contracts

Contracts - Knapp I. The Classical System of Contract Law: Mutual Assent and Bargained for Exchanged A. General Characteristics of the Classical System of Contract Law 1. Reflected and complimented laissez-faire capitalism a) freedom of contract formation b) freedom from interference with contract terms 2. Indifferent to the notion of morality a) Stresses formalism, the use of rigid and somewhat mechanical rules to reach ostensibly, predictable results. B. Contract - Definition and Formation 1. Restatement (Second) § 1 - Contract Defined 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 a duty 2. Restatement (Second) § 17 - Requirement of a Bargain (1) Except as stated in Subsection 2, the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration (2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94. 3. Importance of Formality a) The evidentiary function- supplies proof of the existence and purport of the contract b) The cautionary function- acts as a cautionary or deterrent function by acting as a check against inconsiderate action. c) d) The channeling function- acts to mark or signalize the enforceable promise Sometimes the forms requirements can be met but consideration may not have been supplied. These promises are unenforceable (Dougherty v. Salt) C. Mutual Assent 1. Restatement (Second) § 22 - Mode of Assent: Offer and Acceptance (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by on party followed by an acceptance by the other party or parties (i.e. a meeting of the minds) (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 can not be determined (Analogous to UCC §§ 2-204(1) - (2)) 2. The Objective Theory of Contract a) Absent fraud, duress, or mutual mistake, that one having the capacity to understand a written document who reads and signs it, or without reading it or having it read to him, signs it, is bound by his signature by law. Page 1 of 28 Contracts - Knapp b) Virtues of this ruling (1) easy (2) clear (3) otherwise would make fraud to easy (4) appreciates integrity of written document (5) protects parties against carelessness and negligence (6) less litigation (7) neutral approach c) Classical Cases of the Objective Theory of Contract (1) Ray v. William G. Eurice & Bros. Inc. Builder v. Owner; specifications different, builder signed specs without reviewing, finding for owner. (2) St .Landry Loan Co. v. Avie illiterate man allows mark on promissory note misunderstanding his obligation. Finding for Loan Co. 3. Offer and Acceptance: Bilateral Contracts a) Offers (1) Restatement (Second) §24. Offer defined 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. (Note: not defined by the UCC) (2) Party must show his promise is intended “as an expression of his fixed purpose” or and offer does not exist (3) Must show that the offer was intended to be an offer. Offer must show that the offeror is ready to commit to the offeree; (4) Restatement (Second)§26. Preliminary Negotiations A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made further manifestation of assent Lonergan v. Scolnick dispute over whether an offer existed for land b) Acceptance (1) Restatement (Second) § 50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise (1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in manner invited or required by the offer (2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by performance which operates as a return promise Page 2 of 28 Contracts - Knapp (3) Acceptance by promise requires that the offeree complete every act essential to the making of the promise (2) Restatement § 63 Time When Acceptance Takes Effect - Mailbox Rule (See UCC §2-206) 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 of an option contract is not operative until received by the offeror (3) §58. Necessity of Acceptance Complying with Terms of Offer An acceptance must comply with the requirements of the offer as to the promise to be made or performance to be rendered (4) §59. Purported Acceptance Which Adds Qualifications A reply to an offer which purports to accept but is conditional on the offeror assent to terms additional to or different from those offered is not an acceptance but is a counter-offer (5) §69 Acceptance by Silence or Exercise of Dominion 1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only (a) Where an offeree takes the benefit of the offered services within a reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept 2. An offeree who does any act inconsistent with the offeror‟s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonably. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him (6) Termination of Power of Acceptance (a) §36. Methods of Termination of the Power of Acceptance 1. An offeree‟s acceptance may be terminated by (a) Rejection offeror counter offer by offeree (b) Lapse of time, or (c) Revocation of the offer, or Petterson v. Pattberg plaintiff approached defendant with intent to accept the offer (early mortgage pay off)but defendant revoked offer first. Defendant wins. (d) d. Death or incapacitation of offeree or offeror Page 3 of 28 Contracts - Knapp 2. In addition, offeree power of acceptance is terminated by the nonoccurrence of any condition of acceptance under the terms of the offer (b) §38 Rejection (i) 1. An offeree power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention (ii) 2. A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement. (c) §40 Time When a Rejection or Counter-Offer Terminates the Power of Acceptance Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer. (d) A revocation is complete upon receipt of the revocation. (e) §43 Indirect Communication of Revocation An offeree‟s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. c) §39. Counter-offers (1) 1. A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing substituted bargain differing from that proposed by the original offer (2) 2. An offeree power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifest a contrary intention of the offeree. (3) Counteroffers indicate a rejection to the terms of the first offer; assumes that he will not assent to the terms of the original offer (4) modifying the original offer dose not manifest any intent to accept the terms of the original offer (including time limits applied by the original offer) d) Option (1) §87 Option Contract (Compare with UCC 2-205) (1) An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites purported consideration for the making of the offer, and proposes an exchange on fair terms with in a reasonable time period; or (b) is made irrevocable by statute (2) An offer which the offeror should reasonably expect to induce action or forbearance of 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 Page 4 of 28 Contracts - Knapp (2) Something of value given to the offeror by the offeree in order to keep the offer open and exclusive i.e. an option must have consideration (3) If an option is given, the offeror can not legally revoke the offer under the terms of the option e) Classical Cases of Mutual Assent for Bilateral Contracts (1) Lonergan v. Scolnick - negotiating via mail for land advertised. No contract because there was no show of an intent to be bound by the offeror. (2) Henthorn v. Fraser - offered to sell a house to  then attempted to revoke. Time when acceptance and revocation are effective. Acceptance effective when postmarked, revocation effective upon receipt. (3) Normile v. Miller - When offeree learns that offeror has acted inconsistently with the intent to be bound it revokes the offer. New terms introduced have the effect of rejecting the original offer and invoking a counter-offer. A counter-offer means that none of the terms of the original offer are accepted including stated time limits. Thought an option existed to keep the contract open existed when it did not. Initial apparent rejection of offer eliminated right to accept. 