bus law 2

Non compete in sale of business

A non-compete clause in the sale of a business must be limited to a reasonable time, geographic area, and scope of activity.

Which of the following amounts to an offer? Ed says to Carmen, "I offer to sell you my pen for $1." Ed says to Carmen, "I'll sell you my pen for $1." Ed writes, "I'll sell you my pen for $1," and gives the note to Carmen. All of these A and C only

all

When Neither Party Breaches

the contract required the seller to ship the goods, or the contract involved a bailment, or other cases.

Time of Acceptance: The Mailbox Rule

An acceptance is generally effective upon dispatch, meaning the moment it is out of the offeree's control.

An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness

Even if a contract does not violate any specific statute or public policy, it may still be void if it "shocks the conscience" of the court.

When is performance substantial? There is no perfect test, but courts look at these issues:

How much benefit has the promisee received? If it is a construction contract, can the owner use the thing for its intended purpose? Can the promisee be compensated with money damages for any defects? Did the promisor act in good faith?

Economic Loss

If the buyer is a business, the majority of states require privity. Fab-Rik makes fabric for furniture and drapes, which it sells to various wholesalers. Siddown makes sofas. Siddown buys Fab-Rik fabric from a wholesaler and, after installing it on 200 sofas, finds the material defective. Siddown may sue the wholesaler but, in most states, will be unable to sue Fab-Rik for breach of any warranties. There was no privity.

The key to all conditional clauses is this

If the condition does not occur, one party will probably be discharged without having to perform his obligations under a contract.

RISK OF LOSS

In their contract, the parties may allocate the risk of loss any way they wish. If they fail to do so, the Code provides several steps to determine who pays for any damage. When neither party has breached, the risk of loss generally passes from seller to buyer when the seller has transported the goods as far as he is obligated to. When a party has breached, the risk of loss generally lies with the party that has breached.

meeting of the minds

The parties can form a contract only if they have a meeting of the minds, which requires that they understand each other and show that they intend to reach an agreement.

A debt is unliquidated for either of two reasons:

The parties dispute whether any money is owed or the parties agree that some money is owed but dispute how much.

C and F

The price includes in a lump sum: the cost of the goods and freight, but not insurance.

CIF

The price includes in a lump sum: the cost of the goods and the insurance and freight to the named destination.

Exception: Modification

Under the common law, additional consideration is necessary for a modification of contract terms because it is unfair for one party to get something more, while the other does not. As we saw in the Alaska Packers case, if one side unfairly coerces the other into the changes, the modification is invalid.

Intoxication

When one party is so intoxicated that he cannot understand the nature and consequences of the transaction, the contract is voidable. To back out of a contract on the grounds of intoxication, you must be able to provide evidence that you did not understand the "nature of the agreement," or the basic deal that you made.

To Correct a Basic Mistaken Assumption

When one party knows that the other is negotiating with a mistaken assumption about an important fact, the party who knows of the error must correct it.

bargained for

When something is sought by the promisor and given by the promise in exchange for their promises

rescind

To cancel a contract.

Quantum Meruit

"As much as he deserves"—the damages awarded in a quasi-contract case.

description of goods

Any description of the goods can create an express warranty. oral or written

On Monday, Wolfe paid Aston Co., a furniture retailer, $500 for a table. On Thursday, Aston notified Wolfe that the table was ready to be picked up. On Saturday, while Aston was still in possession of the table, it was destroyed in a fire. Who bears the loss of the table?

Aston because Wolfe had not yet taken possession of the table

Can there be consideration even if the promisor did not suffer any harm?

Consideration is something that is promised, done, or forgone by the promisor. Whether it benefits or hurts the promisor is not relevant.

Two questions determine whether a statement is an offer:

Do the offeror's words and actions indicate an intention to make a bargain? Are the terms of the offer reasonably definite?

FRUSTRATION OF PURPOSE

Frustration of purpose may occur when an unexpected event renders a contract completely useless to one party.

If the Seller Must Ship the Goods

In a shipment contract, the risk passes to the buyer when the seller delivers the goods to the carrier.

A contract is a legally enforceable agreement

People regularly make promises, but only some of them are enforceable. For a contract to be enforceable, seven key characteristics must be present

forberance

Refraining from doing something that one has a legal right to do or an elderly driver (with a valid driver's license) might promise concerned family members that he will not drive at night.

A Relationship of Trust

When one party naturally expects openness and honesty, based on a close relationship, the other party must act accordingly

MIRROR IMAGE RULE AND UCC §2-207

The common law mirror image rule requires acceptance on precisely the same terms as the offer. Under the UCC, an offeree may often create a contract even when the acceptance includes terms that are additional to or different from those in the offer.

offeree

The person to whom an offer is made.

ratification

Words or actions indicating an intention to be bound by a contract.

For consideration to exist, there must be:

a bargained-for exchange.

In all other cases, a court applies an objective standard to the promisee's decision

a mechanical alarm system does not involve personal judgment and taste. Either the system works or it does not. A reasonable person would find that Leila's system is just fine and, therefore, under the objective standard, Sujata must pay. The law strongly favors the objective standard because the subjective standard gives unlimited power to the promisee.

Nagel and Fields entered into a contract in which Nagel was obligated to deliver certain goods by September 10. On September 3, Nagel told Fields that he had no intention of delivering the goods. Prior to September 10, Fields may successfully sue Nagel under the doctrine of:

anticipatory breach.

DeMasse v. ITT Corporation

basically company had onld handboks that said older people can keep jib but they fires a few senior workers

clickwrap and browse wrap agreements

clickwrap agreements are generally enforceable, but browsewraps are only enforceable when websites provide reasonable notice and access to them.

material breach

courts will discharge a contract only if a party committed a material breach A material breach is one that substantially harms the innocent party and for which it would be hard to compensate without discharging the contract. Suppose Edwin fails to show up with the tuxedos on June 1 but calls to say they will arrive under the big top the next day. He has breached the agreement. Is his breach material? No. This is a trivial breach, and Bubba is not discharged. When the tuxedos arrive, he must pay.

On the first day of the baseball season, Dean orders a new Cardinals hat from Amazon.com. At the moment he submits his order, Dean and Amazon have an _____________contract. Two days later, Amazon delivers the hat to Dean's house. At this point, Dean and Amazon have an _____________ contract.

exectory, excueted

how conditions are created

expressed conditions implied conditions condition precedent conditions subsequent concurrent conditions public policy

Existence

goods must exist before title can pass

Babcock v. Engel intoxication

guy drank too much and undersold his farm

courts have created three exceptions to the basic rule of consideration:

illusory promises, preexisting duties, and past consideration

valid contract

is one that satisfies all of the law's requirements. It has no problems in any of the seven areas listed at the beginning of this chapter, and a court will enforce it.

Sam obtains a Patek Philippe watch from Greg by fraud. It has a retail price of $10,000. He sells it to Melissa for $9,000. She believes he owns the watch. Melissa _________________a bona fide purchaser. Sam disappears. If Greg discovers that she has the watch and demands that it be returned, Melissa __________have to give the watch to Greg. Answer

is, will not

Manny offers to sell Gina his television for $100 on January 1. On January 2, Gina writes out a letter of acceptance. On January 3, Gina drops the letter in a mailbox. On January 4, a postal worker gets the letter out of the mailbox and takes it to the post office. On January 5, the letter arrives in Manny's mailbox. When (if ever) was a contract formed?

jan 3

Hamer v. Sidway

newphew didnt drink until 21 uncle died as a result contract is enforceable The nephew had a legal right to smoke, swear, and drink alcohol but he promised not to do any of it. Giving up these rights was consideration and created an enforceable contract.

Unenforceable Contract

occurs when the parties intend to form a valid bargain, but a court declares that some rule of law prevents enforcing it.

bailor

one who creates a bailement by delivering goods to another

party that fails to perform substantially receives nothing on the contract itself and will recover only the value of the work, if any.

party that fails to perform substantially receives nothing on the contract itself and will recover only the value of the work, if any.

Donovan v. RRL Corporation

printed ad w false jagar at lower price

reed v city of chicago

prisoner killed himself of gown mom sued but she didnt have privity

Today, plaintiffs claiming unconscionability must prove two elements:

procedural and substantive unconscionability:

Courts have not always assumed that promises are legally significant. In the twelfth and thirteenth centuries

promises were not binding unless a person made them in writing and affixed a seal to the document. This was seldom done, and therefore most promises were unenforceable

Rebecca, in Honolulu, faxes a job offer to Spike, in Pittsburgh, saying, "We can pay you $55,000 per year, starting June 1." Spike faxes a reply, saying, "Thank you! I accept your generous offer, though I will also need $3,000 in relocation money. See you June 1. Can't wait!" On June 1, Spike arrives and finds that his position is filled by Gus. He sues Rebecca.

spike wins nothing

mistake

such as when one party seeks to profit unreasonably from another's error, rescission may be warranted on the grounds of mistake.

Sale of a Business

the promise by the seller of a business not to compete in that particular business in a reasonable geographic area for a reasonable period of time is enforceable

Sherwood v. Walker

they thought a cow couldnt breed but jk she could breed

buyers breach

when a buyer accepts goods but then rightfully revokes acceptance, the risk remains with the seller to the extent that the buyer's insurance will not cover the loss

An actor, exhausted after his 10-hour workweek, agrees to buy a briefcase full of cocaine from Lewis for $12,000. Lewis and the actor have a(n) contract.

void

Lenny makes K2, a synthetic form of marijuana, in his basement. He signs an agreement with the Super Smoke Shop to deliver 1,000 cans of K2 for $10,000. After the contract is signed, but before the delivery, Super Smoke Shop's state legislature makes the sale of K2 illegal. Lenny's contract will be discharged because of .

true impossibility

unliqiudated debt

unliquidatedA debt that is disputed because the parties disagree over its existence or amount.

Non-compete agreements are common features of employment contracts. Currently, courts __________ enforce these clauses.

usually

Nondisclosure of a fact amounts to misrepresentation in these four cases:

where disclosure is necessary to correct a previous assertion, where disclosure would correct a basic mistaken assumption that the other party is relying on, where disclosure would correct the other party's mistaken understanding about a writing, or where there is a relationship of trust between the two parties

condition

An event that must occur before a party becomes obligated under a contract. "I'll agree to do something, but only if something else happens first." Polly agreed to pay Eddie, the agent, a percentage of her profits, but with an important condition: 80 percent of the tables had to be booked for a month. Unless and until those tables were occupied, Polly owed Eddie nothing. That never happened, or, in contract language, the condition failed, and so Polly was discharged. -polly discharged means contract is over

duress

An improper threat made to force another party to enter into a contract.

act

Any action that a party was not legally required to take in the first place. An act does not count if the party was simply complying with the law or fulfilling her obligations under an existing contract suppose that your professor tells the university that she will not post final grades unless she is paid an extra $5,000. Even if the university agrees to this outrageous demand, that agreement is not a valid contract because the professor is already under an obligation to post final grades.

UNIFORM COMMERCIAL CODE AND COMMON LAW

If a contract is for the sale of goods, the UCC is the relevant body of law. For anything else, the common law governs. If a contract involves both goods and services, a court will examine the agreement's primary purpose to determine which law applies.

Performance and Discharge.

If a party fully accomplishes what the contract requires, his duties are discharged. But what if his obligations are performed poorly, or not at all?

The two most common settings for legitimate noncompetition agreements are

the sale of a business and an employment relationship.

uCC §2-209 provides:

An agreement modifying a contract within this Article needs no consideration to be binding. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.

voidable contact

An agreement that may be terminated by one of the parties. -happens under deress, fraud or someone lies

consumer protection statue

Laws protecting consumers from fraud.

Remedies.

A court will award money or other relief to a party injured by a breach of contract.

letter of intent

A letter that summarizes negotiating progress.

mutual mistakes

A mutual mistake occurs when both contracting parties share the same mistake. If the contract is based on a fundamental factual error by both parties, the contract is voidable by either one.

sample or model

Any sample or model can create an express warranty.

True impossibility is generally limited to these three causes:

Destruction of the Subject Matter. Death of the Promisor in a Personal Services Contract. Illegality

PROMISSORY ESTOPPEL

Sometimes, to prevent injustice, courts will enforce agreements even if no consideration is present. These deals are still not formal contracts, but the courts will enforce a promise nonetheless.

An exculpatory clause is generally unenforceable when it attempts to exclude an intentional tort or gross negligence.

When Sara Beth pushes Toby over a cliff, that is the intentional tort of battery. A court will not enforce the exculpatory clause. Sara Beth is clearly liable. As to the snowmobile at the bottom of the run, if a court determines that was gross negligence (carelessness far greater than ordinary negligence), then the exculpatory clause will again be ignored. If, however, it was ordinary negligence, then we must continue the analysis.

Seller Breaches, Buyer Accepts, but Then Revokes

hen a buyer accepts goods but then rightfully revokes acceptance, the risk remains with the seller to the extent that the buyer's insurance will not cover the loss hen a buyer accepts goods but then rightfully revokes acceptance, the risk remains with the seller to the extent that the buyer's insurance will not cover the loss

voidable title

limited rights in good, inferior to those of the owner

Opinions and "puffery" do not amount to fraud

"I think land values around here will be going up 20 or 30 percent for the foreseeable future." That statement is pretty enticing to a buyer, but it is not a false statement of fact. The maker is clearly stating her own opinion, and the buyer who relies on it does so at his peril. A close relative of opinion is something called "puffery."

uCC §2-509(4) states that the parties may allocate the risk of loss any way they wish.

"Seller bears all risk of loss until the lobsters are delivered to Athena's warehouse." As long as the parties make their risk allocation clear, the Code will enforce their terms.

warranty

A contractual assurance that goods will meet certain standards

What are the elements of promissory estoppel?

A promise was made. It was a reasonable expectation of the promisor to induce action or forbearance on the part of the promissee. The promisee reasonably relied on the promise and took action to his detriment. Such promise is binding because injustice can only be avoided by enforcement of the promise.

mailbox rule

Acceptance is generally effective upon dispatch. Terminations are effective when received.

In analyzing a claim of economic duress

Acts that have no legitimate business purpose Greatly unequal bargaining power An unnaturally large gain for one party Financial distress to one party

executed

An agreement in which all parties have fulfilled their obligations.

time and essence clauses

Generally make contract dates strictly enforceable.

Third-Party Interests.

If Jerome and Tara have a contract, and if the deal falls apart, can Kevin sue to enforce the agreement? It depends.

Method and Manner of Acceptance

If an offer demands acceptance in a particular method or manner, the offeree must follow those requirements like writing in person or by a time

The UCC: Unconscionability and Sales Law

In other words, the Code includes two potentially competing sections: §2-719 permits a seller to insist that the buyer's only remedy for defective goods is return of the purchase price, but §2-302 says that any unconscionable provision is unenforceable. In lawsuits concerning defective goods, the seller often argues that the buyer's only remedies are those stated in the agreement, and the buyer responds that the contract limitation is unconscionable.

Statements That Usually Do Not Amount to Offers

Invitations to Bargain Price Quotes Letters of Intent Advertisements Auctions

A statement is more likely to be an affirmation of fact if:

It is specific and can be proven true or false it is written defects are not obvious seller has greater expertise

Roberto wants to buy Naomi's house for $350,000 and is willing to make a 20 percent down payment, which satisfies Naomi. However, he needs a $280,000 mortgage in order to complete the purchase, and he is not certain he can obtain one. Naomi is worried that Roberto might change his mind about buying the house and then use alleged financing problems to skip out of the deal. How can the two parties protect themselves?

Naomi should demand the 20 percent down payment. Further, her conditional clause should state that Roberto forfeits the down payment unless he demonstrates that, within two weeks, he has applied in good faith for a mortgage to at least three banks. Roberto should insist that if he promptly and fully applies to three banks but fails to obtain a mortgage, his down payment is refunded.

Conscious Uncertainty

No rescission is permitted where one of the parties knows he is taking on a risk; that is, he realizes there is uncertainty about the quality of the thing being exchanged. Rufus offers 10 acres of mountainous land to Priscilla. "I can't promise you anything about this land," he says, "but they've found gold on every adjoining parcel." Priscilla, eager for gold, buys the land, digs long and hard, and discovers—mud. She may not rescind the contract. She understood the risk she was assuming, and there was no mutual mistake.

