COMMON LAW (2nd Restatement) UCC (Uniform Commercial Code) : Predominant Purpose Test

COMMON LAW [2nd Restatement] UCC [Uniform Commercial Code]
DEFINITION Anything other than goods. Governs the sale of goods. Goods = moveable, tangible property. Not apply to real estate, $$ or securities.
Common law will fill in gaps where UCC silent. Merchants: person who deals in goods of the kind or otherwise by his occupation holds himself out as having
knowledge or skill peculiar to the practices or goods involved in transaction.
DETERMINE PREDOMINANT PURPOSE TEST:

In mixed contract, must determine whether contract’s predominant factor/purpose, reasonably stated, is rendition of service, w/ goods incidentally involved [Restatement] or transaction for sale of goods, w/ labor
incidentally involved [UCC].
Factors: (1) language of the contract;
(2) nature of the business;
(3) intrinsic worth of materials.
OFFER SECTION 24: An offer is the manifestation of willingness to enter into a bargain, so made as to - Can have an offer that omits critical terms ⇒ price, quantity etc. can be missing & still be offer
justify another person in understanding that his assent to that bargain is invited and will conclude it.
(1) Expression of commitment to a bargain
(2) With reasonably certain terms UCC 2-206: Unless otherwise unambiguously indicated by the language or circumstances:
○ Terms are reasonably certain if they provide basis for determining existence of breach (a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any
and for giving an appropriate remedy medium reasonable in circumstances
(3) Communicated to an offeree
(4) That gives the offeree the reason to believe that acceptance will conclude bargain UCC 2-305: Open Price Term
(1) The parties if they so intend can conclude a contract for sale even though price is not settled. In such
SECTION 26: It is of course possible to make an offer by an advertisement directed to the general a case that price is a reasonable price at the time of delivery if
public, but there must ordinarily be some language of commitment or some invitation to take action (a) Nothing is said as to price; or
without further communication. (b) The price is left to be agreed by the parties and they fail to agree
- Exceptions: Awards, first come first serve (c) The price is to be fixed by some agreed market or other standard set
Ray v. William G. Eurice & Bros., Inc. (XX) →

Lonergan v. Scolnick (sale of land by ad) → If from the circumstances, person to whom
promise or manifestation is addressed knows or has reason to know person making it does not intend
it as an expression of his fixed purpose until he has given a further expression of assent, no offer
Izadi v. Machado Ford (car Ad w/ small print) →A misleading advertisement may operate as an offer
based on the misunderstood meaning even if the party creating the advertisement does not subjectively
intend for it to be an offer.
Normile v. Miller (XX) →
ACCEPTANCE SECTION 50: Acceptance of an offer is a manifestation of assent to the terms thereof made by the UCC 2-204:
offeree in a manner invited or required by the offer. 1. A contract for the sale of goods may be made in any manner sufficient to show agreement, including
- Silence is not acceptance. Must be communicated. conduct by both parties which recognizes the existence of a contract.
2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its
SECTION 27: Later memorialization does not keep from contract unless stated not accept until sign. making is undetermined.
LOOK @ FACTORS 3. Even though 1 or more terms left open, a contract for sale does not fail for indefiniteness if parties
have intended to make a contract and there is a reasonably certain basis for providing a remedy.
SECTION 32: In case of doubt an offer is interpreted as inviting offeree to accept either by promising
to do what the offer requests or by rendering the performance, as the offeree chooses.
SECTION 60: If offer prescribes place, time, or manner of acceptance its terms in this respect must E.C. Styberg Engineering Co. v. Eaton Corp (XX) →
be complied with in order to create a contract.
MAILBOX RULE: Acceptance of a bilateral contract is at the point of dispatch in the mail, not
receipt by owner, unless contract stipulates receipt required for acceptance.
OFFEREE MUST KNOW OF CONTRACT.

OBJECTIVE TEST.
Cook v. Coldwell Banker/Frank Laiben Realty Co. (XX) →

Walker v. Keith (XX) →
Quake Construction, Inc. v. American Airlines, Inc. (bid for construction) → fact that they
contemplated formal agreement in writing does not mean prior agreements mere negotiations; ct ruled
no contract until signed written contract b/c AA stated not bound until signed
MUTUAL ASSENT SECTION 17: the formation of a contract requires a bargain in which there is a manifestation of No mirror image requirement.
mutual assent to the exchange AND a consideration.
MIRROR-IMAGE RULE: The mirror image rule requires the offer to be accepted “as is” for a Jannusch v. Naffziger (food truck sale) →
contract to be formed. Once an offer is accepted, the parties have a legal agreement.
- If the party accepts the offer but changes one term, a contract does not exist under mirror
image rule. Rather, acceptance w/ changed term becomes rejection/counteroffer to be
accepted or rejected by other party.
REVOCATION/ SECTION 35: Power of Acceptance

TERMINATION An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by
acceptance of the offer.
- Contract cannot be created by acceptance after power of acceptance terminated.
SECTION 36: Methods of Termination - Offeree’s power of acceptance may be terminated by

(a) Rejection or counteroffer by offeree
(b) Lapse of time
(c) Revocation by the offeror
(d) Death or incapacity of offeror (before acceptance) or offeree
SECTION 43: The offeree’s power of acceptance is terminated when offeror takes definite action
inconsistent w/ an intention to enter into proposed contract and offeree acquires reliable information
to that effect.
An offeror can revoke an offer at any time prior to acceptance.
OPTION Option Contract: offer and separate consideration provided to keep that offer open for a specific UCC 2-205: Firm Offer - Merchant:
CONTRACT amount of time. The offer is irrevocable until the specified time. - (1) If a merchant;
- (2) Offers to buy or sell goods in a signed writing; and
- (3) The writing gives assurances that it will be held open (e.g., “this offer will be held open for 10
days,” “this offer is firm for 10 days,” “I shall not revoke this offer for 10 days”);
- (4) The offer is not revocable for lack of consideration during the time stated, or if no time is stated,
for a reasonable time (but in no event may such period exceed three months).
UNILATERAL SECTION 45: Option Contract Created by Part Performance
CONTRACT 1. Where an offer invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
2. The offeror’s duty of performance under any option contract so created is conditional on
completion or tender of the invited performance in accordance with the terms of the offer.
Beginning performance suspends the offeror’s ability to revoke the offer of a unilateral contract.
- Offeror must gain notice that offeree began performance though
CONSIDERATION SECTION 71: Requirement of an Exchange:

1. To constitute consideration, a performance or a return promise must be bargained for.
2. A performance or return promise is bargained for if it is sought by the promisor
in exchange for his promise and is given by the promisee in exchange for that promise.
- In typical bargain, the consideration and the promise bear a reciprocal relation of motive or
inducement: consideration induces the making of the promise and the promise induces the
furnishing of the consideration.
- Benefit-Detriment no longer test, but can be factor
SECTION 71: The performance may consist of

(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
SECTION 79: If the requirement of consideration is met, there is no additional requirement of (a) a
gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee.
- no requirement that exchange be equivalent; ct will not inquire into adequacy of consideration.
Hamer v. Sidway (uncle promise $$) → benefit-detriment test; restricted legal right to drink &
gamble so consideration
Pennsy Supply Inc. v. American Ash Recycling Corp. of PA (AggRite) →
Dougherty v. Salt (aunt check) → false recital of a consideration is not sufficient; no “value
received”
Plowman v. Indian Refining Co. (workers on retirement list) →
Mills v. Wyman (dead son) → moral consideration & past consideration does not constitute
consideration; son already dead when promise made
Marshall Durbin Food Corp v. Baker (promised retirement pension when CEO die) → Illusory
promise does not make forming a contract impossible. illusory promise can create unilateral contract
Batsakis v. Demotsis (Greek WWII $) → mere inadequacy of consideration will not void a contract
BATTLE OF THE FORMS [UCC 2-207]:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those
offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
- This becomes a counteroffer which the original offeror must assent to and the power of acceptance has been created in them.
- If no assent from original offeror, contract is not formed. Then go on to subsection (3) to determine if contract based on conduct of the parties.
(2) The additional terms are to be construed as proposals for addition to the contract.
- Must have explicit agreement to the proposed terms or they are not added.
(2) Between merchants such terms become part of the contract unless: **Different terms are knocked out**
● (a) the offer expressly limits acceptance to the terms of the offer;
○ Original offer limits acceptance to the terms of the offer only.
● (b) they materially alter it; or
- Materially alters if causes unreasonable surprise ⇒ Would a reasonable merchant have consented to the term as presented? Do the additional terms cause unreasonable surprise?
- Comment 4 & 5: indemnity clause,
- Hardship is a consequence of unreasonable surprise. Hardship does not materially alter.
● (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the
terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
- If no written document, does the conduct demonstrate a contract? If yes, then agreed terms are included. UCC gap fillers -- warranties, open price term, etc.
- If failed to form a contract and performed anyway, still find contract and the terms are the agreed to terms. Matching Rule.
Princess Cruises v. General Electric Co. (XX) →

Brown Machine v. Hercules, Inc. (XX) →
Paul Gottlieb v. Alps South Corp. (XX) →
Knockout Rule: different terms knock each other out and neither of them become part of the contract
GETS RID OF UNDER COMMON LAW:

