Contracts Outline (No. 4)

CHAPTER 14 - THE PAROL EVIDENCE RULE; FURTHER PROBLEMS OF INTERPRETATION

I. Parol means Oral

A. oral is not the same as verbal

1. verbal only means in words

2. verbal K is can be either oral or written

II. Policy Reasons for the Parol Evidence Rule

A. To prevent fraud or faulty memory

B. Promotes the certainty of the written K

C. Allows people to rely on the written K

1. excludes prior agreements which have been superseded by the written K

D. Writing is probably the best evidence of what the parties agreed to

1. encourages parties to put their complete agreement in writing - promotes stability of commercial dealings

III. Major Criticisms

A. Parol evidence keeps out both truthful and false evidence

1. too complicated and too inconsistently applied

B. rule never succeed in forcing people to reduce their entire agreement into writing - commerce has survived anyway

C. does not really reflect the intention of the parties

IV. Parol Evidence Rule

A. If have integrated (final) agreement - then you cannot admit evidence of any contemporaneous (entered at the same time) oral terms and exclude all prior terms (oral or written)

1. final written term supersedes prior term

2. APPLIES TO . . .

a. contemporaneous oral evidence

(1) issue is that if they had agreed - why didn't they put it into writing

b. oral and written prior evidence

(1) issue is whether final agreement SUPERSEDES all prior oral and written agreements

c. contemporaneous written is not part of the parol evidence rule

(1) REST. seems to indicate that cont. written is admissible

(a) cont. written K's are regarded as part of the integrated or complete written K

(b) many times cont. writings supplement the written K by explaining or clarifying what is meant

3. GENERAL PROCESS OF PAROL EVIDENCE (both UCC and REST.)

a. First see if there is INTEGRATION (is it final) in the written agreement

(1) did the parties intend the agreement to be final with respect to the written terms

(a) if it is final then admit only consistent evidence

b. Or is the written agreement a COMPLETE & EXCLUSIVE INTEGRATION

(1) if parties intended the document to be complete and exclusive - then no evidence is admitted

4. REST. DECISION TREE

a. is the writing final (integrated)?

(1) yes - then ask if it complete and exclusive

(a) if it is final but not complete

i) only admit consistent evidence

a) if separate consideration - admit

b) if oral term might naturally be oral and be omitted in written K - admit

c) if the parol evidence does not CONTRADICT the written K - admit

(b) if it is complete and exclusive go to (b)

(2) no - admit evidence

b. if the agreement is complete and exclusive - don't admit evidence

(1) otherwise admit pursuant to consistent terms above

5. UCC decision tree differs only in . . .

a. change might naturally to would certainly in 4(a)(1)(a)(i)(b)

b. admit

(1) COURSE OF PERFORMANCE

(2) COURSE OF DEALING

(3) USAGE OF TRADE

6. WILLISTON V. CORBIN

a. WILLISTON

(1) says just look at document to see if complete and exclusive

(2) only look at the 4 corners of the document

b. CORBIN

(1) says must look at all relevant evidence

(a) must look at intention of the parties and the context of the K in order to determine the meaning of the words of the K

(2) WILLISTON says that CORBIN destroys the parol evidence rule by admitting everything

(a) hwr. WILLISTON is wrong cuz its the judge who decides what evidence is to be admitted to the jury

V. RESTATEMENTS

 209 INTERGRATED AGREEMENTS (p. 533)

1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.

a) if final but not exclusive . . .

i) allow additional consistent terms

ii) can not have additional inconsistent terms

2) Whether there is an integrated agreement is to be determined by the court (JUDGE) as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

a) judge determines whether or not parties agreed and then decides if evidence is allowed to be given to the jury.

3) Where the parties reduce an agreement to a writing which in view of its completeness and specifity reasonably appears to be a complete agreement, it is taken to be an intergrated agreement unless it is established by other evidence that the writing did not constitute a final expression.

 210 COMPLETELY AND PARTIALLY INTEGRATED AGREEMENTS (p. 534)

1) A COMPLETELY INTEGRATED AGREEMENT is an integrated agreement by the parties as a complete and exclusive statement of the terms of the agreement.

a) If complete and exclusive, do not allow parol evidence.

