• If there is an indemnity provision, we can assume they included it in order to shift some or all of the risk.

• (No Surprise – this sort of term was common in the industry.)  

ELeCTRONIC CONTRACTING

Click-through Ks are up in the air. Some courts (Capsi v. Microsoft) have found these to be enforceable b/c they are presented at time of purchase. 

Benefits of Click Through Transactions:

• Can read the terms in advance w/o time constraints
• Seller can easily satisfy notice
• Buyer can comparison shop at no cost

 

Drawbacks:

• Buyers no more likely to read them
• Hard to read on screen
• Less significance attached to a click than a signature

shrink wrap contracts

Problem: Item is purchased online or over the phone and terms and conditions are not given to the buyer at that point. No ability to analyze terms and conditions until after contract is formed and product is opened.

Seller as Master of the Offer

HILL V. GATEWAY 2000, INC. (P. 255) P bought computer over the phone. It arrived with “shrink-wrap terms,” including an arbitration clause, said to govern if computer not returned within 30 days. P tries to return it after 30 days, can’t, tries to sue over product “shortcomings.” D sues to enforce arbitration clause. For D. Arbitration clause enforceable. That silly Posner…

• Contract formed after P receives the computer, sees the terms and doesn’t object.
• Cites ProCD, Inc. v. Zeidenberg (p. 256)

• Shrink-wrap terms bind consumers who have opportunity to read terms and reject by returning the product
• UCC §2-207 doesn’t apply when there’s only one form

• Primary goal of K law should be increasing efficiency to lower costs
• Pre-disclosure of terms is impractical and ineffective
• P had ample notice of T&C in advertisements and in the box
• Fed courts strongly in favor towards arbitration

Buyer as Master of the Offer

KLOCEK V. GATEWAY, INC. (P. 259) Same as Hill. For P. Arbitration clause not enforceable.

• Offer was made by P over the phone
• In ordinary transactions, purchaser usually makes the offer (Brown Machine)
• 2-207 does apply when there is only one form (Comment 1)
• Not between merchants, so
• New terms become proposals for addition (UCC §2-207(2))
• No evidence of express conditionality (Brown Machine)
• Keeping computer for 5 days is not express assent. Silence can’t constitute assent, or we’ve gone back to last shot rule.

AGREEMENTS TO AGREE

Leaving terms unset in order to achieve an agreement even when certain terms haven’t been dealt with.

One way to deal with uncertainty in long term contracts. 

Why Enter into an Agreement to Agree?

• You may not know which way market is going to move in future. Ks would rather keep relationship in tact, but want option to get out or stay in.
• You know and trust the other party to come up with a good solution
• If one party finds 3^rd party with a better price, you have to calculate price of going to K with another person

 

Why Not Have an Option K?

• Pricey
• The company receiving your investment doesn’t want to be bound. They want to seek better deals.

 

UCC § 2-204(3) Test for K Formation: You need some terms, but not everything

Even though one or more terms are left open a K is still formed if parties have intended to make K and there is reasonably certain basis for giving an appropriate remedy.

UCC §2-305(4), Open Price Term (Rules, p. 36)

Parties can conclude a sale without settled price if 1) nothing is said, 2) they agree to agree, or 3) they agree to fix price in terms of a set standard.

Uncertain Terms—Agreements to Agree NOT Binding

WALKER V. KEITH (P. 271) D leased lot to P and included an option to extend after it’s ten-year term. Rental price was to be agreed upon according to ambiguous formula. P sues to enforce option. Option not enforceable, agreement clause too vague.

• Agreement to agree clause is a LEGAL NOTHING
• Either party may refuse to agree to anything the other party proposes
• Rental term was not “reasonably certain” (Restatement §33) and was a material term of the lease (like 2-207(2) and Dale Horning)
• No clear remedy
• Policy: Don’t want courts reading terms into a K.
• Shouldn’t create a term parties wouldn’t have agreed to.
• Economically inefficient use of courts
• Any method for determining rent, if specified by the parties, would have been fine.
• Another way to read the facts (not in case): This could be an agreement to bargain in good faith.

 

• Reasons Renewal Options have been found binding (not in case):
• landlord usually has all the bargaining power
• Parties intended something: Law presumes parties didn’t intend to enter into a non-K
• Right of lessee to enforce K

Letters of Intent

QUAKE CONSTRUCTION, INC. V. AMERICAN AIRLINES, INC. (P. 278) P subcontractor was awarded K for construction project. P signed letter of intent with general contractor. Just before construction started, D(AA) dropped Quake. Ds notified P of his termination soon thereafter. Whether parties intended to be bound is ambiguous. Remanded for jury.