Mirror Image Rule: do not have to have mirror image of terms; not construed as rejections/counteroffer
Last Shot Rule: party impliedly assented to and thereby accepted a counter-offer by conduct indicating lack of objection to it.
- Under the last shot rule, the acceptance does not necessarily have to match the offer word for word.
- Typically, favors sellers b/c last to send terms.
ELECTRONIC CONTRACTS:
BROWSEWRAP SHRINKWRAP CLICKWRAP
DEF Info made available by Internet providers on their websites that is often free of Purchaser orders a product & when receives physical possession, it is in Before completing purchase, purchaser must scroll through seller’s
charge and often involves information that user accesses but does not download box and wrapped in plastic → box contains seller’s contract terms and terms and click button saying “I agree” or “Submit”
- Terms of use are posted on website & by using website, user agrees to purchaser’s use of product will constitute agreement - If purchaser refuses to do so, seller will not complete sale
provider’s terms of use - Purchaser has opportunity to inspect product & review terms - Software purchase, Internet purchases, etc.
- Purchaser can return product w/in specific amount of time; if not,
agree to terms
- Considered: rolling contracts, layered contracts
RULE Browsewrap Transaction Rule: Shrinkwrap Transaction Rule: Typically, enforceable b/c user must select “I agree” to the
- For browsewrap terms and conditions on a website to become part of a - In a consumer transaction in which terms and conditions are terms before proceeding.
contract for sale of goods purchased thru website, party arguing terms were included in the package with delivery of the goods, a contract is
part of contract must show that user either had actual notice of formed when the consumer retains the goods after having a
terms/conditions or a reasonable user of website would have had notice. reasonable opportunity to refuse the enclosed terms.
- A reasonable user has notice of terms and conditions if such terms and - For the enclosed terms to become part of the contract, the consumer
conditions ae prominently displayed on website. Terms and conditions are must have been placed on clear notice that by accepting the product,
not prominently displayed merely b/c a link to terms and conditions is the consumer is accepting the enclosed terms and that the consumer
available if user scroll to the bottom of page. can reject them by returning the product.
CASES Himes v. Overstock.com (XX) → DeFontes v. Dell (XX) →
PROMISSORY ESTOPPEL:
- Consideration must be bargained-for; if there is no quid pro-quo
- Legally imposed bar on a party resulting from that party’s own conduct
- Estoppel acts as a block from allowing party to argue lack of consideration
- “Contracts without consideration” -- promise that is going to be enforced even though there is no consideration [no bargain-for exchange]
- Liability in the absence of bargain-for exchange
Section 90: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or third person, which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.
● (1) there was a promise
● (2) reliance on promise must be reasonably foreseeable
○ COULD THE OFFEROR HAVE REASONABLY FORESEEN THESE ACTIONS?
● (3) promise must actually induce reliance
○ DID THE OFFEREE ACT BASED ON THIS PROMISE?
● (4) Injustice can be avoided only be enforcement of the promise
○ WAS THE OFFEREE’S RELIANCE REASONABLE?
○ WHAT FORMALITY WAS THE PROMISE MADE?
○ **General Rule: some detrimental reliance and that reliance is reasonable, then injustice occurs [bar is not that high] → protecting detrimental reliance that is reasonable
Harvey v. Dow (daughter built house on parents’ land) → can use promissory estoppel to enforce general/implied promise to give land; parents conduct shows promise, building foreseeable, promise induced house, injustice cannot
be served w/out enforcement b/c paid $200K on immovable house
Katz v. Danny Dare (worker w/ memory loss from robbery; pension plan) → detrimental reliance on the promise
Berryman v. Kmoch (XX) →
STATUTE OF FRAUDS:
RULE SECTION 110: requires contract to be evidenced in writing signed by party against whom enforcement is sought UCC 2-201: requires contract to be evidenced in writing signed by party against whom enforcement is sought
- (a) contract of an executor or administrator to answer for a duty of his decedent ⇒ AFFIRMATIVE DEFENSE
- (b) contract to answer for the duty of another - Requires “some writing sufficient to indicate that a contract for sale has been made between the
- (c) contract made upon consideration of marriage parties”
- (d) a contract for the sale of an interest in land - Does not require the writing to contain all the essential terms. Only needs to be parties to be bound and
- (e) a contract that is not to be performed within one year from the formation quantity term that identifies the goods required.
- Where any promise in a contract cannot be fully performed within a year from the time the - More expansive list of exceptions
contract is made, all promises in the contract are within the Statute of Frauds until one party to
the contract completes his performance.
- When one party to a contract has completed his performance, the one-year provision of the
Statute does not prevent enforcement of the promises of other parties.
- Part performance can be enforced in the purchase of land w/ no writing if part performance
reasonably leads one to think completed ⇒ MUST HAVE paid entire purchase price AND
obtained possession of the land w/ assent of seller & made improvements.
How to Apply:
(1) Whether a contract falls within the scope of the statute? Is the contract covered by the statute of frauds?
○ IF NO, the SOF is not a bar to enforcement
○ IF YES, proceed to question 2
(2) If the SOF applies, is there a (memo) writing signed by the party against whom enforcement is sought
that satisfies the requirements of the statute? [look @ section #s that were assigned for reqs]
○ IF YES, the SOF is not a bar to enforcement.
○ IF NO, proceed to question 3
(3) Is the SOF applies and there is no writing that satisfies the requirements of the statute, does an
exception apply?
○ IS YES, the SOF is not a bar to enforcement.
exceptions are: admission, performance,
and promissory estoppel
○ IF NO, the alleged contract is not enforceable.
CASES Crabtree v. Elizabeth Arden Sales (employment contract for 2 yrs) → two or more documents may be Buffaloe v. Hart (UCC Statute of Frauds; tobacco rental barns) →
combined to form a writing that complies w/ statute if the documents, taken together, contain all the essential
terms, at least one of the documents is signed by the party to be charged, the unsigned docs shows on its face that
it relates to the same transaction, and the evidence shows assent to the unsigned writing. Unsigned doc need not
contain an explicit reference to signed doc; Parol evidence may be introduced to show assent to the unsigned doc.
Alaska Dem. Party v. Rice (promised position in Alaska for Dem Party) → Promissory Estoppel exception to
the Statute of Frauds; fell w/in 1 year provision of statute of frauds b/c 2 year employment contract
- SECTION 139: Promise; reliance on promise must be reasonably foreseeable; Promise must actually
induce reliance; Injustice can only be avoided by enforcement of the promise
- Injustice Factors: whether other remedies (particularly) restitution available; whether reliance is
definite and substantial; clear and convincing evidence of promise & its terms; reasonableness of
reliance; foreseeability of reliance
- More than a preponderance of the evidence standard
INTERPRETING TERMS OF CONTRACT:

EXTRINSIC EVIDENCE:
● Trade Usage: a usage having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to a particular agreement
● Course of Dealing: sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct
○ How these two parties interacted / performed under PREVIOUS contracts.
● Course of Performance: Where an agreement involves a repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of
performance accepted or acquiesced in without objection is given great weight in its interpretation of the agreement.
○ How these two parties interacted / performed under THIS contract.
● NOTES:
○ Greatest weight given to express terms even if conflicting with custom trade usage.
○ Course of performance under given contract given greater weight than course of dealings and trade usage
○ Course of dealing given greater weight than trade usage
HOW TO APPLY:
1. Apply the rules.
2. Try to figure out the subjective intent of each party.
3. Determine if either party knew or reason to know.
4. Use principles to analyze.
5. Apply public policy and rule of ambiguity.
6. If not, failure of mutual assent. But is it practical to unwind the transaction?
7. Is it feasible to supply a reasonable term to replace the one disputed?
Joyner v. Adams (lease w/ “completed development” dispute) →

Frigaliment Importing Co. v. B.N.S. International Sales Corp. (what is chicken?) → patent ambiguity
DEFS 1. Is there a written expression of agreement and, if so, what is the level of UCC 2-202: Parol Evidence Rule ⇒ key distinctions
integration? - Contemplates Battle of the Forms scenario
○ Completely = all terms there, final & exclusive - Vocabulary of “integration”
○ Partially = final w/ respect to terms therein but not exclusive
■ Modern law allows extrinsic evidence to determine level of completion - Course of dealing, course of performance, trade usage presumed to be part of the agreement. Admissible to
■ No longer four corners approach [conservative approach] & merger conclusive explain or supplement written agreement unless carefully negated.
2. Is the parol evidence (written/oral extrinsic to writing) offered to contradict, - Trade usage
supplement, or explain the agreement? - Course of dealing and course of performance ⇒ need ambiguity first
○ Completely = allow extrinsic evidence to EXPLAIN terms
- More liberal standard for admitting evidence of “collateral terms”
○ Partially = allow evidence to SUPPLEMENT terms not there & EXPLAIN terms there
○ Never allow contradicting terms
3. If excluded, any “exceptions” that would allow the admission of the parol evidence?
○ (1) COLLATERAL AGREEMENT → related to but separate & distinct
■ Test #1: [easy cases - separate consideration]
● Does the collateral agreement contradict the terms of the writing?
● If not, was collateral term agreed to in separate consideration from that in
written agreement?
■ Test #2:
● In the circumstances, would reasonable parties ordinarily have included the
term in the written agreement?
○ If YES, then exception not apply; PRE excludes evidence of collateral
term.
○ IF NO, then exception does apply; evidence of the collateral term
admissible.
○ (2) EXPLANATION/INTERPRETATION WRITTEN TERMS →
■ Judge considers offered evidence and if finds contract language is “reasonably
susceptible” to interpretation asserted by its proponent, evidence admissible to
determine meaning intended by parties. Sliding Scale ⇒ Proferred interpretation
that is highly improbable would necessarily require very convincing evidence.
● Judge hears evidence off camera; has a lot of discretion regarding what is
permitted.
■ If reasonably susceptible to interpretation, trier of fact considers extrinsic
evidence to determine what parties meant.
○ (3) AGREEMENT SUBSEQUENT to EXECUTION of WRITTEN DOCUMENT
○ (4) INVALIDATE CONTRACT
○ (5) SCRIVENER’S ERROR: RESCISSION OR REFORMATION
Liberal Approach: If there is credible extrinsic evidence that suggests that the parties had another intent,
allows court to consider that evidence and the level of integration in camera.
- Merger Clause not conclusive. Lot of discretion. Some think this undermines parol evidence rule.
- If court finds ambiguity upon review, can permit admission of evidence.
**if given facts w/ a merger clause & some info that it was BARGAINED for [initialed next to it, not just
boilerplate lang] then it is CONCLUSIVE.
PAROL EVIDENCE: ⇒ -
- When the parties to a contract have agreed to incorporate a final version of their entire agreement
RULES in a writing, neither party will be permitted to contradict or supplement that written agreement
with “extrinsic” evidence of prior agreements or negotiations between them.
- When the writing is intended to be final only with respect to a part of their agreement, the writing
may not be contradicted, but it may be supplemented by such extrinsic evidence.
- Only used to exclude evidence. Only about prior/contemporaneous negotiations.
CASES Thompson v. Libby (trying to add warranty of logs into contract; Collateral Exception) → when
transaction on its face proposes entire agreement, cannot present parol evidence; doc was completely
integrated -- final & exclusive; warranty is clearly a part of sale agreement and not there so cannot present
evidence b/c not collateral
Mitchell v Lathe (house ugly ice shed; Collateral Exception) → no separate consideration & oral
agreement would have been included in written doc for house sale; no extrinsic evidence b/c not collateral
- Collateral Agreement Test:
- (1) The agreement must in form be collateral one;
- (2) Must not contradict express or implied provisions of written contract;
- (3) Must be 1 that parties would not ordinarily be expected to embody in the writing
Taylor v. State Farm Mutual Automobile (car accident insurance; Explain/Interpret Exception) →
trying to explain/interpret what provision for release meant; release reasonably susceptible to contractual
claims & not tort claims. LIBERAL APPROACH APPLIED.
IMPLIED GOOD FAITH:
Section 205: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
- Neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. ⇒ Implied Good Faith and Fair Dealings in the Contract
- Party of a contract cannot unreasonably frustrate the purpose of the contract.
- Good faith performance emphasizes faithfulness to the agreed common purpose and consistency with the justified expectations of other party.
- Situations of implied good faith:
- (1) when contract does not provide a term necessary to fulfill parties’ expectations
- (2) when bad faith served as pretext for exercise of contractual right to terminate
- (3) when contract expressly provides a party with discretion regarding its performance
Wood v. Lucy, Lady Duff-Gordon (Titanic fashion designer, exclusive) → implied term of best efforts for business efficacy
Leibel v. Raynor Manufacturing Co. (dealer-mfr relationship garages) →
Seidenberg v. Summit Bank (bank consulting) → other party cannot act to deny the other party the fruits of the contract
SATISFACTION CLAUSES [Section 228]: When one party’s duty to perform is dependant on the party’s satisfaction, and it is reasonable to apply the objective standard, then apply the objective standard.
- OBJECTIVE: Reasonable person standard is employed when contract involves commercial quality, operative fitness, or mechanical utility which other knowledge persons can judge.
- SUBJECTIVE: The standard of good faith is employed when contract involves personal aesthetics or fancy.
Morin Building Products v. Baystone Construction (aluminum walls construction) → objective standard; construction of factory w/ specified material -- reasonable person can determine if met satisfaction; party did not
intend to subject work to the aesthetic whim of the other party
Locke v. Warner Bros., Inc (Clint 90s love meltdown) → subjective standard; did Warner honestly reject P’s proposals on the merits? Evidence to suggest that Warner did not in good faith reject project proposals but b/c only in
contract w/ her for Clint Eastwood to settle lawsuit
WARRANTIES:
EXPRESS WARRANTY IMPLIED WARRANTY OF MERCHANTABILITY IMPLIED WARRANTY OF FITNESS FOR
PARTICULAR PURPOSE
RULE UCC 2-313: UCC 2-314: Merchant who regularly sells goods of particular kind UCC 2-315:
(1) 1 of 3 communications from Seller impliedly warrants to buyer that goods are of good quality and are fit for the - (1) Seller knows or has reason to know that the Buyer intends to
- Affirmation of fact or promise made by seller ordinary purposes for which such goods are used. use the good for a particular purpose AND
- Description of the goods; OR - Pass without objection in the trade; OR - (2) Seller knows or has reason to know that the Buyer is relying on
- Sample / model of the goods - Significant segment of buying public would object to the Seller’s skill or judgment to select or furnish the right goods.
AND purchasing the good
(2) That communication is part of the basis of the bargain - Are fit for the ordinary purposes for which such goods are used
- Buyer reliance on communication? - Whether goods are reasonably capable of performing function
- Communication not merely commendation, opinion or
affirmation of value Seller must actually choose or recommend a product to the Buyer.
Buyer must in fact rely on Seller’s skill or judgment.
Does not require seller have intent to create an express warranty. Merchant who regularly sells goods of a particular kind impliedly warrants
Can be oral expression or diagrams/description of product. to the buyer that the goods are of good quality and are fit for the ordinary
Buyer must have been aware of express warranty to be basis of bargain. purposes for which they are used Not strictly limited to merchant sellers.
- Statements that are objective & capable of verification Do not have to show product is defective.
- NOT statements of mere opinion.
UCC 2-316 - EXCLUSION: UCC 2-316 - EXCLUSION: UCC 2-316 - EXCLUSION:

