Cases
Lonergan v. Scolnick
(Res. 25- Options Contract)
Rule: If a person to whom a manifestation of intent is addressed or has reason to know that he does not intend it to be fixed until he gives further expression of assent, than an offer has not been made.
Holding: The Def's advertisement in the paper was a request for an offer; the letters contained no definite offer and were merely notice that further assent was needed.
UCC 2-207 (2)
If both parties are merchants, an additional or non-matching term (last shot) becomes part of the contract UNLESS:
The original offer expressly limited acceptance to the terms of the offer;
The additional or nonmatching term materially alters the contract; OR
The other party timely notifies the responding party that the additional or non matching term is unacceptable.
Restatement 16 (Intoxication)
If a party knows or has reason to know that the other party is drunk (a.k.a. visibly drunk) then the contract is voidable. Exploitation of intoxication
Waiver
Conditions can be waived if they are of minor importance. If the word waiver is used, no consideration is required.
What is the difference in rights between an incidental and intended beneficiary?
An intended beneficiary (Res. 304) is owed a duty of performance by the promisor of the original promise and which the beneficiary has the right to enforce.
Incidental beneficiary gets nothing.
Wood v. Lucy (Lady Duff)
(Implied duty of best effort/ mutual obligation)
Rule: An implicit duty to use best efforts is sufficient for constituting consideration & mutual obligation.
Holding: Wood's promise to pay defendant one-half of the profits from the exclusive agency he had to endorse and sell Lady Duff's designs IN ADDITION to rendering accounts monthly, was a promise to use best efforts to bring said profits into existence--> exclusivity creates mutual obligation.
UCC 2-207(3)
Knockout rule. My way or the highway, but the other party doesn’t respond. This applies in the rare circumstance that there is no contract on paper but conduct by both parties recognizes intent to be bound. In this case, the inconsistent terms are removed.
Restatement 154
A party bears risk of a mistake when:
The risk allocated to him by agreement of the parties, or
He is aware at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
Assignment
Assignment of right can refer to a contract transfer or a transfer of the contract rights only.
Assignor: The promisee who assigns.
Assignee: The third party to whom the contract right is assigned.
The promisor does not have to assent to assignment of right.
Hypo 1
Alice agrees to sell Bob her car for $10,000, and they both sign a contract. Later, Bob discovers that Alice never actually owned the car, as it belonged to her neighbor. Can Bob enforce the contract against Alice? What remedies might be available to Bob?
James Baird v. Gimbel Brothers
Rule: Acceptance of an offer without consideration not valid- No promissory estoppel without reasonable reliance.
Holding: Sub-contractor ("merchant") who made a mistake in bid and withdrew before acceptance was not bound to perform at mistaken bid price, even if plaintiff tried to use original offer in their bid for the lithuinum project--> an offer and corresponding bid is not mutual assent plaintiff never made any promise to supply, was allowed to revoke.
UCC 2-210
A party may perform his duty through a delegate UNLESS the other party has a substantial interest in having his original promisor perform OR control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.
Restatement 89(a) (Contract Modification)
Conditions for modifying a contract:
1) Has not been fully performed
2) Unanticipated circumstances
3) Modification is fair and equitable
Constructive Conditions
When simultaneity of performance is possible, the law will add concurrent conditions to the contract. This prevents opportunism.
When services are exchanged for money (simultaneity is not possible), the default rule is “work now, pay later.”
Employment contracts require periodic payments.
Hypo 2
Jane contracts with a local baker to deliver 50 cupcakes for her party at $2 each. On the day of delivery, the baker informs Jane that due to an unexpected rise in sugar prices, the cost will now be $3 per cupcake. Jane refuses to pay the increased price. Can the baker enforce the modification under contract law?
Carlill v. Carbolic Smoke Ball Co.
(Public Offer + Unilateral Contract)
Rule: When an advertisement is sincere (per wording + circumstances) and a distinct promise it can constitute an offer. An unilateral contract that requires acceptance through performance does not need notification of said acceptance.
Holding: No clear, limiting time + money already deposited for potential claimants. Offerors only required customer to get sick after using product as directed & so the plaintiff is entitled to reward.
UCC 2-601
If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may:
Reject the whole; or
Accept the whole; or
Accept any commercial unit or units and reject the rest.
Restatement 208 (Unconscionable Contracts)
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable terms as to avoid any unconscionable result.
Bonus: Per Justice Wilkins--Oppression relates to substantive rather than procedural unconscionability.
Five-Prong Test for Unilateral Mistake (see Boise Junior College v. Mateffs)
Material error to the disproportionate detriment of one party should not be enforced; five-part test for unilateral mistake.
Mistake is material.
Enforcement of the error would be unconscionable.
Error does not result from violation of legal duty or culpable negligence.
Withdrawal would not work substantial hardship on the receiver.
Notice was given promptly.
Hypo 3
A merchant offers to sell a shipment of apples to a grocer for $1,000, agreeing that the offer will remain open for one month. Two weeks later, the merchant sells the apples to another buyer. Can the grocer hold the merchant to the original offer? Does the UCC affect the outcome?