• Letter of intent is binding if parties intended it to be binding
• Factors to consider (R2 § 27, comments C):
• Agreement of a type usually put into writing
• Level of detail
• Amount of money
• Formal agreement necessary for full expression of covenants
• Formal document is contemplated
• When and why negotiations were abandoned
• Extent of assurances given
• Other party’s reliance
• Factors favoring enforceability
• Timing was tight
• P was told he had the K
• Language of the LOI
• PE could have been claimed here, but potential recovery is limited.
• Result: Letters of intent are now extremely detailed b/c they can easily be treated as source of contract. (25-30 pgs long)

Memorandum for Agreement

PENNZOIL V. TEXACO P entered into an “agreement in principle” with Getty to acquire them. Texaco offered more money and acquired Getty. Pennzoil sues for tortious interference with a K. There was a K. Parties later settled for $3billion.

STATUTE OF FRAUDS

Statutes require that certain types of Ks must be made in writing to be enforceable. Particularly, they must be signed by the party against whom enforcement is sought. 

Test:

1. Does SF apply (Restatement, UCC, State law)?
2. If yes, is there a signed writing?
3. If no, is it one of the exceptions to SF?
1. Reasonable reliance (Restatement §139, Rules p. 187)
2. Partial performance (Restatement §129, Rules p. 186)
1. Recovery is only limited to specific performance

Restatement §110, Classes of Contracts Covered (Rules, p. 186)

1. Executor/Adminstrator
2. Suretyship: Where guarantor assumes responsibility with respect to the creditor for fulfillment of the commitment of a debtor
3. Marriage
4. Land Contract
5. One-year provision: Ks which is not to be performed within one year of the making

UCC §2-201, Formal Requirements; Statute of Frauds (Rules, p. 20)

1. K for sale of goods over $500 must be in writing signed by party against whom enforcement has been sought.
2. Receipt constitutes writing?
3. Even if no signed writing, enforceable
1. If specially manufactured
2. Admits K was made OR
3. Payment has been made or received.

Several Writings Can be Read Together

CRABTREE V. ELIZABETH ARDEN SALES CORP. (P. 298) P seeks to enforce K, in particular terms on duration. Claims that several unsigned memos dictating duration (in addition to signed thing by comptroller) are enforceable and that they fulfill requirement under SF. K.

• Several writings can be read together if they pertain to the same subject matter or transaction regardless of whether they are signed or make reference to signed docs. (Restatement §132)
• Additional evidence must show assent to unsigned paper.
• No mutuality/reciprocity requirement: P could have gotten out of K b/c it did not sign it
• Liberal reading of what constitutes signature:
• Memo written and signed in crayon
• Pre-printed memos that included name of party (jury will decide whether writer decided to authenticate info stated)
• Email messages
• BUT automatic insertion of name at top of doc wasn’t statute of frauds

 

Exceptions to SF:

• Part Performance only gets you Performance

WINTERNITZ V. SUMMIT HILLS JOINT VENTURE (P. 305) P entered into oral K with D on lease renewal. No renewal ever took place, though P had already made some payments—partial performance. No K b/c K wasn’t in writing.

• Part performance (Restatement §129) can only be invoked when specific performance or equitable relief is sought (not damages)—Recovery is limited to enforcement of performance

• Reasonable Reliance: Promissory Estoppel exception to SF

ALASKA DEMOCRATIC PARTY V. RICE (P. 314) P leaves job in Maryland on oral promise of two-year job in Alaska. She moves and is denied employment. K is enforceable.

• Promissory Estoppel applies notwithstanding SF (Restatement §139: worth looking up)
• Move to Alaska was significant injustice
• Enforcement of such cases usually turns on the extent of the reliance
• Promise of written K is powerful
• § 139: When D can pay P for partial performance or reliance, this remedy is preferred.

UCC: Acceptance of Payment satisfies SF

BUFFALOE V. HART (P. 326) P contracts to buy barns from D, D withdraws. Signed item was a check, signed by P but not D.