Words or conduct relevant to the creation of an express warranty and - Language must mention “merchantability” and be conspicuous; OR - Language must be in writing and conspicuous OR
words or conduct tending to negate or limit warranty shall be construed - Language such “as is” or with all faults must be used - Language such “as is” or with all faults must be used
wherever possible as consistent with each other.
- If express warranty made, general disclaimer of express warranty
insufficient b/c want to protect buyers from two-faced sellers.
CASE Bayliner Marine Corp. v. Crow (offshore fishing boat) → no express warranty b/c P did not buy particular boat discussed -- not substantially similar & comments by D mere opinion in brochure; P lacked evidence for
implied warranty of merchantability & still logged 850 hrs on it; seller did not select the boat so cannot be implied warranty for fitness for particular purpose
ATTACK OUTLINE:
1. What source of law governs the transaction?

○ Restatement (Common Law): everything but goods
○ UCC: sale of goods; Goods are defined as tangible, moveable property. Does not apply to real estate, money, or securities.
■ Merchant is defined as person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in transaction.
○ Predominant Purpose Test: In mixed contract, must determine whether contract’s predominant factor/purpose, reasonably stated, is rendition of service, w/ goods incidentally involved [Restatement] or
transaction for sale of goods, w/ labor incidentally involved [UCC]. When determining, analyze:
● (1) language of the contract;
○ More about the goods or services?
● (2) nature of the business;
○ Are they known for services or goods?
● (3) intrinsic worth of materials.
○ Value of the goods versus the value of the services
2. Did the parties form a contract?
○ CONTRACT:
■ SECTION 1: A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
■ SECTION 2: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.
● OBJECTIVE STANDARD: manifestation of intention is not about the subjective intent of the party, but what a reasonable offeree would infer from offeror’s words or conduct
■ SECTION 3: Agreement is a manifestation of mutual assent on part of 2 or more persons. Bargain is an agreement to exchange promises or exchange a promise for performance or to exchange performances.
■ SECTION 4: A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
○ MUTUAL ASSENT: Meeting of the Minds
■ SECTION 17: Contract formation requires a bargain in which there is manifestation of mutual assent and consideration. Manifestation of mutual assent typically takes the form of an offer and acceptance.
■ SECTION 22: Offer and Acceptance Mode
● (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.
● (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.
■ OBJECTIVE- SUBJECTIVE TEST ⇒ REASONABLE PERSON: manifestation of mutual assent through words or conduct, regardless of subjective intent, legally sufficient to find binding contract
● Evidence of the party’s state of mind may sometimes be relevant in interpreting or giving context to a party’s words or conduct, given testimony is credible -- allow subjective intent if not contradict
● Duty to read terms that party is assenting to b/c bound by objective indication of assent to terms
● RATIONALE: not strict objective test b/c sometimes people attach different understandings & want to avoid injustice, BUT also want people to be reasonably rely on transactions; Balancing the
requirements of assent with the protection of reasonable reliance
○ OFFER:
■SECTION 24: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
● 1. Expression of commitment to a bargain
○ Not mere preliminary negotiations or agreements to agree
● 2. With reasonably certain terms
○ Terms are reasonably certain if they provide basis for determining existence of breach and for giving an appropriate remedy
○ If one or more terms are left open, may demonstrate that party does not intend to be bound and is just entering preliminary negotiations
○ May describe the mode and time of acceptance ⇒ if not reasonable time
● 3. Communicated to an offeree
● 4. That gives the offeree the reason to believe that acceptance will conclude bargain
○ No requirement of further assent by the offeror
■ SECTION 26: It is of course possible to make an offer by an advertisement directed to the general public, but there must ordinarily be some language of commitment or some invitation to take action
without further communication.
● Exceptions: Awards, first come first serve
■ SECTION 41: Lapse in Time - Offer Expires Before Acceptance
● An offeree's power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.
● What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.
■ Ray v. William G. Eurice & Bros., Inc. (XX) →
■ Lonergan v. Scolnick (XX) →
■ Izadi v. Machado Ford (XX) →
■ Normile v. Miller (XX) →
○ ACCEPTANCE:
■ SECTION 50: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
● Silence is not acceptance. Must be communicated.
■ SECTION 60: If offer prescribes place, time, or manner of acceptance its terms in this respect must be complied with in order to create a contract.
● If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded.
● Acceptance by performance operates as a promise to render complete performance under bilateral contracts.
○ Unilateral contracts become option contracts where performer can abandon before completion.
■ SECTION 63: Unless the offer provides otherwise:
● (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes manifestation of mutual assent as soon as put out of offeree's possession, without regard to
whether it ever reaches the offeror.
○ MAILBOX RULE: Acceptance of a bilateral contract is at the point of dispatch in the mail, not receipt by owner, unless offer stipulates receipt required for acceptance.
■ In absence of specifications for acceptance in offer, acceptance takes effect as soon as it is put out of offeree’s possession [provided it is done in a manner and medium expressly
or implied authorized in offer]. If acceptance by mail is permissible, acceptance occurs as soon as the offeree deposits a properly stamped and addressed acceptance in the mail.
○ IF mail rejection and acceptance, acceptance must be received prior to rejection to be valid. [schizophrenic buyer]
○ Rejection is only valid upon receipt, not when deposited.
○ Does NOT apply to option contracts ⇒ must make sure acceptance actually is received by offeror
■ SECTION 27: Later memorialization does not keep from forming a contract based on prior agreements unless one or more parties stated that no contract is formed until formal memorialization in writing.
Circumstances may show that prior agreements were merely negotiations and contract is not formed until formal contract.
● FACTORS:
○ 1. Have the parties manifested their intention to be bound or not bound in their prelim writings?
○ 2. Is this type of agreement usually put in writing?
○ 3. Will the final agreement contain many details? Did parties agree on essential terms of bargain?
○ 4. Does it involve a large amount of money?
○ 5. Did negotiations indicate that a formal written document was contemplated at the end of the negotiation?
○ 6. When in the process were the negotiations abandoned?
○ 7. Did the party seeking to disclaim a contract give assurances that induced the other party’s reliance on the anticipated transaction?
■ SECTION 30:
● (1) An offer may invite or require acceptance to be made by affirmative answer in words, or by performing or refraining from performing specified act.
● (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.
■ SECTION 32: In case of doubt an offer is interpreted as inviting offeree to accept either by promising to do what the offer requests or by rendering the performance, as the offeree chooses.
● Offeree can either make a promise to perform or accept by actual performance.
● Offeror must be made aware that offeree has started performance.
■ SECTION 33: Fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance
■ MIRROR IMAGE RULE: The mirror image rule requires the offer to be accepted “as is” for a contract to be formed. Once an offer is accepted, the parties have a legal agreement.
● If the party accepts the offer but changes 1 term, a contract does not exist. Rather, acceptance w/ changed term becomes rejection/counteroffer to be accepted or rejected by original offeror party.
● Power of acceptance is terminated in the offeree.
■ Cook v. Coldwell Banker (XX) →
■ Walker v. Keith (XX) →
■ Quake Construction, Inc. v. American Airlines, Inc. (bid for construction) → fact that they contemplated formal agreement in writing does not mean prior agreements mere negotiations; ct ruled no contract
until signed written contract b/c AA stated not bound until signed
○ BILATERAL CONTRACT:
■ Future promise to perform on both sides.
○ REVOCATION / TERMINATION:
■ An offeror, as master of the offer, can revoke an offer at any time prior to acceptance.
■ SECTION 35: Power of Acceptance
● An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer.
○ Contract cannot be created by acceptance after power of acceptance terminated.
■ SECTION 36: Methods of Termination - Offeree’s power of acceptance may be terminated by
● Rejection or counteroffer by offeree
● Lapse of time
● Revocation by the offeror
● Death or incapacity of offeror (before acceptance) or offeree
■ SECTION 43: Offeree’s power of acceptance is terminated when offeror takes definite action inconsistent w/ an intention to enter into proposed contract and offeree acquires reliable information to that effect.
○ UNILATERAL CONTRACT:
■Contract created by an offer than can only be accepted by performance. Contract not fulfilled or accepted until performance completed.
● EX: Will sell Greenacre to you for $2M. To accept, must send $2M to my bank account.” Acceptance is only be complete performance.
■ SECTION 32:
● In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
○ If ambiguous to if the offer can be accepted by return promise or actual performance, offeree gets to choose which mode.
■ Where performance cannot be completed instantly, the unilateral contract becomes an option contract at the moment that offeree begins performance and holds the contract open [unable to be revoked] until
performance completed or offeree abandons.
■ NOTICE: Offeree does not have to give notice to the offeror of performance. Typically, receive notice through the performance.
● However, if offeree has reason to know that offeror has no reasonably prompt and reliable means of learning of the performance or not rendered directly or in presence of offeror, then DUTY TO NOTIFY.
○ OPTION CONTRACT: consideration given to keep contract open for a period of time where offeror cannot revoke.
■ SECTION 45:
● (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when offeree tenders or begins invited
performance or tenders a beginning of it.
● (2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
■ SECTION 87:
● (1) An offer is binding as an option contract if it:
○ (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
○ (b) is made irrevocable by statute.
● (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or
forbearance is binding as an option contract to the extent necessary to avoid injustice.
■ SECTION 63:
● (b) Acceptance under an option contract is not operative until received by the offeror.
○ MAILBOX RULE DOES NOT APPLY TO OPTION CONTRACTS.
○ FIRM OFFER:
■ UCC 2-205:
● (1) If a merchant;
● (2) Offers to buy or sell goods in a signed writing; and
● (3) The writing gives assurances that it will be held open (e.g., “this offer will be held open for 10 days,” “this offer is firm for 10 days,” “I shall not revoke this offer for 10 days”);
● (4) The offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months).
○ NOTES: Period that offer held open cannot exceed 3 months; does not need consideration from buyer to keep open
○ CONSIDERATION:
■ SECTION 17: the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange AND a consideration.
■ SECTION 71: Requirement of an Exchange:
● 1. To constitute consideration, a performance or a return promise must be bargained for.
● 2. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
○ In typical bargain, consideration and promise bear a reciprocal relation of motive or inducement ⇒ consideration induces promise and promise induces furnishing of consideration
○ Benefit-Detriment no longer test, but can be factor in determining if consideration met
■ SECTION 71: The performance may consist of
● (a) an act other than a promise, or
● (b) a forbearance, or
● (c) the creation, modification, or destruction of a legal relation.
○ Hamer v. Sidway (uncle promise $$) → benefit-detriment test; restricted legal right to drink & gamble so consideration as forbearance from action
■ SECTION 79: If the requirement of consideration is met, there is no additional requirement of
● (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; OR
● (b) equivalence in the values exchanged; OR
● (c) mutuality of obligation
○ Batsakis v. Demotsis (Greek WWII $) → mere inadequacy of consideration will not void a contract; US $$ to Greek $$ not equal but does not matter that unequal; Court will not
