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David Phillips ==

Friday, January 4, 2002




Article II of UCC and Restatement most important texts to have in class

Westlaw TWEN Website contains important documents to course, including two discussion forums:
* General discussion forum, Prof. Phillips will answer questions almost every day. Need to post at least five entries over the quarter; can be questions or statements.
* Problems and Hypotheticals forum. Problem will be on website dealing with today's and Monday's readings. Carrie and Elizabeth (class TAs) will be on website to discuss answers. Next Friday, 1:45-3:15pm can meet with TAs for initial problem (optional).

Example:
* Phillips promises that if we all work hard, we will all get outstanding on our evaluations.
** Five months later, we all work hard, but don't get outstanding. Can we sue Phillips?
** Does this promise constitute a contract? When do promises amount to a contract?
** Sometimes it matters whether agreement is in writing.
** Also matters whether there is consideration: we never agreed to promise.
** Phillips gives 'outstanding' to everyone. May be against policy/legality.
** Ambiguous language.
** Need to have remedy. What would remedy be in promise to give 'outstanding'?
** Mental capacity--does promisor have ability to make contract?
** Does Phillips have the authority to make this promise? He is agent of Northeastern Law School.
** Intent. Did we believe Phillips when he made promise? Maybe he did not intend to make contractually-binding promise, nor did we understand it as such.
* Ultimate question is what will be enforced and what not in many different contexts.

Going to look first at not whether a contract will be enforced but how it is enforced. This is why we start with remedies.

United States Naval Institute v. Charter Communications and Berkley Publishing Group



[936 F.2d 692]
* Tom Clancy's first novel, 'Hunt for Red October'. Could not get published by any major publisher. Small publisher (US Naval Institute) publishes hardcover, contracts with Charter Communications and Berkley to publish paperback. Probably affiliated corporations (one control the other or common ownership).
* Contract calls for paperback to start being sold in 10/01/85, but books start selling 9/15/85. Naval Institute sues for copyright infringement and breach of contract.
* Since Berkley is licensee, cannot infringe on copyright, thus this count is dismissed.
* Plaintiff wants all of Berkley's profits from period of breach a well as damages equal to loss of Naval's profits. Berkley's profits are much greater than Naval's loss.
* Basic principle: court will enforce remedy of plaintiff's loss, not defendant's gain. Naval cannot get Berkley's profits (if they did, this would be 'restitution damages'--damages calculated by amount gained by promisor). Common exception to this is copyright infringement (but court had dismissed this claim).
* Contract law generally wants to put party in position they would have been had contract been performed. This would not be achieved by restitution or punitive damages. I.e., give party the 'benefit of bargain' or protect their expectation interest.

Another reason for not appyling punitive damages, economic efficiency. Three notions of efficiency:
* Pareto optimality: Could not make anyone in community better off without making someone else worse off. Rarely used in legal analysis; problems include that there can be more than one pareto optimal state depending on starting conditions.
* Pareto superior: Makes at least somebody better off without making someone else worse off. Quite relevant to contract law.
* Kaldor Hicks: Cost/benefit analysis. Gains of doing something exceed losses; something is least costly way of doing something.

Example:
* Phillips offers $100 for contracts book to student. Student agrees, both are better off. Contract is pareto superior move, since both parties are being made better off. This assumes no externalities.

If we assume that Naval's lost profits $30K, Berkley's profits are $100K. Berkley can pay Naval $30K, Berkley is still up $70K, thus someone has been made better off without making someone else worse off (absent transaction costs). Thus this is a pareto superior (efficient) resolution.

In torts and criminal law, conduct is all undesirable. In contracts, however, not all breach is undesireable; sometimes more efficient resolution involves breach.

Award in Naval Academy is profits; i.e., expectation damages (what they expected to make), rather than reliance damages (what their costs were from breach). Court accepts August profits as basis of damages, although early September sales were much lower. Court finds it reasonable to be generous to injured party in this case of uncertainty.

Sullivan v. O'Connor



[296 N.E.2d 183]

* Sullivan sued plastic surgeon after nose fix made it worse. Claims both malpractice and breach of contract.
* Doctor made express warranty that nose would be better after surgery; this warranty was violated.
* Under malpractice claim, need to prove negligence; but under contract claim, need only to prove breach of contract.
* In lower court jury found doctor was not negligent, but did find for plaintiff on contract claim.
* In torts, generally want to put person back in position had injury not occurred; these are reliance damages. In contracts, reliance damages would party in same position as they would have been in had the contract not been made; i.e., had surgery never taken place.
* General norm in contract law is expectation damages--would want to put Sullivan into position with fixed nose (as if contract had been performed as promised).

For Monday: read assignment #2 (pages 22-39).


Monday, January 7, 1992 (Class 2)




* What does it mean to enforce?
* What is consideration?

Enforceability ==


Sullivan v. O'Connor === (continued)

[296 N.E.2d 183] Supreme Judicial Court of Massachusetts 1973

* If we assume Sullivan's nose was originally worth $35K, and would have been $50K had operation been performed correctly but only $25K with improper operation.
* If Sullivan is awarded her expectation interest, she would be awarded $25K (the difference between what she expected and what she ended up with).
* If we want to protect Sullivan's reliance interest, she would be awarded only $10K (difference between result and original state).
* In tort law, general remedy grant is reliance-based damages. Not automatic that contract law had to protect expectation interest. Why protect expectation interest?
** Defendant voluntarily entered into agreement knowing expectation interest would be protected (but could also apply to reliance interest).
** Provides incentive to enter into contracts, provides incentive for plaintiff to rely on contract.
** Generally, we want people to rely on promises made by other people.
** Example: steel company makes a future contract for purchase of iron ore that is later converted into steel (forward contract). Steel company should act with expectation of delivery of steel; purchase other components, make deal with auto manufacturer, etc.. Company needs to be able to rely on its expectations.
** Why not stick with reliance interest and make plaintiff prove everything they did in relying on the contract to come up with damages?
** Expectation damages in contract law is based upon model of commercial/business context.
** Reliance might be hard to quantify or prove.
** Might be waste of judicial resources to require proof of reliance costs when it is nearly always there, or if it's very hard to quantify or prove but almost certainly there.
** Can we assume 'automatic reliance'?
*** In business transactions, there is an opportunity cost. If steel company had not entered into contract with iron ore company, they would have entered into contract with another iron ore company. Cost of making contract with first company includes not having made contract with other company.
*** This would be per se reliance in business contracts.
** Sullivan v. O'Connor, however, is quite far from business transaction context. Might want to grant reliance interest so as to not place too much liability on doctors, public policy reason. But why grant cause of action at all?
*** Judges really think case is about negligence, this reflects remedy.
** Also might be difficult to quantify.
** Court is ambivalent about breach of contract cause of action: "Cause of action is somewhat suspect" thus "moderation...of the recovery...should be permitted."
** Possibly pain and suffering under reliance theory would actually be greater since she would have had pain and suffering anyways if the operation had been successful. Under reliance theory, however, pain and suffering can be included because that is needed to get her back to original state.

Generally don't get restitution damages. E.g., Naval Institute case: damages were based on plaintiff's loss, not defendant's gain. Primary reason is that restitution damages would be punishment in many cases. Exceptions: spy case, copyright cases. These cases deal with property that is suspect in another person's hands. Also, in trust situations, restitution is granted. In corporations, directors and officers are considered fiduciaries as in trust situations. When trust situation is breached, no ambivalence--this is wrong. Thus restitution can be granted.

Remedy in these cases is damages not specific relief. Later in course we'll see frequent exceptions to this dogma.