4. Offer and Acceptance: Unilateral Contracts a) c) A unilateral contract is a promise in exchange for performance (Brooklyn Bridge) If the act is of such a kind that knowledge will not come quickly to the attention of the promisor, the promisee is bound to give notice of acceptance within a reasonable time after doing that which constitutes an acceptance. Restatement (Second) §54 See UCC §2-206(2) Bishop v. Eaton Loaned brother money, letter was lost in mail, plaintiff recovered because he made a reasonable effort to inform. The offer can not be revoked once performance has begun Restatement (Second) §45 Classical Cases of Mutual Assent for Unilateral Contracts (1) Bishop v. Eaton -  promised that if  paid debt of brother he would be reimbursed by . If performance is of the type that it will not be known to offeror the offeree must make a reasonable attempt to notify offeror that performance is complete. Even if unsuccessfully communicated by a reasonable effort payment is required. Performance in a unilateral contract serves as acceptance and consideration. (2) Petterson v. Pattberg -  offered to allow  to pay off mortgage early. Though  arrived to  with the final action for acceptance,  revoked before  could perform, held for . Not possible in modern doctrine. D. Enforcing Exchange Transactions: The Doctrine of Consideration 1. Elements of analysis for consideration a) bargained for exchange b) mutual obligation b) Promisee is not bound to perform, the promisor is bound if the promisee performs the requisite act d) The requisite action of the promisee serves as both the acceptance and consideration of the offer e) f) Page 5 of 28 Contracts - Knapp c) benefit/detriment d) gift (not consideration) (Conditional Gratuitous gifts - Williston Tramp Scenario - not consideration) e) f) past performance/consideration (not consideration) moral obligation (not consideration) 2. §71 Requirement of Exchange; Types of 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 in exchange for that promise 3. The performance may consist of a. An act other than a promise b. A forbearance c. The creation, modification, or destruction of a legal relation 4. The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person 3. §79 Adequacy of Consideration; Mutuality of Obligation If the requirement of consideration is met, there is no additional requirement of a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or mutuality of obligation b) equivalence in values exchanged; or c) d) Comment e states that gross inadequacy of consideration may be an indication that the bargain is tainted by fraud, mistake, misrepresentation, duress, or undue influence. 4. A promise of an executory gift without consideration is not legally binding. In order a execute a gift the following options are available: a) Promise under seal-this has been done away with under most state‟s statutes b) Executed Gift- give him the gift now, once it has been given and accepted it is irrevocable and can not be recovered. c) Testamentary Gift -Place desire of the gift in her will. No consideration required d) Gift in Trust -if she is able to put the money aside now in a trust for the nephew, 5. §73 Performance of Legal Duty Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain 6. §77 Illusory and Alternative Promises Page 6 of 28 Contracts - Knapp A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performance unless: a) Each of the alternative performances would have been consideration if it alone had been bargained for; or b) One of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration. c) Comment a states in such cases there might theoretically be a bargain to pay for the utterance of the words, but in practice it is performance which is bargained for. Hamer v. Sidway - Offer of $5000 to  (assignee of original contract in actuality) if refrains from drinking, smoking. until age 21. The forbearance of the activities constituted consideration. (benefit/detriment test) Held for . 7. Classical Cases for Consideration a) b) Dougherty v. Salt - prior to death aunt made a promissory note to nephew without nephew actually giving her anything. Upon death attempt to execute note. Finding for . Note was a voluntary and unenforceable executory gift. “nothing is consideration that is not regarded as such by both.” There was no value received by the aunt for her promise, and the mere recital of value would not suffice, where it is plain none has been given. c) Baehr v. Penn-O-Tex Oil Corp. -  claims he held of not suing  for three months because of their promise to pay him.  unaware this was „s plan and unclear if it was the actually reason he did not file suit. Finding for . For a promise to be enforceable must be a product of negotiations resulting in voluntary assumption of an obligation by one party upon condition of act or forbearance by the other. (No benefit/detriment) d) Batsakis v. Demotsis -  gave  $25 for a promise to pay back $2000. Unequally of the exchange irrelevant. Finding for . e) E.I. Du Pont De Nemours & Co. v, Claiborne Reno Co. - as long as Reno met conditions and performed satisfactorily agreement was to continue. Du Pont canceled contract. Because no mutuality of obligation, neither party was bound.. Both parties must be bound or neither is bound. Plowman v. Indiana Refining Co. - promise to pay laid off employees for the rest of their life. Payments stopped. Finding for . Past consideration is no consideration. Moral obligation does not supply consideration. Picking up there checks a condition for the promise not consideration. f) E. The Power of Agents to Bind their Principals 1. Agency is a consensual relationship in which one person, the agent, agrees to act on behalf of, and subject to the control of, another person, the principal 2. Express authority -when a principal has expressly instructed its agent to take a particular action, the agent‟s act pursuant to that instruction will be viewed in law as the act of the principal itself 3. Implied authority a) Authority may be implied by a mandate to the agent (a mandate by the board to develop a plan to reduce the work force implies authority to send out lay off letters) Page 7 of 28 Contracts - Knapp 4. Even in the absence of authority a principal may be legally bound by the actions of its agent if the principal has done or said something that leads the other party reasonably to believe that the agent does indeed have actual authority to do the act in question. 5. An agent that has no authority at all to enter into a particular contract on behalf of the principal, a principal that later learns of the agent‟s action and approves of it will be liable on that contract by virtue of such ratification. Ratification requires knowledge of all material facts. 6. A principal may be estopped to deny that its agent‟s actions were authorized, where the principal by words or actions caused the other to rely to his detriment on the agent‟s authority to act. II. Obligation in the Absence of Exchange: Restitution and Promissory Estoppel A. Restitution: Liability for Benefits Received - See attached chart 1. § 370 Requirement that Benefit Be Conferred A party is entitled to restitution under the rules stated in this restatement only to the extent that he has conferred benefit on the other party by way of part performance or reliance. 