inquire into adequacy!!
■ NO CONSIDERATION:
● Gratuitous (promise of a gift)
● “Past” consideration
○ Plowman v. Indian Refining Co. (workers on retirement list) → promise to pay workers half their salary in retirement for their hard work throughout long employment is not
consideration b/c past consideration; promise did not induce performance; going to office to pick up checks not consideration wither
● “Moral” consideration
○ Mills v. Wyman (dead son) → moral consideration & past consideration not constitute consideration; son already dead when promise made so promise did not induce performance;
moral consideration can only exist if there is a legal duty between the parties [none here]
● Party that performs not actually aware of the promise
● False recital of consideration
○ Dougherty v. Salt (aunt check) → false recital of a consideration is not sufficient; no “value received;” trying to give gift that did not receive consideration; gratuitous gift
● Nominal or sham consideration
● Illusory promise
○ Marshall Durbin Food Corp v. Baker (promised retirement pension when CEO die) → Illusory promise does not make the forming of a contract impossible. An illusory promise can
create an unilateral contract; since P performed by taking a forbearance of looking for other employment until triggering condition, supplied consideration and completed performance
■ Pennsy Supply Inc. v. American Ash Recycling Corp. of PA (AggRite) → gave AggRite for free & claiming gratuitous gift; but got rid of it without having to deal with cost of destroying safely [benefit]; do
not need to actually engage in bargaining in order for there to be bargain-for-exchange
○ BATTLE OF THE FORMS:
■ UCC 2-207:
● (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or
different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
● (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
○ (a) the offer expressly limits acceptance to the terms of the offer;
○ (b) they materially alter it; or
○ (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
● (3) Conduct by both parties which recognizes existence of a contract is sufficient to establish a contract for sale although writings of the parties do not otherwise establish a contract. In such case
the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
■ Princess Cruises v. General Electric Co. (XX) →
■ Brown Machine v. Hercules, Inc. (XX) →
■ Paul Gottlieb v. Alps South Corp. (XX) →
3. If the parties formed a contract, is it unenforceable for failure to satisfy the Statute of Frauds?
○ STATUTE OF FRAUDS:
■ SECTION 110: requires contract to be evidenced in writing signed by party against whom enforcement is sought.
● (a) contract of an executor or administrator to answer for a duty of his decedent
● (b) contract to answer for the duty of another
● (c) contract made upon consideration of marriage
● (d) a contract for the sale of an interest in land
○ Section 129: Part performance can be enforced in land purchase if part performance reasonably leads 1 to think completed ⇒ MUST HAVE paid entire purchase price AND obtained
possession of land w/ assent of seller & made improvements. Reliance doctrine specifically for land interest transfer.
● (e) a contract that is not to be performed within one year from the formation
○ Section 130: Where any promise in contract cannot be fully performed within 1 year from time contract is made, all promises in contract are within Statute of Frauds until 1 party
completes performance. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties.
○ EXCEPTIONS:
■ Promissory Estoppel [SECTION 139]:
● Promise;
● Reliance on promise must be reasonably foreseeable;
● Promise must actually induce reliance;
● Injustice can only be avoided by enforcement of the promise
○ Injustice Factors:
■ whether other remedies (particularly) restitution available;
■ whether reliance is definite and substantial;
■ clear and convincing evidence of promise & its terms;
■ reasonableness of reliance;
■ foreseeability of reliance
○ **More than a preponderance of the evidence standard**
○ Crabtree v. Elizabeth Arden Sales (employment contract for 2 yrs) → two or more documents may be combined to form a writing that complies w/ statute if documents, taken together, contain all te essential
terms, at least 1 of the documents is signed by party to be charged, the unsigned docs shows on its face that it relates to the same transaction, and the evidence shows assent to the unsigned writing. Unsigned doc
need not contain an explicit reference to signed doc; Parol evidence may be introduced to show assent to the unsigned doc.
■ SECTION 132: The memorandum may consist of several writings if 1 of the writings is signed and writings in the circumstances clearly indicate that they relate to same transaction.
○ Alaska Dem. Party v. Rice (promised position in Alaska for Dem Party) → Promissory Estoppel exception to the Statute of Frauds; fell w/in 1 year provision of statute of frauds b/c 2 year employment contract;
relied on the promise to her detriment; moved to Alaska and turned down another job
4. If the parties failed to form a contract, is there an alternative basis for liability?
○ PROMISSORY ESTOPPEL [alone]:
■ Section 90: A promise which promisor should reasonably expect to induce action or forbearance on part of promisee or third person, which does induce such action or forbearance is binding if injustice
can be avoided only by enforcement of promise.
○ Could the offeror have reasonably foreseen offeree’s actions?
○ Did the offeree act based on this promise?
○ Was the offeree’s reliance reasonable?
○ What formality was the promise made?
○ General Rule: some detrimental reliance and that reliance is reasonable, then injustice occurs [bar is not high] → protecting detrimental reliance that is reasonable
■ Harvey v. Dow (daughter built house on parents’ land) → can use promissory estoppel to enforce general/implied promise to give land; parents conduct shows promise, building foreseeable, promise
induced house, injustice cannot be served w/out enforcement b/c paid $200K on immovable house
■ Katz v. Danny Dare (worker w/ memory loss from robbery; pension plan) → detrimental reliance on the promise
■ Berryman v. Kmoch (XX) →
5. If there is an enforceable contract, what are its terms, and what do they mean?
○ INTERPRETING TERMS:
■ Express Terms:
● One party knows or has reason to know other party’s interpretation ⇒ other party’s interpretation holds
● Neither party know or have reason to know ⇒ no manifestation of mutual assent
○ Both parties know or have reason to know ⇒ no manifestation of mutual assent
● One party knows other party’s interpretation and other party has reason to know other party’s interpretation ⇒ degrees of wrongness???? Or no manifestation of mutual assent?
● Both subjectively use different meanings than meaning will hold ⇒ use that meaning
■ Implied Terms:
● Good Faith & Fair Dealing
○ Satisfaction Clause
○ PAROL EVIDENCE RULE: excludes extrinsic evidence of prior / contemporaneous agreements not included in the final agreement that contradict or vary the terms included in that final written
expression
■ SECTION 213:
● To the extent that the parties execute a writing that is and is intended to be a final expression of their agreement, no parol evidence may be admitted to supplement, explain or contradict that final.
○ Applies to both oral and written prior to final expression. However, only applies to contemporaneous oral agreements. Contemporaneous written agreements OK b/c multiple docs OK
■ APPLICATION:
● Is there a written expression of agreement and, if so, what is the level of integration?
○ Complete Integration = all terms there, final & exclusive
○ Partial Integration = final w/ respect to terms therein but not exclusive
■ OLD CONSERVATIVE APPROACH: only look at the four corners of the document to determine if this written doc is meant to be a final expression of their agreement
● Merger clause conclusive [NOT ANYMORE]
■ MODERN LIBERAL APPROACH: Judge views in camera and admits if language is reasonably susceptible to the proffered explanation
● Merger clause is evidence of completeness especially if bargained for [initialed]; NOT boilerplate
■ The more clear, unambiguous and complete the written document, the more plausible the extrinsic evidence must be to justify going beyond the writing
■ Do the circumstances offer an explanation of why the term may not have been included in the writing?
■ Is the term one that might naturally be omitted?
● Is the parol evidence (written/oral extrinsic to writing) offered to contradict, supplement, or explain the agreement?
○ Complete Integration = allow extrinsic evidence to EXPLAIN terms
○ Partial Integration = allow extrinsic evidence to SUPPLEMENT terms not there & EXPLAIN terms there
■ Can always explain
■ Can never contradict terms there
■ Only can supplement terms in partial integrations
● If excluded, any “exceptions” that would allow the admission of the parol evidence?
○ (1) COLLATERAL AGREEMENT → related to but separate & distinct
■ Test #1: [easy cases - separate consideration]
● Does the collateral agreement contradict the terms of the writing?
● If not, was collateral term agreed to with separate consideration from that in written agreement?
■ Test #2:
● In the circumstances, would reasonable parties ordinarily have concluded the term in the written agreement?
○ If YES, then exception not apply; PER excludes evidence of collateral term.
○ IF NO, then exception does apply; evidence of the collateral term admissible.
○ (2) EXPLANATION/INTERPRETATION WRITTEN TERMS →
■ Judge considers offered evidence and if finds contract language is “reasonably susceptible” to interpretation asserted by its proponent, evidence admissible to determine meaning
intended by parties. Sliding Scale ⇒ Proferred interpretation that is highly improbable would necessarily require very convincing evidence.
● Judge hears evidence in camera; has a lot of discretion regarding what is permitted.
■ If reasonably susceptible to interpretation, trier of fact considers extrinsic evidence to determine what parties meant.
○ (3) AGREEMENT SUBSEQUENT to EXECUTION of WRITTEN DOCUMENT
■ Parol evidence rule only applies to prior and contemporaneous agreements.
○ (4) INVALIDATE CONTRACT
○ (5) SCRIVENER’S ERROR: RESCISSION OR REFORMATION
■ Person writing your document makes a mistake. As in—the scribe made a typo. Or if there’s an extra 0 on your damages, clerk makes a mistake in entering date of your doc, etc.
○ IMPLIED GOOD FAITH:
■ SECTION 205: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
● Make reasonable efforts; commercially reasonable manner, etc.
■ SECTION 228: Satisfaction Clauses ⇒ clause inserted in contracts that allows promisor to refuse to perform his part of exchange or pay the promisee for services performed if he is not subjectively
satisfied with the promisee’s performance.
● OBJECTIVE: Reasonable person standard is employed when contract involves commercial quality, operative fitness, or mechanical utility which other knowledge persons can judge.
● SUBJECTIVE: The standard of good faith is employed when contract involves personal aesthetics or fancy.
○ Morin Building Products v. Baystone Construction (aluminum walls construction) → objective standard; construction of factory w/ specified material -- reasonable person can
determine if met satisfaction; party did not intend to subject work to the aesthetic whim of the other party
○ Locke v. Warner Bros., Inc (Clint 90s love meltdown) → subjective standard; did Warner honestly reject P’s proposals on the merits?
○ WARRANTIES:
■ Express Warranty
● UCC 2-313:
○ (1) 1 of 3 communications from seller
■ Affirmation of fact or promise made by seller
■ Description of the goods; OR
■ Sample / model of the goods
○ (2) That communication is part of the basis of the bargain
■ Buyer reliance on communication?
■ Communication not merely commendation, opinion or affirmation of value
■ Implied Warranty of Merchantability
● UCC 2-314: Merchant who regularly sells goods of particular kind impliedly warrants to buyer that goods are of good quality and are fit for the ordinary purposes for which such goods are used.
○ Pass without objection in the trade; OR
■ Significant segment of buying public would object to purchasing the good
○ Are fit for the ordinary purposes for which such goods are used
■ Whether goods are reasonably capable of performing function
■ Implied Warranty of Fitness for a Particular Purpose
● UCC 2-315:
○ (1) Seller knows or has reason to know that the Buyer intends to use the good for a particular purpose AND
○ (2) Seller knows or has reason to know that the Buyer is relying on the Seller’s skill or judgment to select or furnish the right goods.
■ Bayliner Marine Corp. v. Crow (offshore fishing boat) → no express warranty b/c P did not buy particular boat discussed -- not substantially similar & comments by D mere opinion in brochure; P
lacked evidence for implied warranty of merchantability & still logged 850 hrs on it; seller did not select the boat so cannot be implied warranty for fitness for particular purpose