2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement.

3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

 213 EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS (PAROL EVIDENCE RULE) (p. 534)

1) A binded integrated agreement discharges prior agreements to the extent that it is inconsistent with them.

a) barrs inconsistent evidence

2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope (within the same K).

 215 CONTRADICTION OF INTEGRATED TERMS (p. 534)

Where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing.

 216 CONSISTENT ADDITIONAL TERMS (p. 535)

1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.

2) An agreement is not COMPLETELY INTEGRATED if the writing omits a consistent additional agreed term which is

a) agreed to for separated consideration, or

i) if separate consideration - allow evidence

b) such a term as in the circumstances MIGHT NATURALLY be omitted from the writing.

- 30% oral

VI. UCC (p. A-16)

 2-202 FINAL WRITTEN EXPRESSION: PAROL OR EXTRINSIC EVIDENCE

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

- integrated

- no inconsistent evidence

a) by course dealing or usage of trade ( 1-205) or by course of performance ( 2-208); and

b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement (a complete integration).

i) comment 3 (p. A-17)

If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact.

- 5% oral

VII. MITCHILL V. LATH (p. 527)

A. Facts:

1. D. orally agreed to remove icehouse which Pl. (Mrs. Mitchill) found objectionable

2. D. argued that if they really agreed to the removal of the icehouse - it would be in the written K.

B. New York's 3 part test when parol evidence allowed

1. oral K must be collateral (on the side)

2. it must not contradict the written K

3. not ordinarily expected to be in writing (90% oral)

VIII. New York v. Rest. v. UCC

A. New York = 90% oral

B. Rest. = 30% oral

1. allows more parol evidence than New York

a. parol evidence which might naturally be omitted in the written document -- admit

b. also admit if have separate consideration

C. UCC = 5% oral

1. allows the most parol evidence

a. UCC asks if the evidence would certainly have been in writing

(1) UCC does not say that this is a test

(a) merely in the comments, but courts have adopted it

IX. HUNT V. DOLINGER (p. 541)

A. Facts:

1. Pl. going to buy stock from D.

2. negotiations stopped - Pl. wanted option K to exercise on the condition that D. went bid shopping (oral condition)

3. hwr. Pl. insisted that D. sign the written K as unconditional

B. held that parol evidence should be admitted

1. UCC applies to stock

2. must determine if oral condition contradicts written K

a. K says that Pl. had right to buy which means unconditional

(1) by having this condition = contradiction

b. NARROW V. BROAD view of "what is consistent"

(1) NARROW

(a) to be inconsistent - oral evidence must directly contradict an express term

(b) going to let a lot of evidence in

(2) BROAD

(a) absence of reasonable harmony = a contradiction of terms

(b) not admit as much evidence

X. LUSK V. BURGESS (p. 546)

A. Facts:

1. buyer to buy land with house and gas station

2. seller fraudulent

B. held for buyer

1. here a contermporaneous oral term

a. written K is final

(1) have a merger/integration clause

(a) says that K is complete

(b) hwr. form K - maybe buyer didn't realize it -- unequal bargaining powers

2. FRAUD VITIATES ALL

a. fraud = exception to the parol evidence rule

b. difference between changing mind and fraud

(1) changing mind

(a) parties intended in the beginning to keep promise but changed their mind

(b) evidence does not come in

(c) breach of K

(2) fraud

(a) parties intended from the beginning not to fulfill their promise

- whole thing turns on party's intention - whether or not parties intended to fulfill their promise when they made it

(b) evidence does come in

- in LUSK -- SELLER never intended to carry out promise -- FRAUD

c. REST.  214(d) (p. 549)

Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish . . .

i) illegality - undermines integration

ii) fraud - undermines integration

iii) duress - undermines integration

iv) mistake

v) lack of consideration

vi) or other invalidating cause

XI. HICKS V. BUSH (p. 554)

A. Facts:

1. parties orally agreed that tranfer of stock subject to condition precedent of raising $672,500.

a. argument that this type of condition precedent is one which would normally appear in the written document.