Consideration ==


Hamer v. Sidway ===

[27 N.E. 256] Court of Appeals of Maryland 1955

* Uncle promises to pay nephew $5,000 if he does not drink or smoke until he is 21. One nephew turns 21, Uncle keeps money in trust for nephew. Uncle dies without paying nephew.
* Nephew transferred promise to his ex-wife who transferred it to someone else.
* Defendant argues that there is no consideration.
* Why have consideration as a necessary factor of contract?
** Can be helpful to determining who is involved in contract
** Gives people right to change their mind
** Family context: wouldn't want all promises made in family context to be enforced
* Can nephew recover $5,000, even though his promise didn't 'benefit' his uncle?
* Yes; a promise is consideration whether it benefits the promisee or burdens the promisor.
* Consideration was nephew's not smoking or drinking, not nephew's promise not to smoke or drink. Important not to confuse promise to perform with performance.
* Uncle invited action, not intent, on part of nephew.
* If return consideration from nephew was assent, then this would be bilateral contract (where both sides tender promises toward seach other). In case at hand, uncle had unilateral contract: promise on one side, performance on the other side.
* If contract had been bilateral, uncle could have sued nephew since he broke the promise (might not be able to prove damages though).
* Defendant argues that consideration only benefitted nephew, thus was not consideration. Connects to history of contracts:
** Action in Covenant: Causes of action based upon promises made under seal. Served evidentiary purpose, had act/formality associated with promise. Cautionary function of seal. 'Channeling function'.
** Action in Debt: One side had almost always done what they promised do (given the money); other side which hadn't yet given anything.
** Action in Assumpsit: Arose out of tort law for misfeasance--person did something but did it wrong, causing damage. Later expanded to include nonfeasance. Still assumption of damage.
* Hence need for benefit to promisor or detriment to promisee.


Tuesday, January 8, 2002 (Class 3)




In many cases, you will be grossly undercompensated, even with expectancy damages because of counsel costs. How to deal with this?

# Certain contractual actions have statutes that allow for counsel fees added to recovery (for example, consumer cases).
# Class actions; 'much larger pot' of damages.
# Statutes that cause losing party to pay all legal costs.
# Parties try to contract around the (American) rule: put in original contract, that prevailing party will get counsel fees in litigation.
# English rule: losing party pays for everything. Why not choose this system (see web discussion)?

Need to come up with dividing line between actionable and unactionable promises. Our legal system has come up with consideration as dividing line. But what does consideration mean?

Traditionally, there must have been either a benefit to promisor or a detriment to promisee (rooting in historical action of assumpsit). Question in Hamer v. Sidway [27 N.E. 256] was whether the nephew's not drinking and smoking consisted of a detriment.

Question of remedies: what are damages to promisor when only consideration is detriment to promisee?

E.g., if nephew had accepted contract and then breached it, Uncle could sue for breach of contract, but what damages might there be?

Second Restatement of Contracts abandons benefit to promisor/detriment to promisee. Question becomes: Was there something that was bargained for? As long as there was some kind of 'bargain' or 'exchange' (which can include forbearance) then there is consideration.

Why has consideration persisted?

* To maintain a dividing line between unactionable and actionable promises
* Seal: evidentiary (strong evidence that promise was made), cautionary (promisor understands the seriousness of what he is doing), and channelling (channel behavior of parties into something which is legally enforceable). Consideration plays a similar role, has taken over these three functions in law.

In Hamer these functions were essentially met, perhaps lead to court's decision.

Fiege v. Boehm




[123 A.2d 316] 1956 Court of Appeals of Maryland (cb34)

* Boehm, plaintiff, female is suing Fiege, defendant, male for failure to pay child expenses after she promised not to initiate bastardy proceedings (quasi-criminal at time of case).
* Defendant is claiming there was no consideration as it turns out he wasn't father.
* Some sort of implicitly public policy that 'once you agree to support a child you will follow through'.
** Recent Massachusetts case dealing with similar issue: Paternity of Cheryl [434 Mass. 23] [746 N.E.2d 488].
* 'Good faith' or 'honest belief': subjective tests of whether agreement should be binding. Court also wants to include some sort of objective 'reasonable' standard.

Movement away from weighing whether consideration is 'sufficient'. Still certain situations exist where courts are willing to step in for public policy reasons and find consideration to be insufficient.

Feinberg v. Pfeiffer Co.




[322 S.W.2d 163] 1959 Saint Louis Court of Appeals, Missouri (cb39)

* Pfeiffer Co. promised to Feinberg $200 per month for rest of her life. After CEO dies and wife leaves company, son-in-law takes over and stops payment on advice of lawyer that contract is not binding.
* Two causes of action: breach of contract and reliance-based cause (the latter dealt with later).
* Defendant's argument is that there is no consideration since consideration can't be past acts (no bargain, no exchange), and subsequent acts were not required to earn pension.
* If we look at traditional justifications for consideration, can find same justifications for respecting corporate resolution calling for pension. Would need to let go of some formalistic requirements.

For next class, begin to read "Requirement of Bargain", also finish this section.


Friday, January 11, 2002 (Class 4)




Review up to this point:
* Line between unforceable an enforceable -- consideration
* Consideration as benefit to promisor or detriment to promisee
* Move towards requirement for exchange or bargainment, clearer standard than benefit/detriment

Frequently the job of lawyer is not to litigate but to prevent these situations from happening. Feinberg v. Pfeiffer: board could have passed resolution 'in recognition of past years of service but in recognition of the next six months of work which will be very important to the company, etc. etc., you get pension of $200/month.' Would have been clear consideration.

Mills Case




* Sick man (Wyman, Jr.) is found, Mills cares for him, father (Wyman, Sr.) writes letter promising to pay Mills but then renegs, man sues.
* Court finds contract unenforceable despite 'moral obligation'.

Webb v. McGowin? et al.




[168 So. 199] 1936 Supreme Court of Alabama

* Webb was holding block, was about to drop on supervisor, went down with block to cause it to miss supervisor, saves his life, incurring permanent serious injury. Supervisor promises to pay Webb for life.
* Could argue that had McGowin? been given the chance to sign such a contract before accident happened, would have signed it. "Back-date" contract.
* Court finds there was a benefit to the promisor and detriment to promisee; Court uses this to get away from the requirement for a bargain in exchange.
* Eight year history of making payments; serves evidentiary and cautionary purposes.
* If purpose of consideration was served, why not enforce promise?

How to distiguish between Mills and Webb?

* Detriment to Mills not as serious as to Webb
* Moral obligation not as great
* Some evidence in Mills (letter) but is there caution? Did father know he was making legally binding agreement vs. McGowin? who clearly did expect agreement to be binding.
* Ultimately, Court in Webb may be reacting to facts and arguing to reach the conclusion they need to reach.

Discussion of 'law, justice, morality'. Problem of inconsistent judgment or precedent being misused. History of Courts of Law vs. Courts of Equity (not as tightly held to legal rules).

Kirksey v. Kirksey




[8 Ala. 131] 1845 Supreme Court of Alabama

* Brother-in-law offers to allow brother's widow to live with him in a comfortable place if she leaves where she is. After a couple of years, he moves her to a less comfortable location and then finally kicks her out.
* Court finds promise unenforceable, 'mere gratuity'.
* Issue of benefit/detriment. Could argue widow was benefitted because she was given new place to live; but could also show she suffered a detriment by losing her claim to adverse possession to her land.
* Perhaps cautionary function has not been fulfilled.
* Some reluctance to involve the court in "family matters", particularly at this time.

Central Adjustment Bureau, Inc. v. Ingram




[678 S.W.2d 28] 1984 Supreme Court of Tennessee

* Three former employees of CAB had signed agreements not to compete CAB (debt collection business).
* Value in business is based on knowledge and relationships ('intangible assets' rather than 'tangible assets').
* Probably the norm rather than the exception to have non-compete covenants in this sort of business.
* Agreement bound employees for two years; if agreement had been 'forever' court would not have enforced it based on policy of not hampering trade.
* Question is whether there was consideration given in return for non-compete agreement.

Will pick up with Central Adjustment Bureau case on Monday...