6. Has a party breached the contract, and is the breach material?
○ HOW TO BREACH / APPLY:
■ Non-occurrence of an express condition
■ Reasonable grounds for insecurity
■ Anticipatory repudiation of a contractual duty [repudiation before performance is due]
■ Actual non-performance of a contractual duty [promise]
● What is the effect of the thing that happened on the other party’s obligation to perform?
● Does the other party have a right to claim damages?
○ EXPRESS CONDITIONS - strictly enforced; if condition occurs & no performance → breach; if condition does not occur, does not have to perform & no breach
■ SECTION 224: Condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
● Obligor: the party whose duty to perform is conditional on an event occurring (i.e. the party “protected” by the condition)
● Obligee: the party to whom the conditional obligation of performance is owed
● Must use unambiguous language to set up condition → until, unless, if/then, condition, etc. If cannot determine condition, going to treat it as a “promise” ⇒ want to strictly enforce b/c negotiated
○ 1) EXCEPTIONS TO STRICT APPLICATION OF EXPRESS CONDITIONS:
■ (1) SECTION 229: Disproportionate Forfeiture
● If non-occurrence of condition cause disproportionate forfeiture, a court may excuse non-occurrence of that condition unless its occurrence was a material part of exchange.
○ Material condition: shown that this condition was bargained for; condition that was meant to protect the party; purpose
○ Non-material conditions: typically procedural / technical requirements [ex. written notice required]
■ However, if the facts & circumstances indicate that the notice requirement was bargained for or important than can be material
○ Forfeiture: comment D ⇒ denial of compensation that results when obligee loses his right to agreed exchange after he has relied substantially, as by preparation or performance on
expectation of that exchange.
■ Balancing Test: ct must weigh extent of forfeiture by obligee against importance to obligor of risk from which he sought to be protected and degree to which that protection will
be lost if the nonoccurrence of the condition is excused to the extent to prevent forfeiture
● enXco Dev. Corp. v. Northern States (permit for solar energy) → P did not get permit before stop date -- waited 2 yrs; NSP explicitly allowed to terminate contract if condition not
met [aka permit]; P did not meet reqs for forfeiture b/c got to keep the assets, used them in different project; sophisticated parties w/ counsel that allocated risk
■ (2) Doctrine of Impracticability Applies
■ (3) Non-material condition and condition waived by parties protected (promise to perform notwithstanding occurrence of the condition)
■ (4) Material condition waived and consideration given for waiver
■ (5) Condition (material or non-material waived) and detrimental reliance (promissory estoppel elements satisfied)
■ (6) SECTION 245: Doctrine of Prevention Applies
● Where a party’s breach by non-performance contributes materially to the non-occurrence of a condition of one of its duties, the non-occurrence is excused.
○ SUBSTANTIAL PERFORMANCE → no MATERIAL breach
■ SECTION 237: It is a condition of each party’s remaining duties… that there be no uncured material failure by the other party to render any such performance due at an earlier time.
○ If A substantial performance / non-material breach, B’s duty to perform is not suspended or discharged; B can seek damages for breach
○ If A material breach, B’s duty to perform suspended
○ If A total breach, B’s duty to perform is discharged
● Jacob & Youngs, Inc. v. Kent (differ Reading pipes) → using pipe that is the equivalent in functionality is substantial performance & D must still pay; non-material/partial breach
○ Injured Party’s duty to perform is not discharged or suspended. Can seek damages for the breach [divergence from the contract or things not performed, conditions not met]
○ HYPO: if he wanted the other pipes b/c it was his brother’s company, find different result b/c intent changed
○ SECTION 241: DETERMINING WHEN FAILURE IS MATERIAL BREACH FACTORS:
● MATERIAL BREACH ⇒ failure or deficiency in performance is so central to the contract that it substantially impairs its value and deeply disappoints reasonable expectations of promisee.
● LOSS/BURDEN ON NON-BREACHING PARTY
○ a) the extent to which the injured party will be deprived of the benefit that she reasonably expected
○ b) the extent to which the injured party can be adequately compensated for the part of that benefit of which she will be deprived
○ d) the likelihood that the party failing to perform or to offer to perform will cure her failure, taking account of all the circumstances, including reasonable assurances
● FORFEITURE OF BREACHING PARTY:
○ c) the extent to which the party failing to perform or to offer to perform would suffer forfeiture
● “FAULT” OF BREACHING PARTY:
○ e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing
○ SECTION 242: DETERMINING WHEN FAILURE IS TOTAL BREACH:
● (a) Apply factors above. Then answer next two steps:
● (b) the extent to which it reasonably appears to the injured party that delay may harm her ability to make reasonable substitute arrangements [will delay prejudice other party?]
● (c) whether the agreement itself provides for performance without delay [Did the parties clearly intent to require prompt performance?]
○ **date for payment not enough; look @ lang of contract for time is of the essence; boilerplate v. intent of parties**
● NOTES:
○ Injured Party’s duty to perform is DISCHARGED. Can terminate the contract.
● Sackett v. Spindler (SC newspaper sale) → total breach; D justified in repudiating contract b/c history of transaction shows unclear P ever perform; discharged duty & sold to another
○ 2) ANTICIPATORY REPUDIATION
■ Time for performance is not due yet but conduct demonstrates party may not actually perform. Nonbreaching party in some cases does not have to wait until breach occurs @ time of performance
● Requires clear manifestation of an intent not to perform contract on date of performance [oral or written]
● That intention must be a definite and unequivocal manifestation that he will not render the promised performance before the time fixed in contract
● Anticipatory repudiation is a total breach.
■ SECTION 250: A repudiation is
● (a) a statement by obligor to obligee indicating that obligor will commit a breach that would of itself give obligee a claim for damages for total breach under §243, or
● (b) a voluntary affirmative act which renders obligor unable or apparently unable to perform without such a breach
■ SECTION 256:
● Retraction of repudiation permitted if:
○ Injured party notified of retraction [directly or indirectly] AND
○ Injured party has not materially relied on repudiation AND
○ Injured party has not indicated to the other party that it considers the repudiation to be final.
■ Truman L. Flatt & Sons v. Schupf (asphalt plant land) → asking for modification w/ lower price, not stating won’t pay $160K; ambiguous language; must be unequivocal & clear that not perform; retracted
repudiation by saying go forward w/ $160K & D did not notify that thought it was final and had not relied on it yet
○ UCC BREACH
■ PERFECT TENDER RULE [2-601]
● No substantial performance doctrine under Article 2; delivery must be perfect or buyer can reject goods & refuse payment
■ SELLER RIGHT TO CURE [2-508]
● If time for performance not expired -- seller can cure/fix the issue
● If reasonable grounds to believe goods acceptance to buyer, then given reasonable time to cure defect if past date → past performance can determine this
■ BUYER RIGHT TO OBJECT AFTER ACCEPTANCE [2-608]
● If non-conformity substantially impairs value AND
○ Accepted on basis of reasonable assumption non-conformity will be cured OR
○ Failed to discover non-conformity because seller made assurance
● Essentially, buyer can revoke their acceptance of the goods if substantially impairs value and at least one of the two factors are present.
7. Does the breaching party have valid defenses to enforcement of the contract?
○ INFANCY DOCTRINE:
■ SECTION 14: A natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s 18th birthday. [APPLY THIS RULE]
● Cannot cherry-pick provisions.
● Minor can void the enter contract.
● If misrepresenting age and willful destruction of goods, ct may hold minor liable & some jxs apply tort liability.
● Necessaries → minor liable for restitution for things that are required like food, water, shelter ⇒ cannot void contracts for necessaries
■ Minority Rule:
● If contract fair and reasonable, and no overreaching or undue influence,
● Then minor must provide compensation for reasonable value of benefit received (use/depreciation/negligent or willful damage to goods)
○ Dodson v. Shrader (minor purchase pickup) → apply minority rule that states minor to repay merchant for damaged goods since no overreach or undue influence
○ MENTAL INCAPACITY:
■ SECTION 15:
● (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
○ (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction [cognitive test]; OR
○ (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition [volitional test]
■ Does not apply to void the transaction unless the other party knows or had reason to know of mental illness
■ Representation by competent, independent counsel is important factor
● Sparrow v. Demonico (sister settle to sell house) → D had cognitive ability to understand consequences of settlement - crying about it; under extreme emo stress -- ct
found able to act reasonably b/c competent counsel, no medical evidence or expert testimony that mental illness interfered, no evidence other party knew D incapable
● (2) even though mental defect, avoidance would be unjust ⇒ give cts deference to weigh interests of both parties to reach just outcome
○ IF:
■ Contract made on fair terms & competent party does not know or have reason to know of mental illness or defect
○ THEN:
■ Power of competent party to avoid contract may be limited and court may grant relief as justice requires ⇒ ct may protect interest of party not mentally ill & require restitution
○ DURESS:
■ SECTION 174: If conduct that appears to be manifestation of assent by a party is physically compelled by duress, that conduct is not an effective manifestation of assent.
■ SECTION 175:
● (1) There must be an improper threat
○ Categories in SECTION 176: improper threat if --
■ (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
■ (b) what is threatened is a criminal prosecution,
■ (c) what is threatened is the use of civil process and the threat is made in bad faith, or
● Threats of litigation are not improper per se - has to be bad faith
■ (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
● Withholding payments
● (2) That induces a victim to contract AND
○ Does not have to be the only factor that induces, just substantially contributes
● (3) The victim must have no reasonable alternative
○ Taking someone to ct or putting up w/ slight inconvenience may be reasonable depending on the circumstances
■ Totem (comp @ bankruptcy) → D withheld payments & knew P owed money to creditors → breach of good faith & fair dealing; forced P to agree to lower settlement since under
economic stress; no alternative b/c cts takelong time & no bank to loan $$; if allegations true, economic duress valid defense for voiding settlement agreement
○ UNDUE INFLUENCE:
■ SECTION 177:
● (1) relationship of dominance (weaker party under dominance of stronger party) OR confidence; AND
● (2) Unfair persuasion (i.e. excessive pressure) by the dominant party
○ Strong enough to overbear the weaker party’s free will ⇒ person is no longer exercising their free will & it depends on how susceptible person is
○ SUBJECTIVE: about the particular party’s will
■ ODORIZZI FACTORS:
● Unusual or inappropriate time
● Unusual place
● Demand that business be finished at once
● Emphasis on consequences of delay
● Multiple persuaders
● No third party advisors
● Statement there is no time to consult outside advisors
● (3) That induces the weaker party to contract
○ Odorizzi v. Bloomfield School District (teacher arrested) → unduly susceptible to excessive pressure; inappropriately went after released from jail & pushed for resignation @ home
while in emotional distress about arrest
○ EX: Totem ⇒ undue influence would not apply b/c two sophisticated businesses with competent attorneys; facing tough situation not enough; cant establish dominance & weakened will
○ MISREPRESENTATION/NONDISCLOSURE ⇒ using this defense would rescind the contract & if party does not want to rescind contract, but enforce then not applicable to enforcement
■ SECTION 159: Misrepresentation is an assertion that is not in accord with the facts.
■ SECTION 164:
● (1) There is a fraudulent or material misrepresentation
● (2) The fraudulent or material misrepresentation induces a party to contract
● (3) The party’s reliance on the fraudulent or material misrepresentation is justified.
■ HOW TO APPLY:
● (1) Is there an assertion?
○ OR: Is there a failure to disclose that is equivalent to an assertion? [Section 161]