B. parol evidence admitted

1. courts don't like the parol evidence rule

a. hwr don't want to give parol evidence up cuz still want to keep a check on the jury

2. 1 side performed - why would 1 side perform if didn't have agreement

3. CONDITION PRECEDENT

a. something which must occur before thing K is final (integrated)

b. 2nd exception to the parol evidence rule

c. court says can't have inconsistent parol evidence of condition precedent - only consistent

(1) inconsistent condition precedent indicates that . . .

(a) somebody changed their mind

- written K superseded previous behavior

d. REST. says can admit any condition precedent - both inconsistent and consistent

(1) condition precedent always undermines integration - no finality of K with a condition precedent

(2)  217 expressly provides for a condition precedent

XII. STEUART V. MCCHESNEY (p. 537)

A. Facts:

1. seller agreed to sell to buyer at mkt value equivalent to that set by the County assessor

2. hwr. FMV much greater than what County assessor said it was

a. buyer got offer of $35 K and $30 K

b. County said only $7820

B. for buyer

1. INTERPRETATION = 3rd exception to PAROL EVIDENCE

a. evidence to interpret writing

b. criticism is that it undermines the parol evidence rule

c. 2 views

(1) PLAIN MEANING OF K (majority)

(a) if the language appears to be clear and unambiguous on its documents face - evidence does not come in

- 2 types of ambiguities

i) patent

- words itself are doubtful

ii) latent

- language on its face are clear, but external facts make it unclear

- 2 or more meanings when applied to external facts

(2) look at SURROUNDING SITUATIONS to determine the meaning of the written document

(a) general v. specific culture

general culture

specific culture

- what going on in these specific circumstances

- always let evidence in

XIII. EXCEPTIONS to the PAROL EVIDENCE RULE (recap)

A. exceptions

1. fraud

2. condition precedent

3. interpretation

4. course of performance

a. UCC exception in REST comments

5. course of dealing

a. UCC exception in REST comments

6. usage of trade

a. UCC exception in REST comments

B. exceptions only in the REST. - not in the UCC

1. some of these exceptions undermine integration

2. UCC

a.  2-202

- "explained" may mean interpretation

b.  1-105

- UCC may be supplemented by the common law

c. exceptions in UCC  2-202 (a) [allowed by REST.]

(1) COURSE OF PERFORMANCE

(a) prior condition under this K

- evidence is admissible

(2) COURSE OF DEALING

(a) past K between 2 parties

- evidence is admissible

(3) USAGE OF TRADE

(a) industry std.

- always comes in

- 3 things [CP, CD, UT] testimony more reliable cause it happens all the time

- parties always K with that background in mind (ie usage of trade)

. have these things in mind unless otherwise provided for

XIV. P.G. & E V. THOMAS DRAYAGE (p. 566)

A. Facts:

1. D. to repair Pl.'s machinery

a. had indemnify clause which said would "indemnify Pl. against all loss . . . in any way connected

2. accident and Pl.'s property damaged

3. Pl. argued for plain meaning -- would be protected

4. D. wanted to admit parol evidence to show that this "indemnify clause" only applies to 3rd parties

B. evidence is admissible

1. word indemnify is ambiguous (footnote 9 p. 569)

2. go through analysis

a. is this K integrated - is it final with respect to some terms

(1) yes - written and has specific details

(2) thus only admit consistent parol evidence

(3) ask if this term is of the type which might naturally be omitted in writing (might naturally be oral)

b. is this a complete and exclusive K

(1) if it is - can't admit anything

3. exceptions to parol evidence applicable here

a. COURSE OF DEALING

(1) past course of dealing led parties to believe that only indemnify 3rd parties - admit evidence

(2) UCC exception also applicable in Restatement

(a) in REST. comments

b. USAGE OF TRADE

(1) if in industry when this language is used - means 3rd party indemnify -- admit

(2) UCC exception also in REST. comment

c. INTERPRETATION

(1) allowed to admit additional evidence to interpret what the parties meant

4. varying positions to plain meaning

a. MAJORITY

(1) follows plain meaning

b. minority and REST

(1) rejects plain meaning

c. CA court as in this case

(1) if court determines that the language of the K, in light of circumstances presented, is reasonably susceptible to either interpretation - admit

XV. REFORMATION (see REST. examples p. 570-1)

A. DEFINITION

1. ask court (judge) to rectify the written instrument to correctly reflect the intention of the real agreement between the parties