DEVELOPMENT

The development of contract law stretches into the distant past. Before the fifteenth century, courts rarely enforced promises at all. By the 1600s, courts enforced many mutual promises, and, by 1900, most promises containing the seven elements of a contract were strictly enforced.

merchantable

The goods are fit for the ordinary purpose for which they are used.

consideration

The inducement, price, or promise that causes a person to enter into a contract and forms the basis for the parties' exchange.

Element Two: Materiality

The injured party must demonstrate that the statement was material, or important. Imagine a farmer selling a piece of his land. He measures the acres himself and calculates a total of 200 acres. If the actual acreage is 199, he has almost certainly not made a material misstatement. But if the actual acreage is 150, he has.

The common law frowned on requirements and output contracts because the promisors are making no real commitment, and hence are giving no consideration. In the view of common law courts, these were illusory contracts.

The problem with the common law rule was that many merchants valued these contracts. Consider the utility of requirements contracts. From the buyer's viewpoint, a requirements contract provides flexibility. The buyer can adjust purchases based on consumer demands. The agreement also guarantees her a source of goods in a competitive market. For a seller, the requirements agreement will ensure him at least this one outlet and will prevent competitors from selling to this buyer. The contract should enable the seller to spend less on marketing and may enable him to predict sales more accurately. Output contracts have similar value. The UCC responded in a forthright fashion: Section 2-306 expressly allows output and requirements contracts in the sale of goods. However, the Code places one limitation on how much the buyer may demand (or the seller may offer):

Element Three: Justifiable Reliance

The reliance must be justifiable—that is, reasonable. If the seller of wilderness land tells Lewis that the area is untouched by pollution, but Lewis can see a large lake on the property covered with 6 inches of oily red scum, Lewis is not justified in relying on the seller's statements. If he goes forward with the purchase, he may not rescind.

FOB place of destination

The seller must deliver the goods at the place named and bears the expense and risk of shipping.

Exception: Different Performance

There is one important exception to this rule. If the debtor offers a different performance to settle the liquidated debt, and the creditor agrees to take it as full settlement, the agreement is binding. Suppose that Felicity, instead of paying $60,000, offers you five acres in Alaska, and you accept. When you accept the deed to the land, you have given up your entire claim, regardless of the land's precise value.

A price quote is generally not an offer.

This can be an expensive point to learn. Leviton Manufacturing makes electrical fixtures and switches. Litton Microwave manufactures ovens. Leviton sent a price list to Litton, stating what it would charge for specially modified switches for use in Litton's microwaves. The price letter included a statement greatly limiting Leviton's liability in the event of any problem with the switches. Litton purchased thousands of the switches and used them in manufacturing its microwaves. But consumers reported fires due to defects in the switches. Leviton claimed that under the contract it had no liability. But the court held that the price letter was not an offer. It was a request to receive an offer. Thus, the contract ultimately formed did not include Leviton's liability exclusion. Litton won over $4 million The Litton case demonstrates why it is important to distinguish a valid offer from a mere price quote. Leviton's price list (including a limited warranty) was not an offer. When Litton ordered goods (with no limit to the warranty), it was making an offer, which Leviton accepted by delivering the goods. The resulting contract did not contain the limited warranty that Leviton wanted, costing that company a $4 million judgment.

Restraint of Trade: Non-compete Agreements

To be valid, an agreement not to compete must be part of a larger agreement. Suppose Cliff sells his gasoline station to Mina, and the two agree that Cliff will not open a competing gas station within 5 miles anytime during the next two years. Cliff's agreement not to compete is ancillary to the sale of his service station. His noncompetition promise is enforceable. But suppose that Cliff and Mina had the only two gas stations within 35 miles. They agree between themselves not to hire each other's workers. Their agreement might be profitable to them because each could now keep wages artificially low. But their deal is not ancillary to a legitimate bargain, and it is therefore void. Mina is free to hire Cliff's mechanic despite her agreement with Cliff.

Gap Filler Provisions (UCC)

UCC rules for supplying missing terms.

usury

Usury laws prohibit charging excess interest on loans

licensing

When the licensing statute is designed to protect the public, a contract by an unlicensed plaintiff is generally unenforceable. When such a statute is designed merely to raise revenue, a contract by an unlicensed plaintiff is generally enforceable.

Types of Conditions

condition precedent, condition subsequent, and concurrent conditions.

Frustration of purpose means some event has occurred that neither party anticipated and the contract now has no value for one party

f Rice's building project is canceled, Rice will argue that the steel now is useless to the company. Frustration cases are hard to predict. Some states would agree with Rice, but others would hold that it was Rice's obligation to protect itself with a government guarantee that the project would be completed. Courts consider the following factors in deciding impracticability and frustration claims:

The UCC establishes that the seller may create an express warranty in three ways:

with an affirmation of fact or a promise, with a description of the goods, or with a sample or model.

the purchaser of a business insisted on putting this clause in the sales contract: The seller would not compete, for five years, "anywhere in the United States, the continent of North America, or anywhere else on Earth." What danger does that contract represent to the purchaser?

"Anywhere else on Earth"? This is almost certainly unreasonable. It is hard to imagine a purchaser who would legitimately need such wide-ranging protection. In some states, a court might rewrite the clause, limiting the effect to the seller's state or some reasonable area. However, in other states, a court finding a clause unreasonable will declare it void in its entirety—enabling the seller to open a competing business next door.

Making Contracts Temporarily Irrevocable

. If a car dealer offers you a green sedan for $25,000, you may want to shop around for a few days to try to find a better price. In the meantime, you may want to make sure that the green sedan is still available if you decide to return. Can you legally prevent the car dealer from selling the car to anyone else while you ponder the offer? In some circumstances, yes.

If the promisor must use a different means to accomplish her task, at a greatly increased cost, she probably does have a valid claim of impracticability

. If a shipping strike forces Bradshaw to use a different means of delivery—say, air—and this multiplies its costs several times, the company is probably discharged. But a mere increase in the cost of raw materials, such as a 30 percent rise in the price of ore, will almost never discharge the promisor.

knowledge of error

. If the nonmistaken party knows or has reason to know of the other party's error, courts will not allow him to profit by snapping it up.

express contract

An agreement with all the important terms explicitly stated.

illusory promises

Annabel calls Jim and says, "I'll sell you my bicycle for 325 bucks. Interested?" Jim says, "I'll look at it tonight in the bike rack. If I like what I see, I'll pay you in the morning." At sunrise, Jim shows up with the $325, but Annabel refuses to sell. Can Jim enforce their deal? No. He said he would buy the bicycle if he liked it, keeping for himself the power to get out of the agreement for any reason at all. He is not committing himself to do anything, and the law considers his promise illusory—that is, not really a promise at all. An illusory promise is not consideration. Because he has given no consideration, there is no contract, and neither party can enforce the deal.

Miller listed her home for sale. On August 4th, Norman made an offer, specifying that it must be accepted by 5:00 p.m. on August 5th. Miller received the offer, made several changes, signed it, and returned it to Norman. Norman did not respond. On August 5th at noon, Segal offered to buy Miller's house and Miller accepted. Miller then revoked the counteroffer to Norman. But right before 5:00 p.m., Norman initialed Miller's counteroffer and delivered it with a deposit. To whom, if anyone, did Miller sell her home?

Based on Norman v. Miller, 326 S.E.2d 11 (1985). Miller rejected Norman's offer by submitting a counteroffer. Because the counteroffer operated as a rejection of Norman's original offer, the terms of Norman's original offer were not transferred to the counteroffer. Norman did not have a contract to purchase the property from Miller because Norman failed to accept the counteroffer before it was revoked.

When two parties contract, they are in privity.

If Lance buys a chainsaw from the local hardware store, he is in privity with the store. But Lance has no privity with Kwiksaw, the manufacturer of the chainsaw

consent not there if theres duress

If one party makes an improper threat that causes the victim to enter into a contract, and the victim had no reasonable alternative, the contract is voidable.

NON-COMPETE: EMPLOYMENT

In an employment contract, non-compete agreements are enforceable only if they are reasonably necessary for the protection of the employer, have a reasonable time limit, provide a reasonable geographical limit, are not harsh or oppressive, and are not contrary to public policy.

nonconforming goods

Merchandise that differs from what is specified in the contract. When the buyer rejects nonconforming goods, the risk of loss remains with the seller until he cures the defect or the buyer decides to accept the goods

restitution

Restoring an injured party to its original position. Most states hold that the minor is still entitled to his money back. A minority of states follow the status quo rule, which provides that, if a minor cannot return the consideration, the adult or store is only required to return its profit margin to the minor.

good faith

The contract clearly gave all control of malpractice cases to the company. It could settle or defend as it saw fit. Here, the company considered it more economical to settle quickly, and Shuster should have known, from the contract language, that the insurer might choose to do so.

to settle for less than what the creditor demands. Such a compromise will be enforced if:

The debt is unliquidated, The parties agree that the creditor will accept as full payment a sum less than she has claimed, and The debtor pays the amount agreed upon.

ACT, FORBEARANCE, OR PROMISE

The item of value can be either an act or a forbearance.

Oral Express Warranties

Under the Code, a seller may disclaim an oral express warranty. Suppose Traffic Co. wants to buy a helicopter from HeliCorp for use in reporting commuter traffic. HeliCorp's salesman tells Traffic Co., "Don't worry, you can fly this bird day and night for six months with nothing more than a fuel stop." HeliCorp's contract may disclaim the oral warranty. The contract could say, "HeliCorp's entire warranty is printed below. Any statements made by any agent or salesperson are disclaimed and form no part of this contract." That disclaimer is valid. If the helicopter requires routine servicing between flights, HeliCorp has not breached an oral warranty.

Implied Warranty of Merchantability

Unless excluded or modified, a warranty that the goods are merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind

void and voibable title

Void title is no title at all. Voidable title means limited rights in the goods, inferior to those of the owner. A person with voidable title has power to transfer good title to a bona fide purchaser (BFP); that is, someone who purchases in good faith, for value.

Carlill v. Carbolic Smoke Ball Company

We, therefore, find here all the elements which are necessary to form a binding contract enforceable in point of law. It appears to me, therefore, that the defendants must perform their promise, and, if they have been so unwary as to expose themselves to a great many actions, so much the worse for them. Appeal dismissed.

Personal Injury

Where a product causes a personal injury, most states permit a warranty lawsuit even without privity. If the chain on Lance's power saw flies off and slashes his arm, he has suffered a personal injury. Of course, he may sue the store, with which he has privity. But he will want to sue the manufacturer, which has more money. In the majority of states, he will be able to sue the manufacturer for breach of warranty even though he had no privity with it. (Note that Lance is sure to make other claims against the manufacturer, including negligence and strict liability, both discussed in

browsewrap

With browsewraps, websites seek to bind users to their terms just by posting them somewhere on their sites or making them accessible through a hyperlink. Unlike clickwraps, browsewraps do not require users to do anything or click anything. Websites often argue that just browsing through the site is enough to constitute acceptance so long as the terms of use are somewhere in there. But should this always be true?

A seller generally must report any latent defect he knows about that the buyer should not be expected to discover himself

any property seller who realizes that there is toxic waste underground, or any other hidden hazard, must reveal that fact.

innocent misrepresentation

if all elements of fraud are present except the misrepresentation of fact was not made intentionally or recklessly, then innocent misrepresentation has occurred. So, if a person misstates a material fact and induces reliance, but he had good reason to believe that his statement was true, then he has not committed fraud. Most states allow rescission of a contract, but not damages, in such a case.

Lund v. Lund

son said he deserved better because he worked in farm parents gave him nothing lol

In 1602, English courts began to enforce mutual promises

that is, deals in which neither party gave anything to the other but both promised to do something in the future

IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE

with some expectations, the code implies a warranty that the goods are fit for the buyer's special purpose provided that the seller knows of that purpose when the contract is made and knows the buyers reliance

king v head

women worked as a hairdresser she quit and worked at competition and the court revered and remanded that she should still work cutting hair but not 2 miles from previous location

offer

An act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms.

Termination by Rejection

If an offeree clearly indicates that he does not want to take the offer, then he has rejected it. If an offeree rejects an offer, the rejection immediately terminates the offer. Suppose a major accounting firm telephones you and offers a job, starting at $80,000. You respond, "Nah. I'm gonna work on my surfing for a year or two." The next day, you come to your senses and write the firm, accepting its offer. No contract. Your rejection terminated the offer and ended your power to accept it.

requirements contract

Obligates a buyer to obtain all of his needed goods from the seller.

West purchased a horse from Strauss. When West discovered that the horse had a leg injury, he got a driver to return the horse to Strauss, but Strauss refused to accept delivery. Not knowing what to do with the injured animal, the driver took it to Bailey. Five months later, Bailey sent bills for the horse's care to West, who returned them with a note saying he did not own the horse. Bailey sued West for the expenses incurred in boarding the horse. West argued that, when Bailey accepted the horse, he was aware of the controversy regarding the horse's ownership, so he could not reasonably expect to be compensated. Who wins, and why?

Bailey v. West, 249 A.2d 414 (1969). A volunteer may not recover for a benefit conferred under quasi-contract. Bailey acted as a volunteer at his own risk that he might not be compensated. There was no implied-in-fact contract because there was no evidence that the parties ever actually intended to contract. If performance is rendered by one party without request by another, that person will generally not owe a duty to compensate the performing party.

Interactive Data Corp. hired Daniel Foley as an assistant product manager at a starting salary of $18,500. Over the next six years, Interactive steadily promoted Foley until he became Los Angeles branch manager at a salary of $56,116. Interactive's officers repeatedly told Foley that he would have his job as long as his performance was adequate. In addition, Interactive distributed an employee handbook that specified "termination guidelines," including a mandatory seven-step pre-termination procedure. Two years later, Foley learned that his recently hired supervisor, Robert Kuhne, was under investigation by the FBI for embezzlement at his previous job. Foley reported this to Interactive officers. Shortly thereafter, Interactive fired Foley. He sued, claiming that Interactive could fire him only for good cause, after the seven-step procedure. What kind of a claim is he making? Should he succeed?

Foley is arguing that he has an implied contract with Interactive based on the informal discussions concerning his future and the employee handbook. His argument convinced the California Supreme Court. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 765 P.2d 373, 1988 Cal. LEXIS 269 (1988). Foley had no express contract for any period, and thus he started work as an employee at will. But the company's repeated assurances, plus the handbook, created an implied contract.

Elaine sends an offer to Raoul. Raoul writes, "I accept. Please note, I will charge 2 percent interest per month for any unpaid money." He signs the document and sends it back to Elaine. Do the two have a binding contract?

If this is an agreement for services, there is no contract. However, if this agreement is for goods, the additional term may become part of an enforceable contract.

Harmon v. Delaware Harness Racing Commission

Immediately after his acquittal, Harmon asked for his job back. After some time, the Commission refused to reinstate him as promised. Harmon sued the Commission claiming promissory estoppel. A trial court sided with Harmon and awarded him $102,273, representing the wages he would have earned if the Commission had kept its promise. But the Superior Court reversed the decision, so Harmon appealed to the Supreme Court of Delaware.

UNILATERAL AND BILATERAL CONTRACTS

In bilateral contracts, the parties exchange promises. In a unilateral contract, only one party makes a promise, and the other must take some action—his return promise is insufficient to form a contract.

letter of intent

In complex business negotiations, the parties may spend months bargaining over dozens of interrelated issues. Because each party wants to protect itself during the discussions, ensuring that the other side is serious without binding itself to premature commitments, it may be tempting during the negotiations to draft a letter of intent. The letter might help distinguish a serious party from one with a casual interest, summarize the progress made thus far, and assist the parties in securing necessary financing. Usually, letters of intent do not create any legal obligation. They merely state what the parties are considering, not what they have actually agreed to. But note that it is possible for a letter of intent to bind the parties if its language indicates that the parties intended to be bound.

Jennifer worked as a grant writer for Brightway, a Christian nonprofit. When she announced she was moving in with her boyfriend, all of her supervisors, including the company's president, congratulated her and expressed their support. No one told her that her job was in jeopardy. Months later, Brightway fired Jennifer because "living together outside marriage is forbidden by the Scriptures." Suppose Jennifer sues under the theory of promissory estoppel. What is her best argument?