• SF not satisfied b/c D did not sign check
• BUT payment was accepted by D, so SF satisfied (UCC §2-203(3)(c))

PRINCIPLES OF INTERPRETATION

 

• Subjective Theory: What did the parties mean?
• RAFFLES v. WICHELHAUS: Peerless boat case where seller meant one boat, buyer said he meant another. No K b/c there was no meeting of the minds—subjective intent of each party was different.
• Pros: indiv. autonomy and voluntary action.
• Cons: Hard to enforce, unfair
• Objective Theory: What would a reasonable person have meant?
• RAY v. EURICE, SKRBINA, PARK 100
• Pros: Fair and efficient
• Cons: May result in K parties never intended
• Modified Objective Theory:

Restatement §201-, Whose Meaning Prevails

1. Parties attach same meaning to term: term accorded that meaning
2. Where parties have different meanings:
1. If A doesn’t know any different meaning attached to B, and B knows meaning of A, A applies
2. If A doesn’t have reason to know of different meaning, but B has reason to know As meaning, As meaning applies
3. Neither party is bound by other in all other instances

      Standards and Rules for Determining Ks, R2 §§ 202-03

Rules in Aid of Interpretation (Casebook, p 358)

• words of a feather flock together—Noscitur a sociis
• Specific is given more weight (“including, but not limited to”)—Ejusdem generis
• if you decide to list specific items, then those not on the list are not intended – Expressio unius exclusio alterius
• Courts will try to validate Ks b/c its unlikely parties entered into legal nothing—Ut magis valeat quam pereat
• ambiguity against the drafter—Omnia praesumuntur contra proferentem (Joiner)
• Contract as a whole – contextual theory of meaning
• Purpose of the parties—courts look to this most. Intention should take precedent over everything
• Specific provision is exception to a general one
• Handwritten or typed provisions (dickered terms) control printed provisions (boilerplate) – more recent and reliable expression of their intentions
• Public interest preferred: coherence, reasonableness

Trade Usage as Interpretation:

• Common Law: It must be proven that party either knew of the trade practice or it is so well established, universal, or reasonable that the presumption is violent that the parties contracted with reference to it and made it part of the agreement
• Presumption may be overcome with sufficient evidence
• UCC § 1-205: parties are held to practices which they were or should have been aware
• In general, onus is on new entrants to be familiar with practices of trade

Modified Objective Approach

JOYNER V. ADAMS (P. 352): What does “development” mean? Remanded to determine what parties knew (or should have known?) about the meaning of “development” (R2 201(2))

• Rejects maxim that ambiguity should be resolved against the drafter b/c you can’t be sure drafting party was in control of contents, was more knowledgable, or had more bargaining power.

UCC Approach

FRIGALIMENT IMPORTING CO. V. B.N.S. (P. 360) What is Chicken? P ordered “chickens” from D. P specifically wanted broilers, but got stewing chickens. For D, no breach.

• P had burden of proof to show that their definition should prevail.
• Ds subjective meaning matched objective meaning (trade usage)
• UCC shifts burden in favor of established trader, b/c it’s not his job to investigate the expertise of every potential business partner and it favors consistency.
• Can contract out of trade usage, but not usually with boilerplate language.

 

• Hierarchy of Evidence (not in case):
1. Language of Contract—Express Terms.
2. Course of Performance. Conduct of the parties surrounding current K.  (UCC §2-208)
3. Course of Dealing. Conduct of the parties prior to current K. (UCC §1-205)
4. Trade Usage. Regular practice in the trade. (UCC §1-205)

ADHESION CONTRACTS

 

Elements:

1. Printed form
2. Drafted by one party
3. Drafter is repeat player
4. Take-it-or-Leave-it
5. Signed by adherent
6. Adherent not repeat player
7. Adherent’s principle obligation is payment

Doctrine of Reasonable Expectations

• Restatement § 211 Test: Buyers entering into Adhesion Ks are not bound to unknown terms which are beyond the range of reasonable expectations.
• Non-dickered terms must frustrate reasonable expectations of adhering party. They must be
• Bizzarre or oppressive,
• Eviscerates the dickered terms, OR
• Eliminates dominant purpose of K

• Prof. Mayhew’s Reasonable Expectations Test:
1. Adhesion K: so far only applies to insurance Ks
2. Ambiguity in language will be interpreted in light of the objective reasonable expectations of average insured
3. Reasonable expectations will be applied when insured didn’t get full and adequate notification
• And provision is unusual or unexpected
• Policy provision effectively emasculates the apparent coverage
4. There must be actions by insurer to create objective impression that some activity will be covered
5. There must be reasonable reliance on the K by the insured