B. exception to the parol evidence rule

C. must have clear and convincing evidence

1. hard because usually have 2 conflicting/contradictory testimony

2. courts don't like the parol evidence rule

a. want to construe it narrowly

b. hwr. they retain it cuz they still want to retain power to screen evidence that is given to the jury

XVI. HAYDEN V. HOADLEY (p. 571)

A. Facts:

1. on 5/2 D. agreed to Pl. in K that he would perform certain repairs

2. written K omitted when the work had to be done

3. D. wanted to admit parol evidence that the parties agreed on 10/1

B. parol evidence is not admissible

1. have a term implied by the law = as binding as an expressed term

a. since written K silent as to the time - time = reasonable time

2. traditional rule

a. parol evidence cannot contradict either an express or an implied term

(1) since parol evidence contradicts implied term of reasonable time - not admissible

(a) arg. against

i) gap filler of "reasonable time" not necessary if parties agreed -- must allow parol evidence

ii) 10/1 is a reasonable time -- does not contradict

(2) traditional rule rebutted in KANSAS CITY BRIDGE (p. 573)

(a) says that the better rule is that parol evidence should be admitted to rebut presumption of reasonable time

(3) hwr. parol evidence of "10/1 as completion date" can come in under the interpretation exception

(a) use parol evidence to interpret what the party meant by a "reasonable time" for performance

- AMERICAN BRIDGE (p. 572) does not allow this though

XVII. MASTERSON V. SINE (p. 573)

A. Facts:

1. seller conveyed deed to buyer with an option to buy back at original sale price

2. seller and buyer had a personal family relationship

3. seller went into bankruptcy -- creditors want the option cuz valuable

a. oral term that the option was not assignable

(1) wanted ranch to stay in the family

b. hwr. implied term on options in CA that options were assignable

B. parol evidence is admissible

1. In CA - can admit parol evidence which rebuts/contradicts a presumption by the law

a. contradicts the traditional rule that can't admit parol evidence which contradicts an implied term

2. here have integration

3. might naturally have the agreement oral and left it out of the written K

a. option between close family members

b. here a real property K

(1) on a form deed

(a) didn't hammer out all the terms

(b) don't usually go and changed form K - might naturally have left the term oral

(2) no merger clause

CHAPTER 15 - THE ROLES OF TRADE USAGE, COURSE OF PERFORMANCE, AND COURSE OF DEALING IN DETERMINING THE CONTENT OF AN AGREEMENT

I. RESTATEMENTS

 221 USAGE SUPPLEMENTING AN AGREEMENT (p. 580)

An agreement is supplemental or qualified by a reasonable usage with respect to the agreements of the same type if each party knows or has reason to know of the usage and neither party knows or has reason to know that the other has an intention inconsistent with the usage.

- if other party put on notice that the other party does not know that the first party does not know (ie he is a novice in the profession) - can't use UT

 222 USAGE OF TRADE (p. 581)

1) A usage of trade is a usage having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to a particular agreement. It may include a system of rules regularly observed even though particular rules are changed from time to time.

2) Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are engaged or a usage of trade of which they know or have reason to know gives meaning to or supplements or qualifies their agreement.

- must be put on notice

- see ex. 2 (p. 581)

I. UCC

 1-205 COURSE OF DEALING AND USAGE OF TRADE (p. A-8)

1) A course of dealing (CD) is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

- how parties interpreted in part K's to determine meaning of present K

- since we have always done it in that way - that's the way we are doing it this time

2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing, the interpretation of the writing is for the court.

3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware, give particular meaning to and supplement or qualify terms of an agreement.

4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable, express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.

5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.

6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

 2-208 COURSE OF PERFORMANCE OR PRACTICAL CONSTRUCTION (p. A-21)

1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade ( 1-205).

3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show waiver or modification of any term inconsistent with such course of performance.

 1-201 GENERAL DEFINITIONS (p. A-4)

3) AGREEMENT

The parties in fact as found in their language or by implication from other circumstances including course of performance, course of dealing, or usage of trade.

11) CONTRACT

The total legal obligation which results from the parties' agreement as affected by this Act and any other applicable rules of law.