2. Restitution in the Absence of a Promise a) If an act is performed without a promise of payment, in order for payment to be recoverable, the party for whom the act was done must promise at the completion of the act to pay the actor. Otherwise, no obligation exists Glenn v. Savage plaintiff rescued defendant property without a request. Defendant not obligated to pay for plaintiff services. Can not act officiously (thrust something upon you that you do not want or ask for) b) One who supplies services to another although without the other‟s knowledge or consent, is entitled to restitution therefor from the other if; (1) he acted unofficiously and with intent to charge therefor, and (2) the things or services were necessary to prevent the other from suffering serious bodily harm or pain, and (3) the person supplying them had no reason to know that the other would not consent to receiving them if mentally competent, and (4) it was impossible for the other to give consent or, because of extreme youth or mental impairment, the other‟s consent would have been immaterial In re Estate of Crisan hospital recovered from estate of an unconscious elderly woman for the treatment given to her. c) A person who, although acting without the other‟s knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if: (1) he was in lawful possession or custody of the things or if he lawfully took possession thereof, and the services or expenses were not made necessary by his breach of duty to the other, and (2) it was reasonably necessary that the services should be rendered or the expenditures incurred before it was possible to communicate with the owner by reasonable means, and (3) he had no reason to believe that the owner did not desire him so to act, and Page 8 of 28 Contracts - Knapp (4) he intended to charge for such services or to retain the things as his own if the identity of the owner were not discovered or if the owner should disclaim, and (5) the things have been accepted by the owner d) Elements of a Quasi-contract (unjust enrichment) (1) a benefit conferred on the defendant by the plaintiff (2) appreciation or knowledge by the defendant of the benefit, and (3) acceptance or retention of the benefit by the defendant under circumstances making it inequitable for the defendant to retain the benefit Watts v. Watts not married but she rendered services for which she was not compensated that benefited the defendant. (4) Note: services rendered to elderly parents is generally presumed as gratuitous (p. 163 Note 3) e) Implied-in-fact contracts require mutual assent and consideration where mutual assent is inferred from conduct. Promises to pay debts barred by the statute of limitations are enforceable because the debt is a preexisting legal obligation Restatement (Second)§82 (1) the promise may be express or implied by actions of the obligor; implied promises include (a) voluntary acknowledgment of the debt (b) part payment of principal or interest on the debt (c) delivery of a note reflecting the debt (d) and transfer to the creditor of security for the debt b) Express promises to pay debts previously discharged in bankruptcy are legally enforceable Restatement (Second) §83 (1) can not be judicially implied (2) the debtor has the right to rescind within 60 days (3) if the debtor is an individual, a court hearing must be held in which the agreement is reviewed by the court c) Promises to pay tort claims barred by the statute of limitations or discharged in bankruptcy are not enforceable 3. Promissory Restitution a) d) Contracts made by minors are unenforceable unless the contract is for necessaries, goods, and services needed by the minor. (1) After reaching the age of majority a minor becomes legally liable on any contracts made during minority that the minor elects to affirm (2) A minor may affirm a contract either expressly or by failure to “disaffirm” the contract within a reasonable time after reaching majority. Restatement (Second) §85. e) Restatement (Second) §86 Page 9 of 28 Contracts - Knapp (1) A promsie made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice (2) A promise is not binding under Subsection (1) (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched (b) to the extent that its value is disporportionate to the benefit f) Webb v. McGowin Defendant promised payment to plaintiff after plaintiff saved defendant life. Plaintiff seriously injured in the process B. Promissory Estoppel: Protection of Unbargained-For Reliance 1. Elements of Promissory Estoppel a) c) a promise the promisor expects the promisee to rely on the promise b) detrimental reliance on the promise d) injustice can be avoided only by enforcing the promise 2. Uses of Promissory Estoppel a) c) substitute for consideration holding an offer open despite the offeror‟s attempt to revoke b) permitting recovery for detrimental reliance on a gratuitous promise d) enforcing an oral agreement within the statute of frauds despite the lack of a memorandum signed by the  3. Promises Within the Family/Detrimental Reliance a) c) frequently no consideration; don‟t usually fit bargain rule Obligations arise from reliance on a promise (1) Kirksey v. Kirksey - Widow moves family to brother in law‟s land at his request; after two years asked her to leave. Court found that promise was a gratuity (2) Ricketts v. Scothorn - Grandfather doesn‟t‟ want granddaughter to work and promises her $. She quits her job but eventually gets another. Though no consideration for promise she relied on it and recovered (3) Greiner v. Greiner - Mother promises son an interest in her land. He moves himself and his family and makes improvement to the land. Mother wants to recover possession. Son relied on her promise and judgment was for him. 4. Charitable Subscriptions b) frequently fall outside of contract rules d) Examples Page 10 of 28 Contracts - Knapp a) Restatement (Second) §90 (2) A charitable subscription is binding without proof that the promise induced action or forbearance. (Assure jurisdiction has adopted Restatement) b) may or may not fit neatly into one of the categories (bilateral contract, unilateral contract, promissory estoppel c) Cases (1) Classical - Allegheny College v. National Chautauqua County Bank - revoked subscription, consideration seen as scholarship set aside in her name. (2) Modern - Maryland National Bank v. United Jewish Appeal Federation - subscription not enforeceable because there was no consideration; using his pledge to get other pledges not seen as reliance 5. Promises in a Commercial Context (1) Katz v. Danny Dare, Inc. - promised plaintiff if he retired to pay pension for the rest of his life. Plaintiff retires. Pension terminated by company. Plaintiff recovers (2) Universal Computer System v. Medical Services Assn - defendant promised plaintiff to pick up at airport, defendant changed mind after plaintiff sent bid on its way, plaintiff missed deadline for submission of bid, plaintiff recovers III.Obligation in the Absence of Complete Agreement A. Limiting the Offeror‟s Power to Revoke 1. Promissory Estoppel: The Effect of Pre-acceptance Reliance a) Classical - if an offer is relied upon prior to acceptance and is subsequently revoked a remedy does not exist for the offeree James Baird Co. v. Gimbel Bros., Inc. - construction bid relied on „s offer for the linoleum at the price set.  wins contract.  