Monday, January 14, 2002 (Class 5)




* Course Logistics
** Lots of postings on TWEN, please participate.
** Always adds positive comment on evaluation for class participation (no negative downside).
** Group 12a will be "on" tomorrow (Tuesday).

Non-competition agreements, especially pervasive with hi-tech firms in Boston area

Central Adjustment Bureau, Inc. v. Ingram


(continued)

[678 S.W.2d 28] 1984 Supreme Court of Tennessee (cb53)

* Time in contract was two years non-competition (fairly typical), all of United States (expansive, but not unreasonable given CAB's operations in all 50 states).
* Historically, Anglo-American policy has looked askance at Restraints on Trade, similar to Property Law prohibitions on Restraints on Alienation.
* Policy to allow people to earn living also goes against non-competition agreements.
* Courts examine non-competition agreements carefully, and they must be reasonable in time, area, and business reasons.
* Lower court modified agreement (probably in geographic scope, not clear from facts of this case).
* If you had a cardiologist practice in Buffalo, a court would likely enforce non-competition agreement that applied to Buffalo but not for whole state. CAB has tougher issue because scope is so wide.
* Agreement included provision to pay all costs of litigation
* Was there consideration on the part of the employer for the promise?
** How long after employment started did employee sign contract--future employment as consideration. But employees were already employed by CAB when they signed non-competition agreements. Court sees recency of hiring to suggest that non-competition is part of "original employment agreement". Would have been better for CAB if employees had signed contract and been informed of it before they started working.
** Company threatened to fire Ingram if he refused to sign agreement, suggests that there may not have been a real 'bargain'. "Sign here, or you'll be fired."
** Promise of continued employment. Employment is generally held to be 'at will'--employer has immediate right to terminate employment, but agrees not to terminate immediately if employee signs non-compete agreement. If no time period is specified, however, promise could be entirely illusory.
** Actual continued employment. Not only does company promise to continue to employ, but it does continue to employ. Actual performance has converted this from bilateral contract to unilateral contract. Promise may not have been sufficient but when employer actually performed (continued employment) it became binding. Problem: Traditionally actual performance can't substitute for promise and promise can't substitute for actual performance. At no time did CAB give up right to fire employees.
** Beneficial changes. Employees had raises and promotions. This could constitute consideration.
* Court finds sufficient consideration, including all these different 'possible' sources.
* What errors did Ingram make?
** Taking information, soliciting clients from CAB while he was still working for them.
** Ingram was agent of CAB, owes duties to employer.
* Why are non-compete agreements often not enforced?
** Enforcement is expensive, particularly with low level employee.
** Employer may be involved in same conduct (recruiting).
** Pace of litigation, time of agreement may have expired.
* Why enforce non-compete agreements?
** Repeat players. No one will be scared of non-compete agreements if they know they are never litigated.

Issue of employee handbooks with employee at will: 'you will not be terminated without cause', then handbook was changed to 'with or without cause'. Was there consideration for the original agreement or the modified one? Courts disagree on whether this sort of change can be made unilaterally. If no, employer may have disincentive to ever adopt this sort of policy if they can't ever get rid of it.

Promise as Consideration




Cases where promisee is trying to hold promisor to contract under theory that promisee made promise as well that is consideration. Promisor often responds that promisee's promise is 'illusory' and not sufficient consideration.

Why enforce promises as consideration?
* In commercial context, we believe that you relied on promise because there is always opportunity cost.
* If we did not hold return promise to be consideration, no one would rely on it, which would cause problems in commercial context (we want people to rely on promises).

Strong v. Sheffield




[144 N.E. 330] 1895 Court of Appeals of New York (cb69)

* Strong, aggrieved promisee, uncle, is suing Sheffield, promisor, niece.
* Sheffield's husband purchased Strong's business on credit.
* Promisory note was demand note rather than time note. Ambiguity in case is whether there were two notes or only one.
* A note evidences monetary obligation; somebody's promise to pay (with or without interest). Person making promise is maker of note, person to whom promise is made is payee of note.
* Demand instrument means payee can demand payment at any time, no fixed date in agreement.
* Negotiable instrument: "I promise to pay to the order of Strong" or "I promise to pay to strong or Strong's assignees", means a new party can become holder of note. (Not relevant in this case, since Strong was still holding note.)
* Facts are unclear as to whether there was a promisory note when Strong sold business to Nephew.
* Husband (of Sheffield, Nephew-in-Law) is maker of note, Strong is payee.
* Sheffield is (in modern terms) accommodation party, signing for the benefit of the husband (the accommodated party).
* Possible that wife signed as co-maker/accomodation party, or possibly as endorser. Doesn't matter for this case because maker is primary obligor, then endorser contracts that they will take up and pay the instrument.
* Sheffield's defense: no consideration. She made promise to pay but haven't received anything back.
* Strong claims forbearance was consideration: he didn't demand payment for two years.
* Court finds this is not consideration since there was no promise (even though there was performance). He could have demanded immediately at any time.

For tomorrow's class, look at 3-419, 3-303 of UCC, and 2-306 (for Eastern Air Lines case).


Tuesday, January 15, 2002 (Class 6) =


Strong v. Sheffield == (continued)

[39 N.E. 330] 1894 Court of Appeals of New York (cb69)

* Niece indorses note as accommodation (for benefit of someone else) or possibly as co-maker, either way she would be obligated to pay instrument. If you sign as co-maker, your obligation in primary; indorser has secondary obligation.
* Example of accommodation instance: guaranty.
* Surety: For most public construction contracts, contractor must obtain surety bond; if contractor fails to complete project, surety is responsible for finishing project.
* Wife (Sheffield) wanted Strong to forbear on loan to husband. Strong did not ask for money for two years. Does this not constitute consideration?
* There was no formal promise to forbear, thus no consideration in view of court.
* Demand negotiable instrument: Check, for example. In this case, we had promissory note payable on demand.
* Court needed to decide that promise was necessary consideration. Would have been possible to interpret this as a unilateral contract rather than a bilateral contract: in this case, she wanted forbearance, and Uncle forbore.

Uniform Commercial Code




* Early in the 20th century, several statutes were passed with the intent that different states would adopt the same statute.
* Uniform Sales Act, Professor Williston from Harvard, wrote First Restatement of Contracts.
* Negotiable Instruments Law, and other Uniform Acts were intended to be passed by every State.
* Some doubt at the time of the ability of Congress to regulate intrastate commerce.
* Karl Lewellyn got job of writing Uniform Sales Act; realized there needed to be a much larger set of documents that became Uniform Commercial Code. American Law Institute became co-sponsor UCC.
* Article that has been least revised is Article 2, from Uniform Sales Act.
* Article 3 was revised in late 1980's.
* Under UCC § 3-419, whether or not Niece received something for her promise doesn't matter. This doesn't mean consideration is irrelevant; if husband received consideration than Niece's receiving consideration doesn't matter.
* UCC § 3-303 (b), if an instrument is issued for value as in (a) then there is consideration. 3-303 (a) (3): if instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due.
* Restatement of Contracts II: Section 71, Subsection 4. Allows promise to go to different party than party who gives consideration. "Third-party beneficiary."
* In Strong v. Sheffield, if husband received sufficient consideration, then wife's promise is binding, under UCC.
* Court adopts more formalistic mode of reasoning in Strong v. Sheffield and finds no consideration and thus no binding contract.
* Might want to include something in agreement acknowledging some sort of real consideration, that return promise was valuable.

Mattei v. Hopper




[330 P.2d 625] 1958 Supreme Court of California (cb72)

* Hopper promises to convey land to Mattei, at closing Hopper refuses to convey land.
* Hopper claims there is no mutual obligation, since purchase offer included condition subject to Realtor's obtaining leases satisfactory to purchaser. Thus Hopper believes he is not obligated to convey land.
* Hopper was just unhappy with the price offer, would appear that lack of mutuality is lawyer's excuse. Underlying reality colors opinion.
* Court applies 'good faith' standard to satisfaction condition to make condition binding in some way.
* Reasonable person standard is also possible standard (where 'reasonable person' would be satisfied). Objective standard.
* In either case, standard gives meaning to satisfaction condition, allows contract to be binding.
* In case where 'good faith' or 'reasonable person' test was being conducted, would be hard to determine, court would still have to make judgment on facts and circumstances--continuum between objective and subjective standard.
* Contracts as allocation of risk
* Example of situation where a subjective (good faith) standard would make more sense: someone promises to paint a portrait of you, and you will purchase it if you are satisfied. A reasonable person standard would probably make more sense in this case.