USAGE OF TRADE

- industry std.

COURSE OF PERFORMANCE

- under this K - 1st shipment done this way -- subsequent shipments are to be done this way

COURSE OF DEALING

- how parties interpreted the past K's - is how this K is to executed

- always done things this way

UCC HIERARCHY

EXPRESS TERMS (most specific)

COURSE OF PERFORMANCE

COURSE OF DEALING

USAGE OF TRADE (most general)

- most specific to most general

- oversimplistic hierarchy

. express terms could be modified/waived through conduct

. hypo

i) express term that delivery to be on 1st

ii) CP always on the 10th with no objections

iii) CD always on the 10th

iv) UT always on the 10th

- if follow UCC - delivery must be on the 1st

- maybe express term = 1st because of form K

II. BERWICK V. SALEM PRESS (p. 579)

A. Facts:

1. Pl. quoted that he would bind D.'s book for 5000 copies at .561 and 10,000 copies at .538

2. D.'s book was 2 volumes -- he thought that the price Pl. meant was per volume

3. Pl. said UT = price is per volume

B. UT allowable

1. D. new in business

a. if Pl. new that D. did not know of the industry std. = he cannot use UT

(1) Pl. must explain terms of the agreement is he knew that D. did not understand them

2. 2 arg for D.

a. UT not applied consistently

b. Pl. was put on notice that D. though the terms were such because he applied the terms inconsistently

(1) Pl. applied 5000 price for 10,000 volumes

(a) not 2 sets of 5000 - should just be 10,000

III. NANAKOLI V. SHELL (p. 585)

A. Facts:

1. express term = posted price

CP = old price/price protection

UT = old price/price protection

B. for old price/price protection even though had express term

1. price protection only given twice

a. does it qualify as CP

CHAPTER 16 - CONTRACT FORMATION IN A FORM-CONTRACT SETTING

I. MIRROR IMAGE RULE - OLD COMMON LAW

A. Definition

1. offer and acceptance must be exact mirror image of each other to have a K

B. Circumstances for the Rule - BATTLE OF THE FORMS

1. buyer sends order form (buyer's offer) to the seller

2. seller sends back his sales form (seller's acceptance)

3. since each form is designed to protect each party - the forms are rarely a mirror image of each other

4. hwr though there is no K under the mirror-image -- performance was usually rendered

a. issue then becomes whose K terms governed

(1) LAST-SHOT ANALYSIS

(a) terms of K were those set by the party which fired the last shot in the battle of the forms

(b) thus, under common law - if have performance - acceptance of K was under the terms of who fired the last shot

C. Either offeror always wins or offeree always wins

1. offeror's terms are what govern the K - then offeror wins

2. if offeree is allowed for the additional terms to govern the K - then offeree always wins

a. whoever sends the last form wins

D. UCC supposedly abolishes the MIRROR IMAGE RULE

I. UCC

A. 2 questions to determine

1. is there a K

2. if there is a K, what are its terms

B.  2-204 FORMATION IN GENERAL (p. A-17)

answers if there is K between the parties

1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a K.

2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

- changes MIRROR IMAGE RULE

- even though can't identify at which time K actually formed - still have K

3. Even though one or more terms are left open, a K for sale does not fail for indefiniteness if the parties have 1) intended to make a K and there is a 2) reasonably certain basis for giving an appropriate remedy.

- gap fillers if parties have intended to be bound

C.  2-207 ADDITIONAL TERMS IN ACCEPTANCE OR CONFIRMATION

(p. A-19) - answers what terms in the K once determine that there exists a K

1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made CONDITIONAL ON ASSENT TO THE ADDITIONAL OR DIFFERENT TERMS.