Ever-Tite Roofing v. Green
Rule: Offeror is master of the offer and determines means for acceptance. Once accepted, the offeror could not revoke the offer. Because the roofing company began acceptance by performance (as stipulated by the offer) within a reasonable time (when trucks were loaded) before the offeror revoked, the contract remained enforceable.
UCC 2-206(1)(b)
An order or offer to buy goods for prompt or current shipment as inviting acceptance either by 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 acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
The duty to communicate lies with the seller.
Restatement 30 (Form of Acceptance Invited)
(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance.
(2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances (The offeror is the master of the offer).
Economic Loss/Commercial Loss Doctrine (Bonus 100 points if you name the case)
Commercial contracting parties may not bring tort actions against one another for pecuniary losses if they could have protected themselves from the loss through their contract.
(All Tech v. Amyway)
Hypo 4
Tom and Jerry enter into a contract where Tom agrees to paint Jerry's house by October 1 for $5,000. Midway through the job, Tom demands an additional $2,000, claiming unexpected weather delays. Jerry reluctantly agrees but later refuses to pay the extra amount. Is Jerry obligated to pay under contract modification rules?
Southworth v. Oliver
(Definite offer in letters/ contrast to Lonergan)
Rule: If under the facts and circumstances, a reasonable person would have believed a promise to make an offer, and then accepts--> it is enforceable and binding.
Especially true when a price quotation or ad may contain sufficient indication or willingness to enter a bargain so that addressed party be justified in their assent concluding bargain.
2-615 (a) (Canadian Industrial v. Dunbar)
If the parties specify a particular source of supply in the contract and that source fails, the seller will be excused if:
Both parties assumed that the source was exclusive;
The seller employed all due measures to assure that the source would perform; and
The seller turned over to the buyer any rights against the supplier corresponding to the seller’s claim of excuse.
Restatement 304 Intended Beneficiary
(1) A beneficiary is intended if giving the beneficiary a right to performance is appropiate to carry out the parties intent, and either: (a) performance would satisfy some debt the obligee owes to the beneficiary, or (2) under the circumstances, it appears the obligee intends to give the beneficiary the benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Letter of Intent
Hypo 5
A developer contracts to build a custom office space for a business, with an agreed delivery date of September 1. A clause in the contract states the business will owe only $500 per day in liquidated damages if delivery is late. The developer completes the project two months late, causing $50,000 in lost profits. Can the business sue for its actual damages despite the liquidated damages clause?
Humble Oil v. Westside Investment
Rule: Normally a counteroffer would terminate power of acceptance, but not in the case of an option contract, which is irrevocable.
A conditional acceptance is NOT a rejection of an option contract, that is supported by consideration AND fixing a time limit for election.
Holding: Plaintiff for valuable consideration purchased the right to keep the option contract open for time specified and right to create contract of purchase; plaintiff was not foreclosed from negotiating relative to contract of sale.
2-615
(US v. Wegematic Corp)
Except so far as a seller may have assumed a greater obligation...delay in delivery or non-delivery is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made.
Restatement 318 Delegation of Duties
An obligor can properly delegate the performance of his duty to another UNLESS the delegation is contrary to public policy or the terms of his promise.
(2)UNLESS otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that person perform or control the acts promised.
(3) UNLESS the obligee agrees otherwise, neither delegation of performance nor a contract to assume duty made with the obligator by the person delegated discharges any duty or liability of the delegating obligor.
Parole Evidence Rule + Applicability
Parole Evidence may not be used to rewrite or modify a contract.
It is applicable when: 1) the text is ambiguous; 2) text contains errors; 3)there is more than one document; 4)there is fraud, duress, unconscionability, misrepresentation; 5)the writing is incomplete; or 6) there is a later contract that modifies or rescinds the previous one.
Hypo 6
A software company advertises a new program as "100% effective against all cyberattacks." After purchasing the program, a business suffers a data breach, proving the software was not as advertised. Can the business sue for breach of express warranty, and what standard must it meet?
DTE Energy v. Briggs
Rule: UCC 2-207(2) First shot wins where there is (1) offer explicitly provides that acceptance is limited to the terms of the original offer, (2) the additional or different terms materially alter the offer, or (3) the offeror objects within a reasonable time.
Holding: This was a contract between merchants and so the first shot (the purchase order by def.) won because the forum-selection caluse attached to an Order Acknowledgement form from Plaintiff had changes that materially altered the agreement. Not enforceable against defendant.
UCC 2-601 (Buyer's Rights on Improper Delivery)
Buyer's Rights on Improper Delivery – goods/tender of delivery fair to conform to contract buyer can (a) reject the whole; (b) accept the whole; (c) accept any unit(s) and reject the rest.
Restatement 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 the bargain until he has made a further manifestation of assent.
Misrepresentations Sanctions
Voidable by innocent party.
If misrepresentation is framed as breach of warranty, damages are received according to the expectation measure.
Under tort law, there is a distinction between fraudulent and negligent misrepresentation—fraudulent misrepresentation is a tort.
Hypo 7
Here are 10 hypothetical questions, ranging in difficulty, inspired by the materials provided in the "Contracts Outlining" document. The format aligns with the examples in the problem documents, and each hypo tests understanding of key principles while increasing in complexity.