Eastern Air Lines v. Gulf Oil Corporation




[415 F.Supp 429] 1975 US District Court Southern District of Florida (cb76)

* Gulf promised to sell all oil Eastern needs in certain locations in US at a price set by an index.
* Gulf's defense is 'lack of mutuality' and 'indefiniteness'. I.e., lack of consideration: Gulf is subject to Eastern's whim, Eastern might not require anything, thus 'their promise in return is illusory, doesn't amount to anything.'
* But real reason Gulf wants to quit contract is because they don't want to sell Eastern any oil at this price (rather than legal theory that Eastern might not buy any oil).
* Gulf instigated new ten year contract--even though old agreement was still valid--and Eastern agreed.
* "Requirements contract issue"

For next class, read promissory estoppel assignment. Seth Jackson and Karen Goldenberg TA group will be 'on'.


Friday, January 18, 2002 (Class 7)




Optional assignment: if you read on some topic dealing directly or indirectly with this course and post a review on TWEN, can get 'extra credit'. Example: 'The Lost Lawyer' book in the library.

Need to learn the details of these cases, important to know the client, also keeps work interesting and non-repetitive.

Eastern Air Lines v. Gulf Oil Corporation


(continued)

[415 F.Supp 429] 1975 US District Court Southern District of Florida (cb76)

* Example: oil supplier agrees to supply you with 60 gallons of home heating oil at $1.50/gallon, you later want to get out (oil prices drop) because lack of consideration. No likely possible defense.
* Similarly, if oil prices rise and supplier wants to get out, still no defense.
* Why set price in advance? Allocates risk.
* Risk: Degree of uncertainty
* Forward Contract: Contract for something in the future (vs. spot market, purchasing something now)
* If Eastern had contracted with Gulf for 10,000 gallons of oil per day at 12 specific locations at a specific price for ten years, there would be no defense of no consideration.
* Very unlikely that this sort of contract would ever exist, since conditions change over ten years, demand, price, business climate, etc., change, neither party would want to restrict themselves to this degree.
* What value of a 5 year contract? Requirements clause allows parties to commit to supplying required quantity over time. Increases certainty (even if it isn't entirely certain).
* Since airplanes are flying from city to city, they could increase or decrease their demand on Gulf Oil depending on price of oil vs. fixed price agreed upon with Gulf.
* Price was based on Platts Oilgram report of West Texas Sour.
* Price controls were put on oil at the price of oil preceeding embargo.
* Argument against price control: doesn't create incentive for finding new oil. Thus embargo was just on 'old oil', so there would still be incentive to find new oil.
* Picked baseline level of extraction pre-embargo to measure 'old oil'. Anything above that would be 'new oil'.
* Price at gas stations was 'blended' price, reflecting mixture of 'old oil' and 'new oil'.
* West Texas Sour posting in Platts Oilgram continued at 'old' price, under price controls.
* Court was hostile to begin with, people this contract was initiated by Gulf. Bias in contracts towards interrupting contract against its author.
* Court is skeptical that events were entirely unforeseeable, given that there had already been a war and an embargo. Gulf could have protected itself against this possibility.
* Relational contract: lasts over long period of time, creates relationship between parties. Marriage contract is relational contract. Majority of contracts fall into this category, even where contract is terminable by one of the parties.
* Can also lead to vulnerabilities, since each side is invested in contract. Gulf may have expected Eastern to pay higher price because of relationship and Eastern's investment in getting oil from Gulf. Enforcing contract probably cost millions of dollars in legal fees alone.
* More relational a contract is, the more the law sets up standards--duty to act in specific ways.
* Eastern's duty: to set requirements in good faith.
* Uniform Commercial Code 2-306: Output, Requirements and Exclusive Dealings:
** A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
** Section 1-201, definitions that apply throughout UCC. Good faith is further defined in section 2-103, includes reasonable commercial standards of fair dealing in trade.
** 1-203 imposes good faith requirement on all sections.

Wood v. Lucy, Lady Duff-Gordon




[118 N.E. 214] 1917 Court of Appeals of New York (cb83)

* Lady Duff-Gordon is 'designer' who allows her name to be put on products for marketing purposes.
* Wood agreed to market Duff-Gordon's license. She would get 50% of royalties from Wood's deals.
* Meanwhile, Duff-Gordon licensed her name and kept all the profits separate from Wood.
* Duff-Gordon claims there was no consideration--that Wood didn't promise to do anything.
* Several recent biographies of Cardozo (could be reviewed for class).
* Cardozo found implied promise on the part of Wood. Relational contract, dependence of parties on each other, vulnerability, exclusive dealing. Similar to a requirements contract.
* Cardozo imposes standard of reasonable efforts in this case. Duff-Gordon could have sued Wood had he not made reasonable efforts to market her name.
* UCC: 2-306(2)--best efforts.

TA Group for Tuesday with Rebecca Rose, Io Cyrus is 'on'.


Tuesday, January 22, 2002 (Class 8)




Exclusive Dealings Arrangement: why distribute through one company when you can distribute through many? Distributors might not invest in product if it will help other distributors too.

(see Boston Globe example: car advertisements are actually being paid for by car company, not be distributor, through allowances)

Theory of giving property rights to inventors is person who bears costs of development does not gain benefits.

In Lucy, Lady Duff-Gordon case, Cordozo finds obligation in duty to market Duff-Gordon's fashions; reveals bias towards wanting to upheld contract (mutual vulnerabilities).

Reliance as a Basis for Enforcement




Example 1: Grandfather promises to pay for law school if you promise to go. You promise. No problem with consideration--promise for a promise.

Example 2: If you go to law school, he will pay for first year's tuition. Then you go to law school, he refuses, you see, grandfather claims lack of consideration. Unilateral contract, no problem with consideration.

Ricketts v. Scothorn




* Granddaughter relied on promise of money, quit job.
* Even though grandfather's promise was not conditioned on granddaughter's quitting job, there was still some expectation that she would quit her job.

Feinberg v. Pfeiffer




* Reasonable expectation of promising pension is that person will retire. Thus valid reliance interest.

Moving away from seal/consideration tests, more towards 'equitable' basis. General principle of civil liability: if you do something which reasonably you can expect will harm, damage, effect me in a way on which I can rely, the law will find a remedy, whether in torts, contract, etc..

Restatement 90 labels 'promise reasonably inducing definite and substantial action' (rather than promissory estoppel).

Equitable estoppel: somebody makes a statement, knowing or reasonably expecting someone to rely on statement, person relies on statement, then sues. Turns out statement was false, but person is estopped from denying truth of statement.

Example: person claims to be Donald Trump's partner in public forum, Trump is there, doesn't deny it, person gets line of credit on this basis. Trump is then estopped from denying he is partner.

Promissory estoppel extends basis from misrepresentation of fact to mere promise.

First Restatement of Contracts: history of Corbin and Williston. Section 90 authored by Corbin as a way to deal with situations that weren't fitting as well into Williston's classical views.

Cohen v. Cowles Media Company




[479 N.W.2d 387] 1992 Minnesota Supreme Court

* Person suing newspaper who revealed his identity after promising confidentiality under theory of promissory estoppel.
* Does equitable doctrine provide more arbitrary decision-making for courts? Make outcome less predictable?