Jennifer Trehar v. Brightway Center, Inc., 2015-Ohio-4144 (2015). The court reversed the lower court's grant of summary judgment to Brightway. Reasonable people could conclude that Trehar's boss and the president of the company induced Trehar to believe that no adverse employment action would result from her move.

Once an offer has been made

t faces only two possible fates—it can be terminated or accepted. If an offer is terminated, it can never be accepted. If it is accepted, and if there are no problems with any of the five remaining elements on the Contracts Checklist, then a valid contract is created. Offers can be terminated in four ways: revocation, rejection, expiration, and by operation of law.

In promissory estoppel cases

the defendant made a promise that the plaintiff relied on. A possible remedy for an injured plaintiff in a case with no valid contract, when the plaintiff can show a promise, reasonable reliance, and injustice.

The law creates an exception: If a person has been adjudicated incompetent, then all of his future agreements are void.

"Adjudicated incompetent" means that a judge has made a formal finding that a person is mentally incompetent and has assigned the person a guardian by court order.

Bradkeyne International, Ltd., an English company, bought a large quantity of batteries from Duracell, Inc. The contract specified delivery "FOB cargo ship, Jacksonville, Florida." Duracell supervised the loading of the batteries onto a ship in Jacksonville in early July, and they arrived in England in August. When loaded onto the ship, the batteries were conforming goods that could be used for normal purposes. But on board the ship, excessive heat damaged them. By the time they reached England, they were worth only a fraction of the original price. Bradkeyne sued Duracell. Who loses?

"FOB cargo ship, Jacksonville, Florida" means that the seller bears all risks until the goods are placed in the carrier's possession. From that moment onward, the buyer bears the risk. The batteries were fine when delivered, so Duracell was off the hook once they were on board. Bradkeyne bears the loss.

The seller retains an insurable interest in goods as long as she has either title to the goods or a security interest in them (UCC §2-501)

"Security interest" refers to cases in which the buyer still owes money for the goods and the seller can repossess the goods if payment is not made. Suppose Flyola Manufacturing sells a small aircraft to WingIt, a dealer, for $300,000. WingIt pays $30,000 cash and agrees to pay interest on the balance until it sells the plane. Flyola has an insurable interest even while the aircraft is in WingIt's showroom and may purchase insurance anytime until WingIt pays off the last dime.

By contrast, when the buyer is a consumer, more states will permit a suit against the manufacturer, even without privity

. Lance, the consumer, buys his power saw to landscape his property. This time, the saw malfunctions without injuring him, but Lance must buy a replacement for considerably more money. Many states—but not all—will permit him to recover his losses from Kwiksaw, the manufacturer, on the theory that Kwiksaw intends its product to reach consumers and is in the best position to control losses.

Which of the following conditions must be met for an implied warranty of fitness for a particular purpose to arise? The warranty must be in writing. The seller must know that the buyer was relying on the seller in selecting the goods.

1 onply

BIOC

A buyer in the ordinary course of business generally takes goods free and clear of any security interest.

insurable item

A buyer obtains an insurable interest when the goods are identified to the contract. A seller retains an insurable interest in goods as long as she has either title or a security interest in them.

Past Consideration

A completed act cannot be the basis for consideration. When they learn that their son earned an "A" in Advanced Business Law, Pablo's doting parents promise to buy him a car. This star student will surely know that the generous promise is unenforceable in court. It lacks consideration because it is based on something Pablo has already done. However, if early in the semester, Pablo's parents make the same promise, consideration is present. Pablo's detriment is his future work, which is induced by the promise of a reward. In the following case, promises were made and broken. It was the court's job to figure out if the promises were actually contracts.

accord and satisfaction

A completed agreement to settle a debt for less than the sum claimed.

condition

A condition is an event that must occur before a party becomes obligated. It may be stated expressly or implied, and no formal language is necessary to create one.

noncompetition agreement

A contract in which one party agrees not to compete with another.

exculpatory clauses

A contract provision that attempts to release one party from liability in the event the other is injured.

void agreement

A contract that neither party can enforce, because the bargain is illegal or one of the parties had no legal authority to make it.

Substantive Unconscionability

A contract with extremely one-sided and unfair terms.

liquidated debt

A debt in which there is no dispute about the amount owed. A loan is a typical example. If a bank lends you $10,000, and the note obligates you to repay that amount on June 1 of the following year, you clearly owe that sum. The debt is liquidated

counteroffer

A different proposal made in response to an original offer.

discharge

A party is discharged when she has no more duties under the contract.

quasi contract

A possible remedy for an injured plaintiff in a case with no valid contract, when the plaintiff can show benefit to the defendant, reasonable expectation of payment, and unjust enrichment.

Ahn and Chet are both unhappy. (1) Ahn, an interior designer, is working on a hotel project. In the annual catalog of a furniture wholesaler, she sees that sofa beds cost $3,000. Based on the catalog, she sends an order for 100 sofa beds to the wholesaler. The wholesaler notifies Ahn that the price has gone up to $4,000. (2) At an estate auction, held without reserve, Chet is high bidder on a rare violin. The seller considers Chet's bid too low and refuses to sell. Both Ahn and Chet sue, but only one will win. Which plaintiff will win, and why?

A price quote is generally not an offer. Ahn's order for 100 sofas was the offer, and the company was free to reject it. Ahn loses. (2) Most auctions are with reserve, meaning that the high bidder is merely making an offer. However, this one was without reserve. Chet gets the violin.

bilateral contract

A promise made in exchange for another promise.

Star Struck, a Hollywood talent agency, employs Puneet as one of its young agents and Max as a part-time delivery boy. Puneet's contract is for one year. She earns $5,000 per month, payable on the last day of each month. After she has worked at the firm for four months, a Star Struck executive says to her, "We are having cash flow problems. We cannot pay you this month, and will probably fall about two months behind. However, if you will agree to do Max's job for the next few months, we can pay you on time." Puneet cheerfully agrees to the deal. However, after a few weeks of the extra labor, Puneet confesses that she is overwhelmed and can no longer do Max's job. Star Struck fires her. Puneet sues. Was there a binding agreement for Puneet to do Max's work?

A promise to do what a party is already obligated to do is not consideration. Star Struck was required to pay Puneet every month, so its "offer" included no consideration. Without consideration, there can be no agreement. Puneet was not obligated to do Max's job, and she will win this lawsuit.

Implied Warranties

A seller may disclaim the implied warranty of merchantability provided he actually mentions the word merchantability and makes the disclaimer conspicuous. Courts demand to see the specific word merchantability in the disclaimer to be sure the buyer realized she was giving up this fundamental protection. If the word is there, and the disclaimer is conspicuous enough that the buyer should have seen it, she has forfeited the warranty. A seller may disclaim the implied warranty of fitness with any language that is clear and conspicuous.

disclaimer

A statement that a particular warranty does not apply.

statue of limitation

A statutory time limit within which an injured party must file suit. failure to file suit within the time limits discharges the party who breached the contract. Always consult a lawyer promptly in the case of a legal injury.

A court applies a subjective standard only if assessing the work involves personal feelings, taste, or judgment and the contract explicitly demanded personal satisfaction

Accordingly, the law applies a subjective standard to Sujata's decision. Since she concludes that his work is uninspired, she may legally fire him, even if her decision is irrational. Note that the promisee, Sujata, has to show two things: that assessing Ben's work involves her personal judgment and that their contract explicitly demands personal satisfaction.

Capacity is the legal ability to enter into a contract

An adult of sound mind has capacity. Generally, any deal she enters into will be enforced if all elements on the Contracts Checklist—agreement, consideration, and so forth—are present. But two groups of people usually lack legal capacity: minors and those with a mental impairment.

"Huge selection of Guernsey sweaters," reads a newspaper ad from Stuffed Shirt, a clothing retailer. "Regularly $135, today only $65." Waldo arrives at Stuffed Shirt at 4:00 that afternoon, but the shop clerk says there are no more sweaters. He shows Waldo a newly arrived Shetland sweater that sells for $145. Waldo sues, claiming breach of contract and violation of a consumer protection statute. Who will prevail?

An advertisement is usually not an offer, but merely a solicitation of one. It is Waldo who is making the offer, which the store may reject. Waldo loses his contract case, but he may win under the consumer protection statute. The correct answer is (b). If Stuffed Shirt proclaimed "huge selection" when there were only five sweaters, the store was deliberately misleading consumers, and Waldo wins. However, if there was indeed a large selection, and Waldo arrived too late, he is out of luck.

executory

An agreement in which one or more parties has not yet fulfilled its obligations.

interest and title

An interest is a legal right in something. Title means the normal rights of ownership.

If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and method

An offer generally may be accepted by performance or by a promise, unless it specifies a particular method. The same freedom applies to the method. If Masako faxes Eric an offer to sell 1,000 acres in Montana for $800,000, Eric may accept by mail or fax. Both are routinely used in real estate transactions, and either is reasonable.

Termination by Revocation

An offer is revoked when the offeror "takes it back" before the offeree accepts. In general, the offeror may revoke the offer any time before it has been accepted.

termination

An offer may be terminated by revocation, rejection, expiration, or operation of law.

Affirmation of Fact or Promise

Any affirmation of fact—or any promise—can create an express warranty. An affirmation of fact is simply a statement about the nature or quality of the goods, such as "this scaffolding is made from the highest grade of steel available at any price"

entrusting

Any entrusting of goods to a merchant who deals in goods of that kind gives him the power to transfer all rights of the entruster to a buyer in the ordinary course of business.

Insurance - waggering

Anyone taking out a policy on the life of another must have an insurable interest in that person Other valid interests include creditor-debtor status (the creditor wants payment if the debtor dies) and business association (an executive in the company is so valuable that the firm will need compensation if something happens to him)

Sun operates an upscale sandwich shop in New Jersey, in a storefront that she leases from Ricky for $18,000 per month. The lease, which expires soon, allows Sun to renew for five years at $22,000 per month. Ricky knows, but Sun does not, that in a year, high-end fashion designer Prada will open a store on the same block. The dramatic increase in pedestrian traffic will render Sun's space more valuable. Ricky says nothing about Prada, Sun declines to renew, and Ricky leases the space for $40,000 a month. Sun sues Ricky, claiming he breached his duty of good faith and fair dealing. How would a court rule?

As one court said, "We do not expect a landlord or even an attorney to act as his brother's keeper in a commercial transaction." Sun's lease imposes no responsibility on Ricky to report on neighborhood changes or forecast profitability. Further, Sun made no requests to Ricky about the area's future (if he had, Ricky's omission would likely be fraud). Sun is asking Ricky to be "her brother's keeper," and neither this court nor any other will do that. She loses.

Exception: Promissory Estoppel

As we saw in Chapter 11, promissory estoppel is a theory courts use to enforce promises that are not contracts. It applies when a defendant makes a promise, which the plaintiff reasonably relied on, and enforcing that promise is the only way to avoid injustice. Courts sometimes use promissory estoppel to validate promises based on past consideration. Feinberg had been a loyal employee for 37 years. She was so beloved that, in gratitude for her service, her employer's board of directors elected to pay her $200 a month for the rest of her life, once she retired. Two years later, she retired in reliance on her monthly pension, which she enjoyed—until new management decided to revoke it. By this time, she was ill, unemployable, and wholly dependent on the pension. The court held for Feinberg, even though the promise was based on past consideration. Because she justifiably relied on the board's offer, Feinberg's pension was upheld under promissory estoppel.

As we have seen, when there is a valid offer outstanding, it remains effective until it is terminated or accepted. An offeree accepts by saying or doing something that a reasonable person would understand to mean that he definitely wants to take the offer.

Assume that Ellie offers to sell Gene her old iPad for $50. If Gene says, "I accept your offer," then he has indeed accepted, but there is no need to be so formal. He can accept the offer by saying, "It's a deal," or, "I'll take it," or any number of things. He need not even speak. If he hands her a $50 bill, he also accepts the offer.

implied condition

At other times, the parties say nothing about a condition, but it is clear from their agreement that they have implied one. Charlotte orally rents an apartment to Hakan for one year and promises to fix any problems in the unit. It is an implied condition that Hakan will promptly notify Charlotte of anything needing repair. Although the parties have not said anything about notice, it is only common sense that Hakan must inform his landlord of defects since she will have no other way to learn of them.

public policy

At times, a court will refuse to enforce an express condition on the grounds that it is unfair and harmful to the general public. In other words, a court might agree that the parties created a conditional clause but conclude that permitting its enforcement would hurt society. Did the insurance contract in the following case harm society? You be the judge.

Mere financial difficulties will never suffice to discharge a contract

Barbara and Michael Luber divorced, and Michael agreed to pay alimony. He stopped making payments and claimed that it was impracticable for him to do so because he had hit hard times and simply did not have the money. The court dismissed his argument, noting that commercial impracticability requires some objective event that neither party anticipated, not merely the financial deterioration of one party

The Basultos were Cuban immigrants who spoke only Spanish. When they purchased a new minivan from Potamkin Dodge, the dealer had them sign a blank, English-language contract with the promise that he would fill in the agreed-upon numbers later. But then the dealer completed the sales contract with numbers that were higher than those agreed upon. The couple tried to sue, only to realize that they had inadvertently signed away their rights because the contract contained, in tiny print, an arbitration clause. What remedy is available to the Basultos?

Based on Basulto v Hialeah Automotive. Roberto Basulto, et al. v. Hialeah Automotive, etc., et al., No. SC09-2358, 2014 WL 1057334 (March 20, 2014). The Florida Supreme Court held that the transaction was laden with both procedural and substantive unconscionablity and on that basis invalidated the arbitration agreement.

Brunswick owned a tennis club on property that it leased from Route 18. Upon expiration of its 25-year lease, Brunswick had the option of either buying the property or purchasing a 99-year lease, both on very favorable terms. To exercise its option, Brunswick had to notify Route 18 no later than September 30 and had to pay the option price of $150,000. If Brunswick failed to exercise its options, the existing lease automatically renewed for 25 more years at more than triple the current rent. Over a year before the deadline, Brunswick informed Route 18 that it intended to exercise the option for a 99-year lease and asked to review the new lease. Route 18 responded with delays and did not provide a new lease, despite repeated pleas. After the September deadline passed, Route 18 notified Brunswick that it was too late to exercise the option because it did not pay the $150,000 on time. Brunswick sued, claiming that Route 18 had breached its duty of good faith and fair dealing. What result?

Based on Brunswick Hills Racquet Club Inc. v. Route 18 Shopping Center Associates, 182 N.J. 210. Supreme Court of New Jersey (2005). The court held that Route 18 breached its duty of good faith and fair dealing.

block buster case

Because Blockbuster had the ability to change the rules at any time for any reason, the court determined that the contract was illusory and that Harris was not bound by Blockbuster's arbitration clause.

special problem: silence

But social attitudes about fairness have changed. Today, a seller who knows something that the buyer does not know is often required to divulge it.

McElroy owned 104 acres worth about $230,000. He got into financial difficulties and approached Grisham, asking to borrow $100,000. Grisham refused, but ultimately the two reached this agreement: McElroy would sell Grisham his property for $80,000, and the contract would include a clause allowing McElroy to repurchase the land within two years for $120,000. McElroy later claimed the contract was void. Is he right?

By selling at $80,000 and repurchasing at $120,000, McElroy would be paying $40,000 in interest on an $80,000 loan. The 50 percent rate is usurious. The court prohibited Graham from collecting the interest.

COMMERCIAL IMPRACTICABILITY

Commercial impracticability means that some unexpected event has made it extraordinarily difficult and unfair for one party to perform its obligations.

Eagle ran convenience stores. He entered into an agreement with Commercial Movie in which Commercial would provide Eagle with DVDs for rental. Eagle would pay Commercial 50 percent of the rental revenues. If Eagle stopped using Commercial's service, Eagle could not use a competitor's services for 18 months. The agreement also provided: "Commercial shall not be liable for compensation or damages of any kind, whether on account of the loss by Eagle of profits, sales or expenditures, or on account of any other event or cause whatsoever." Eagle complied with the agreement for two years but then began using a competitor's service, and Commercial sued. Eagle claimed that the agreement was unenforceable for lack of consideration. Please rule.