- does away with the MIRROR IMAGE RULE

2. The additional terms are to be construed as proposals for addition to the K.

- proposals (new terms) drop out if between 1 merchant and 1 nonmerchant

Between merchants such terms become part of the K unless:

a. the offer expressly limits acceptance to the terms of the offer;

- A - "acceptance of this offer is expressly ltd to the terms of this offer"

b. they materially alter it; or

- can only have small changes to be part of K

- big changes drop out

c. notification of objection to them has already been given or is given within a reasonable time after notice of them is received

(last-shot analysis still applies to merchants with small changes in their acceptances)

3. Conduct by both parties which recognizes the existence of a K is sufficient to establish a K for sale although the writings of the parties do not otherwise establish a K. In such case the terms of the particular K consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

- if writings fail to agree on major terms - can have K through conduct

- happens when A & B fail to agree but go ahead and perform K

- have K with which terms the parties agreed upon

- CP, CD, UT also used to supplement

- hwr. gap-fillers have their own power to come in anytime

II. APPLICATION of UCC  2-207

A. A sends offer (K) to B

B sends back different form to A

(K1)

B. B's form (K1) is either 1) an acceptance or 2) a counter-offer

1. ACCEPTANCE unless have clause that states "acceptance if expressly conditional on assent to the new terms"

a. this clause makes it a counter-offer

(1) hwr even though A had counter-offer - he still performed many times -- conflict arises

2. if B's counter-offer is in fact an acceptance -- must determine what terms govern

a. 2 possibilities for the new terms if have acceptance

(1) new terms are just proposals and drop out

(a) therefore A wins

(b) new terms drop out if have 1 merchant and 1 - nonmerchant

(2) new terms are part of the K

(a) happens between merchants

i) merchants considered sophisticated parties

(b) 3 exceptions - when new terms drop out between merchants

i) A expressly protects himself

- "acceptance of this offer is expressly ltd to the terms of this offer"

- K1 is not part of K

ii) can only add small new terms

- cannot have material additions

- big changes drop out

iii) A can protect himself by objecting to B's new terms

- therefore new terms drop out

C. thus, once B send K1

1. b is bound

2. then use UCC  2-207 to determine the terms

3. even though B sends K1

a. B is bound to K even if additional terms of K1 drop out

III. ROTO-LITH V. BARTLETT (p. 605)

A. court said that whenever there is an addition of a new term

1. UCC  2-207(1) - B give new additional term as expressly conditional for the acceptance by simply writing it into K1

a. court wrongly applied expressly

IV. DORTON V. COLLINS AND AIKMAN (p. 607)

A. Facts:

1. seller had arbitration clause

a. seller's form said "acceptance SUBJECT TO the arbitration clause"

B. arbitration

1. faster and cheaper than crt litigation

2. may be better to have an expert decide than lay jury

C. under common law

1. with mirror-image rule - no K

a. would have a counter-offer instead of an acceptance

b. hwr. part performance gives K

D. under UCC  2-207

1. (1)

a. ambiguous as to whether seller said acceptance is expressly made cond. to buyer's assent

(1) "subject to" is not concrete enough

(2) MUST MAKE IT REALLY CLEAR THAT THIS IS A COUNTER-OFFER

2. (2)

(a) offer by buyer does not expressly limit

(b) if arbitration = material part - drops out cuz between merchants

- arg. for material

. deprive buyer of jury trial

. buyer must go to New York to arbitrate

- arg. for non-material

. can appeal arb. and go to crt anyway

. only a remedy -- not material

3. (3)

a. if writings don't form a K go to 2-207(3)

b. here have a K by conduct

c. terms are what the written K agrees upon

d. use gap fillers by UCC for disputed terms

(1) under this - arbitration falls out since no UCC provision for it

(a) UCC has no arbitration gap fillers

E. if silence = assent makes it a last shot analysis

V. ITOH V. JORDAN (p. 614)

A. Facts:

1. seller again had arbitration clause

2. seller also had clause which stated that seller's acceptance is expressly conditional to buyer's assent

3. buyer neither expressly assented to or objected to additional arbitration term

B. under common law have acceptance through performance

1. seller's terms would be the one's who govern because he fired the last shot before performance was rendered

C. apply UCC  2-207

1. since seller made it expressly conditional on the assent to the additional terms - no K under (1)

2. hwr under (3) have a K through conduct

VI. HYPOS

A. - Buyer has sales order for 10 apples

- Seller gives back acceptance for 10 oranges

-  2-207

. therefore here terms too different to have "definite and seasonable expression of acceptance"

B. - Buyer has sales order for 10 apples

- Seller gives back acceptance for 11 apples

-  2-207

. quantity is a big difference

. not close enough to be a "definite and seasonable expression of acceptance"