D & G Stout v. Bacardi Imports




[923 F.2d 566] 1990 7th Circuit Court of Appeals

* General had exclusive right to distribute rum in Northern Indiana. Bacardi promised to keep General as exclusive distributor, but when General decided not to sell their business, Bacardi pulled out.
* Exclusive distributorship agreement was terminable at will.

Remedy may differ depending on consideration basis vs. promissory estoppel.

Group for Friday's class: Sean's group.


Friday, January 25, 2002 (Class 9) =


Promissory Estoppel ==

Difference between First Restatement § 90 and Second Restatement § 90: deleted requirement that reliance be of definite and substantial character. Requirement was initially included to allow promissory estoppel into First Restatement (despite no case law on the subject). By Second Restatement, reliance itself was considered to be enough of a basis of consideration.

Second Restatement: remedy for breach may be limited as justice requires. Damages may not be expectancy damages but rather just reliance damages.

Promissory Estoppel is highly debated:
* To what extent is reliance principle of § 90 overtaking bargain principle of § 75?
* Contract law being reintegrated into general liability/torts framework (Grant Gilmore, "Death of Contract")
* Elements of Promissory Estoppel: promise, reliance, justice would only be served by giving some remedy. Gilmore nad others had seen reliance as central to promise; recent scholars have found that the central element of the doctrine has become the promise. Often courts will enforce a promise when there was not real reliance when it is really the promise they are based on.

Alternative theories: economic activity should be basis for enforcement.

Descriptive: You are describing something. Descriptive argument between set of scholars is disagreement on what is reality, or on what cases stand for.

Normative: What should be the case.

As emphasis moves more towards promise from reliance, then expectation damages begins to make more sense as basis for damages. (Third debate: what should remedy be?).

Cases where facts are extreme to one side or another are generally not litigated since it's not worth it for either side. Most cases are at the margin; one would expect roughly 50% on each side. Yet, promissory estoppel cases prevail very rarely; contract cases in general prevail ten times as often.

D & G Stout v. Bacardi Imports


(continued)

[923 F.2d 566] 1991 Seventh Circut Court of Appeals

* Even though either party could have terminated distributorship deal, court did not find this to constitute lack of consideration.
* Did Indiana look at promise or reliance in finding promissory estoppel?
** Appears to focus on reliance to General's detriment rather than assurance that was given.
** Court also wants to use reliance damages, in analogy to at will employee who incurs moving expenses
* Capital Asset: Value of all cash you can get from it.
* Present Value Analysis: Opposite process from compounding interest. Takes future dollars and finds their value today. Discounting--a dollar two years from now is not the same as a dollar today.
* Bacardi's argument: General's capital asset was what it sold for, since agreement was terminable at will. No expectation damages. (i.e., Bacardi was not an asset that General had to sell.) In fact, when National purchased General, they probably wouldn't have kept Bacardi anyway since they had their major competitor's account.
* But Court finds basis of damages is National's reduced bargaining power, not the lack of capital asset, therefore finding in Plaintiff for reliance damages.

Restitution ==


Cotnam v. Wisdom ==

[104 S.W. 164] 1907 Arkansas Supreme Court

* Wisdom is suing estate of Harrison (Cotnam is administrator).
* Wisdom is surgeon who was called to scene of accident, performed surgery, wants compensation for services rendered.
* No actual consideration--Harrison never promised anything to Wisdom.
* Idea of '''implied contract' (=quasi-contract, constructive contract); Action in Restitution.
* Difference between implied in fact (parties believe they have contract even if they don't use contract language, demonstrated by words and actions) and implied in law (court is constructing a contract).
* Quantum meriut: 'how much is the merit'.
* Focal point for action in restitution is gain of defendant.
* Supreme Court overrules lower court's estimation of damages based on expected payment rather than reasonable value of services. This was not a contract, damages should not be calculated as if it were.

For Monday or Tuesday, prepare assignment 8 (Nature of Assent).


Monday, January 28, 2002 (Class 10) (Assignment 7) =


Restitution ==

When you can't recover on traditional contract grounds nor on reliance grounds, restitution is 'another way around the field'.

Callano v. Oakwood Park Homes




[219 A.2d 332] 1966 New Jersey Superior Court

* Oakwood was seller, Pendergast was potential buyer. Pendergast contracted with Callano to do some landscaping work.
* Pendergast dies, family cancels sale, Oakwood sells to the Grantges for more. (this as likely the reason Oakwood let Pendergast family out of purchase--they knew they could get more).
* "In cases based on quasi-contract liability, the intention of the parties is entirely disregarded, while in cases of express contracts and contracts implied in fact the intention is of the essence of the transaction. In the case of actual contracts the agreement defines the duty, while in the case of quasi -contracts the duty defines the contract. Where a case shows that it is the duty of the defendant to pay, the law imparts to him a promise to fulfill that obligation."
* Why did Callano sue Oakwood Park Homes rather than Pendergast? Cost of suing well exceeds recovery for breach of contract; however, possibility of restitution damages could outweigh litigation costs. No 'repeat offender' incentive to litigate.
* Why can't Callano sue Grantges? Grantges were not unjustly enriched--they paid for shrubbery.
* Court won't grant relief because they don't want people to be able to substitute one person's obligation for another's. Callanos could have sued Pendergast (even though it wouldn't have been economical). Court does not want to give person 'more than benefit of the bargain'--giving them the benefit of two contractual liabilities rather than one.
* Court might allow liability when relationship between party that made contract and party that was benefitted is much closer. E.g., if one person has express authority to act for another.
* When plaintiff's loss is not equal to defendant's gain, damages become difficult issue. Under restitution theory, damages should be defendant's gain, but this does not always seem just.
* When there is a 'thorny' liability issue, sometimes you will decide there is no liability in the first place.

Pyeatte v. Pyeatte




[661 P.2d 196] 1982 Arizona Court of Appeals

* Wife sues husband after working to pay for his law school and then he seeks divorce rather than supporting her through graduate school as promised.
* Court generally presume gratuity with respect to spousal services, but allow recovery on restitution theory given extraordinary services.
* Court overturns $23,000 award (graduate school tuition) since that would imply they were actually enforcing the contract. Instead, plaintiff should be compensated for services rendered, since this was the unjust enrichment.

Posner's theory: person decides to donate certain amount over period of time. Promisee can't be sure they will receive the money, even if it promisor is sure, since promise is not legally binding. Under Present Value Analysis, Promisor will need to give a lot more money to give a gift equal to that which they wanted to if the promise were actually binding.



Nature of Assent




* Subjective vs. Objective standard: subjective test--'meeting of minds'. 20th century has move towards objective standard.

Lucy v. Zehmer




[84 S.E.2d 516] 1954 Virginia Supreme Court

* Lucy is suing Zehmer on theory that Zehmer broke promise to sell farm for $50,000.
* Zehmer's excuse: they were drinking, joking, didn't intend to make promise.
* Lucy: Zehmer and his wife signed, didn't say that it was a joke loud enough for Lucy to hear. $50,000 was reasonable price. Reliance -- went out and got funds to purchase farm.

What factors may have moved towards 'assent'? ('subjective' vs. 'objective' standard).

Will try to cover all of The Offer materials for tomorrow.



Tuesday, January 29, 2002 (Class 11)




If test is subjective test of what promisor actually intended, then focus of inquiry will be on promisor.

If test is objective test, then focus of inquiry will be on promisee.

Subjective test focusing on promisee: Could the promisee have reasonably believed this to be valid offer, and is there evidence that he actually did believe it?

Over twentieth century, test moved from being more subjective to being more objective. Why?
* Objective test becomes common denominator.
* Minimizes litigation, minimizes problems of proof (cost, volume of litigation)
* Common trend of elimination of doctrine that requires difficult proof
* Markets: when you are no longer dealing face-to-face, no longer opportunity to gauge 'face-value' intent.
* Part of trend towards objectivity in other disciplines
* Who can, with least cost, avoid difficult situtation? Generally promisor. Just like ambiguous writings are usually interpretted against the author.
* May discriminate against less sophisticated promisors

Efficiency now being used not in pareto superior sense but in Caldor-Hicks sense.