Commercial's promise was illusory. The company was free to walk away from the deal at any time. Commercial could never be held liable. Commercial gave no consideration, and there was no binding contract for either party to enforce.

moral consideration

Consider a pledge to charity. If Dave promises to give $25,000 to "Save the Mexican Spotted Owl" and then fails to make the donation, there is no consideration because he has received nothing in return. If the nonprofit sues to enforce the promise, it cannot show that it gave anything up in return for Dave's promise, so there is no consideration. Nevertheless, some courts will force donors like Dave to make good on their pledges anyway. If, based on Dave's promise, the charity funded a bird-watching program or began construction on a sanctuary, it can prove reliance. As we have seen, judges can use the doctrine of promissory estoppel to enforce promises if there has been reliance and a great injustice would otherwise result.

limitation of remedy clause

Contract clause allowing parties to limit or exclude applicable UCC remedies. A remedy limitation, by contrast, states that if a party does breach its warranty, the injured party will not get all of the damages the Code normally allows.

consequential damages

Contract damages resulting as an indirect consequence of the breach

requirement contract

Contract in which a buyer agrees to purchase all of her goods from one seller.

output contract

Contract in which the seller guarantees to sell all of its output to one buyer, and the buyer agrees to accept the entire quantity.

No. Merely including a date for performance does not make time of the essence

Courts dislike time of the essence arguments because even a short delay may mean that one party forfeits everything it expected to gain from the bargain. If the parties do not clearly state that prompt performance is essential, then both are entitled to reasonable delays.

To Correct a Previous Assertion

During the course of negotiations, one party's perception of the facts may change. When an earlier statement later appears inaccurate, the change generally must be reported. W.R grace and co A party who learns new information indicating that a previous statement is inaccurate must disclose the bad news.

American Bakeries had a fleet of over 3,000 delivery trucks. Because of the increasing cost of gasoline, the company was interested in converting the trucks to propane fuel. It signed a requirements contract with Empire Gas, in which Empire would convert "approximately 3,000" trucks to propane fuel, as American Bakeries requested, and would then sell all the required propane fuel to run the trucks. But American Bakeries changed its mind and never requested a single conversion. Empire sued for lost profits. Who won?

Empire won over $3.2 million dollars, and the appeals court affirmed. Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333, 1988 U.S. App. LEXIS 2482 (7th Cir. 1988). Since this was a requirements contract for the sale of goods (the conversion units and the propane gas were the goods), it was governed by UCC §2-306. American Bakeries did have the right to reduce the number of conversions from the estimated 3,000. It could potentially reduce them even to zero, but any reduction had to be done in good faith, meaning that changed circumstances made a reduction important. Here, American Bakeries never offered any reason at all, and the jury verdict was reasonable.

employement

Employers have legitimate worries that workers might go to a competitor and take with them significant business or trade secrets and other proprietary information. Some employers, though, place harsh restrictions on their employees simply to prevent them from leaving. An employee with a burdensome non-compete might be willing to tolerate harsh treatment just to avoid unemployment. A national sandwich chain required its sandwich-makers to sign a non-compete that would ban them from working at just about any other fast-food restaurant. It seems unlikely that headquarters was concerned about the sandwich jockeys taking business or irreplaceable skills with them.

Kolodziej v. Mason

Enter Dustin Kolodziej, a Dateline-watching law student. Kolodziej interpreted Mason's words as an offer to form a contract, to make it off a plane in Atlanta and back to Serrano's hotel within 28 minutes in return for one million dollars. Kolodziej did successfully make the journey—and recorded it on his phone. He then demanded payment from Mason. Of course, Mason denied that the televised challenge was an offer, so the law student sued for breach of a unilateral contract. The lower court dismissed the suit, but the determined, budding lawyer appealed. With no assent, there is no actionable offer; with no offer, there is no enforceable contract. in favor of mason

auction

Every day, auctions are used to sell exquisite works of art, real estate, and many other things. Placing an item up for auction is not an offer—it is merely a request for an offer. The bids are the offers. If and when the hammer falls, the auctioneer has accepted the offer. The important thing to know about a particular auction is whether it is conducted with or without reserve. Most auctions are with reserve, meaning that the items for sale have a minimum price. The law assumes that an auction is with reserve unless the auctioneer clearly states otherwise. The auctioneer will not sell anything for less than its reserve (minimum price). So when the bidding for your property failed to reach the reserve, the auctioneer was free to withdraw it. The rules are different in an auction without reserve. Here, there is no minimum. Once the first bid is received, the auctioneer must sell the merchandise to the highest bidder.

An offeree who accepts may include in the acceptance terms that are additional to or different from those in the offer. Thus, even with additional or different terms, the acceptance may well create a contract.

Example A. Wholesaler writes to Manufacturer offering to buy "10,000 wheelbarrows at $50 per unit. Payable on delivery, 30 days from today's date." Manufacturer writes back, "We accept your offer of 10,000 wheelbarrows at $50 per unit, payable on delivery. Interest at normal trade rates for unpaid balances." Manufacturer clearly intends to form a contract. The company has added a new term, but there is still a valid contract. However, if the offeree states that her acceptance is conditioned on the offeror's assent to the new terms, there is no contract. Example B. Same offer as above. Manufacturer adds the interest rate clause and states, "Our acceptance is conditional upon your agreement to this interest rate." Manufacturer has made a counteroffer. There is no contract, yet. If Wholesaler accepts the counteroffer, there is a contract; if Wholesaler does not accept it, there is no contract.

When a Tom Cat Bakery delivery van struck Elizabeth Nadel, she suffered significant injuries, Nadel filed suit. Before the trial, Tom Cat's attorney offered a $100,000 settlement, which Nadel refused. While the jury was deliberating, the bakery's lawyer again offered Nadel the $100,000 settlement. She decided to think about it during lunch. Later that day, the jury sent a note to the judge. The bakery owner told her lawyer that if the note indicated the jury had reached a verdict, he should revoke the settlement offer. Back in the courtroom, the bakery's lawyer said, "If the note is a verdict, my client wants to take the verdict." Nadel's lawyer then said, "My client will take the settlement." The trial court judge allowed the forewoman to read the verdict, which awarded Nadel—nothing. Did Nadel's lawyer accept the settlement offer in time?

Excerpt from Judge's decision: Plaintiff's motion to enforce "the settlement" has generated considerable debate between the parties. Plaintiff asserts that the defendant is bound to a settlement. Plaintiff's problem is that there was no "agreement" to speak of. To be sure, there was an offer from the defendant. During the above-quoted colloquy, clearly there were also words of acceptance from plaintiff. But when the words, "my client will take the settlement" were uttered, it was too late for them to be effective. By that time, defense counsel had made it clear that if the jury had already come to a verdict, the offer was off the table. That condition could not be ignored, as the verdict that would mean all bets were off had already been reached. For the foregoing reasons, plaintiff's motion is denied.

ranklin Miller operated Miller Seed Co. in Pea Ridge, Arkansas. He bought, processed, and sold fescue seed, which is used for growing pasture and fodder grass. Farmers brought seed to Miller, who would normally clean, bag, and store it. In some cases, the farmers authorized Miller to sell the seed, in some cases not. Miller mixed together the seed that was for sale with the seed in storage so that a customer could not see any difference between them. Miller defaulted on a $380,000 loan from the First State Bank of Purdy. First State attempted to seize all of the seed in the store. Tony Havelka, a farmer, protested that his 490,000 pounds of seed was merely in storage and not subject to First State's claim. Who is entitled to the seed?

First State gets it. UCC §2-326(3) creates a presumption in favor of creditors. When goods are delivered to be sold, the goods are subject to the creditors' claims unless the owner (Havelka) takes one of the statutory steps to protect himself, such as posting a sign indicating that he owns the merchandise. He did not do that here. The only issue is whether Havelka delivered the seed to sell. The court held that because Havelka and other farmers had used Miller to sell seed in the past, which the bank knew, and because the stored seed was indistinguishable from the seed for sale, the purpose of §2-326 would be accomplished by protecting the creditor. The bank had no way of knowing that some of the goods that Miller appeared to own really belonged to others. First State Bank of Purdy v. Miller, 119 Bankr. 660, 1990 U.S. Dist. LEXIS 12407 (W.D. Ark. 1990)

Different terms are those that contradict terms in the offer.

For example, if the seller's form clearly states that no warranty is included, and the buyer's form says the seller warrants all goods for three years, the acceptance contains different terms. An acceptance may contain different terms and still create a contract. But in these cases, courts have struggled to decide what the terms of the contract are. The majority of states hold that different (contradictory) terms cancel each other out. Neither term is included in the contract. Instead, the neutral terms from the Code itself are "read into" the contract. These are the gap-filler terms discussed earlier. If, for example, the forms had contradictory warranty clauses (as they almost always do), the different terms would cancel each other out, and the warranty clauses from the UCC would be substituted.

Sometimes the parties discharge a contract by agreement

For example, the parties may agree to rescind their contract, meaning that they terminate it by mutual agreement. If Polly's landlord believed he could get more rent from a new tenant, he might agree to rescind her lease. But he was dubious about the rental market and refused to rescind.

Conditions can take many forms. Alex would like to buy Kevin's empty lot and build a movie theater on it, but the city's zoning law will not permit that kind of business in that location. Alex signs a contract to buy Kevin's empty lot in 120 days, provided that within 100 days, the city rezones the area to permit a movie theater. If the city fails to rezone the area by day 100, Alex is discharged and need not complete the deal.

Friendly Insurance issues a policy covering Vivian's house, promising to pay for any loss due to fire, but only if Vivian furnishes proof of her losses within 60 days of the damage. If the house burns down, Friendly becomes liable to pay. But if Vivian arrives with her proof 70 days after the fire, she collects nothing. Friendly, though it briefly had a duty to pay, was discharged when Vivian failed to furnish the necessary information on time.

Gardner v. Downtown Porsche Audi

Gardner left his Porsche 911 at Downtown for repairs. He signed an exculpatory clause saying that Downtown was "Not Responsible for Loss or Damage to Cars or Articles Left in Cars in Case of Fire, Theft, or Any Other Cause Beyond Our Control." Due to Downtown's negligence, Gardner's Porsche was stolen. The court held the exculpatory clause void. It ruled that contemporary society is utterly dependent upon automobile transportation and Downtown was therefore in a business of great public importance. No repair shop should be able to contract away liability, and Gardner won. (This case also illustrates that using 17 capitalized words in one sentence does not guarantee legal victory.)

Melnick built a house for Gintzler, but the foundation was defective. Gintzler agreed to accept the foundation if Melnick guaranteed to make future repairs caused by the defects. Melnick agreed but later refused to make any repairs. Melnick argued that his promise to make future repairs was unsupported by consideration. Who will win the suit? Is either party acting unethically? Which one, and why?

Gintzler should, and did. The consideration to support Melnick's promise of repairs was Gintzler's acceptance of the defective foundation. He was under no obligation to accept a house in that condition. Gintzler v. Melnick, 116 N.H. 566,364 A.2d 637 (1976).

bailment

Giving possession and control of personal property to another person. When you leave your laptop computer with a dealer to be repaired, you create a bailment. The same is true when you check your coat at a restaurant

For our purposes in studying contracts, the most important part of the Code is Article 2, which governs the sale of goods. "Goods" means anything movable, except for money, securities, and certain legal rights.

Goods include pencils, commercial aircraft, books, and Christmas trees. Goods do not include land or a house, because neither is movable, nor do they include a stock certificate a contract for the sale of a condominium in Marina del Rey is governed by the California common law

Identification

Goods must be identified to the contract before title can pass. This means that the parties must have designated the specific goods being sold. Often, identification is obvious

identification

Goods must exist and be identified to the contract before title can pass. The parties may agree in their contract how and when they will identify goods; if they do not specify, the Code stipulates when it happens. The parties may also state when title passes, and once again, if they do not, the Code provides rules.

mistake of value

Here is one case in which it pays to know less. Suppose that Fiona, the flea market vendor, sold the nineteenth-century masterpiece for $100 to Marguerite, a financial analyst, with no inkling of its real worth. Both Fiona and Marguerite shared the same mistake in their estimate of the painting's market value. Sadly for Fiona, Marguerite will reap the benefit of her bargain, because a mistaken value alone is not enough to take back a deal.

concurrent condition

Here, both parties have a duty to perform simultaneously. Renee agrees to sell her condominium to Tim on July 5. Renee agrees to furnish a valid deed and clear title to the property on that date, and Tim promises to present a cashier's check for $200,000. The parties have agreed to concurrent conditions. Each performance is the condition for the other's performance. If Renee arrives at the Registry of Deeds and can say only, "Don't worry. I'm totally sure I own this property," Tim need not present his check. Similarly, if Tim arrives with only an "IOU" scribbled on the back of a candy wrapper, Renee has no duty to hand over a valid deed.

Davis v. Mason

Here, the plaintiff being established in business as a surgeon at Thetford, the defendant wished to act as his assistant with a view of deriving a degree of credit from that situation; on which the former stipulated that the defendant should not come to live there under his auspices and steal away his patients: this seems to be a fair consideration. Then it was objected that the limits within which the defendant engaged not to practise are unreasonable: but I do not see that they are necessarily unreasonable, nor do I know how to draw the line. Neither are the public likely to be injured by an agreement of this kind, since every other person is at liberty to practise as a surgeon in this town. Judgment for the Plaintiff.

If the parties do not specify any particular method, identification will occur according to these rules:

Identification occurs when the parties enter into a contract if the agreement describes specific goods that already exist. If the Dealer agrees to sell a yacht and the parties include the ID number in their contract, the goods are identified (even though the parties never use the term identify). For unborn animals, identification generally takes place when they are conceived; for crops, identification normally happens when they are planted. For other goods, identification occurs when the seller marks, ships, or in some other way indicates the exact goods that are going to the buyer

In cases of liquidated debt, if the creditor agrees to take less than the full amount as full payment, her agreement is not binding. The debtor has given no consideration to support the creditor's promise to accept a reduced payment, and therefore the creditor is not bound by her word

If Felicity's debt to you is liquidated, your agreement to accept $60,000 is not binding, and you will successfully sue for the balance.

An exculpatory clause is generally unenforceable unless the clause is clearly written and readily visible

If Pike's Pique gave all ski and snowboarding students an eight-page contract, and the exculpatory clause was at the bottom of page 7 in small print, the average customer would never notice it. the clause would be void

Commercial impracticability means some event has occurred that neither party anticipated and fulfilling the contract would now be extraordinarily difficult and unfair to one party

If a shipping strike forces Bradshaw to ship by air, the company will argue that neither side expected the strike and that Bradshaw should not suffer a fivefold increase in shipping costs. Bradshaw will probably win the argument.

Manner of Acceptance

If an offer demands acceptance in a particular method or manner, the offeree must follow those requirements. If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium.

Termination by Operation of Law

If an offeror dies or becomes mentally incapacitated, the offer terminates automatically and immediately.

preexisting duty

If someone provides a service that she is already obligated to do, that act does not count as consideration. A lifeguard who saves people cannot receive additional money for her rescues because, well, that is what lifeguards are supposed to do.

In three circumstances, the additional terms in the acceptance do not become part of the contract:

If the original offeror insisted on its own terms. In other words, if Wholesaler wrote, "I offer to buy them on the following terms and no other terms," then Manufacturer is not free to make additions. If the additional terms materially alter the original offer. Suppose Manufacturer wrote back, "We accept your offer for 10,000 wheelbarrows. Delivery will be made within 180 days, unless we notify you of late delivery." Manufacturer has changed the time from 30 days to 180 days, with a possible extension beyond that. That is a material alteration, and it will not become part of the contract. By contrast, Manufacturer's new language concerning "interest at normal trade rates" was not a material alteration, and therefore that interest rate becomes part of the contract. If the offeror receives the additional terms and promptly objects to them.

ethics

Imagine browsing for an airline ticket online, only to discover that the first class fare from New York to India is $1, round trip. Would you rush to purchase it? Airlines regularly make programming mistakes resulting in mispriced online fares. Brian Kelly found a United Airlines first class ticket from New York to Hong Kong—which usually costs about $11,000—for $43 and immediately bought it on the company's online ticketing system. Kelly, who runs a website for frequent flyers, advised his readers to take advantage of the glitch before United discovered it. And many did. Are these "mistake fares"—which are obviously "too good to be true"—enforceable as contracts? Is there a valid offer and acceptance? Ethically speaking, would you take advantage of this deal? Why or why not?

implied warranties

Implied warranties are those created by the UCC itself, not by any act or statement of the seller. The Code's drafters concluded that goods should generally meet certain standards of quality, regardless of what the seller did or did not say. So the UCC creates both an implied warranty of merchantability and an implied warranty of fitness.