sent letter withdrawing and letter was received by  before acceptance. Judgment for  b) Modern - an offer that is relied on prior to acceptance may be enforced: Drennan v. Star Paving Co.  relied on „s bid,  used bid and then  told  bid was a mistake.  won contract based on „s offer. Because  relied on „s promise and  expected reliance than promise is enforceable. Restatement § 87 (2) (1) an offer was made (2) the offeree reasonably relied on the offer (3) it was reasonable foreseeable that the offeree would rely on the promise (4) the only way to prevent injustice is to enforce the offer; remedy may be limited as justice requires (5) Rule almost universally applies to the contractor subcontractor situation (6) Little case law supporting preacceptance reliance outside of construction industry into real estate or other areas. Berryman v. Kmoch-Gave offeree an option for 120 days for $10 and other “valuable consideration.”  never paid $10 and the soliciting of investors not seen as Page 11 of 28 Contracts - Knapp consideration because it was not to detriment of  nor the benefit of the  Sometimes it may have been viewed as consideration. (7) Recently courts have held that even a very small amount of money can serve as sufficient consideration for an option contract- i.e. to make the offer irrevocable. The comment to Restatement (Second) §87 takes the position that the signed writing is binding as an option contract if it proposes an exchange on fair terms within a reasonable time and recites “purported consideration” for its making. Most courts are not in accord with the Restatement on recited consideration being sufficient for consideration. c) Exception to the modern view may be made if it is obvious the offeror made a mistake (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted may be limited as justice requirement. (2) The promise necessary to sustain a cause of action need not be so comprehensive in scope as to meet the requirements of an offer that would become a contract if accepted by the promisee. (3) Hoffman v. Red Owl Stores Inc. - store strung  along with promises that a deal would go through and  sold home and business as a result of these promises, all items not worked out,  recovers 2. Irrevocability by Statute: The “Firm Offer” - UCC §2-205 An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such terms of assurance on a form supplied by the offeree must be separately signed by the offeror. a) Deals with an offer made by a merchant. The status of the offeree is irrelevant for the purposes of this section. d) Restatement (Second) §90(1) b) Oral communications remain revocable (remember liberal interpretation, modernize weighed with the purpose of the section is the authentication by writing) c) Renewable after the three month period has passed. If supported by consideration it may continue as long as the parties specifies d) When form is prepared by offeree, the clause must be separately signed by the offeror. UCC §2302 may apply which may void clauses thought to be unconscionable at the time it was made. e) f) Only binding for goods Relief offered if a material mistake is made g) Does not require proof of reliance. Note Restatement (Second) §90 requires a show of reliance. h) Midsouth Packers, Inc. v. Shoney’s Inc. -  agreed to supply meat to  at a certain price. Quantity and durational terms not included.  began purchasing at the stated price. After more than three Page 12 of 28 Contracts - Knapp months  informed  of a price increase.  paid the higher price except for the last shipment where they deducted what they thought they had been overcharged.  recovers greater than three months and 's action showed acceptance of the higher price. B. Qualified Acceptance: The “Battle of Forms” - UCC §2-207 (Additional terms in acceptance or consideration) 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 than those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional terms or the 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 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 consists of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this act. 4. Covers situations where a) there is written confirmation of an oral agreement or an agreement reached through informal correspondence, and one or both parties send a memo embodying terms not discussed b) there is offer and acceptance, in which a wire or a letter expressed and intended as an acceptance or closing the agreement adds further minor suggestions or proposals. (1) frequently occurs with exchange of written orders (boilerplate) 5. If agreement is not between merchants the additional terms must be assented to or they do not become part of the contract. 6. If new terms are material must be assented to or they do not become part of the contract. 7. Material changes are those that result in hardship or surprise if incorporated without express awareness a) c) clauses negating standard warranties such as merchantability or fitness for a particular purpose clauses reserving to the seller the power to cancel upon the buyers failure to meet any invoice when owed b) guaranty of 90% or 100% deliveries in a case where the usage of the trade allows greater leeway d) clauses requiring that complaints be made in a time shorter than customary or reasonable. 8. Changes not evoking surprise or hardship include: a) clauses setting forth or enlarging slightly seller‟s exemption due to supervening causes beyond its control or fixing in advance any reasonable proration under such circumstances Page 13 of 28 Contracts - Knapp b) clause setting reasonable time for complaints c) clause providing for interest on overdue invoices when within custom d) clauses limiting the right of rejection within the customary trade tolerances 9. If no answer is received after a reasonable period of time after the additional or different terms are disclosed, it will assume that their inclusion is assented to. If terms are in conflict on confirming forms sent by both parties, the terms do not become part of the contract a) failure to respond permits enforcement of a prior oral agreement b) failure to respond permits additional terms to be included in the contract 10.When goods are shipped and paid for a contract has arisen. If the writings do not establish a contract it is not necessary to determine which act or document constituted the offer and which the acceptance. UCC §2-204 (need not be able to determine exact time of formation...contract does not fail due to indefiniteness...). the only questions remaining are the terms of the contract which are determined by 2-207(3) 11.Classical - Poel v. Brunswick-Balke-Collender Co. - letter sent by  with additional terms seen as counter-offer an therefore no contract was formed (Mirror image rule and Last shot by seller who sends acknowledgment to buyers order form, the terms of the seller apply)) 12.Modern - Brown Machine, Inc. v. Hercules, Inc. (trading forms situation)- seller added in boilerplate an indemnity clause, seen as a material change in the contract, initial writing by seller considered to create a binding contract on its face an had expired, Hercules order seen as an offer that was expressly conditional a) 2-207 seems to have gotten rid of last shot rule but may have replaced it with a first shot rule because additional terms are harder to incorporate b) Price quotation not an offer but an invitation to enter into negotiations or induce offers by others, but if detailed enough can amount to an offer creating the power of acceptance for the making of a contract c) General Rule - ,Orders are viewed as offers to purchase d) For an ACCEPTANCE to be conditional it must be expressly so it is not sufficient to imply it is conditional e) Express assent to additional terms can not be assume by silence or mere failure to object if they meet the criteria in §2-207(2) 13.Dale R. Horning Co. v. Falconer Glass Industries, Inc. - (written confirmation of an oral agreement)  received defective glass from  that need to be installed or more monetary loses.  