● (2) Is the assertion consistent with the facts?
○ IF YES, then the assertion is not misrepresentation
● (3) Is the misrepresentation “fraudulent” or “material”? [Section 162]
○ FRAUDULENT:
■ Intends the assertion to induce a party to a party to manifest assent; AND
■ The person:
● Actually knows or believes the assertion is not in accord with the facts; OR
● Does not have the confidence that he states or implies with respect to the truth of the assertion; OR
● Knows that he does not have the basis he states or implies for the assertion.
○ MATERIAL:
■ If it would likely induce a reasonable person to manifest assent; OR
■ The person making the misrepresentation knows that it would be likely to induce the particular recipient to assent
● (4) Did the fraudulent or material misrepresentation induce a party to contract? [Section 164]
● (5) Is the party’s reliance on the misrepresentation justified? [Section 164]
○ Unless statement obviously false or circumstances show that person should not take statement, generally find that justified in relying
■ SECTION 168: Assertions that express:
● A mere belief, without certainty, as to the existence of a fact OR
● A judgment as to quality, value, authenticity
○ GENERAL RULE: reliance on a statement of an opinion is not justified; cannot rely on opinion
■ EXCEPTION:
● Confidence and trust relationship between the parties ⇒ doctor-patient, family member, priest-church member
● Person giving the opinion has special skill or judgment
● Person receiving the opinion is unusually vulnerable or susceptible
● Syester v. Banta (dance studio w/ old lady) → misrepresentation b/c fraudulent stated that P can become professional dancer & improving; induced P to buy more lessons/premier lessons; P
relied on the promises → used tons of tactics to manipulate her into believing and relying on statements
■ SECTION 161:
● (1) Person knows of a fact AND
● (2) One of the following circumstances applies:
○ (a) The person knows disclosure may be necessary to prevent a previous assertion from being a fraudulent or material representation
■ EX: guy sells car and says it does not leak; 2 days later before transfer rainstorm & leak → need to correct previous assertion
○ (b) The person knows that disclosure of the fact would correct a mistake as to a basic assumption related to the contract and non-disclosure would amount to a failure to act in good faith
○ (c) The person knows disclosure would correct a mistake as to the content or effects of a contract
■ About the literal words in the contract; not inducement into the contract ⇒ EX: think provision not in contract but really it is
○ (d) There is a relationship of trust and confidence between the parties
■ Really talking about special relationships → parent-child, lawyer-client, priest-member → fiduciary relationships
■ Not arms length transaction
● Hill v. Jones (termite house) → merger clause does not bar evidence of fraud & statement made after contract signed [no parol evidence]; failure to disclose material fact is legal equivalent to
misrepresentation ⇒ duty to disclose past termite damage
● Most courts say that the defendants must know in order to disclose --- innocence; negligence may apply
○ UNCONSCIONABILITY [issue of law - decided by judge]
■ SECTION 208: If a contract or term thereof is unconscionable at time contract is made a court may refuse to enforce contract, or may enforce remainder of contract without unconscionable term, or may so
limit the application of any unconscionable term as to avoid any unconscionable result.
■ UCC 2-302: If court finds as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract.
● (1) PROCEDURAL UNCONSCIONABILITY:
○ Deception / abuse / unfairness in contracting process
○ WIlliams: A bsence of some meaningful choice [do not focus on this that much]
■ More about protecting consumers from deceptive sales practices, hidden terms in maze of contracts, seller taken advantage of unsophisticated buyers
■ Harder to prove procedural unconscionability if person knows of term and had reasonable opportunity to understand
○ Higgins: surprise or oppression
● (2) SUBSTANTIVE UNCONSCIONABILITY
○ Williams: terms unreasonably favorable to a party
○ Higgins: terms that are unfairly one-sided
○ UCC: t erms that, in light of general commercial background and needs, are so one-sided as to be unconscionable under the circumstances.
■ SHOCK THE CONSCIENCE
● Unconscionability can arise where disparate bargaining power between the parties:
○ (1) deprives the party asserting unconscionability any meaningful choice as to the terms of the agreement [procedural unconscionability]
○ (2) results in one or more terms that are so one-sided as to be oppressive or manifestly unfair
■ Both must be satisfied but not in the same degree; sliding scale
■ Adhesion contract: (1) standardized contract that is imposed; (2) drafted by the party of superior bargaining strength and (3) relegates to the other party ‘only the opportunity to adhere to the contract or reject it.
● Adhesion contract does not in itself mean that it is unconscionable; is just relevant to the analysis of procedural unconscionability → weighs more in favor of unconscionable
● Price ⇒ typically, not going to be unconscionable even if extremely high b/c no procedural unconscionability
● Unconscionability is ALWAYS ANALYZED AT THE TIME THAT THE CONTRACT IS FORMED
● Ct can sever the term that is unconscionable and enforce the rest of the contract; can always raise unconscionability even if not plead by the P
○ Williams v. Walker-Thomas Furniture Co. (monthly installments w/ default repossess) → add-on clause -- purchase multiple items then pay monthly installment on pro rata, if fell
behind on payments then repossess all items; procedural ⇒ no time to negotiate, knew she was poor; substantive ⇒ add-on clause unfavorable, difficult to understand
○ Higgins v. Superior Court of LA (orphans Extreme Makeover) → arbitration clause is unconscionable → hidden in the document & one-sided towards the tv show b/c only one side
required to arbitrate [questionable]
○ PUBLIC POLICY
■ Reasonable restraint on trade OK if have a legitimate interest to protect ⇒ restrictive covenant w/ sale of the business or restrictive non-compete clause w/ employee
■ Restriction is unreasonable and will not be enforced if:
● (1) the restraint is broader than necessary to protect the employer’s legitimate interest; OR
● (2) that interest is outweighed by the hardship to the employee and the likely injury to the public
○ Valley Medical Specialists v. Farber (specialized dr noncompete) → unreasonable restraint; employer had legit interest in the specialized care w/ referrals but not the client list; too
restrictive on dr] b/c 235 square miles, applied to any medical practice not just specialized medical, and the 3 year restraint too much; interferes w/ patients’ ability to stay w/ dr or pick
their dr; scope of covenant broader than necessary to protect
■ Ct are reluctant to enforce restraints on trade/competition b/c limits the amount of options for consumers, creates monopolies, etc.
○ JUSTIFICATION FOR NON-PERFORMANCE:
■ MUTUAL MISTAKE
● SECTION 152: Where a mistake of both parties at the time of a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of
performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in Section 154.
○ Contract is voidable for mutual mistake if:
■ 1) There is a mistake by both parties at the time of the contract AND
■ 2) The mistake relates to a basic assumption underlying the contract AND
■ 3) The mistake has a material effect on the agreed exchange of performances
● Such a severe imbalance that such a performance is unfair; less desirable to one party and more advantageous to the other
○ UNLESS:
■ The adversely affected party bears the risk of the mistake
● Risk already allocated by contract → express provision
● Conscious ignorance → aware it might be an issue but did not do your diligence
● Circumstances make it reasonable to allocate the risk of certain way → one party in much better position to discover mistake than the other
○ SECTION 154: A party bears the risk of a mistake when
■ (a) the risk is allocated to him by agreement of the parties, or
■ (b) he is aware, at time contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
■ (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
○ Lenawee County v. Messerly (sewage prop) → both parties did not know septic tank issue @ K - existed before; basic assumption of income-generating prop; mistake materially affected b/c
Ds do not have to fix septic and got $$ while P paid $$, not generating income & economically infeasible fix; BUT P bears the risk of mistake b/c allocated risk in “as is” clause
■ UNILATERAL MISTAKE
● SECTION 153:
○ Contract voidable for unilateral mistake IF
■ There is a mistake by one party at the time of a contract AND
■ The mistake relates to a basic assumption underlying the contract AND
■ The mistake has material effect on the agreed exchange of performances adverse to the mistaken party AND
● Such a severe imbalance that such a performance is unfair; less desirable to one party and more advantageous to the other
■ EITHER:
● (1) the mistake would make enforcement unconscionable OR
○ SUBSTANTIAL LOSS
● (2) the other party has reason to know of the mistake or was at fault in causing the mistake
○ UNLESS
■ SECTION 154: The adversely affected party bears the risk of the mistake
● (a) the risk is allocated to him by agreement of the parties, or
● (b) he is aware, at time K is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
● (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
○ DePrince v. Starboard Cruise Services (20 ct DIAMOND) → SJ incorrect; P’s potential knowledge about the mistake is not the same as inducement to make mistake;
■ IMPRACTICABILITY [affects performance where nearly impractical to perform]
● SECTION 261: ct will only find that impracticability if the event is unforeseen and causes performance to be so severe that cannot perform.
○ A party’s duty to perform is discharged for supervening impracticability IF
■ (1) After the contract is made, an event occurs that makes the performance impracticable; AND
■ (2) The non-occurrence of the event was a basic assumption on which the contract was made; AND
● Foreseeability is relevant but not dispositive; if foreseeable or foreseen, does not bar defense → at some level everything foreseeable
■ (3) The party whose performance is made impracticable is not at fault; AND
● Does not have to be wilful, can be negligent; just have to do everything reasonably possible
■ (4) The language of the contract or the circumstances do not indicate the contrary (the party has not agreed, expressly or impliedly, to perform in spite of the impracticability)
○ Waddy v. Riggleman (house no clear title) → lawyer did not get release in time for close of sale; said unable to get release w/in closing time; did not make reasonable efforts to obtain
releases in time → not impracticability
● NOTES: increase in expenses for performance is not enough in most cases; has to make reasonable efforts to make the contractual obligations; NO shifts in market conditions arguments
● EX: rare coin for $500, agree, then afterward the buyer’s $500 is stolen → mere financial inability to pay is not considered basic assumption; if rare coin stolen instead, then impracticable
○ SECTION 262: death, incapacity
○ SECTION 263: destruction of the property or something may excuse
○ SECTION 264: government regulation
■ FRUSTRATION OF PURPOSE [affects the purpose of contract]
● SECTION 265:
○ (1) After a contract is made, an event occurs that substantially frustrates a party’s principal purpose in entering into contract AND
■ One party’s performance would be virtually worthless to another; principal purpose = core objective of contract, w/out it contract not make any sense
○ (2) The non-occurrence of the event was a basic assumption on which the contract was made AND
■ Both parties need to know the purpose for the contract [i.e. hazardous chemicals]
○ (3) The party whose performance is frustrated is not at fault AND
○ (4) The language of the contract or the circumstances do not indicate the contrary [risk has not be allocated]
● Mel Frank Tool v. Di-Chem (hazardous chem storage) → not impracticability b/c does not make D unable to perform - still can pay rent; govt changed regulation after contract that could not
store hazardous chems there; D did not show that there were no other chemicals that could be stored there [some hazardous, some not]
○ Subsequent govt reg like statute or ordinance may prohibit tenant from legally using premises for originally intended purpose. Tenant’s purpose is substantially frustrated thereby
relieving tenant from further obligation to pay rent. Tenant is not relieved from obligation to pay rent if there is a serviceable use still available consistent with use provisions in lease
■ MODIFICATION
● SECTION 73: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration
○ Modification is not enforceable unless there is some fresh consideration - can be slight alteration or change of same duties
