the court on the grounds that it is reasonable in the circumstances.

i. RULE: If a party neglected a legal duty in making the mistake , then it is reasonable to allocate the risk to this party.a. To determine if is they have neglected a legal duty then look at RS2 sec. 157.

ii. Donovan v. RRL Case- Lexus dealer post ad in newspaper and did not review the proofs. Newspaper had mistakenly printed the ad and person sues when dealer refuses to sell and take a $10K loss.

4. RS 2 § 157- Good Faith requirement –

d. Party has neglected a legal duty when it fails to act in accordance in good faith and with in accordance with reasonable standards of fair dealing.

5. Functions:

a. Brought to rescind the contractb. Contract may be rescinded for unilateral mistake and both parties are made aware of the error.c. The “equitable exception” to the general rule that unilateral mistake does not avoid a contract where rescission

would prejudice the non mistaken party.

6. Damages:a. Reliance damages - given to the non mistaken party

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i. Eg. RRL's offer to pay for Donovan's gas and expenses to go to the dealer would have been given.b. Rationale: the fault still lies with the mistaken party - therefore they are responsible for reliance damages that

result.c. Generally

i. Relief for unilateral mistake will not be granted unless the parties can be placed in a position that will not result in harm to either party except through loss of the bargain

ii. Thus, relief will not be granted unless the other party has:c. Not relied on the promised. Cannot be restored to pre-contractual position through award of reliance damages

D. Transcription mistake [reformation]1. Characteristics:

a. Can only exist in written agreements??b. Typically parties agree to one thing (distinguishes this from a unilateral). One party accidently writes down

something different so both parties are acting under an agreement that is written down wrong.

2. Functions:a. Brought to get reformation of a Contract.

3. Damages:

a. Reformation - the court rewrites the contract to conform to the actual agreement. i. Even if the court reforms the contract reliance damages may be given to the injured person.

b. Burden of proof - mistake party must prove "beyond a reasonable doubt" that there was a specific contractual agreement between the parties and that the written contract mistakenly changed a material term.

c. Not parol evidence because: In both situations one party is trying to bring in evidence of an oral agreement

that changes the application of the existing contract.i. If party is trying to use parol evidence to show a mistake in transcription, then parol evidence will not stand in

the way of bringing in a mistake in transcription. Here the burden of proof is different - "beyond a reasonable doubt' therefore the result is generally the same.

XIII. Failure to Disclose, Concealment, MisrepresentationA. Non Disclosure

1. Something is material if a reasonable person would attach importance to it.2. Intuitively people feel that there is an obligation to disclose information so that one party does not take advantage

of another; however contract law is more rigid.

3. RS2 § 161 - (casebook page 763)a. Illustration 7: Where a party diligently discovers information they do not have a duty to disclose. Where a

party casually knows of information, then they have a duty to disclose.b. Illustration 11: Where a person illegally/tortuously obtains information, then they have a duty to disclose the

information despite discovering the information through diligence. c. Where an expert knows of a material fact by virtue of his knowledge, he does not have a duty to disclose.

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d. A duty to disclose always exists if you are in a fiduciary relationship.

B. Full Disclosure Policy Arguments1. Pros: 1. morality; 2. efficient (agreements reached have a better basis and duplicative research is avoided)2. Cons: Policy concerns: 3. Diligently discovered information: where a company invests in research then it should be allowed to recover its

costs and benefits from the research. If full disclosure was required then there may be less incentive for competitors to do the research and diligent productive work would be punished = less efficient in business. Here the courts do not want to require disclosure. Illustration 2 - page 750.

4. Casually acquired information: A party did not seek the information; however it came none the less. Here the

information may be advantageous; however there is no policy concern that a party would be de-incentivized or punished in disclosing. Here the courts find that there is a duty to disclose

5. Foreknowledge: the law does not distinguish this but is implicitly considered in the policies adopted.

6. Hill v. Jones - Where a seller knows of facts materially affecting the value of the property which are not readily

observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. Here the seller knew of termite problems as evidenced by a prior agreement to get periodic terminate treatments. Seller failed to disclose to buyer and the termite report did not disclose the termite (later the inspector said that the damage was covered up).

C. Active Concealment –

1. Remedies- rescission by the victim

D. Misrepresentation –RS2 § 159 " a statement not in accord with the facts.1. Material misrepresentation is grounds for rescission by the victim2. Us. v. Dial - person asks another to break a ten but gets two $1 bill in return and victim did not know because they

could not read.

XIV. Unexpected CircumstancesA. In General:

1. Situation: Disruption after a contract is made, because of the unexpected one party wants to get out of the contract.

2. Functions: Act as excuses to breach a contract. Where one party does not perform and uses this as a defense.

3. Three Categories: a. Impossibilityb. Impracticabilityc. Frustration of purpose

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B. Impossibility 1. Modern Approach - Two Elements, tests must be met:

a. Impossibility Inquiry - the happening of an unexpected event renders performance impossible.i. Identify the unexpected event

ii. Determine if this event renders performance impossible.

b. Assumption of the risk Inquiry - Was the non-event a tacit assumption on which the contract was made? (Were both parties tacitly assuming that the event would not come up - event was not contemplated by either party because experience intuitively excluded this as something to consider?) (EG. In Taylor the parties tacitly assumed that the building venue would not be burnt down)

i. If so then performance is excused; orii. Was the risk of the event happening assumed by the party breached? (Did the breaching party assume the

risk?)

C. Impracticability

1. Difference here is the impracticability renders the performance very difficult, in impossibility the performance is not possible. Problem this alone undermines the bargain theory of contracts

2. Mineral Rule: To determine if something is impracticable - if performance would cause excessive and unreasonable costs, then it is impracticable.

1. Mineral Park v. Howard- Owner contracts to have a bridge built across a ravine. Owner and contractor agree to use property's resources for gravel and sand, but only half of what is needed was above water; and therefore useable. The material below water was impracticable to use, therefore contractor is justified to buy the material because it was cheaper. Owner is responsible for the change order.

3. Test for Impracticability: a. Was the event unexpected and renders the performance vastly more expensive?b. Assumption of risk inquiry:

i. Tacit Assumption; andii. Was the non event a tacit assumption where the breaching party did not explicitly or implicitly assume the risk

4. Remedy: If the party explicitly assumes the risk then they are responsible for damages and are still bound by the contract

2. Dills v. Town of Enfield - developer explicitly assumes the risk to provide plans and obtain financing. Here the developer breached when he did not provide the plans, citing that it was useless since he could not obtain the financing. Here developer assumed the risks since plans were not dependant on the financing.

D. Frustration of Purpose.

1. Difference here

XV. Performance IssuesA. Good Faith

1. RS2 205 - Common Law: Every contract imposes a duty of good faith and fair dealing.

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a. The standard is imposed to ensure that the parties perform as promised and that a party may not sabotage the contract. Therefore a level of morality is imposed.

b. Where a contract is difficult to perform, affirmative conduct to cure the problem must be made.c. This standard in imposed only on existing contracts, and continuing performance or modifications based

on a contract already in place.

2. UCC-1-304: good faith is honesty and reasonable accordance with industry standards of dealings.

B. Substantial Performance3. Situation: Disruption after a contract is made, because of the unexpected one party wants to get out of the

contract.

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