sent replacement glass and  incurred consequential damages in to replace the glass. Order was via phone and confirmation by  limited remedies available to . There was reason to believe that  was aware that language may have there because of industry custom. Damages split about evenly. Possibly because no surprise but hardship incurred on part of the . a) Surprise and hardship are separate and distinctive elements and either would result in a material alteration of the contract. Reasonableness does not overcome the alteration. b) Confirmation is not a counter-offer. Issue is determine what are the terms of the contract Page 14 of 28 Contracts - Knapp c) Attempts to disclaim a warranty are material d) Attempts to limit liability go to the trier of fact though sometimes may be regarded as material per se because of its importance e) f) Choice of law clauses are material If terms are directly opposed, the subject matter is not is not included in the contract except any gap filling term Different terms do not become part of the contract because by definition they would materially alter the contract by altering the offeror‟s terms 14.Three ways of dealing with different (not just additional )terms a) b) Offeror‟s terms control because offeree‟s terms fall out as a result of 2-207 which applies to additional terms not different terms c) Preferred method: ”knock out rule” - conflicting terms cancel each other and gap-fillers used as necessary 15. 2-207 is a prime candidate for substantial revision C. Postponed Bargaining: The “Agreement to Agree” 1. UCC §2-204 - Formation in General [1] A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such contract [2] An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined [3] Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissions 2. UCC § 2-305 - Open Price Term [1] The parties if they so intend can conclude a contract for sale even though the price is not settled. In such case the price is the a reasonable price at the time of delivery if [a] nothing is said as to price [b] the price is left to be agreed by the parties and they fail to agree; or, [c] the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorder [2] A price to be fixed by the seller or by the buyer means a price for him to fix in good faith [3] When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through the fault of one party the other may at his option treat the contract as canceled or himself fix a reasonable price Page 15 of 28 Contracts - Knapp [4] Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of payment paid on account a) Classical - Walker v. Keith 10 year lease with an option to renew at the end of term but no price set for renewal or method of calculation, lease was not certain enough, judgment for  (1) determination of whether there is a binding agreement depends on whether it was the intention of the parties to be bound (2) Restatement (Second) §27 Existence of a Contract Where a Written Memorial is Contemplated Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifested and intention to prepare and adopt a written memorial thereof, but the circumstances may show that the agreement are in preliminary negotiations (3) Restatement Second § 33 Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it can not be accepted so as to form a contract unless the terms of the contract are reasonably certain (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. c) Circumstance helpful in determining whether a contract has been concluded - Comment to Restatement (Second) § 27 (1) the extent to which the agreement has been reached on all terms included (2) whether the contract is of a type usually put in writing (3) whether it needs a formal writing for full expression (4) whether it has few or many details (5) whether the amount involved is large or small (6) whether it is a common or unusual contract (7) whether a standard form or contract is widely used in similar transactions (8) whether either party takes any action in preparation for performance during negotiation d) Potential states of mind of those involved in negotiation and have agreed to agree: (1) each may regard himself and his opposite as perfectly free for any reason to refuse to reach an agreement on the outstanding points and to withdraw from transactions without being bound to proceed farther with the exchange (no contract) Page 16 of 28 b) Modern - Pennsylvania Co. v. Wilmington Trust Contracts - Knapp (2) each may regard himself and his opposite as being fully bound to the proposed exchange unless an excuse exists which would have been sufficient to excuse performance of an ordinary executory contract (contract even if terms can not be agreed upon) (3) Each of the negotiating parties does not see himself or the other party as completely bound but, committed to the deal, and bound to the extent actual agreement is eventually reached. Parties are bound to try in good faith to reach an agreement and not withdraw from the proposed agreement for any reason except failure to reach such agreement. . Contract may be enforceable by damage or specific relief, if appropriate. Assumes: (a) each party considers the proposed exchange to be beneficial and has indicated to the other that he can properly be regarded as committed to it (b) Mutual recognition that important points of substance remain to be decided at some later time, possibly in light of changing or emerging condition, but an immediate decisions on such matters would be premature and possibly damaging to one party if conditions should develop in an unanticipated way (c) both parties regard the remaining points to be decided as potential deal upsetters - so material that failure to reach agreement must excuse further performance. e) Potential states of mind of those who have reached a stage of agreement on a number of material issues and plan to memorialize the agreement in a full, formal written document (1) Each may regard himself as not bound to do anything at all unless and until the formal writing is signed by him ad further as being free to refuse to sign the writing for any reason. Court may hold as no obligation created by the negotiations to date. This conclusion is more likely to happen if the following factors are present (a) the contract is of a type which requires writing for enforceability under the statute of fraud (b) the contract contemplated involves large amounts of money (c) contract is unusual for which a standard form is not appropriate (d) the parties are apparently unwilling to proceed with any performance until the formal document is prepared and signed (2) Each party may feel the formal document is only a formality desirable for one or more reasons but in no sense prerequisite to a binding agreement. Court will likely call this a contract if: (a) No