EXECUTORY AND EXECUTED CONTRACTS

In an executory contract, one or both of the parties have not yet done everything that they promised to do. In an executed contract, all parties have fully performed.

In the case of fraud, the injured party generally has a choice of rescinding the contract or suing for damages or, in some cases, doing both

In fact, this last option—rescinding and still suing for damages—is available in all states when a contract is for the sale of goods. UCC §2-721 permits a party to rescind a contract and then sue for damages when fraud is committed.

open price

In general, if the parties do not settle on a price, the Code establishes that the goods will be sold for a reasonable price. This will usually be the market value or a price established by a neutral expert or agency.

"FULL PAYMENT" NOTATIONS

In most states, payment by a check that has a "full payment" notation will create an accord and satisfaction unless the creditor is an organization that has notified the debtor that full payment offers must go to a certain officer.

A gambling contract is illegal unless it is a type of wagering specifically authorized by state statute.

In other words, it is illegal to lend money to help someone wager. But in Nevada, gambling on credit is legal, and debt memoranda such as Sadri's are enforceable contracts. Caesar's sued Sadri in California (where he lived). The result? The court admitted that California's attitude toward gambling had changed, and that bingo, poker clubs, and lotteries were common. Nonetheless, the court denied that the new tolerance extended to wagering on credit:

Most contracts are discharged by full performance

In other words, the parties generally do what they promise. Suppose, before the restaurant opened, Walter had promised to deliver 100 sets of cutlery to Polly and she had promised to pay $20 per set. Walter delivered the goods on time, and Polly paid $2,000 on delivery. The parties got what they expected, and that contract was fully discharged.

When Sony released its PlayStation 3 (PS3), it represented that the gaming system: connected to the PlayStation Network, had the ability to run other operating systems, and was expected to last for over ten years. But the product's terms of service provided that future updates might disable some functions. Four years later, Sony's software update forced users to choose between features (1) and (2) listed above. Disgruntled gamers sued, claiming that Sony made an express warranty that the PS3 would work as promised for ten years, but took away a fundamental product feature after only four years. Was Sony's representation an enforceable express warranty? Answer In re Sony PS3 "Other OS" Litigation, 2014 U.S. App. LEXIS 187, 2014 WL 31217 (2014). The court, on appeal, reversed the dismissal of claims under the Consumer Legal Remedies Act. Plaintiffs sufficiently allege that Sony's representations mischaracterized the dual functionality of the PS3 and suffered damages in the form of lost "premium" payments. Sony eventually settled. Gamers who used the "other OS" function received $55, and gamers who chose to continue using their PS3 for the Play Station Network features were entitled to $9 if they could prove that they bought their PS3 during the relevant time frame.

In re Sony PS3 "Other OS" Litigation, 2014 U.S. App. LEXIS 187, 2014 WL 31217 (2014). The court, on appeal, reversed the dismissal of claims under the Consumer Legal Remedies Act. Plaintiffs sufficiently allege that Sony's representations mischaracterized the dual functionality of the PS3 and suffered damages in the form of lost "premium" payments. Sony eventually settled. Gamers who used the "other OS" function received $55, and gamers who chose to continue using their PS3 for the Play Station Network features were entitled to $9 if they could prove that they bought their PS3 during the relevant time frame.

condition precedent

In this kind of condition, an event must occur before a duty arises. Polly's contract with Eddie concerned a condition precedent. Polly had no obligation to pay Eddie anything unless and until the restaurant was 80 percent full for a month. Since that never happened, she was discharged. If the parties agreed to a condition precedent, the plaintiff has the burden to prove that the condition happened and that the defendant was obligated to perform.

yasmine is negotiating to buy Stewart's house. She asks him what condition the roof is in. "Excellent," he replies. "It is only 2 years old, and should last 25 more." In fact, Stewart knows that the roof is 26 years old and has had a series of leaks. The parties sign a sales contract for $600,000. A week before Yasmine is to pay for the house and take possession, she discovers the leaks and learns that the mandatory new roof will cost $35,000. At the same time, she learns that the house has increased in value by $60,000 since she signed the agreement. What options does Yasmine have?

Indeed, it does matter. Stewart's fraud makes the contract voidable by Yasmine. She has the right to terminate the agreement and pay nothing. However, she may go through with the contract if she prefers. The choice is hers—but not Stewart's.

OTHER STATEMENTS

Invitations to bargain, price quotes, letters of intent, and advertisements are generally not offers. However, an ad in which a company proposes to take a specific action when a customer takes a specific action can amount to an offer. And letters of intent that indicate the parties intended to be bound can also count as offers.

If the buyer is a consumer who suffers a personal injury, a court is nearly certain to reject an exclusion for consequential damages

It is unfair for a corporation to market defective goods and escape liability because an unsuspecting consumer failed to understand contract language. Suppose Byron buys a hot-air popcorn popper that comes with a label that attempts to limit remedies. Byron is seriously burned when the popper ignites. Virtually all courts will ignore the label and permit Byron to recover his full damages, which in his case might include such consequential items as lost wages or the cost of the nonrefundable airline ticket for the trip he cannot take as a result of the breach.

Jade owns a straight track used for drag racing. She hires Trevor to resurface it for $180,000, paying $90,000 down. When the project is completed, Jade refuses to pay the balance and sues Trevor for her down payment. He counterclaims for the $90,000 still due. At trial, Trevor proves that all of the required materials were applied by trained workers in an expert fashion, the dimensions were perfect, and his profit margin very modest. The head of the national drag racing association testifies that his group considers the strip unsafe. He noticed puddles in both asphalt lanes, found the concrete starting pads unsafe, and believed the racing surface needed to be ground off and reapplied. His organization refuses to sanction races at the track until repairs are made. Who wins the suit?

Jade has received no benefit whatsoever. She cannot use her drag strip for racing. Compensation will not help Jade—she needs a new strip. Trevor's work must be ripped up and replaced. Trevor may have acted in good faith, but he failed to deliver what Jade bargained for. Jade wins all of the money she paid. (As we will see in Chapter 19, she may also win additional sums for her lost profits.)

Jimenez sold Breton a used motorcycle for $5,500, payable in weekly installments. Jimenez then purchased an insurance policy on Breton's life, worth $320,000 if Breton died in an accident. Breton promptly died in a collision with an automobile. The insurance company offered only $5,500, representing the balance due on the motorcycle. Jimenez sued, demanding $320,000. Make an argument that the insurance company should win.

Jimenez had an interest in Breton's life to insure payment of the motorcycle debt—$5,500. Beyond that, this policy represented a wager by Jimenez that Breton was going to die. Contracts for such wagers are unenforceable. Jimenez is entitled only to $5,500.

To make life easier, the Code permits a seller to disclaim all implied warranties by conspicuously stating that the goods are sold "as is" or "with all faults." Notice the tension between this provision and the one just discussed. A seller who wants to disclaim only the warranty of merchantability must explicitly mention that term; but a seller wishing to exclude all implied warranties may do so with a short expression, such as "sold as is."

Many states, though, prohibit a seller from disclaiming implied warranties in the sale of consumer goods. In these states, if a home furnishings store sells a bunk bed to a consumer, and the top bunk tips out the window on the first night, the seller is liable. Even if the sales contract clearly stated "no warranties of merchantability," the court would reject the clause and find that the seller breached the implied warranty of merchantability.

colony Park Associates signed a contract to buy 44 acres of residential land from John Gall. The contract stated that closing would take place exactly one year later. The delay was to enable Colony Park to obtain building permits to develop condominiums. Colony Park worked diligently to obtain all permits, but delays in sewer permits forced Colony Park to notify Gall it could not close on the agreed date. Colony Park suggested a date exactly one month later. Gall refused the new date and declined to sell. Colony Park sued. Gall argued that since the parties specified a date, time was of the essence and Colony Park's failure to buy on time discharged Gall. Please rule.

Merely including a date for performance does not make time of the essence. A party that considers a date critical must make that clear. This contract did not indicate that the closing date was vital to either party, so a short delay was reasonable. Gail was ordered to convey the land to Colony Park

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Mesaros ordered almost $2,000 worth of the coins. But the Mint was inundated with so many requests for the coin that the supply was soon exhausted. Mesaros and thousands of others never got their coins. This was particularly disappointing because the market value of the coins doubled shortly after their issue. Mesaros sued on behalf of the entire class of disappointed purchasers. Like most who sue based on an advertisement, she lost. An advertisement is generally not an offer. An advertisement is merely a request for offers. The consumer makes the offer, whether by mail, like Mesaros, or by arriving at a retail store ready to buy. The seller is free to reject the offer. Advertisers should be careful, however, not to be too specific in their ads. Some ads do count as offers, as the following case illustrates. U.S. Mint did not violate any consumer protection statute because it acted in good faith and simply ran out of coins.

Exception: Parties Agree in Advance

Moore was psychic. She foresaw that Elmer was going to die before a certain date. In gratitude and amazement, Elmer gave her a signed letter stating that if what she said proved true, he would pay off her mortgage. Apparently, Moore was clairvoyant: Elmer died before her predicted date. What happened next is not difficult to predict. Moore's heirs refused to pay her, claiming his promise lacked consideration. The court agreed. Although Moore argued that the promise was payment for her services, she had voluntarily offered the information and after that, Elmer gave her the note. Had the parties agreed in advance that he would pay her if her predictions proved true, the court would have foreseen a different outcome: Past consideration is valid consideration when the parties agree that it will be in advance.

The town of Sanford, Maine, decided to auction off a lot it owned. The town advertised that it would accept bids through the mail, up to a specified date. Arthur and Arline Chevalier mailed in a bid that turned out to be the highest. When the town refused to sell them the lot, they sued. Result?

No contract, no sale. An auction is with reserve unless stated otherwise. The ad was silent on the subject, so this auction was with reserve. That means that all of the bids, including the highest, are merely offers. The auctioneer, in this case the town, has the right to reject all of the offers, and the Chevaliers have no right to the lot. Chevalier v. Town of Sanford, 475 A.2d 1148 (Me. 1984).

Guyan Machinery, a West Virginia manufacturing corporation, hired Albert Voorhees as a salesman and required him to sign a contract stating that if he left Guyan, he would not work for a competing corporation anywhere within 250 miles of West Virginia for a two-year period. Later, Voorhees left Guyan and began working at Polydeck Corp., another West Virginia manufacturer. The only product Polydeck made was urethane screens, which comprised half of 1 percent of Guyan's business. Is Guyan entitled to enforce its non-compete clause?

No. The non-compete clause is unenforceable here because the two companies are not really in competition and Guyan, therefore, has no confidential information or customer lists to protect. Voorhees v. Guyan Machinery Co., 191 W. Va. 450, 446 S.E.2d 672, 1994 W.Va. LEXIS 27 (1994).

. Because a minor lacks legal capacity, she normally can create only a voidable contract

Notice that only the party lacking capacity may cancel the agreement. So a minor who enters into a contract generally may choose between enforcing the agreement or negating it

Let's take an example: Sally's Shoe Store and Baker Boots agree that Sally's will pay $20,000 for 100 pairs of boots. As to the $20,000, Sally's is the promisor (because it has committed to paying) and Baker the promisee (because it is the recipient). Regarding the boots, Baker is the promisor, and Sally's the promisee. Both parties get a legal benefit that is of value—Sally gets the boots, Baker gets the money. Also, each incurs a detriment—Sally gives up the money, Baker parts with the boots. Note that a contract is formed at the moment when the promises are made because a promise to give something of value counts. The two have bargained for this deal, so there is valid consideration.

Now here's an example where there is no consideration. Marvin works at Sally's. At 9 a.m., he is in a good mood and promises to buy his coworker a Starbucks latte during the lunch hour. The delighted coworker agrees. Later that morning, the coworker is rude to Marvin, who then changes his mind about buying the coffee. He is free to do so. His promise was a one-way street: The coworker stood to receive all the benefit of the agreement, while Marvin got nothing. Because Marvin received no value, there is no contract.

output contract

Obligates the seller to sell all of his output to the buyer, who agrees to accept it.

substantial performance

Occurs when one party fulfills enough of its contract obligations to warrant payment. you can take off money for any defect

unilateral mistake

Occurs when only one party enters a contract under a mistaken assumption.

Exception: Necessaries

On a contract for necessaries, a minor must pay for the value of the benefit received. In other words, the minor may still disaffirm the contract and return whatever is unused. But he is liable to pay for whatever benefit he obtained from the goods while he had them. Thus, the 16-year-old who buys and eats a 99-cent cheeseburger and later disaffirms his contract with Burger Central is only liable for what the burger is reasonably worth, which is less than the 99-cent purchase price. (And, no, he does not have to return the burger.)

The seller of goods warrants that her title is valid and that the goods are free of any security interest that the buyer knows nothing about, unless the seller has clearly excluded or modified this warranty.

Once again, the Code is imposing a warranty on any seller except those who explicitly exclude or modify it. When Maggie sells the car to Paul, she warrants her valid title to the car and simultaneously breaches that warranty since she obviously has no title. If he can find her, Paul will win a lawsuit against Maggie for $2,500.

Firm Offers (UCC contracts only)

Once again, the UCC has changed the law on the sale of goods. If a promise made in writing is signed by a merchant, and if it agrees to hold open an offer for a stated period, then an offer may not be revoked. The open period may not exceed three months. So, if the car dealer gives you a piece of paper that reads, "The offer on the green sedan is open at $25,000 until Friday at noon," he cannot revoke the offer before Friday at noon, even though you have not paid him anything

Exclusion or modification

Once again, the seller is allowed to modify or exclude any warranty of fitness.

passing of title

Once goods exist and are identified to the contract, ownership can pass from one person to another. Title may pass in any manner on which the parties agree (UCC §2-401).

Contracts that promote immorality or illegality are unenforceable.

One court refused to enforce a contract for the sale of a company because its main business was the manufacture of illegal drug paraphernalia

Procedural unconscionability

One party uses its superior power to force a contract on the weaker party.

express warranty

One that the seller creates with his words or actions.

buyer in the ordinary course of business (BIOC)

One who acts in good faith, without knowing that the sale violates the owner's rights. If Frank List buys your piano assuming that Showpan owns it, he has acted in good faith. If Frank was your neighbor, recognized your instrument, and bought it anyway, he is not buying in the ordinary course of business and must hand over the piano.

PROCEDURAL UNCONSCIONABILITY

Oppression and surprise may create an unconscionable bargain. An adhesion contract is especially suspect when it is imposed by a corporation on a consumer or small company. Under the UCC, a limitation of liability is less likely to be unconscionable when both parties are sophisticated corporations.

personal satisfaction contracts

Permit the promisee to make subjective evaluations of the promisor's performance.

Assume that Elaine's offer concerns goods. Is there an agreement?

Raoul's extra term will be incorporated in a binding contract unless (1) Elaine's offer made clear she would accept no other terms, (2) Raoul's interest rate is a material alteration of the offer (almost never the case for interest rates), or (3) Elaine promptly rejects the interest rate.

The Hoffmans owned and operated a successful small bakery and grocery store. They spoke with Lukowitz, an agent of Red Owl Stores, who told them that for $18,000 Red Owl would build a store and fully stock it for them. The Hoffmans sold their bakery and grocery store and purchased a lot on which Red Owl was to build the store. Lukowitz then told Hoffman that the price had gone up to $26,000. The Hoffmans borrowed the extra money from relatives, but then Lukowitz informed them that the cost would be $34,000. Negotiations broke off, and the Hoffmans sued. The court determined that there was no contract because too many details had not been worked out—the size of the store, its design, and the cost of constructing it. Can the Hoffmans recover any money?