○ Modification is not enforceable unless there genuine dispute about if there is a legal duty to perform
○ Modification is not enforceable unless there is mutual assent
● PRE-EXISTING DUTY RULE:
○ Performance of a legal duty that is neither doubtful nor the subject of honest dispute is not consideration.
● SECTION 89: Exceptions to Requirement of Consideration
○ Unanticipated circumstances, fair & equitable
○ Material reliance
○ Statute
● UCC 2-209:
○ (1) There must be a legitimate commercial reason
○ (2) Must not coerce with threat of breach
■ Modifications enforceable without consideration
● HOW TO APPLY:
○ Is the modification enforceable?
■ Is there a genuine dispute regarding a legal duty?
■ Is there new consideration?
○ Is the defense of economic duress available?
● Alaska Packers Assc. v. Domenica (SF-AL fish packers) → workers got up to AL & demanded $100/season rather than $50/season; already pre-existing duty to perform fishing services
during the season; no new consideration; modification void - duress essentially
● Kelsey-Hayes Co. v. Galtaco Redlaw (casting Ford) → D threatened to breach contract unless more $; knew P would have to close ops to Ford; no alternative source of supply b/c delay &
default on obligations; hurt business reputation; P objected the modifications
○ If claiming economic duress as a defense to the modification, must show that protested the modification.
8. If there is an enforceable contract that has been breached and the breaching party has no defenses, what remedy, if any, is available to the non-breaching party?
○ 1) RESTITUTION INTEREST: unjust enrichment; P gives D value & does not get performance for that payment; give that $ back to P
○ 2) RELIANCE INTEREST: Unreimbursed expenditures for performance or prep for perform – losses injured party would have suffered had K been performed - loss avoided
■ Compensating an injured party who suffers damages because she relied on a binding promise
■ THIS IS NOT JUST FOR PROMISSORY ESTOPPEL. Just an alternative measure of damages for breach of contract. Available in any situation -- court has discretion of what damages to award.
■ P, in reliance on D’s promise, changed his position or spent $$ for things; reward damages to put him in as good of a position as before promise made / if contract had not been made at all
■ SECTION 349:
● As an alternative to the measure of damages stated in §347 [expectation damages], injured party has a right to damages based on his reliance interest, including expenditures made in preparation for
performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
● Does not have to be proven with reasonable certainty like expectation interest.
○ Wartzman v. Hightower Productions (lawyer F/U perch singer) → unable to prove expectation damages w/ reasonable certainty b/c crazy business venture; ability to sell stock was the
lifeblood of the company & material part of the contract w/ law firm; law firm could not prove w/ reasonable certainty that business venture would fail
○ 3) EXPECTATION INTEREST:
■ Compensating a party for the value that she expected to receive when she entered into the contract and that was not received because of the breach
■ SECTION 347: loss in value + other loss - costs avoided - loss avoided
● LOSS IN VALUE: difference between the value to the injured party of the performance that should have been received and the value to that party of what was actually received
● OTHER LOSS: costs non-breaching party incurs to avoid further damages; incidental [spent to avoid incurring further damages] or coincidental damages [had to perform b/c of breach]
● COSTS AVOIDED: costs non-breaching party saved by not having to perform their end of the deal b/c total breach by breaching party; costs injured party no longer has to incur b/c breach
● LOSS AVOIDED: non-breaching party mitigates damages by salvaging and reallocating resources
■ American Standard Inc. v. Schectman (did not removal structures) → breach was willful, gradation of property was material to contract, & correction does not require removal of entire building so no
economic waste; does not matter that the lack of grading the property & removal only changed it $3K, intent of the seller was for that to be performed and it was bargained for
○ RESTRICTIONS ON RECOVERING EXPECTATION DAMAGES:
■ SECTION 351: Unforeseeability and Related Limitations to Damages
● Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made
● Loss may be foreseeable as a probable result of a breach because it follows from the breach:
○ (a) in the ordinary course of events, or
○ (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know
● Hadley v. Baxendale (broken shaft) → carrier did not know that the mill was shut down and lose profits if shaft not delivered promptly; if P had told D then liable for damages of loss of profits during shut
down; instead, only liable for the damages of the breach & not the special circumstances not flowing naturally from the breach
○ Have to show that the loss of profits were contemplated when the parties entered the contract
● Florafax International v. GTE Market Resources (1-800-flowers service) → GTE knew about the collateral contract w/ Bellerose, explicitly stated in the contract that liable, knew # of invoices that
Bellerose had per year, GTE excited about it ⇒ contemplated @ time of contract; reasonable certainty that Bellerose terminated b/c of GTE’s breach & that profits reasonably certain, probably would not
have canceled except for that ⇒ can be awarded loss profits in damages
○ Damages must be proven with reasonable certainty
■ SECTION 350: Mitigation Of Damages
● (1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
● (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
○ Rockingham County v. Luten Bridge Co. (built bridge even tho knew contract terminate) →
○ Maness v. Collins (son drug addict) →
○ SUMMARY:
■ Damages must be foreseeable as the probable result of breach at the time of contract
■ Damages must be a natural and proximate consequence of the breach (causation)
■ Damages must be proven with reasonable certainty
○ 4) SPECIFIC PERFORMANCE
■ SECTION 359: Specific Performance
● Specific performance will not be ordered if damages would be adequate to protect the expectation interest of the injured party
● Will be ordered if the performance / item is unique [land, etc.]
■ SECTION 360: Adequacy of Damages
● Damages are difficult to prove with reasonable certainty
● Substitute performance would be difficult or impossible to secure.
● Likely damages will not be collected if awarded.
○ City Stores Co. v. Ammerman (shopping mall promise store) →
○ UCC DAMAGES
■ BUYER
● If seller fails to deliver/repudiate OR Buyer rightfully rejects goods or revokes acceptance:
○ Cancel contract AND
○ Recover any part of purchase price paid AND
○ EITHER:
■ (1) Cover by buying substitute goods and recover difference between cover and contract price OR
● Cover must be taken in good faith & in commercially reasonable manner
■ (2) Recover difference between market and contract price at time buyer learns of breach
○ Can recover incidental / consequential damages but must deduct any costs saved
■ SELLER
● IF Buyer wrongfully rejects, fails to make payment, or repudiates, Seller may:
○ Cancel the contract AND
○ Withhold delivery of goods not yet delivered AND
○ Stop delivery of goods that are in possession of bailee (in transit or storage) and EITHER
■ (1) Recover damages based on market price OR
■ (2) Resell the goods and recover damages based on the resale price
● Must be taken in good faith & in commercially reasonable manner
● Can recover incidental damages but not consequential damages
● If buyer accepts the goods or seller cannot resell after reasonable efforts, then can recover price for the goods
ATTACK OUTLINE:
1. Law that Governs
○ Restatement: everything else
○ UCC: sale of tangible, moveable
i. Predominant Purpose Test: In a mixed contract, court must determine if the predominant purpose or function of the contract is for the sale of goods with labor incidental or for the rendition of services with the sale
of goods incidental to the transaction.
● FACTORS: 1) language of the contract; 2) nature of the business; 3) intrinsic value of the materials
2. Contract:
○ A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.
i. SECTION 2: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding a commitment has been made.
ii. SECTION 3: An agreement is a manifestation of mutual assent on part of two or more persons. A bargain is an agreement to exchange promises, a promise for performance, or performances.
iii. SECTION 4: Promises can be stated in words either oral or written, or may be inferred wholly or partly from conduct.
○ Formation of Contract
i. MUTUAL ASSENT: Offer and Acceptance
● SECTION 17: Contract formation requires a bargain in which there is manifestation of mutual assent and consideration.
● SECTION 22: Manifestation of mutual assent to an exchange ordinarily takes the form of an offer from one party followed by an acceptance by another party. Manifestation of mutual assent may be
made even though neither offer nor acceptance can be identified and moment of formation cannot be determined.
■ OBJECTIVE THEORY OF K - REASONABLE PERSON: would a reasonable person think that acceptance was invited and would conclude the bargain?
● Use of “manifestation” demonstrates that it is an objective standard that interprets the words and actions of the party based on a reasonable person standard.
● Subjective intent of the parties or secret reservations can be relevant but will not be dispositive in determining if party legally bound.
● Can be subjectivized based on the prior dealings of the party.
● SECTION 24: OFFER
○ Expression of commitment to a bargain
○ Reasonably certain terms
○ Communicated to the offeree
○ That gives offeree reason to believe that acceptance will conclude the bargain
● SECTION 50: ACCEPTANCE
○ Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
○ SECTION 60: Acceptance of Offer Which States Place, Time or Manner of Acceptance
■ 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 contract. If an offer merely suggests a permitted
place, time or manner of acceptance, another method of acceptance is not precluded.
○ SECTION 63: When Acceptance Becomes Effective
■ Unless the offer provides otherwise,
● (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the
offeree's possession, without regard to whether it ever reaches the offeror; but
● (b) an acceptance under an option contract is not operative until received by the offeror.
● SECTION 27: Later memorialization does not keep from forming a contract based on prior agreements unless one or more parties stated that no contract is formed until formal memorialization
in writing. Circumstances may show that prior agreements were merely negotiations and contract is not formed until formal contract.
○ FACTORS:
■ 1. Have the parties manifested their intention to be bound or not bound in their preliminary writings?
■ 2. Is this type of agreement usually put in writing?
■ 3. Will the final agreement contain many details? Did parties agree on essential terms of bargain?
■ 4. Does it involve a large amount of money?
■ 5. Did negotiations indicate that a formal written document was contemplated at the end of the negotiation?
■ 6. When in the process were the negotiations abandoned?
■ 7. Did the party seeking to disclaim a contract give assurances that induced the other party’s reliance on the anticipated transaction?
● Silence Rule: Cannot accept by silence except in very specific situations.
● Mailbox Rule: Acceptance is effective the moment it is delivered in the mail and not at the time that the offeror receives the correspondence.
● MIRROR IMAGE RULE ⇒ jump to Counteroffer
ii. TERMINATION / REVOCATION:
● An offeror, as master of the offer, can revoke an offer at any time prior to acceptance.
● SECTION 35: Power of Acceptance
○ An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer.
■ Contract cannot be created by acceptance after power of acceptance terminated.
● SECTION 36: Methods of Termination - Offeree’s power of acceptance may be terminated by
○ Rejection or counteroffer by offeree
○ Lapse of time
○ Revocation by the offeror
○ Death or incapacity of offeror (before acceptance) or offeree
● SECTION 43: Offeree’s power of acceptance is terminated when offeror takes definite action inconsistent w/ intention to enter into proposed contract & offeree acquires reliable information to that effect.
iii. FIRM OFFER:
● UCC 2-205:
○ (1) If a merchant;
○ (2) Offers to buy or sell goods in a signed writing; and
○ (3) The writing gives assurances that it will be held open (e.g., “this offer will be held open for 10 days,” “this offer is firm for 10 days,” “I shall not revoke this offer for 10 days”);
○ (4) The offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months).
■ NOTES: Period that offer held open cannot exceed 3 months; does not need consideration from buyer to keep open
iv. COUNTEROFFER:
○ Mirror Image Rule: The mirror image rule requires the offer to be accepted “as is” for a contract to be formed. Once an offer is accepted, the parties have a legal agreement.