statute or law requiring the agreement to be in writing or if there is such a requirement where exchanged letter, telegrams, etc. exist in which agreed upon terms are sufficiently reflected (b) simple and no long term obligations (c) contemplated writing is a standard form which contains necessary details for this type of contract (d) parties perform in such a way that suggests they full believed a full and binding agreement had been reached. Page 17 of 28 Contracts - Knapp (3) Principals have carried deal as far as they can and are waiting or their agents to complete the process of agreement. In this case, the purpose of preparing the formal contract is not simply to postpone creation or to provide evidence of it existence or terms, but rather to afford these experts an opportunity to add to the total agreement such protections against various risks as they think necessary or prudent. Bound to bargain in good faith applies. Contract may be enforceable by damage or specific relief, if appropriate. (a) Principals may feel ethically bound to the outline of the deal, a withdraw based on dissatisfaction with the outline is unjustified (b) Principals may be morally free to withdraw when it appears the second team of bargainers have raised issues on which they are unable to agree and which the principals, when apprised of the difficulty, are likewise unable to resolve f) Factors to be weighed in reaching judgment (1) express language of the agreement (2) the commercial context of the agreement (3) other words and conduct of the parties (4) the nature of the open terms at issue (5) possibility of part performance or reliance on one side. (Not essential for recovery however) IV.Statute of Frauds A. Classes of Contract Covered 1. A contact of an executor or administrator to answer for a duty of his decedent (executor-administrator provision) (Restatement §110) 2. A contract to an answer for the duty of another (Suretyship provision) (Restatement §110) 3. A contract made upon consideration of marriage (Marriage Provision) (Restatement §110) 4. A contract for sale in the interest of land (Land contract provision) (Restatement §110) 5. A contract that can not be performed within one year of the making there of (One Year Provision)(Restatement §110) a) Courts have been lenient here and if contract can possibly performed within one year though it is unlikely it is not covered by Statute of Frauds . b) Courts distinguish between performance within one year and termination within one year. The fact that a contract may be terminated within one year is not sufficient to take it out of the Statute of Frauds, only performance will do. Frequently a fine line between the two 6. Contract for sale of goods in excess of $500 (UCC § 2-201) 7. Contract for sale of securities (UCC § 8-319) 8. Many others that I do not feel like typing now and we didn‟t cover in class. B. General Principles 1. Forbids enforcement unless there is a written memorandum or an applicable exception Page 18 of 28 Contracts - Knapp 2. Compliance with the provision will not make a promise enforceable 3. Failure to comply with the provision will be unenforceable even if supported by consideration 4. Allows screening of cases prior to being heard by a “sympathetic jury” 5. Courts vacillate between strict and lenient enforcement a) strict because minimizes likelihood of enforcement of spurious claims b) Potential for denying enforcement of nonperjured and nonfraudulent claims whenever the formal writing requirement has not been complied with 6. Questions to be asked when statute of fraud is asserted as a defense a) Is the contract at issue one to which the Statute of Frauds applies? (1) The signed writing may be made up of a series of memoranda that they clearly relate to the same subject matter. (Crabtree v. Elizabeth Arden Sales Corp.) (a) R2d § General Requisites of a Memorandum Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it isevidenced by any writing, signed by or on behalf of the part to be charged, which (a) reasonably identifies the subject matter of the contract (b) is sufficient to indicate that a contract with thereto has been made betwwen tha 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 (b) Restatement (Second) § 132 Memorandum may consist of several writings if one is signed and the others clearly relate to the same transaction (c) Restatement (Second) § 133 Statute may be satisfied by signed writing not made as a memorandum of contract (May include diary entries, meeting minutes, an informal letter to a 3rd party Comments to this section) (d) Restatement (Second) § 134 Signature merely needs to be made with the intention of authenticate the writing (e) Restatement (Second) § 136 Memo may be made at any time before or after contract is formed (f) Even if there is no internal reference or physical connection, the documents may be read together if in the circumstances they clearly relate to the same transaction and the party to be charged acquiesced in the contents of the unsigned writing (Restatement §132 Comment c) b) Is the statute of frauds satisfied? Page 19 of 28 Contracts - Knapp (g) The scope of the Crabtree rule has been limited by requiring that: (i) the signed writing itself must establish a contractual relationship between the parties, AND (ii) the unsigned writing must on its face refer to the same transaction set forth in the one that was signed (h) Restatement and UCC take a lenient view of what may constitute a signature (Symbol made or adopted to authenticate the writing as that of the signer 7. Restatement (Second) §139 - may be used in connection with past performance to show enforceability - McIntosh v. Murphy a) (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can only be avoided by enforcement of the promise. The remedy for breach is limited as justice requires b) (2) In determining whether injustice can be avoided only by enforcement of the promise the following circumstances are significant (1) a) the availability and adequacy of other remedies, particularly cancellation and restitution (2) b) the definite and substantial character of the action or forbearance in relation to the remedy sought (3) c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence (4) d) the reasonableness of the action or forbearance (5) the extent to which the action or forbearance was foreseeable by the promisor 8. Promissory estoppel applied to cases where a signed writing was promised to the  by the  in order to satisfy the Statute of Frauds. C. Sale of Goods Statute of Frauds: UCC §2-201 1. Except as other wise provided in this section a contract for sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. 2. Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received 3. A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable: Page 20 of 28 Contracts - Knapp a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or c) with respect to goods for which payment has been made and accepted or which have been received and accepted 4. The only term which must appear on the writing is the quantity term which need not be accurately stated but recovery is limited to the amount stated. 