Red Owl received no benefit from the Hoffmans' sale of their store or purchase of the lot. However, Red Owl did make a promise and expected the Hoffmans to rely on it, which they did. The Hoffmans won their claim of promissory estoppel.

strict performance

Requires one party to perform its obligations precisely, with no deviation from the contract terms. Courts dislike strict performance because it enables one party to benefit without paying and sends the other one home empty-handed

The common law mirror image rule

Requires that acceptance be on precisely the same terms as the offer.

Question: Leila agrees to pay Kendrick $35,000 to repair windmills. Confident of this cash, Kendrick contracts to buy Derrick's used Porsche for $33,000. Then Leila informs Kendrick she does not need his help and will not pay him. Kendrick tells Derrick that he no longer wants the Porsche. Derrick sues Kendrick, and Kendrick files suit against Leila. What law or laws govern these lawsuits?

Result: Goods means anything movable, and a Porsche is movable—one might say "super-movable." The UCC will control Derrick's suit. Repairing windmills is primarily a service. Kendrick's lawsuit is governed by the common law of contracts

Fay Witcher owned a Ford Bronco. Steve Risher operated a used car lot. Witcher delivered his automobile to Risher, asking him to resell it if he could. Witcher specified that he wanted all cash for his car, not cash plus a trade-in. Risher sold the car to Richard Parker for $12,800, but he took a trade-in as part payment. Risher promised to deliver the Bronco's certificate of title to Parker within a few days but never did. He was also obligated to deliver proceeds of the sale to Witcher, and, of course, he failed to do that. Parker claimed that the car was rightfully his. Witcher argued that Parker owned nothing because he never got the title and because Witcher never got his money. Who loses?

Risher was a merchant dealing in automobiles, meaning that Witcher did entrust the car to him. Parker was a BIOC: He acted in good faith, without knowing that the sale violated the agreement between Witcher and Risher. Parker wins, and he keeps the car.

Pamela went to University Used Auto and asked if the company had a Lincoln Navigator. University had no such SUV, but a sales representative told Pamela that he would find her one. The representative contacted Royal auto dealership, which sold new and used cars. Royal agreed to supply University with a car, on the understanding that an interested buyer would pay Royal, which in turn would give a finder's fee to University. The companies had worked this way in the past. Royal delivered a Navigator as requested. But when the used car company sold the vehicle to Pamela, the company instructed her to pay University directly, which she did. Royal sued Pamela, seeking the car, and the court had to determine whether there had been an entrustment. Royal argued that it never entrusted the Navigator to University because the parties agreed to require payment to Royal.

Royal delivered a used car to a used car dealer. That is entrustment. It is true that both dealers understood that Pamela was to pay Royal—but she did not know that. Entrustment protects good faith buyers, and Pamela wins.

A minor may disaffirm a contract any time before she reaches age 18.

She also may disaffirm within a reasonable time after turning 18. Suppose that 17-year-old Bret signs a contract to buy a $3,000 3-D television. The following week, he picks up the television and pays for it in full. Four months later, he turns 18, and two months after that—after his Super Bowl party—he disaffirms the contract. His disaffirmance is effective. In most states, he gets 100 percent of his money back. In some cases, minors have been entitled to disaffirm a contract several years after turning 18. But the minor's right to disaffirm ends if he ratifies the contract. But the minor's right to disaffirm ends if he ratifies the contract.

A mentally infirm party who seeks to void a contract must make restitution.

She must return the Rolls. If the car has depreciated, Danielle normally will have to pay for the decrease in value. What happens if restitution is impossible? Generally, courts require a mentally infirm person to make full restitution if the contract is to be rescinded. If restitution is impossible, the court will not rescind the agreement unless the infirm party can show bad faith by the other party. This is because, unlike minority, which is generally easy to establish, mental competence may not be apparent to the other person negotiating.

Wells Fargo Armored Service offered a $25,000 reward for information leading to the arrest and conviction of the person who shot one of its guards. Slattery worked as an independent contractor conducting lie detector tests in the State Attorney's office. While he was questioning a man about an unrelated event, the fellow confessed to the Wells Fargo crime, and was ultimately convicted. When Slattery sued Wells Fargo for the reward, it refused to pay. Is Slattery entitled to the reward? Why?

Slattery v. Wells Fargo Armored Service Corp., 366 So.2d 157 (1979). Slattery is not entitled to the reward because the performance of a preexisting duty does not amount to the consideration necessary to form a contract.

adhesion contracts

Standard form contracts prepared by one party and presented to the other on a "take it or leave it" basis Adhesion contracts are generally enforced, but they are subject to greater scrutiny and unconscionability challenges.

An exculpatory clause is usually unenforceable when the affected activity is in the public interest, such as medical care, public transportation, or some essential service

Suppose Eddie goes to a doctor for surgery on his damaged knee, and the doctor requires him to sign an exculpatory clause. The doctor negligently performs the surgery, accidentally leaving his cuff links in Eddie's left knee. The exculpatory clause will not protect the doctor. Medical care is an essential service, and the public cannot give up its right to demand reasonable work.

An invitation to bargain is not an offer.

Suppose Martha telephones Joe and leaves a message on his answering machine, asking if Joe would consider selling his vacation condo on Lake Michigan. Joe faxes a signed letter to Martha saying, "There is no way I could sell the condo for less than $150,000." Martha promptly sends Joe a cashier's check for that amount. Does she own the condo? No. Joe's fax was not an offer. It is merely an invitation to negotiate. Joe is indicating that he might well be happy to receive an offer from Martha, but he is not promising to sell the condo for $150,000 or for any amount.

prediction error

Suppose Walker sold Rose thinking that the price of beef was going to drop, when in fact the price rose 60 percent in five months. That would be simply a prediction that proved wrong, and Walker would have no right to rescind.

A buyer obtains an insurable interest when the goods are identified to the contract (UCC §2-501).

Suppose that in January, Grain Broker contracts with Farmer to buy his entire wheat crop. Neither party mentions "identification." In January, the crop is not identified and Broker has no insurable interest. In May, after weeks of breaking the soil, Farmer plants his wheat crop. Once he has planted it, the goods are identified. The Broker now has an insurable interest and purchases insurance. In July, a drought destroys the crop, and the Broker never gets one grain of wheat. The Broker need not worry: His insurance policy will cover his losses.

To Correct a Mistaken Understanding about a Writing

Suppose the potential buyer of a vacation property has a town map showing that the land he wants to buy has a legal right of way to a beautiful lake. If the seller of the land knows that the town map is out of date and that there is no such right of way, she must disclose her information.

Rick is selling his Espresso Coffee Maker. He sends Tamara an email, offering to sell the machine for $350. Tamara promptly emails back, offering to buy the item for $300. She hears nothing from Rick, so an hour later Tamara stops by his apartment, where she learns that he just sold the machine to his roommate for $250. She sues Rick. Outcome? Tamara will win because her offer was higher than the roommate's. Tamara will win because Rick never responded to her offer. Tamara will win because both parties made clear offers, in writing. Tamara will lose because she rejected Rick's offer. Tamara will lose because her offer was not definite.

Tamara made a counteroffer of $300. A counteroffer is a rejection. Tamara rejected Rick's offer and simultaneously offered to buy the coffee maker at a lower price. Rick was under no obligation to sell to Tamara at any price. He will win Tamara's suit.

Ted's wallet is as empty as his bank account, and he needs $3,500 immediately. Fortunately, he has three gold coins that he inherited from his grandfather. Each is worth $2,500, but it is Sunday, and the local rare coins store is closed. When approached, Ted's neighbor Andrea agrees to buy the first coin for $2,300. Another neighbor, Cami, agrees to buy the second for $1,100. A final neighbor, Lorne, offers "all the money I have on me"—$100—for the last coin. Desperate, Ted agrees to the proposal. Which of the deals is supported by consideration

Ted's agreement with Andrea only Ted's agreements with Andrea and Cami only All three of the agreements

UCC Exceptions

The Code creates two exceptions for accord and satisfaction cases involving checks. The first exception concerns "organizations," which typically are businesses. The general rule of §3-311 is potentially calamitous to them because a company that receives thousands of checks every day is unlikely to inspect all notations. A consumer who owes $12,000 on a credit card might write "full settlement" on a $200 check, potentially extinguishing the entire debt through accord and satisfaction. Under the exception, if an organization notifies a debtor that any offers to settle for less than the debt claimed must be made to a particular official, and the check is sent to anyone else in the organization, depositing the check generally does not create an accord and satisfaction. Thus, a clerk who deposits 900 checks daily for payment of MasterCard debts will not have inadvertently entered into dozens of accord and satisfaction agreements. The second exception allows a way out to most creditors who have inadvertently created an accord and satisfaction. If, within 90 days of cashing a "full payment" check, the creditor offers repayment of the same amount to the debtor, there is no accord and satisfaction. Homer claims that Virgil owes him $7 million but foolishly cashes Virgil's check for $3 million, without understanding that "paid in full" means just what it says. Homer has created an accord and satisfaction. But if he promptly sends Virgil a check for $3 million, he has undone the agreement and may sue for the full amount.

the UCC imposes two important time limits on a buyer's claim of breach.

The Code sets a four-year statute of limitations. This means that the buyer must bring any lawsuit for breach of a warranty no later than four years after the goods were delivered. The Code puts an additional burden on a buyer asserting a breach of warranty. The UCC requires that a buyer notify the seller of defects within a reasonable time. The purpose here is to enable the seller to cure, by repairing or replacing, any problems with the goods. Ideally, a seller that receives notice of a potential breach will fix the problem and there will be no lawsuit.

seller's skill

The buyer must be depending upon the seller's skill or judgment in selecting the product, and the seller must know it. Suppose the builder says to the lumber salesman, "I need four-by-eights that I will be using to build a house in the swamp. What do you have that will do the job?" The builder's reliance is obvious, and the warranty is established. By contrast, suppose that an experienced Alaskan sled driver offers to buy your three huskies, telling you she plans to use them to pull sleds. She has the experience and you do not, and, if the dogs refuse to pull more than a 1-pound can of dog food, you have probably not breached the implied warranty of fitness.

KwikFix, a Fortune 500 company, contracts with Allied Rocket, another huge company, to provide the software for Allied's new Jupiter Probe rocket for $14 million. The software is negligently designed, and when the rocket blasts off from Cape Kennedy, it travels only as far as Fort Lauderdale before crashing to Earth. Allied Rocket sues for $200 million and proves that, as a result of the disaster, it lost a huge government contract, worth at least that much, which KwikFix was aware of. KwikFix responds that its contract with Allied included a clause limiting its liability to the value of the contract. Is the contract clause valid?

The clause is enforceable because both parties are sophisticated corporations.

Stephen Krogness, a real estate broker, agreed to act as an agent for Best Buy Co., which wanted to sell several of its stores. The contract provided that Best Buy would pay Krogness a commission of 2 percent for "a sale to any prospect submitted directly to Best Buy by Krogness." Krogness introduced Corporate Realty Capital (CRC) to Best Buy, and the parties negotiated but could not reach agreement. CRC then introduced Best Buy to BB Properties (BB). Best Buy sold several properties to BB for $46 million. CRC acted as the broker. Krogness sought a commission of $528,000. Is he entitled to it?

The conditional clause requires Best Buy to pay a commission for "a sale to any prospect submitted directly to Best Buy by Krogness." Krogness did not in fact introduce BB Properties to Best Buy. The condition has not occurred, and Best Buy is under no obligation to pay.

on September 10, Bell Corp. entered into a contract to purchase 50 lamps from Glow Manufacturing. Bell prepaid 40 percent of the purchase price. Glow became insolvent on September 19 before segregating, in its inventory, the lamps to be delivered to Bell. Bell will not be able to recover the lamps because: Bell is regarded as a merchant. The lamps were not identified to the contract. Glow became insolvent fewer than ten days after receipt of Bell's prepayment. Bell did not pay the full price at the time of purchase.

The contract was silent about which goods were involved, neither animals nor plants were involved, and Glow never segregated the lamps. The lamps were never identified to the contract, and the correct answer is (b).

This again is judicial activism, with the courts inventing a "quasi" contract where no true contract exists. The purpose is justice, the name is contradictory.

The court ruled that indeed there was no contract, but that all elements of quasi-contract had been satisfied. Easterwood gave a benefit to PIC because the land was ready for planting. Jackson County custom caused Easterwood to assume he would be paid, and PIC Realty knew it. Finally, said the court, it would be unjust to let PIC benefit without paying anything. The court ordered PIC to pay the fair market value of Easterwood's labors.

ADEQUACY

The courts examine whether consideration exists, but will seldom inquire if it was enough consideration or a smart financial deal. This is the "peppercorn rule."

Fraud begins when a party to a contract represents something that is factually wrong

The defendant knew that his statement was false, or that he made the statement recklessly and without knowledge of whether it was false; The false statement was material; and The injured party justifiably relied on the statement.

a plaintiff may use promissory estoppel to enforce the defendant's promise if he can show that:

The defendant made a promise knowing that the plaintiff would likely rely on it, The plaintiff did rely on the promise, and The only way to avoid injustice is to enforce the promise.

Baer v. Chase

The district court dismissed the case, holding that the alleged promises were too vague to be enforced. Baer appealed. There was no discussion or agreement as to the meaning of "success" of The Sopranos. There was no discussion how "profits" were to be defined. There was no contemplation of dates of commencement or termination of the contract. And again, nothing in Baer's or Chase's conduct, or the surrounding circumstances of the relationship, shed light on, or answers, any of these questions. Affirmed.

Caf-Fiend is an expanding chain of coffeehouses. The company offers to buy Bessie's Coffee Shop, in St. Louis, on these terms: Bessie will manage the store, as Caf-Fiend's employee, for one year after the sale. For four years after the sale, Bessie will not open a competing restaurant anywhere within 12 miles. For the same four years, she will not work anywhere in the United States for a competing coffee retailer. Are the last two terms enforceable against Bessie?

The first restriction is reasonable. Caf-Fiend is entitled to prevent Bessie from opening her own coffeehouse around the corner and drawing her old customers. The second clause is unfair to Bessie. If she wants to move from St. Louis to San Diego and work as a store manager, she is prohibited. It is impossible to see how such employment would harm Caf-Fiend—but it certainly takes away Bessie's career options. The first restriction is valid, and the second one is unenforceable

A party suffering a mental impairment usually creates only a voidable contract.

The impaired person has the right to disaffirm the contract just as a minor does. But again, the contract is voidable, not void. The mentally impaired party generally has the right to full performance if she wishes.

Element One: Intentional or Reckless Misrepresentation of Fact

The injured party must show a false statement of fact. Notice that this does not mean the statement was necessarily a "lie." If a homeowner says that the famous architect Stanford White designed her house, but Bozo Loco actually did the work, it is a false statement. Now, if the owner knows that Loco designed the house, she has committed the first element of fraud. If she has no idea who designed the house, her assertion that it was "Stanford White" also meets the first element. But the owner might have a good reason for the error. Perhaps a local history book identifies the house as a Stanford White. If she makes the statement with a reasonable belief that she is telling the truth, she has made an innocent misrepresentation (discussed in the next section) and not fraud.

When White's wife died, he filed a claim with Boston Mutual for $10,000 death benefits under her insurance policy. The insurer rejected the claim, saying that his wife had misrepresented her medical condition in the application form. The company sent White a check for $478.75, which it said represented "a full refund of all applicable premiums paid" for the coverage. White deposited the check. Had the parties reached an accord and satisfaction?

The insurer merely stated that its check was a refund of premiums. Nowhere did the company indicate that the check was full payment of its disputed obligation. The company should have made it clear that it would not pay any benefits and that this payment was all that it would offer. There was no accord and satisfaction.

A person suffers from a mental impairment if, by reason of mental illness or defect, he is unable to understand the nature and consequences of the transaction

The mental impairment can be due to some mental illness, such as schizophrenia, or to mental retardation, brain injury, senility, or any other cause that renders the person unable to understand the nature and consequences of the contract.

An aunt saw her eight-year-old nephew enter the room, remarked what a nice boy he was, and said, "I would like to take care of him now." She promptly wrote a note, promising to pay the boy $3,000 upon her death. Her estate refused to pay. Is it obligated to do so?