Gentleman's Agreements




* Dominate mode of distributing securities is through underwriters in investment banking.
* Underwriters distribute securities to the public.
* Agreement is usually not signed until the day before going public, but large amount of resources are put into agreement before it is ready to go.
* Governed by letter of intent, by which the underwriter states that it intends to distribute stock to the public, signed by both parties but includes provision that 'this is not legally binding'.
* Still respected, however, as it is valuable for future business. Reputation market.

Contract may exist even if it hasn't actually been written down if there is agreement at end of complex negotiation. If you want to make sure that contract is not binding yet, start with agreement that there will be no agreement until all terms are agreed upon and put into writing.

Can be held responsible for inducing breach of contract. e.g., Texaco v. Pennzoil, [729 S.W.2d 768], in which Getty Oil was in negotiations to be purchased by Pennzoil. Texaco purchased Getty, was then sued by Pennzoil and lost with punitive damages, bankrupted company.

Offer




* Corbin's functional definition of offer: when one person confers upon another the power to create contractual relations between them. Act of offeror operates to create in the offeree a power, thereafter the voluntary act of the offeree alone will operate to create contract.

Owen v. Tunison




[158 A. 926] 1932 Maine Supreme Judicial Court

* Owen, plaintiff, suing Tunison, after claiming to have accepted Tunison's offer to sell Drug Store for $16,000.
* Tunison wrote: "...it would not be possible for me to sell it unless I was to receive $16,000.00 cash."
* Court finds Tunison's letter did not constitute an offer.
* How to create situation more in Tunison's favor?
** "I would not consider any offer less than $16,000."
** "This is not an offer."
* In Owen's favor?
** "I will sell it to you for $16,000."

Harvey v. Facey




1893 Jamaica Privy Council

* Plaintiff telegraphed defendant, asking if he would sell Bumper Hall Pen, and lowest cash price.
* Defendant responded only with cash price, did not say if he would sell.
* Court finds there was no offer. Several possible reasons:
** Lack of definiteness of terms.
** Seriousness of real estate transactions.
** Town wanted to purchase land, public policy might favor town.

Fairmount Glass Works v. Crunden-Martin Wooden Ware Co.




[51 S.W. 196] 1899 Kentucy Court of Appeals

* Fairmount gave price quote on jars to Crunden-Martin. Crunden-Martin agreed, then Fairmount was sold-out and could not fulfill order.
* Court finds that terms given by Fairmount would constitute an offer in the business.
* Defendant's argument: quote was not an offer, quote was an invitation to an offer.
* Second argument: not all terms were stated, not enough to be an offer.
* Third argument: plaintiff stated new terms, thus it was a counter-offer, not an agreement.
* Quotes are generally not considered to be offers, since you may quote more people than you can actually sell to.
* 'For immediate acceptance' language in Fairmount's telegraph, court finds to constitute an offer.
* Court doesn't find defendant's argument about 'strictly first-quality goods' compelling as to constitute a counter-offer--standard business practice.

For Friday, finish Offer materials, do Acceptance reading. Brian Polk's T.A. group is on for Friday.



Friday, February 1, 2002 (Class 12) (Assignments 8-9)




* Usage of Trade
* Course of dealing
* Course of performance

Advertisements




* Corbin's conception: does an ad confer about its viewer the power to create a contract?
* No--there is not an indefinite supply; everyone who views ad cannot necessarily accept.

Lefkowitz v. Great Minneapolis Surplus Store




[86 N.W.2d 689] 1957 Minnesota Supreme Court

* Ad for items 'First Come First Served', when man arrives the store claims there is a 'house rule' of 'women only'.
* Normally advertisements are not considered to be contracts. In this case, however, 'first come first served' creates an exception, traditional 'indefinite supply' problem not applicable here.
* Even though intent of ad may have been to sell to women, court may find enforcing this policy distasteful as objective intent.

Building Contracts




* Bid: includes work that the contract will do themselves and bids from subcontractors.
* Owner calls for bids from contracters, who negotiate with subcontractors; ultimately contractor submits bid to owner which may be the actual offer.

Elsinore Union Elementary School District v. Kastorff




[353 P.2d 713] 1960 California Supreme Court (cb143)

* Kasteroff submitted bid to school district, made error when calculating final bid, accidentally omitted plumbing cost.
* Contractor is offeror in this case, school district is offeree, accepts the offer.
* Kasteroff wants to get out of contract next day, based on clerical mistake.
* No real reliance by school board--contractor called them the next day. Argument againts the school board.
* On the other hand, want general contractors to be careful, maybe hold them responsible for their mistakes. If we don't hold people responsible for their mistakes, school districts and others will not be able to depend on the bids.

Acceptance




* Voluntary act by the offeree whereby he accepts the offer.

International Filter Co. v. Conroe Gin, Ice & Light Co.




[277 S.W. 631] 1925 Texas Appeals Commission (cb132)

* Timeline--where was the offer on the timeline?
* The words accepted in this case indicated the offer.
* Acceptance was actual approval by Executive Officer.
* Letter on 2/14 was notification of acceptance, not acceptance itself.
* If acceptance varies in any way from terms of offer, this is considered to be a counter-offer, not an acceptance.
* In most cases, offeree must communicate the fact that it has accepted the offer, otherwise offeror is not bound. This communication may not be identical, however, to what we call the acceptance.

White v. Corlies & Tift




[46 N.Y. 467] 1871 New York Appeals Court (cb136)

* White, plaintiff, is builder. Corlies wants to have building renovated.

Next week: bring statutory supplement, UCC materials. In particular, look at § 2-207 of UCC and proposed revision. For Monday, finish The Accepatnce and go on to Termination of the Power of Acceptance. Andrew Weiner's TA group will be 'on' Monday.


Monday, February 4, 2002 (Class 13) (Assignment 10)




Acceptance: Exercise of power conferred by offer to create legally binding agreemnet.

Offer and acceptance are not always signified by the words 'offer' and 'accept'. Sometimes 'I accept' actually can constitute an offer.

Ever-Tite Roofing Corporation v. G.T. Green




[83 So. 2d 449] 1955 Louisiana Appeals Court

* Ever-Tite signed contract to do work on Green's building. While they were doing credit check, Greens hired another company to start work. Ever-Tite is suing for breach of contract.
* Greens made offer, Ever-Tite accepted.
* Acceptance was performance--yet this was not sufficient in the White case.
* But Contract specified that performance would constitute acceptance--this was contained in the offer.
* Court concluded that Ever-Tite's commencement of work constituted acceptance.
* Greens received notice of acceptance when Ever-Tite showed up to start work.
* Why wasn't the presence of other company revocation of offer?
** Too late to revoke offer once it has been accepted. Court found Ever-Tite preparing for work to constitute acceptance, not the showing up.
* Notification of acceptance need not be the same act as the acceptance itself. In this case, the notification and acceptance were different.

Frequently find in contractual situations involving something to be made, credit checks, etc., there will be a provision of approval by home office.