5. All that is required is that the writing afford a basis for believing that the offered oral evidence relies on a real transaction 6. Price need not be included because it can normally be supplied without danger of fraud 7. Three definite and invariable requirements of this subsection a) evidence of a contract for the sale of goods b) it must be signed, a word which includes any authentication which identifies the parties to be charged c) it must specify a quantity 8. Partial performance as a substitute for the required memorandum can validate the contract only for the goods which have been accepted or for which payment has been made or accepted a) Part performance by the buyer requires delivery of something by him that is accepted by the seller as performance. Part payment may be made by check or money, accepted by the seller. If the agreed price consists of goods or services, then they must have been delivered and accepted 9. Receipt and acceptance of either goods or of the price constitutes an unambiguous, overt admission by both parties that a contract actually exists 10.If there is a failure to reply to a written confirmation within 10 days and is sufficient against both parties, the only effect is to take away from the party who fails to answer the Statute of Frauds defense. 11.It is not necessary that the writing be delivered to anyone. It need not be signed or authenticated by both parties but it is sufficient against the one who signed it. 12.If the making of a contract is admitted in court no additional writing is necessary for protection against fraud 13.Cohn v. Fisher - check is sufficient to satisfy the Statute of Frauds V. The Meaning of the Agreement: Principles of Interpretation and the Parol Evidence Rule A. Principles of Interpretation 1. Classical Approach - if the parties attached different meanings to the language of the contract then there was no contract because there was no meeting of the minds. Page 21 of 28 Contracts - Knapp a) Raffles v. Wichelhaus - the “Peerless Case” -two ships with the same name arriving at different times. The parties each had a different time in mind. Held no contract. 2. Restatement (Second) § 201 Whose Meaning Prevails (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or agreement or term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party (b) that the party had no reason to know any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be failure of mutual assent 3. Restatement (Second) § 202 Rules in Aid of Interpretation (1) Words or other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together (3) Unless a different intention is manifested (a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning (b) technical terms and words of art are given their technical meaning when used in a transaction in that field (4) Where an agreement involves repeated occasions of 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 the interpretation of the agreement (5) Wherever reasonable, the manifestation of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing or usage of trade. 4. Restatement (Second) § 203 Standards of Preference In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable a) an interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect b) express terms are given greater weight than course of performance, course of dealings, and usage of trade, course of performance is given greater weight than course of dealings or usage of trade, and course of dealing is given greater weight than usage of trade Page 22 of 28 Contracts - Knapp c) specific terms and exact terms are given greater weight than general language d) separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated. 5. In general ambiguous language is interpreted against the drafter. Some courts have held that the maxim should be limited in its application to cases where one party can fairly be regarded as solely responsible for the language in question. 6. Prof. Patterson‟s Principles of Interpretation p. 422 Examples are given a) Noscitur a sociis - the meaning of a series of word is affected by others in the same series; or a word may be affected by its immediate context b) Ejusdem generis - A general term joined with a specific one will be deemed to include only things that are like the specific one. c) Expressio unius exclusio alterius - If one or more specific items are listed, without any more general or inclusive term, other items although similar in kind are excluded. d) Ut magis valeat quan pereat - An interpretation that makes the contract valid is preferred to one that makes it invalid e) Omnia praesumuntur contra proferentem - If a written contract contains a word or phrase which is capable of two reasonable meanings, one of which favors one party and the other of which favors the other party, that interpretation will be preferred which is less favorable to the one by whom the contract was drafted. Interpretation of contract as a whole f) g) Purpose of the parties h) Specific provision is exception to general one i) j) Handwritten or typed provisions control printed provisions Public Interest preferred 7. Courts often state that the plain meaning of the language of a contract should govern and that extrinsic evidence is only admissible if the court conclude the contract is ambiguous. Although contract theorists have been practically unanimous in their rejection of this approach , many courts will nonetheless rely only on the rule and refuse to hear extrinsic evidence of meaning unless the court first concludes that the agreement is ambiguous on its face 8. Under modern theory of interpretation, a court should examine all relevant circumstances in interpreting the agreement, including preliminary negotiations and communications between the parties 9. The modern view is that definitions of terms contained in statutes or administrative regulations are not determinative of the meaning of such terms in contracts. 10.Sometimes trade usage con overcome even the apparently unambiguous (Hurst v. W.J. Lake & Co, Inc.) 11.UCC § 1-205 defines Course of Dealing and Trade Usage Page 23 of 28 Contracts - Knapp 12.Express terms that require one party to perform to the satisfaction of the other party, or condition an obligation of performance on some other satisfactory occurrence, are unlikely to be interpreted as conferring on the party whose satisfaction is at issue an unlimited power to determine and declare his own satisfaction without an external check. Instead one of these two approaches will be used: a) c) Either the party‟s declaration of dissatisfaction will be judged by a standard of reasonableness These two standards mirror UCC §§1-201(19) defining good faith and 2-103(1)(b) defining good faith b) At minimum will be held to a standard of honest dissatisfaction d) An objective standard has been traditionally employed in cases where commercial quality, operative fitness, or mechanical utility are in question. e) The objective standard is less likely to be used where personal aesthetics or fancy are at issue 13.Restatement (Second) § 228 - Satisfaction of the Obligor as a Condition When it is a condition of an obligor‟s duty that he be satisfied with respect to the obligee‟s performance or with respect to something else, and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied a) Comment a indicates that the subjective standard should be used only where agreement leaves no doubt that it is only honest dissatisfaction that is meant and no more. b) Comment b indicates a preference for the object test may be justified in part by a desire to avoid forfeiture (defined as the denial of compensation that results when the obligee loses his rights to the agreed exchange after he has relied substantially, as by preparation or performance on the expectation of that exchange §229) 