The nephew gave no consideration. He did not promise to do anything. He committed no act or forbearance. Without consideration, there is no enforceable contract. The estate wins.

To rescind for unilateral mistake, the mistaken party must demonstrate that he entered the contract because of a basic factual error and that:

The nonmistaken party knew or had reason to know of the error, or The mistake is mathematical or mechanical alone, or Enforcing the contract would be unconscionable.

dCommunication of Acceptance

The offeree must communicate his acceptance for it to be effective. The questions that typically arise concern the method, the manner, and the time of acceptance.

Option Contract (All types of contracts)

The offeror may not revoke an offer during the option period. Suppose you pay the car dealer $250 to hold open its offer until February 2. Later that day, the dealership notifies you that it is selling to someone else. Result? You can enforce your contract. The car dealer had no power to revoke because you purchased an option.

expressed condition

The parties may expressly state a condition. Alex's contract with Kevin expressly discharged all obligations if the city failed to rezone within the stated period. Notice that no special language is necessary to create the condition. Phrases such as "provided that" frequently indicate a condition, but neither those nor any other specific words are essential. As long as the contract's language indicates that the parties intended to create a condition, a court will enforce it.

Arielle, an artist, has 25 hand-painted room screens in her studio. She contracts to sell five of them to Retailer for $5,000 each. The contract allows Arielle to choose which five she will sell. Arielle moves five screens from her studio to a warehouse, but a week later, a fire destroys the building and its contents. Two insurance companies dispute whether title to the screens has passed to Retailer. The warehouse insurer claims the goods were identified and title passed; Retailer's insurer says the goods were not identified and title never passed. The contract says nothing about identification. Have the goods been identified?

The parties never described the goods. The goods are neither animals nor crops. However, when Arielle moved five of the screens to the warehouse, she "indicated which goods were going to the buyer." The goods were identified.

offeror

The person who makes an offer.

a court may use quasi-contract to compensate a plaintiff who can show that:

The plaintiff gave some benefit to the defendant, The plaintiff reasonably expected to be paid for the benefit and the defendant knew this, and The defendant would be unjustly enriched if he did not pay.

Honeywell, Inc., and Minolta Camera Co. had a contract providing that Honeywell would give Minolta various technical information on the design of a specialized camera lens. Minolta would have the right to use the information in its cameras, provided that Minolta also used certain Honeywell parts in its cameras. Honeywell delivered to Minolta numerous technical documents, computer software, and test equipment, and Honeywell engineers met with Minolta engineers at least 20 times to discuss the equipment. Several years later, Honeywell sued, claiming that Minolta had taken the design information but failed to use Honeywell parts in its cameras. Minolta moved to dismiss, claiming that the UCC required lawsuits concerning the sale of goods to be filed within four years of the breach and that this lawsuit was too late. Honeywell answered that the UCC did not apply, and that, therefore, Minnesota's six-year statute of limitations governed. Who is right?

The primary purpose of this agreement was not the sale of goods but rather the exchange of technical data, ideas, designs, and so forth. The common law governs the contract, and Honeywell's suit may go forward.

Exception: Misrepresentation of Age

The rules change somewhat if a minor lies about his age. Sixteen-year-old Dan is delighted to learn from his friend Bret that a minor can buy a fancy television, use it for a year or so, and then get his money back. Dan drops into SoundBlast and asks to buy a $4,000 surround-sound system. The store clerk says that the store no longer sells expensive systems to underage customers. Dan produces a fake driver's license indicating that he is 18, and the gullible clerk sells him the system. A year later, Dan drives up to SoundBlast and unloads the system, now in shambles. He asks for his $4,000 back. Is he still permitted to disaffirm? States have been troubled by this problem, and there is no clear rule. A few states will still permit Dan to disaffirm the contract entirely. The theory is that a minor must be saved from his own poor judgment, including his foolish lie. Many states, though, will prohibit Dan from disaffirming the contract. They take the reasonable position that the law was intended to protect childhood innocence, not calculated deceit.

FOB place of shipment.

The seller is obligated to put the goods into the possession of the carrier at the place named. The seller bears the expense and risk until they are in the carrier's possession. From that moment onward, the buyer bears the risk.

Remedy Limitations

The seller may also limit the buyer's remedy, which means that, even if there is a breach of warranty, the buyer still may have only a very limited chance to recover against the seller. Simon Aerials, Inc., manufactured boomlifts, the huge cranes used to construct multistoried buildings. Simon agreed to design and build eight unusually large machines for Logan Equipment Corp. Simon delivered the boomlifts late, and they functioned poorly. Logan requested dozens of repairs and modifications, which Simon attempted to accomplish over many months, but the equipment never worked well. Logan gave up and sued for $7.5 million, representing the profits it expected to make from renting the machines and the damage to its reputation. Logan clearly had suffered major losses, and it recovered—nothing. How could that be?

Particular purpose

The seller must know about some special use that the buyer plans for the goods. For example, if a lumber salesman knows that a builder is purchasing lumber to construct houses in a swamp, the UCC implies a warranty that the lumber will withstand water.

basis of bargin

The seller's conduct must have been part of the basis of the bargain. To prove an express warranty, a buyer must demonstrate that the two parties included the statements or acts in their bargain. Some courts have interpreted this to mean that the buyer must have relied on the seller's statements. There is logic to this position. For example, suppose a sales brochure makes certain assurances about the quality of goods, but the buyer never sees the brochure until she files suit. Should the seller be held to an express warranty? Some courts would rule that the seller is not liable for breach of warranty. Other courts, however, have ruled that a seller's statement can be part of the basis of the bargain even when the buyer has not clearly relied on it. These courts are declaring that a seller who chooses to make statements about his goods will be held to them unless the seller can convince a court that he should not be liable. This is a policy decision, taken by many courts, to give the buyer the benefit of the doubt since the seller is in the best position to control what he says. Coffee junkies love their joe. Was Starbucks brewing trouble?

definiteness

The terms of the offer must be definite, although under the UCC the parties may create a contract that has open terms

Commercial Union Insurance Co. (CU) insured Redux, Ltd. The contract made CU liable for fire damage but stated that the insurer would not pay for harm caused by criminal acts of any Redux employees. Fire destroyed Redux's property. CU claimed that the "criminal acts" clause was a condition precedent, but Redux asserted it was a condition subsequent. What difference does it make, and who is legally right? Does the insurance company's position raise any ethical issues? Who drafted the contract? How clear were its terms?

The type of condition determines who must prove the source of the fire. CU claimed that the clause was a condition precedent, meaning that Redux had the burden of proving the fire was not arson. Redux argued that the clause was a condition subsequent, meaning that CU became liable to pay benefits as soon as the fire started and could escape its duty only if the insurer proved Redux had committed arson. The court agreed with Redux, held that the clause was a condition subsequent, and placed the burden on CU to prove arson. Redux, Ltd. v. Commercial Union Ins. Co., 1995 U.S. Dist. LEXIS 2545 (D. Kan. 1995). The most obvious ethical issues arise around the language of the contract and the sale of the policy. The contract says that the insurer is not liable for harm caused by criminal acts of employees. However, the contract says nothing about who must prove whether the harm was caused by such crimes. Further, it is very unlikely that the insurance agent explained, when selling the policy, that in the event of fire the insured company would have to prove the harm was not caused by employee arson. Some would say, as this court did, that the company is attempting to sneak one by its policyholders, using ambiguous language to help sell the policy then sandbagging the insured once a loss occurs, claiming a contract interpretation that it had never before mentioned. Many would argue that the company that drafts a contract has an ethical obligation to make its terms clear. It is hard to believe that the insurance company would desire to be treated this way—for example, by reinsurers upon whom it depends.

Phil Philanthropist called PBS during a fund drive and pledged to donate $100,000. PBS then planned and began to produce a Fourth of July Sesame Street special, counting on the large donation to fund it. Later, Phil changed his mind and said he had decided not to donate the money after all. PBS sued because, without the money, it would not be able to complete the show. Will PBS win the lawsuit?

There is no "regular" consideration here because Phil received no measurable benefit and PBS did not act or forbear. But PBS can likely make a strong case that a great injustice will be done if the money is not paid. A judge might well decide to apply the doctrine of promissory estoppel and require Phil to make the donation.

Omega Concrete had a gravel pit and factory. Access was difficult, so Omega contracted with Union Pacific Railroad (UP) for the right to use a private road that crossed UP property and tracks. The contract stated that use of the road was solely for Omega employees and that Omega would be responsible for closing a gate that UP planned to build where the private road joined a public highway. In fact, UP never constructed the gate; Omega had no authority to construct the gate. Mathew Rogers, an Omega employee, was killed by a train while using the private road. Rogers's family sued Omega, claiming that Omega failed to keep the gate closed as the contract required. Is Omega liable?

There was no gate, and Omega had no right to build one. This is a case of true impossibility. Omega was not liable.

The parties may agree in their contract how and when they will identify the goods.

They are free to identify them to the contract in any way they want. Paintco and Brushworks might agree, for example, that within one week of signing the sales agreement, Paintco will mark appropriate gallons. If the gallons are stored 50 to a crate, then Paintco will have a worker stick a "Brushworks" label on 20 crates. Once the label is on, the goods are identified to the contract.

In the absence of specific state statutes, non-compete agreements are enforceable only if they meet all of the following standards:

They are reasonably necessary for the protection of the employer. Judges usually enforce these agreements to protect trade secrets and confidential information. They may protect customer lists that have been expensive to produce. They provide a reasonable time limit. A reasonable time for a software engineer might be less than one for a chef because technology changes at a rapid pace. They have a reasonable geographic limit. Barring an employee from working in tiny Rhode Island is very different from Texas. Courts look closely to make sure that the restrictions are no broader than necessary to meet the employer's objective. They are not harsh or oppressive to the employee. New York City has over 7,000 fast-food restaurants. Prohibiting a low-wage sandwich-maker with no company secrets from working at any of them is an unfair burden. They are not contrary to public policy. Employers who hide terms or sneak them into contracts after the employee has accepted the job may be acting unconscionably.

Shauna flew a World War II fighter aircraft as a member of an exhibition flight team. While the team was performing in a delta formation, another plane collided with Shauna's aircraft, causing her to crash-land and leaving her permanently disabled. Shauna sued the other pilot and the team. The defendants moved to dismiss based on an exculpatory clause that Shauna had signed. The clause was one paragraph long, and it stated that Shauna knew team flying was inherently dangerous and could result in injury or death. She agreed not to hold the team or any members liable in case of an accident. Shauna argued that the clause should not be enforced against her if she could prove the other pilot was negligent. Please rule.

This is a clear, short clause, between parties with equal bargaining power, and does not exclude an intentional tort or gross negligence. The activity is unimportant to the public welfare. The clause is valid. Even if the other pilot was negligent, Shauna will lose, meaning the court should dismiss her lawsuit.

written expressed warranties

This is the one type of warranty that is almost impossible to disclaim. If a seller includes an express warranty in the sales contract, any disclaimer is definitely invalid. Suppose HeliCorp sells an industrial helicopter for use in hauling building equipment. The sales contract describes the aircraft as "operable to 14,000 feet." Later, the warranty section of the contract specifically disclaims, "any other warranties or statements that appear in this document or in any other document." That disclaimer is invalid and does not cancel the assurance that the helicopter can operate to 14,000 feet. The Code will not permit a seller to take contradictory positions in a document. The goal is simply to be fair, and the UCC assumes that it is confusing and unjust for a seller to say one thing to help close a deal and the opposite to limit its losses

James Wagner agreed to build a house for Nancy Graham. Wagner was not licensed as a contractor, and Graham knew it. When the house was finished, Graham refused to pay the final $23,000, and Wagner sued. Who will prevail?

This statute was designed to protect the public. Wagner was unlicensed and cannot enforce the contract. Graham wins

condition subsequent

This type of condition must occur after a particular duty arises. If the condition does not occur, the duty is discharged. Vivian's policy with Friendly Insurance contains a condition subsequent. As soon as the fire broke out, Friendly became obligated to pay for the damage. But if Vivian failed to produce her proof of loss on time, Friendly's obligation ended—it was discharged. Note that, with a condition subsequent, it is the defendant who must prove that the condition occurred, relieving him of any obligation.

Will bought simple wood furniture and custom-painted it for sale to interior designers. He entered into a written agreement to buy all the furniture he needed, for two years, from Wood Knot, Inc. Wood Knot agreed to supply Will with all the furniture he requested. During the second year, Will's business grew, and he requested 28 percent more furniture than in the first year. Wood Knot would not deliver unless Will would pay a higher price per unit, which Will would not. Will sued. What kind of a contract was this? Will Will win? Why or why not?

This was a requirements contract because Will agreed to purchase all his furniture from Wood Knot. Under the UCC, requirements contracts are enforceable, provided the buyer makes his demands in good faith. Will's increased order was a result of his booming business. Indeed, he entered into this agreement to protect his ability to grow his company. He made the request in good faith, the contract is enforceable, and yes—Will will win.

disaffrim

To give notice of refusal to be bound by an agreement. A minor may go further—he can undo a contract that has already been completed by filing a suit to rescind the contract;

A force majeure clause is significant but not necessarily dispositive

To protect themselves from unexpected events, companies sometimes include a force majeure clause, allowing cancellation of the agreement in case of certain listed extraordinary and unexpected events. A typical clause might permit the seller of goods to delay or cancel delivery in the event of "acts of God, fire, labor disputes, accidents, or transportation difficulties." A court will always consider a force majeure clause, but it may not enforce it if one party is trying to escape from routine financial problems.

undue influence

To prove undue influence, the injured party must demonstrate: A relationship between the two parties either of trust or of domination and Improper persuasion by the stronger party

true impossibility

True impossibility means that something has happened making it literally impossible to do what the promisor said he would do. Francoise owns a vineyard that produces Beaujolais Nouveau wine. She agrees to ship 1,000 cases of her wine to Tyrone, a New York importer, as soon as this year's vintage is ready. Tyrone will pay $50 per case. But a fungus wipes out her entire vineyard. Francoise is discharged. It is theoretically impossible for Francoise to deliver wine from her vineyard, and she owes Tyrone nothing.

mathematical and mechanical errors

Two plus two is four; but what happens when it is accidentally forty? Whether the mistake is due to bad math or a typographical error, courts generally allow the nonmistaken party to undo the faulty agreement, if there is clear and convincing evidence that the term was a mistake. A town obtains five bids for construction of a new municipal swimming pool. Four are between $100,000 and $111,000. Fred's bid is for $82,000. His offer includes a figure of $2,000 for excavation work, while all the others have allotted about $20,000 for that work. It is obvious that Fred has inadvertently dropped a zero, resulting in a bid that is $18,000 too low. Town officials are quick to accept Fred's offer. When he sues to rescind, Fred wins. Town officials knew that the work could not be done that cheaply, and it would be unfair to hold Fred to a mathematical error

Fallsview Glatt Kosher Caterers, Inc. v. Rosenfeld

Under UCC §2-201, any contract for the sale of goods worth $500 or more can be enforced only if it is in writing and signed. Fallsview argued that the agreement was not for the sale of goods, but for services. The company claimed that because the contract was not governed by the UCC it should be enforced even with no writing. Plaintiff argues that "Defendant's proposition that a hotel reservation is a sale of goods would render all reservations made via telephone or the internet unenforceable and would leave hotels in a precarious economic position." That may or may not be true, but the argument does highlight the importance of ensuring that a Statute of Frauds structured and outfitted by the Legislature for a particular transactional context not be casually applied to a very different commercial segment and model. The structure and terms of section 2-201 tell us that it was not intended to cover the agreement alleged in this Complaint. Defendant's motion to dismiss is denied.

REQUIREMENTS AND OUTPUT CONTRACTS

Under sales law, requirement and output contracts are valid. Although one side controls the quantity, its agreement to make demands in good faith is consideration.

PREEXISTING DUTY

Under the doctrine of preexisting duty, a promise to do something that the party is already legally obligated to perform is generally not consideration.