Allied Steel and Conveyors v. Ford Motor Company




[277 F.2d 907] 1960 6th Circuit Court of Appeals

* Allied Steel was selling machine to Ford. Contract included indemnity clause holding Allied liable for all negligence of Allied's employees.
* Ford is offerer, purchase order is offer. Did Allied exercise power of acceptance?
* Original clause made Allied responsible for all negligence due to their employees working in Ford Plant. Later agreement included clause making Allied liable for all negligence due to Ford's employees working on Allied's product in Ford Plant.
* Original contract had voided second clause (holding Allied liable for Ford's employees); later order included contract without that clause voided.
* If contract with new terms had not yet been accepted by Allied, why was it binding?
** Acceptance is not considered to be return of acknowedgment, but rather the commencement of purpose; when Allied delivered product, they became bound by new agreement.
** Court reads acknowedgment clause of contract to indicate means of notice but not precluding acceptance by performance:
*** 'This purchase order agreement is not binding until accepted. Acceptance should be executed on acknowledgment copy which should be returned to buyer.'
* Indemnity provision is very similar to insurance: assigns risk to party better able to shoulder or prevent risk.
* Indemnifying Ford against all negligence include that of its own employees when working on Allied's machine reduces problem of having to compute comparative fault, etc..
* UCC Categories, UCC § 1-205, UCC § 2-208:
** Usage of trade: trade custom in that trade, usages that people in trade should be reasonably expected to know.
** Course of dealing: Looks at relationship between parties, over time.
** Course of performance: Contract that calls for repeated performance, see how parties have dealt with that performance.
* Under course of dealing approach, would assume contract was that Ford would be indemnified only against Allied's employees, since that is how that dealt before (court did not use this construction, however).
* Hierarchy of interpretation: starts with words of contract itself. But in this case the contract is not actually signed by both parties; acceptance in form of delivering new machine might indicate acceptance of old terms.

Corinthian Pharmaceutical Systems v. Lederle Laboratories




[724 F. Supp. 605] 1989 United States District Court for Southern District of Indiana

* Lederle is seller of vaccine (defendant), Corinthian is purchaser (plaintiff).
* Lederle increased price of vaccine in response to liability suits. Corinthian heard prices were increasing and ordered 1000 vials (usually ordered 100 or less).
* Corinthian placed order over automated telephone system.
* Lederle sent 50 vials at old price, with invoice noting price increase, saying they could purchase the rest of the vials at the new price.
* Corinthian wants to establish that there was a contract which would obligate Lederle to supply 1000 vials at cheaper price.
* Corinthian claims Lederle's pricelist constituted an offer which they accepted. Court rejects this argument--pricelist is not considered an offer.
* Corinthian then claims that shipment of partial order constituted acceptance of its offer.
** UCC § 2-206(1)(b): an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
* Shipment of 'non-conforming goods' does not indicate acceptance, however, as long as there is timely notice. 'Non-conforming' in this case means different quantity.
* Corinthian is obviously trying to tack advantage of Lederle; this must influence Court's reading of UCC § 2-206.

Termination of Power of Acceptance




Circumstances where power to accept no longer exists:

* Lapse of Offer
* Once offer is rejected
* Offerer's death or incapacity
* When offer has been revoked, prior to acceptance

* Firm Offer: An offer during which a certain period cannot be revoked.

Dickinson v. Dodds




* Dickinson was given until Friday to decide whether to accept offer.
* Dodds revoked offer before Friday.
* Since there was no consideration, offer could be revoked at any time.

Be sure to bring UCC tomorrow.


Tuesday, February 5, 2002 (Class 14) (Assignments 10-12)




Firm offer cannot be revoked during its period--power of termination is given up for time being.

Ragosta v. Wilder




[592 A.2d 367] 1991 Vermont Supreme Court (cb181)

* Wilder was offerer (defendant), Ragosta offeree (plaintiff). Offer was to sell real estate (known as 'The Fork Shop').
* Wilder claims Ragosta could no longer accept, since offer had been revoked.
* Ragosta claims Wilder could not revoke, because he gave Wilder a certain period of time in which to respond (essentially a firm offer).
* Ragosta firms claims Wilder promised to give him certain amount of time to accept, court finds there was no consideration. Although Ragosta tendered $2,000 deposit, Wilder sent it back uncashed. Furthermore, receipt of deposit was not bargained for.
* Alternative basis: Ragosta relied to his detriment on the promise; thus it is too late to reverse, thus law must grant remedy.
* Court won't agree to promissory estoppel, because plaintiff would have incurred costs anyway.
* Equitable estoppel: no false representation of fact, thus no equitable estoppel.
* UCC § 2-205: Firm Offers
** An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
** UCC definitions--some are set out in general definitions § 1-201, then are specifically defined in their particular sections. Some are only defined in their sections and not in general definitions.
** Some provisions (i.e., firm offer, statute of frauds) applies only to merchants.

Firm offer is kind of option contract. Contract where one party holds the option, has right or power to exexercise option, but is not bound to do so. Used extensively in securities tradings.

Purpose of interpretation: language has to be interpreted in context, not always visible from language. Used by Llewelyn in UCC development, explains extensive comments in UCC.

Mirror Image Rule: under common law, if one makes an offer, and reply to offer is not identical to original offer, then it constitutes a counteroffer rather than an acceptance.

Last Shot Doctrine: another way of talking about Mirror Image Rule. Last party sending something in writing back which was then acting upon by both parties is the contract.

Battle of the forms: Even though buyers and sellers were sending each other forms that differed, they thought they were binding contracts. Legal realism--mirror image rule does not reflect reality of how people think about contracts.

Standardized forms: advantage--saves transaction costs. Disadvantage--not always the same form between parties; buyers and sellers forms rarely agree.

* UCC § 2-207: Additional Terms in Acceptance or Confirmation:
** "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" -- rejects mirror image rule.
** "unless acceptance is expressly made conditional on assent to the additional or different terms." -- return to common law approach--counteroffer.
** "The additional terms are to be construed as proposals for addition to the contract." -- are these considered additional or different?
** Between merchants such terms become part of the contract unless:
*** the offer expressly limits acceptance to the terms of the offer; (or)
*** they materially alter it; or
*** notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
** 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.

* Focus on these terms for Friday on Battle of the Forms cases and past cases.
* Rachel Kreusen's group is 'on' on Friday.


Friday, February 8, 2002 (Class 15) (Assignment 12)




(missed beginning of class, sorry!)

Dorton v. Collins & Aikman Corp.




[453 F.2d 1161] 1972 6th Circuit Court of Appeals

* If you make your acceptance expressly conditioned on its additional and different terms, it becomes a counteroffer.
* Issue of whether arbitration provision had become part of contract.
* UCC § 2-207: Subsection (2) is viewed as a proposal.
* Carpet Mart must show that other side materially altered contract for it to constitute counterproposal.
* Arbitration clause might be part of offer:
** If it was discussed in negotiations.
** Usage of trade
* As a matter of law, Court holds that arbitration clause does not materially alter contract.
* There are UCC exceptions to 'silence is not acceptance rule'; see UCC § 2-606, §2-201.

C. Itoh & Co. (America) Inc. v. Jordan Int'l Co.




[552 F.2d 1228] 1977 7th Circuit Court of Appeals (cb210)

* Seller was Jordan, buyer was Itoh.
* Court considers offer to consist of Itoh's purchase order; acceptance was acknowledgement form.
* Court skips UCC § 2-207 (2), looks at § 2-207 (3), finds contract is based on terms which agree between offerer and offeree. Ends up with arbitration clause not being binding.
* When is lawyer involved in 'battle of the forms'?? In drafting the initial standardized form, or in deciding whether to adopt trade association's standardized form. Costs would be too high if lawyers were involved in each sales transaction.
* Court is ironically saying that seller is better off if they had never mentioned arbitration clause rather than putting it in contract, since UCC says you supplement these contracts with usage of trade (which includes arbitration in this case).
* What you sell is different from remedy provided.

James Todd's group will be 'on' on Monday.


Monday, February 11, 2002 (Class 16) (Assignments 13-14)




UCC § 2-207 was responding to pre-UCC law that, in commercial transactions, when response to offer was not identical to original offer, it constituted a counter-offer rather than an acceptance. Llewelyn found, however, that this was not how businesses were functioning.

Under pre-code law, acceptance of goods constituted acceptance of counter-offer, therefore those terms were binding. Last shot doctrine -- the last of the documents between the two parties would be controlling. Llewelyn wanted to move away from mirror image rule and from last shot doctrine.

§ 2-207 functions:
# to tell if there is a contract between the parties
# to tell us the terms of the contract if there is one

(see irony comments from Friday's class--moving from § 2-207 (2) to § 2-207(3).)