■ If the party accepts the offer but changes 1 term, a contract does not exist. Rather, acceptance w/ changed term becomes rejection/counteroffer to be accepted or rejected by
original offeror party.
■ Power of acceptance is terminated in the offeree and creates the power of acceptance in the original offeror.
○ SECTION 39: A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that
proposed by the original offer.
v. CONSIDERATION:
● SECTION 71: Requirement of an Exchange:
○ 1. To constitute consideration, a performance or a return promise must be bargained for.
○ 2. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
■ In typical bargain, consideration and promise bear a reciprocal relation of motive or inducement ⇒ consideration induces promise and promise induces furnishing of consideration
■ Benefit-Detriment no longer test, but can be factor in determining if consideration met
● SECTION 71: The performance may consist of
○ (a) an act other than a promise, or
○ (b) a forbearance, or
○ (c) the creation, modification, or destruction of a legal relation.
● Court will not inquire into the adequacy of the consideration. No requirement of benefit and detriment. No requirement that values exchanged are equal. No requirement that parties actually entered
into bargaining.
● NO CONSIDERATION:
○ Gratuitous (promise of a gift)
■ Conditions on a gift ⇒ different than consideration given for promise; person does not suffer a “legal detriment” ⇒ legal detriment is the relinquishment of a legal right
○ “Past” consideration
○ “Moral” consideration
○ Party that performs not actually aware of the promise
○ False recital of consideration
○ Nominal or sham consideration
○ Illusory promise ⇒ performance on the part of the promisor is ENTIRELY OPTIONAL
3. Electronic Contracts
○ SHRINKWRAP
i. Included when the product is shipped; gives buyer reasonable time to inspect, read terms + reject
● Needs to let buyer know that they can reject and return product if do not want to assent to the terms
○ CLICKWRAP
i. Forces the buyer to click “I agree” before proceeding with the purchase
● Seller will not proceed with the transaction if the buyer does not agree
○ BROWSEWRAP
i. User assents to the terms of the website by using the website
● Would a reasonable buyer been put on notice? Link at the bottom not enough. Need to give notice to the buyer of the terms somehow.
4. Battle of the Forms [UCC Contract Formation]
○ Gets rid of the Mirror Image Rule and Last Shot Rule in CL
5. Statute of Frauds
○ SECTION 110: requires contract to be evidenced in writing signed by party against whom enforcement is sought.
● (a) contract of an executor or administrator to answer for a duty of his decedent
● (b) contract to answer for the duty of another
● (c) contract made upon consideration of marriage
● (d) a contract for the sale of an interest in land
○ Section 129: Part performance can be enforced in land purchase if part performance reasonably leads 1 to think completed ⇒ MUST HAVE paid entire purchase price AND obtained
possession of land w/ assent of seller & made improvements. Reliance doctrine specifically for land interest transfer.
● (e) a contract that is not to be performed within one year from the formation
○ Section 130: Where any promise in contract cannot be fully performed within 1 year from time contract is made, all promises in contract are within Statute of Frauds until 1 party
completes performance. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties.
○ UCC 2-201: requires contract to be evidenced in writing signed by party against whom enforcement is sought.
● Sale of goods $500 +
● Sale of securities
● Sale of personal property $5000 + in remedies
ii. APPLICATION:
● (1) Is the contract covered by the Statute of Frauds?
○ UCC:
■ Sale of goods $500 +
■ Sale of personal property $5000 +
○ Restatement:
■ Sale of interest in land
■ Contract not to be performed within one year of formation
● (2) IF YES ⇒ is there a writing signed by the party against whom enforcement is sought?
○ Section 131: Writing
■ (a) reasonably identifies the subject matter of the contract,
■ (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
■ (c) states with reasonable certainty the essential terms of the unperformed promises in the contract.
○ Section 134: Signature
■ The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.
○ All docs must clearly be related if multiple
● (3) IF NO WRITING/SIGNED ⇒ Is there an exception?
○ UCC:
■ Part Performance
● BUFFALOE CASE ⇒ paid $5K installment for tobacco barn, reimbursed insurance, seller had kept check for a few days
● Either needs to be delivered and accepted by buyer to be part performance
■ Merchant Confirmation
● 1. Both parties must be merchants
● 2. One party must send a written confirmation
● 3. The other party must receive the written confirmation within a reasonable time
● 4. Recipient of the confirmation must have reason to be aware of its contents
● 5. Recipient must not give written notice of objection to the confirmation within ten days
● 6. The written confirmation must be “sufficient against the party that sent it”
○ Must be signed by the sender
○ Must ID the parties, the subject matter, and state a quantity term
■ Specially Manufactured Goods
■ JX Split on if Restatement Promissory Estoppel applies [fill in gap]
○ Restatement:
■ One year requirement if one completed performance
■ Land Purchase: part performance can be enforced if paid full purchase contract, taken possession & made improvements on the land
○ EXCEPTIONS:
i. Promissory Estoppel [SECTION 139]:
● (1) Promise;
● (2) Reliance on promise must be reasonably foreseeable;
● (3) Promise must actually induce reliance;
● (4) Injustice can only be avoided by enforcement of the promise
○ Injustice Factors:
■ whether other remedies (particularly) restitution available;
■ whether reliance is definite and substantial;
■ clear and convincing evidence of promise & its terms;
■ reasonableness of reliance;
■ foreseeability of reliance
○ **More than a preponderance of the evidence standard**
6. If no contract is formed, alternative basis for liability ⇒ Promissory Estoppel
○ Section 90: A promise which promisor should reasonably expect to induce action or forbearance on part of promisee or third person, which does induce such action or forbearance is binding if injustice can be
avoided only by enforcement of promise.
○ Could the offeror have reasonably foreseen offeree’s actions?
○ Did the offeree act based on this promise?
○ Was the offeree’s reliance reasonable?
○ Was the reliance detrimental?
○ Was the reliance of definite and substantial character?
○ What is the level of formality of the contract?
■ General Rule: some detrimental reliance and that reliance is reasonable, then injustice occurs [bar is not high] → protecting detrimental reliance that is reasonable
7. Terms Interpretation
○ Party A does not know or have reason to know of Party B’s interpretation of term, Party B knows or has reason to know of Party A’s term interpretation → Party A’s interpretation controls K
○ Party A knows or has reason to know of Party B’s interpretation, Party B knows or has reason to know of Party A’s interpretation → No mutual assent, no K
○ Party A does not know or have reason to know of Party B’s interpretation, Party B does not know or have reason to know of Party A’s interpretation → No mutual assent, no K
○ Party A and Party B both subjectively agree on the interpretation of the term even though reasonable person would not attach meaning → mutual assent, that term controls K
i. TOOLS FOR INTERPRETATION:
● Course of Performance: when K calls for repeated occasions for performance under the same contract will provide information regarding parties’ expectations; any acceptance without obj will prove
● Course of Dealings: previous contracts between the parties will demonstrate expectations by the parties
● Trade Usage: use of the terms in the relative industries will shed light on what meanings the parties may have attached to the term or what they should have known the other party meant, etc.
8. Parol Evidence
○ Parol Evidence Rule excludes extrinsic evidence that is offered to introduce previous or contemporaneous agreements that contradict or alter the final written expression of the agreement.
i. (1) Is there a written document and what is the level of integration?
● Partial = can supplement or explain terms ⇒ this document was not meant to be a final, written expression of the entire agreement
● Complete = can explain terms only ⇒ this document was meant to be a final, written expression of the agreement with all the terms included, nothing left out
○ Apply the liberal approach: ct will evaluate the extrinsic evidence to determine the level of integration of the document. Not just going to look at the four corners.
ii. (2) What is the term being offered doing - explaining, supplementing, or contradicting?
● Always allowed to explain.
● Never allowed to contradict.
● Only allowed to supplement when determined partial.
iii. (3) Are there any exceptions?
9. Warranties
○ EXPRESS WARRANTY ⇒ UCC 2-313:
● (1) Seller communicates at least 1 of the 3:
○ Affirmation of fact or promise made by seller
○ Description of the goods; OR
○ Sample / model of the goods
● (2) And that communication is part of the basis of the bargain
○ Buyer reliance on communication?
○ Communication not merely commendation, opinion or affirmation of value
○ IMPLIED WARRANTY of MERCHANTABILITY ⇒ UCC 2-314:
i. Merchant who regularly sells goods of particular kind impliedly warrants to buyer that goods are of good quality and are fit for the ordinary purposes for which such goods are used
● (1) Pass without objection in the trade; OR
○ Significant segment of buying public would object to purchasing the good
● (2) Are fit for the ordinary purposes for which such goods are used
○ Whether goods are reasonably capable of performing function
○ IMPLIED WARRANTY of FITNESS for a PARTICULAR PURPOSE ⇒ UCC 2-315:
● (1) Seller knows or has reason to know that the Buyer intends to use the good for a particular purpose AND
● (2) Seller knows or has reason to know that the Buyer is relying on the Seller’s skill or judgment to select or furnish the right goods.
10. Breach
○ TOTAL BREACH
i. Total breach of the contract gives injured party the right to seek damages, discharge own performance and terminate contract
● Determine Total Breach:
○ Same Factors as below PLUS:
■ 1) extent to which the injured party will suffer prejudice due to the delay in performance
■ 2) extent to which the injured party communicated the need for prompt performance
○ MATERIAL BREACH
i. Must allow the party the ability to cure material breach before becoming total breach; suspends injured party’s duty to perform
ii. Material ⇒ failure or deficiency in performance is so central to the K that it substantially impairs its value and deeply disappoints the reasonable expectations of the injured party
● Determine Material Breach / Non-Material Breach:
○ 1) extent to which the injured party will be deprived of the benefit she reasonably expected
○ 2) extent to which the injured party will be adequately compensated for the deprivation
○ 3) likelihood that the breaching party can cure the breach
○ 5) extent to which the breaching party will suffer forfeiture
○ 6) extent to which the behavior of the breaching party comports with good faith and fair dealing standards
○ NON-MATERIAL / SUBSTANTIAL PERFORMANCE BREACH
i. Non-material breach does not suspend or discharge injured party’s performance; allows for injured party to seek damages
● Apply factors above to determine if the performance was substantial or if the breach was non-material
○ ANTICIPATORY REPUDIATION
i.
11. Defenses
12. Damages
○ SUMMARY:
i. Damages must be foreseeable as the probable result of breach at the time of contract
ii. Damages must be a natural and proximate consequence of the breach (causation)
iii. Damages must be proven with reasonable certainty
○ RESTITUTION DAMAGES
○ RELIANCE DAMAGES
○ EXPECTATIONS DAMAGES
○ SPECIFIC PERFORMANCE

COMMON LAW (2nd Restatement) UCC (Uniform Commercial Code) : Predominant Purpose Test

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COMMON LAW (2nd Restatement) UCC (Uniform Commercial Code) : Predominant Purpose Test

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COMMON LAW [2nd Restatement] UCC [Uniform Commercial Code]

DETERMINE PREDOMINANT PURPOSE TEST:

Ray v. William G. Eurice & Bros., Inc. (XX) →

OFFEREE MUST KNOW OF CONTRACT.

Cook v. Coldwell Banker/Frank Laiben Realty Co. (XX) →

REVOCATION/ SECTION 35: Power of Acceptance

SECTION 36: Methods of Termination - Offeree’s power of acceptance may be terminated by

An offeror can revoke an offer at any time prior to acceptance.

CONSIDERATION SECTION 71: Requirement of an Exchange:

SECTION 71: The performance may consist of

BATTLE OF THE FORMS [UCC 2-207]:

Princess Cruises v. General Electric Co. (XX) →

GETS RID OF UNDER COMMON LAW:

CASES Himes v. Overstock.com (XX) → DeFontes v. Dell (XX) →

INTERPRETING TERMS OF CONTRACT:

Joyner v. Adams (lease w/ “completed development” dispute) →