Universal Consolidated Cos. contracted with China Metallurgical Import and Export Corp. (CMIEC) to provide CMIEC with new and used equipment for a cold rolling steel mill. Universal then contracted with Pittsburgh Industrial Furnace Co. (Pifcom) to engineer and build much of the equipment. The contract required Pifcom to deliver the finished equipment to a trucking company, which would then transport it to Universal. Pifcom delivered the goods to the trucking company as scheduled. But before all of the goods reached Universal, CMIEC notified Universal it was canceling the deal. Universal, in turn, notified Pifcom to stop work, but all goods had been delivered to the shipper and ultimately reached Universal. Pifcom claimed that it retained title to the goods, but Universal claimed that title had passed to it. Who is right?

Universal is right. UCC §2401 provides that when goods are being moved, title passes to the buyer when the seller completes whatever transportation it is obligated to do. Pifcom completed its work by delivering to the trucking company, at which time title passed. Pittsburgh Industrial Furnace Co. v. Universal Consolidated Companies, Inc., 789 F. Supp. 184, 1991 U.S. Dist. LEXIS 19936 (W.D. Pa. 1991

merchantable

Unless excluded or modified means that the seller does have a chance to escape this warranty. We later discuss what steps a seller may take if she wants to sell goods that are not merchantable. Merchantability requires that goods be fit for their normal purposes. To be merchantable, a ladder must be able to rest securely against a building and support someone who is climbing it. The ladder need not be serviceable as a boat ramp. Implied means that the law itself imposes this liability on the seller even if it is not written down. A merchant with respect to goods of that kind means that the seller is someone who routinely deals in these goods or holds himself out as having special knowledge about such goods. When selling vehicles, a car dealer is acting as a merchant, but an accountant who sells his used car by listing it online is not.

ENFORCEABILITY

Valid contracts are fully enforceable. An unenforceable agreement is one with a legal defect. A voidable contract occurs when one party has an option to cancel the agreement. A void agreement means that the law will ignore the deal regardless of what the parties want.

There are two basic elements of consideration:

Value. Consideration requires legal benefit to the promisor or legal detriment to the promisee. Legal benefit means receiving something of measurable value. That thing can be money, groceries, insurance, a promise not to sue, or anything else of value to the promisee. Bargained-For Exchange. According to Supreme Court Justice Oliver Wendell Holmes, Jr., the essence of consideration is that "the promise must induce the detriment and the detriment must induce the promise." Consideration involves reciprocity. The parties must have bargained for whatever was exchanged and struck a deal: "If you do this, I'll do that." If you just decide to deliver a cake to your neighbor's house without her knowing, that may be something of value, but since you two did not bargain for it, there is no contract and she does not owe you the price of the cake.

t a fraternity party, George mentions that he is going to learn to hang glide during spring break. Vicki, a casual friend, overhears him, and the next day she purchases a $100,000 life insurance policy on George's life. George has a happy week of hang gliding. But on the way home, he is bitten by a parrot and dies of a rare tropical illness. Vicki files a claim for $100,000. The insurance company refuses to pay.

Vicki will win nothing.

The event must have been truly unexpected.

Wayne Carpenter bought land from the state of Alaska, intending to farm it and agreeing to make monthly payments. The sales contract stated that Alaska did not guarantee the land for agriculture or any other purpose. Carpenter struggled to farm the land but failed; as soon as the ground thawed, the water table rose too high for crops. Carpenter abandoned the land and stopped making payments. Alaska sued and won. The high court rejected Carpenter's claim of impracticability since the "event"—bad soil—was not unexpected. Alaska had warned that the land might prove unworkable, and Carpenter had no claim for commercial impracticability.

Specht v. Netscape Communications Corporation

We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms. There is no reason to assume that viewers will scroll down to subsequent screens simply because screens are there. For the foregoing reasons, we affirm the district court's denial of defendants' motion to compel arbitration and to stay court proceedings.

Weiss v. Freeman,

Weiss stored personal goods in Freeman's self-storage facility. Freeman's contract included an exculpatory clause relieving it of any and all liability. Weiss's goods were damaged by mildew, and she sued. The court held the exculpatory clause valid. The court considered self-storage to be a significant business, but not as vital as medical care or housing. It pointed out that a storage facility would not know what each customer stored and therefore could not anticipate the harm that might occur. Freedom of contract should prevail, the clause was enforceable, and Weiss got no money.

Mako is selling his country house for $400,000. Guppy, an interested buyer, asks whether there is sufficient water from the property's well. Mako replies, "Are you kidding? Watch this." He turns on the tap, and the water flows bountifully. Mako then shows Guppy the well, which is full. Guppy buys the property, but two weeks later, the well runs dry. In fact, Mako knew the water supply was inadequate, and he had the well filled by a tanker truck while the property was being sold. A hydrologist tells Guppy it will cost $100,000 to dig a better well, with no guarantee of success. Guppy sues Mako. What remedy should Guppy seek? Who will win?

When Mako responded to Guppy's question by demonstrating the apparent abundance of water, he made a false statement. This was fraud (not innocent misrepresentation), because Mako knew the well was inadequate. That was a material fact. Guppy reasonably relied on the demonstration. Guppy will win. He can elect to rescind the contract (return the property to Mako and get his money back) or choose damages (the cost of digging a proper well). Given the uncertain nature of well digging, he would be wise to rescind.

An exculpatory clause is generally unenforceable when the parties have greatly unequal bargaining power

When Maureen flies to Colorado, suppose that the airline requires her to sign a form contract with an exculpatory clause. Because the airline almost certainly has much greater bargaining power, it can afford to offer a "take it or leave it" contract. The bargaining power is so unequal, though, that the clause is probably unenforceable. Does Pike's Pique have a similar advantage? Probably not. Ski and snowboarding schools are not essential and are much smaller enterprises. A dissatisfied customer might refuse to sign such an agreement and take her business elsewhere. A court probably will not see the parties as grossly unequal.

licensing statues

When a licensing requirement is designed to protect the public, any contract made by an unlicensed worker is unenforceable. Your friend Foster is unlicensed to practice law. Even though Foster did a fine job with your small claims case, he cannot enforce his contract for $120.

Exception: Additional Work

When a party agrees to do something above and beyond what he is obligated to do, his promise is generally valid consideration. If the seamen had agreed to work overtime or commit to a longer fishing season in exchange for the increased pay, the court would have upheld their second contract. The APA would have been obligated to pay because the seamen's extra work would have been valid consideration.

Termination by Expiration

When an offer specifies a time limit for acceptance, that period is binding. If the offer specifies no time limit, the offeree has a reasonable period in which to accept. A reasonable period varies, depending upon the type of offer, previous dealings between the parties, and any normal trade usage or customary practices in a particular industry.

unconscionability

When enforcing the contract would result in exploitation or unfairness, contracts are voidable. St. Mary's School conducts an annual fundraising raffle, whose grand prize is free school tuition for a year. Accidentally, a machine prints multiple raffle tickets with the same number. As a result, ten people hold winning tickets and claim the tuition award. Since enforcing these ten agreements would likely bankrupt the school, a court will look kindly upon St. Mary's (even though the ten winners might not).

non performance breach

When one party breaches a contract, the other party is discharged The discharged party has no obligation to perform and may sue for damages. Edwin promises that on July 1, he will deliver 20 tuxedos, tailored to fit male chimpanzees, to Bubba's circus for $300 per suit. After weeks of delay, Edwin concedes he hasn't a cummerbund to his name. Bubba is discharged and owes nothing. In addition, he may sue Edwin for damages.

. If the parties do not agree on passing title, §2-401 decides. There are three possibilities:

When the goods are being moved, title passes to the buyer when the seller completes whatever transportation it is obligated to do. Suppose the Seller is in Milwaukee and the Buyer is in Honolulu. The contract requires the Seller to deliver the goods to a ship in San Francisco. Title passes when the Seller completes its last contractually required step. In this example, that happens when the goods reach the ship in San Francisco. When the goods are not being moved and a contract calls for delivery of ownership documents, title passes when the seller delivers these documents to the buyer. Suppose Seller, located in Louisville, has manufactured 5,000 baseball bats, which are stored in a warehouse in San Diego. Under the terms of their contract, Buyer will take possession of the bats at the warehouse. When Seller gives Buyer ownership documents, title passes. When the goods are not being moved and the contract does not call for delivery of ownership documents, title passes when the parties form the contract. For example, if the Buyer owns the warehouse where the bats are stored, Buyer needs no documents to take possession; title passes when the parties reach agreement.

Implied Warranty of Fitness for a Particular Purpose

Where the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller's skill or judgment, there is (unless excluded or modified) an implied warranty that the goods shall be fit for the purpose

click wrap and browserwrap agreements

You want to purchase Attila brand software and download it to your computer. You type in your credit card number and other information, agreeing to pay $99. Attila also requires that you "read and agree to" all of the company's terms. You click "I agree," without having read one word of the terms. Three frustrating weeks later, tired of trying to operate defective Attilaware, you demand a refund and threaten to sue. The company replies that you are barred from suing because the terms you agreed to include an arbitration clause. To resolve any disputes, you must travel to Attila's hometown, halfway across the nation, use an arbitrator that the company chooses, pay one-half the arbitrator's fee, and also pay Attila's legal bills if you should lose. The agreement makes it financially impossible for you to get your money back. Is that contract enforceable? You have entered into a clickwrap agreement. These contracts require users to accept proposed terms by clicking an "I agree" button. But everyone knows no one reads them, so is clicking really acceptance? What if you did not read the contract and it contains unfavorable terms? Many courts have analyzed clickwrap agreements and concluded that they are indeed binding, even against consumers who choose not to read them. The courts have emphasized that sellers are entitled to offer a product on any terms they wish, and that clickwraps are the most efficient methods of including complicated terms in a small space.

Williams v. Walker-Thomas Furniture Co. (unconscionability)

a company that did not let ppl own the stuff they bought until the paid everything

bailee

a person who rightfully possesses goods belonging to another

anticipatory breach

anticipatory breach by making it unmistakably clear that it will not honor the contract. Sometimes a promisor will actually inform the promisee that it will not perform its duties. At other times, as here, the promisor takes some step that makes the breach evident. Sally is discharged and may immediately seek other work. She is also entitled to file suit for breach of contract. The court will treat Surebet's anticipatory breach just as though the store had actually refused to perform on September 1.

entrustment

any entrusting to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business (BIOC).

If There Is a Bailment

bailment, meaning that one person or company is legally holding goods for the benefit of another. If the contract requires a bailee to hold the goods for the buyer, the risk passes when the buyer obtains documents entitling her to possession, or when the bailee acknowledges her right to the goods. If fire broke out in Every-Ware's before KeepKool received any documents enabling it to take the air conditioners away, then the loss would fall on Freezem.

Consider the following scenarios: Madison says to a group of students, "I'll pay $35 to the first one of you who shows up at my house and mows my lawn." Lea posts a flyer around town that reads, "Reward: $500 for information about the person who keyed my truck last Saturday night in the Wag-a-Bag parking lot. Call Lea at 555-5309." Which of these proposes a unilateral contract?

both 1 and 2

rescind

cancel Thus, if neither party has completed its obligations, the agreement to rescind will terminate each party's rights and obligations under the old contract. This should be done in writing. Then the parties sign the new agreement. Courts will generally enforce a rescission and modification provided both parties voluntarily entered into it, in good faith.

Jim, about to start a pickup soccer game, asks Desiree if she will hold his wallet while he plays. Desiree, a law student, says, "Sure, if you'll sign this exculpatory clause holding me blameless for negligence." Jim is very surprised, but he signs the paper that Desiree holds out for him. A bailment ___________been created. If Desiree is careless and loses the wallet, she _____________ be liable to Jim.

has; will not

Alaska Packers' Ass'n v. Domenico

he seamen agreed in writing, for certain stated compensation, to render their services to the APA in remote waters where the season for conducting fishing operations is extremely short, and in which enterprise the APA had a large amount of money invested; and, after having entered upon the discharge of their contract, and at a time when it was impossible for APA to secure other men in their places, the seamen, without any valid cause, absolutely refused to continue the services they were under contract to perform unless the APA would consent to pay them more money. Consent to such a demand, under such circumstances, if given, was, in our opinion, without consideration, for the reason that it was based solely upon the seamen's agreement to render the exact services, and none other, that they were already under contract to render. The case shows that they willfully and arbitrarily broke that obligation.

no duty to investigate

if the seller states that the countryside is pure and the lake looks crystal clear, Lewis is not obligated to take water samples and have them tested by a laboratory. A party to a contract has no obligation to investigate the other party's factual statements.

7 characteristics for a contract

offer: all contracts begin when someone proposes an idea acceptance: once a party receives an offer, he must respond a certain way consideration: There has to be bargaining that leads to an exchange between the parties. Contracts cannot be a one-way street; both sides must receive some measurable benefit. Legality. The contract must be for a lawful purpose. Courts will not enforce agreements to sell cocaine, for example. Capacity. The parties must be adults of sound mind. Consent. Certain kinds of trickery and force can prevent the formation of a contract. Writing. While verbal agreements are often contracts, some types of contracts must be in writing to be enforceable.

Misuse by the buyer will generally preclude a warranty claim

ommon sense tells us that the seller only warrants its goods if they are properly used. Lord & Taylor warranted that its false eyelashes would function well and cause no harm. But when Ms. Caldwell applied them, they severely irritated one eye. She sued, but the store prevailed. Why? Caldwell applied the eyelashes improperly, getting the glue into one eye. On her other eye, she used the product correctly and suffered no harm. Her misuse proved painful to her eye—and fatal to her lawsuit

If a contract contains a condition precedent, the_________ -has the burden of proving that the condition actually happened. If a condition subsequent exists, the ___________has the burden of showing that the condition occurred.

plantiff, defendant

When one party breaches

seller breaches and buyer rejects; seller breaches, buyer accepts, but then revokes ; or buyer breaches.

Additional terms are those that bring up new issues

such as interest rates, not contained in the original offer. Additional terms in the acceptance are considered proposals to add to the contract. Assuming that both parties are merchants, the additional terms will generally become part of the contract. Thus, in Example A, the interest rate will become a part of the binding deal. If Wholesaler is late in paying, it must pay whatever interest rate is current.

Marcos's backyard pool, which measured 35 feet by 18 feet, needed a new filter. A sales brochure stated, "This filter will keep any normal backyard pool, up to 50 feet by 25, clean and healthy all summer for a minimum of 5 years." Marcos signed a sales contract, which included this disclaimer: "The filter will work to normal industry standards. This is the only warranty. No other statements, written or oral, apply. Pools vary widely, and the Seller cannot guarantee any specific level of performance or cleanliness. Buyer agrees to this disclaimer." The filter failed to keep Marcos's pool clean, and he sued for breach of warranty. Who should win?

t is difficult or impossible for sellers to disclaim written warranties, even if the promise and disclaimer are in different documents. A disclaimer that would unfairly surprise the buyer is void. Marcos relied on the sales brochure—as the company intended—and the seller will probably lose. Furthermore, most states give extra protection to consumers, knowing that they are less sophisticated buyers. A court is likely to find in favor of Marcos based on the seller's express warranty, as well as the implied warranties of merchantability and fitness.

In quasi-contract cases

the defendant received a benefit from the plaintiff and retaining that benefit would be unfair.

The same Code section imposes what it calls an infringement warranty. This warranty means that

unless otherwise agreed, a seller who is a merchant warrants that the goods are free of any rightful claim of copyright, patent, or trademark infringement Wesley sells to Komputer Corp. a device that automatically blasts purple smoke out of a computer screen anytime a student's paper is really dreadful. Unless Komputer Corp. agrees otherwise, Wesley is automatically giving the buyer a warranty that no one else invented the device or has any copyright, patent, or trademark in it.

When a non-compete agreement is ancillary to the sale of a business, it is enforceable if reasonable in time, geographic area, and scope of activity

y. In other words, a court will not enforce a non-compete agreement that lasts an unreasonably long time, covers an unfairly large area, or prohibits the seller of the business from doing a type of work that she never had done before

Exception: Unforeseen Circumstances

yes. When unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is generally valid consideration. Even though Hal is only promising to finish what he was already obligated to do, his promise is valid consideration because neither party knew of the subsoil mud. Hal was facing a situation quite different from what the parties anticipated. It is almost as though he were undertaking a new project. Hal has given consideration, and Hugo is bound by his promise to pay extra money.