C. Itoh & Co. (America) Inc. v. Jordan Int'l Co.




[552 F.2d 1228] 1977 7th Circuit (cb210)

* Seller's argument is that 'dispute are usually settled by arbitration' -- thus through § 1-205 arbitration should be incorporated.
* Court holds that because arbitration was in original document but not in response, thus through § 2-207, there is no binding arbitration! Would have been better to leave out arbitration entirely.

Northrop Corp. v. Litronic Industries




[29 F.3d 1173] 1994 7th Circuit (cb212)

* Litronic offered to sell printed wire boards to Northrop.
* Litronic's form constitutes the offer (rather than the buyer's purchase order which is usually considered to be offer).
* Issue of whether additional means additional or different in UCC.
* Significant difference between 90 day warranty and unlimited warranty (under the code)
* Posner adopts the 'gap-filling' interpretation--discrepant terms fall out and are replaced by a suitable UCC provision and use Illinois Law.
* Using UCC gap-fillers gets to 'neutral ground', even though this is not his preferred ground. Erie doctrine requires Posner to adopt Illinois law in diversity case.

Default Rule: Rule provided by statute that parties can contract around. Very different from criminal law--no contracting out of default rules in criminal law.

UCC § 1-102(3): (3) The effect of provisions of this Act may be varied by agreement, except as otherwise provided in this Act and except that the obligations of good faith , diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.

F.O.B.: 'free on board' -- seller will place sold item on means of transportation.

Can contract around terms specified in UCC (e.g., F.O.B.) but in absence of that default rules will be used.

By making default rule the same as majority/expected rule, then parties won't be surprised by court's interpretation in case of conflict without contractual specification. Some default rules don't go by majoritian philosophies, known as penalty default rules.

Warranties: §2-312, §2-316. Parties can contract around implied warranty of merchantibility. Seller has superior information, needs to make clear if there is no implied warranty of merchantibility. Rule is not neutral but is a penalty rule against seller--since they have the information about the limitations on the warranty.

Companies often exclude all warranties include warranty of merchantibility, and then state express warranty.

Step-Saver Data Systems, Inc. v. Wyse Technology




[939 F.2d 91] 1991 United States Court of Appeals (cb204)

* Step-Saver is buyer, TSL is seller of software.

ProCD?, Inc. v. Zeidenberg




[86 F.3d 1447] 1996 United States Court of Appeals (cb217)

* ProCD? is seller plaintiff, Zeidenberg is buyer defendant.
* Buyer resold software against restrictive license
* Court in Step-Saver saw contract as stopping at certain point in time, after which nothing more becomes part of the contract; this court has much more dynamic view that contract is changing so long as buyer still has option to say no. Buyer could have said no, I don't accept these terms, I want my money back, but did not.
* Buyer in Step-Saver had seen warrantee limitation many times (142).

Read all pre-contractual liability for tomorrow (223-251). Ryan Schiff's section will be 'on'.


Tuesday, February 12, 2002 (Class 17) (Assignment 13) ==


Default Rules ==

* Good example of default rule, UCC § 2-509:
** (Risk of Loss in the Absence of Breach) section 4: The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval (Section 2-327) and on effect of breach on risk of loss (Section 2-510).
* Can contract around default rules, but otherwise they apply.
* Statutory scheme default rule: rule provided when no other situation in statute applies (slightly different sense of default rule.

Warranty/Exclusive? Remedy Issues




* UCC § 2-719 (2) provides: Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act.
* Even if wrapper says item can't be returned if opened, § 2-719 (2) allows for return if, for example, there is nothing inside wrapper once it's opened (i.e., problem you couldn't discover until opened).

Arbitrage




* Process whereby you purchase in one market at low price and sell in another market at higher price.
* In theory, allows inequality between markets to be erased.

Other Loose Ends




* Misplaced Strategies example on cb216
** Buyer included arbitration clause in purchase order, seller's invoice was silent on arbitration but specified that any additional or conflicting terms were conditioned on buyer's acceptance.
** Proposed § 2-207 revision:
*** Deals exclusively with terms of contract (not whether or not there is a contract)
*** 'Knock-out' provision
*** Allows for such things as usage of trade from § 2-205.
* Often, we conceive of buyer as 'little guy' and seller as 'big guy' and want rules to be biased against seller. This may be dated conception, however. In modern economy, the reverse is often the case.
* Could technology be replacing the battle of the forms?
** Seller sets up website listing what it sells, at various prices. When you click to purchase, you have to read terms and conditions, and click to accept. If there were a later dispute, would not be § 2-207 type dispute.

Precontractual Liability




* Cases where courts grant relief when a contract has not been signed. Usually done on bases we have already explored:
** Restitution
*** Party A and Party B have been negotiating; in process of negotiating, A gives something of value to B; may be basis for restitution claim.
*** Paradigmatic case: architect and developer are in process of negotiating, developer doesn't end up hiring architect but does use architect's designs in final project.
** Reliance (Promissory Estoppel)
*** Reasonable reliance, where injustice would be done if no relief were granted.

Drennan v. Star Paving Co.




[333 P.2d 757] 1958 California Supreme Court (cb225)

* General contractor got bid from subcontractor, used bid as part of general bid to get project and was awarded project. Later, subcontractor said they made an error, and refused to do work for bid amount.
* Star Paving is offeror, Drennan is offeree. No contract prior to acceptance, however. Star Paving revoked its offer before Drennan could accept it.
* Generally not thought that use of subcontractor's bid constitutes an acceptance.
* Court finds for plaintiff on reliance basis:
** Not unusual to see large spread in bids, Drennan thus had no basis for expecting bid was mistake. (i.e., Drennan was not in bad faith.)
** Drennan went directly to Star Paving to accept their offer. Had Drennan approached other subcontractors after being awarded the bid, court would not have found for Drennan.
** Drennan was fairly diligent in finding another subcontractor, is only suing for difference in cost.
** Star Paving submitted bid hoping Drennan would get contract--it would have wanted Drennan to rely on its bid. Convinces reader that this result is fair to both sides--because ex ante, this is what the sub-contractor would have wanted, regardless of what he is saying now.
* Sense in this case that contract law is approaching torts: lots of discussion of 'reasonability'.
** "...it would not follow that defendant had no duty to exercise reasonable care in preparing its bid."

Holman Erection Co. v. Orville e. Madsen & Sons, Inc.




[330 N.W.2d 693] 1983 Minnesota Supreme Court (cb231)

* Holman is subcontractor, suing Orville after it listed Holman as its subcontractor in calculating its bid, but failed to select Holman as actual subcontractor.
* Plaintiff claims that by listing him as subcontractor, defendant accepted offer.
* Court holds that listing does not constitute acceptance; policy and precedent doesn't establish listing as binding.
* Holman argues that there is supposed to be reciprocity in contracts--court responds that subcontractors do the same work and submit the same bids to all the contractors.
* Court is supporting system of last-minute bids, to discourage bid shopping.
* On the other hand, under this system, bid shopping can still occur silently after general contractor is awarded the contract.

Hoffman v. Red Owl Stores




[133 N.W.2d 267] 1965 Wisconsin Supreme Court (cb235)

* Hoffman wanted to open up Red Owl Store. Moved around, did many different things, in reliance on Red Owl's directions about how he could become franchise owner.
* Ultimately, negotiations fall through when Red Owl requires certain conditions that Hoffman can't meet.
* In this case, never reached an 'offer/acceptance' stage (unlike Drennan or Holman). There was reliance along the way of negotiations, but there was never an offer.

For Friday, read through 'Definiteness' section. Will completely finish the chapter on Friday, next week 'Statute of Frauds'.

For Friday, Michael Havens' group is 'on'.


Friday, February 15, 2002 (Class 18) (Assignment 14)




* Where was the benefit ('unjust enrichment') of the party who died in Cotnam v. Wisdom? Party's probability of living increased, thus even though he died he received a benefit.
* Sim
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