14.Restatement (Second) § 227 agrees that where the contract conditions performance by one party on the other‟s performance to the satisfaction of some independent 3rd party, such as an architect or engineer, this section indicates greater tolerance for the application of a subjective test, on the assumption that a 3rd party is less likely to be affected by the selfish interests of the obligor 15.Standards for the Doctrine of Reasonable Expectation a) the doctrine should apply only to contracts of insurance that are true contracts of adhesion; b) In case of ambiguity in the policy language, the policy will be interpreted in light of the reasonable expectations of the average insured c) Regardless of any ambiguity the objective reasonable expectation of the average insured will apply where the insured did not receive full and adequate notice of the provision in question and (1) the policy provision in question is unusual and unexpected, or (2) the policy provision effectively emasculates the apparent coverage d) Where, prior to contracting for the insurance, some activity which can be reasonably attributed to the insurer has created an objective impression of coverage as to a reasonable insured; and e) Where some activity reasonably attributed to the insurer prior to contracting for the insurance has caused this particular insured to believe he has coverage, although such coverage is denied by the policy Page 24 of 28 Contracts - Knapp 16.Restatement (Second) § 211 Standardized Agreements a) Recommends the reasonable expectation standard to be used in the interpretation and construction of adhesion contracts generally. b) An adhesion contract is a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. 17.Cases a) c) Joyner v. Adams - meaning of the word developed in controversy - reason to know applied Morin Building Products v. Baystone Construction - aesthetics of factory- satisfaction by objective or subjective standard. b) Frigaliment Importing Co. v. B.N.S. International Sales Corp. - chicken case; trade usage d) C & J Fertilizer, Inc. v. Allied Mutual Insurance Co. - Reasonable expectation standard for insurance contract B. The Parole Evidence Rule 1. Only used where writing is intended to memorialize the agreement and must be adopted by both parties; if not and integrated writing parol evidence does not apply 2. Integrated refers to a writing that is intended to be a final and complete agreement embraced in writing (partially integrated refers to a writing that is intended to be final but not complete because it deals with some but not all aspects of the transactions between the parties 3. Merger clause - states that the writing is intended to be final and complete 4. Restatement (Second) § 209 Integrated Agreements (1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement. (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule. (3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression 5. Restatement (Second) § 210 Complexity and Partially Integrated Agreements (1) A completely integrated agreement is an integrated agreement adopted by the parties as complete and exclusive statement of the terms of the agreement (2) a partially integrated agreement is an integrated agreement other than a completely integrated agreement (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to the determination of a question of interpretation or to application of the parol evidence rule 6. Restatement (Second) § 211 Standardized Agreements Page 25 of 28 Contracts - Knapp (1)Except as otherwise stated in (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing (2) Such a writing is interpreted wherever reasonable as treating alike those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement 7. Restatement (Second) § 213 Effect of Integrated Agreement on Prior Agreements (1) a binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them (2) a binding completely integrated agreement discharges prior agreements to the extent that they are within its scope (3)An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated 8. Restatement (Second) § 214 Evidence of Prior or Contemporaneous Agreements and Negotiations Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish a) c) e) that the writing is or is not an integrated agreement the meaning or the writing whether or not integrated ground for granting or denying recission, reformation, specific performance, or other remedy b) that the integrated agreement, if any, is completely or partially integrated d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; 9. Restatement (Second) § 215 Contradiction of Integrated Terms Except as stated in the preceding Section, where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict the terms of the writing 10.Restatement (Second) § 216 Consistent Additional Terms (1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated (2)An agreement is not completely integrated if the writing omits a consistent additional term which is a) agreed to for separate consideration, or b) such a term as in the circumstances might naturally be omitted from the writing 11.Restatement (Second) § 217 Integrated Agreement Subject to Oral Requirement of a Condition Page 26 of 28 Contracts - Knapp Where the parties to a written agreement agree orally that performance of the agreement is subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition 12.UCC §2-202 - Final Written Expression: Parol or Extrinsic Evidence Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented a) by course of dealing or usage of trade or by course of performance b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of terms of the agreement 13.See attached table 14.Negative rule to keep evidence out 15.Expressed in case law 16.Qualification- May penalize people for being credible - the writing says one thing but person assures you of something else 17.Exceptions - Parol Evidence Rule does not apply if a) the evidence relates to something that comes after the writing was made; still may be barriers to enforcement b) evidence is offered to show that effectiveness of the agreement was subject to an oral precedent (e.g. agent can not bind must check with principal before final approval) parties have agreed contract will not have an effect until something else occurs c) evidence to show the agreement is invalid for any reason such as fraud, duress, undue influence, incapacity, mistake, death, or illegality d) evidence offered to establish a right to an equitable remedy such as reformation of the contract (e.g. typographical error for $100 instead of $10,000) e) f) evidence to show a collateral agreement between the parties fraud and duress can always be shown by the parol evidence rule 18.Under the classical approach to contract law the Parol Evidence Rule is interpreted conservatively. Some modern courts continue to use the classical approach. In the conservative approach introducing evidence to decide if the writing is fully integrated is not embraced 19.Under the modern view the Parol Evidence Rule is interpreted more liberally and hence has many exceptions. In this liberal approach, evidence is likely to be admissible to determine if a writing is completely integrated 20.Cases a) Thompson v. Libby - logs, evidence of warranty not permitted b) Hershon v. Gibraltar Building & Loan Association, Inc. - contract for Discharge of all debt, no extrinsic evidence permitted because the writing was unambiguous Page 27 of 28 Contracts - Knapp Page 28 of 28