Alice agrees to sell Bob her car for $10,000, and they both sign a contract. Later, Bob discovers that Alice never actually owned the car, as it belonged to her neighbor. Can Bob enforce the contract against Alice? What remedies might be available to Bob?
Jane contracts with a local baker to deliver 50 cupcakes for her party at $2 each. On the day of delivery, the baker informs Jane that due to an unexpected rise in sugar prices, the cost will now be $3 per cupcake. Jane refuses to pay the increased price. Can the baker enforce the modification under contract law?
A merchant offers to sell a shipment of apples to a grocer for $1,000, agreeing that the offer will remain open for one month. Two weeks later, the merchant sells the apples to another buyer. Can the grocer hold the merchant to the original offer? Does the UCC affect the outcome?
Tom and Jerry enter into a contract where Tom agrees to paint Jerry's house by October 1 for $5,000. Midway through the job, Tom demands an additional $2,000, claiming unexpected weather delays. Jerry reluctantly agrees but later refuses to pay the extra amount. Is Jerry obligated to pay under contract modification rules?
A developer contracts to build a custom office space for a business, with an agreed delivery date of September 1. A clause in the contract states the business will owe only $500 per day in liquidated damages if delivery is late. The developer completes the project two months late, causing $50,000 in lost profits. Can the business sue for its actual damages despite the liquidated damages clause?
Leo, a minor, buys a used motorcycle from a dealership. After using it for three months, he wants to return it and demand his money back, claiming he was underage at the time of the sale. Can the dealership enforce the contract, or is it voidable due to Leo’s minority status?
A software company advertises a new program as "100% effective against all cyberattacks." After purchasing the program, a business suffers a data breach, proving the software was not as advertised. Can the business sue for breach of express warranty, and what standard must it meet?
Two parties sign a contract to jointly develop a new product. After signing, one party discovers a mutual mistake about the product's patent status, which makes the entire venture unfeasible. Can the party void the contract? How does mutual mistake doctrine apply here?
Sally Beauty v. Nexxus Products Co. (DryBar is sooo much better)
Rule: (UCC 2-210(1)) "A party may perform his duty through a delegate UNLESS the other party has a substantial interest in having his original promisor perform OR control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.
Holding: The contract could not be assigned to the wholly-owned subsidiary (Nexxus) of a direct competitor (alberto-Culver Company).
Bonus for holding if you said: Consideration is given to the balancing of policies of free alienability of commercial contracts and protecting the obligee from having to accept a bargain he did not contract for.
UCC 2-313 Express Warranty
Express Warranties by Affirmation, Promise, Description, Sample – (1) express warranties: (a) affirmation; (b) description; (c) sample or model; (2) words “warrant” or “guarantee” are not necessary; opinion or commendation does not create a warranty.
Restatement 229 (Non-occurring Conditions, see Dove v. Rose Acre Farms)
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition UNLESS its occurrence was a material part of the agreed exchange.
Liability Rule (and when it is used)
Domain of torts, quasi-contracts, and takings under eminent domain—property may be used without consent, but owner must be compensated. Used when there are high transaction costs.
Hypo 8
A large retailer places an order with a supplier for 10,000 widgets, agreeing on a price but not specifying a delivery date. When the supplier fails to deliver for six months, the retailer sues for breach. The supplier argues the delivery term was not definite. How would a court interpret the missing delivery term under UCC gap-filling provisions?
K-Mart v. Balfour
Rule: (Res. 302) A beneficiary is intended if giving the beneficiary a right to performance is appropiate to carry out the parties intent, and either (1) performance would satisfy some debt the obligee owes to the beneficiary, or (2) under the circumstances, it appears the obligee intends to give the beneficiary the benefit of the promised performance.
Holding: A third-party tenant is a beneficiary because there was intent to benefit Kmart – kmarts construction schedule, warranties in Kmart’s favor, and drawings were submitted to Kmart. Kmart is therefore bound by the contract’s arbitration clause.
UCC 2-314 Implied Warranty of Merchantability
Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchantwith respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
Restatement 161 (When Non-Disclosure is Equivalent to an Assertion- that fact does not exist)
(a) knows disclosure of fact is necessary to prevent previous assertion from being a misrepresentation/fraudulent/material; (b) knows that disclosure of fact would correct a mistake as to a basic assumption of fact and would be bad faith not to disclose; (c) knows that disclosure of fact, corrects mistake as to contents/effect of writing; (d) entitled know due to relation/trust/confidence
A sale of goods contract where the price is determined beforehand but the quantity is not. (Primarily used in the distribution sector).
The buyer bases quantity on need (or what is required). Differs from an output contract whereas the seller determines the quantity.
Includes an implicit good faith clause for the buyer.
Ex: Target enters into an agreement where they will be as much Cocco Puffs as needed for sale from Kellog
Hypo 9
A landowner contracts with a builder to construct a house on a beachfront property. Before construction begins, a change in local zoning laws prohibits residential construction on the property. The builder sues for lost profits. Can the landowner defend on the basis of frustration of purpose or impossibility?