VII. DIFFERENT V. ADDITIONAL TERMS - DAITOM V. PENNWALT (p. 618)

A. here seller makes the offer and buyer makes the acceptance - usually the other way around

1. buyer didn't expressly limit to seller's assent

a. buyer used (2)(a) terms "offer expressly limits to the terms of the offer" cuz buyer usually makes the offer (sales order)

(1) buyer should have used (1)'s terms

b. therefore have K

2. if (2) is used cuz different = additional

a. argue that buyer paid for the warranty -- material part of the K

b. also argue that notice of objection was given simply by putting in a different term

3. buyer wins because when term drops out - UCC provides for 4 yr. statute of limitation

B. 3 ways crts handle different terms

1. different terms = additional terms under (2)

2. different terms does not come in under (2) because (2) only applies to "additional" terms

a. different term drops out

3. conflicting terms are mutually exclusive

a. COMMENT 6

(1) even though statute says nothing about conflicting terms - comment 6 says that they drop out

(a) problem is that parties can have K with different terms under (1) but then the statute says nothing about the how to apply the different terms

- if have K under (1) don't use (3)

(2) conflicting term is presumed to be objection to the clause under (2)(c)

(a) since it is assumed that that there exists objection under (2)(c) - the terms drop out

CHAPTER 17 - INTERPRETATION AND UNCONSCIONABILITY IN A FOMR-K SETTING

I. SARDO V. FIDELITY AND DEPOSIT (p. 628)

A. Facts:

1. Pl. had a jewerly shop

2. went to insurance broker who insurance policy but covered securities instead of jewerly

3. insurance broker assumed that since he had applied for jewerly insurance - "moneys and securities" included jewerly

B. for insurance co.

1. can only have reformation of K of what the parties meant

I. REFORMATION

A. PURPOSE

1. to make the written K to conform to that upon which the minds of the parties have met

B. ELEMENTS of REFORMATION

1. meeting of the minds

a. written K does not conform to the intent of the parties

2. mutual mistake

3. clear and convincing evidence

4. no jury

C. action for reformation allows one to get around the parol evidence rule

II. RESTATEMENT

 211 STANDARDIZED AGREEMENTS (p. 641)

1) Except as stated in (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.

- standardized agreement is generally binding

- K of ADHESION

. where 1 party must stick to the terms of the agreement

3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

- like SARDO & JOHNSON

- not bound to terms beyond the range of reasonable expectations

- what is unreasonable

i) term is bizarre or oppressive

a) term eviscerates the non-standard terms explicity agreed to

b) term eliminates dominant purpose of the transaction

c) adhering party never had an opportunity to read the term

d) term is illegible

e) term is hidden from view - in fine print

III. FORM K's

A. when 1 party has such significant bargaining power that it dictates all the rules

B. BENEFITS of the FORM K

1. cuts down on transaction costs

a. parties don't have to sit down and bargain and go over every little detail

C. arg. against intervention with FORM K's

1. mkt will create and control FORM K's

a. ie. if tenants won't want to rent - this will change the FORM K's

D. arg. for intervention

1. since there is such gross imbalance in bargaining power - the legal system must intervene to protect the little guy

IV. JOHNSON V. UNITED INVESTORS (p. 630)

A. Facts:

1. insurance agent knew Pl. wanted double indemnity for husband if got into airplane crash

2. insurance policy had exclusion clause for this double indemnity which was not communicated to the Pl. even though agent knew what Pl. wanted

B. for Pl.

1. same as SARDO - Pl. got insurance but didn't read the policy

2. insurance agent had a duty to tell Pl. what was available and what wasn't

a. insurance co. bound to the knowledge and representations of its soliciting agent

3. PAROL EVIDENCE does not come in

a. reformation gets around parol evidence

b. also MISTAKE is an exception to the parol evidence rule

V. GERHARDT V. CONTINENTAL (p. 632)

A. Facts:

1. Pl. had COMPREHENSIVE PERSONAL LIABILITY insurance

a. said covered resident employees

2. employee injured - but insurance said that exclusion clause with WORKMAN'S COMPENSATION

B. for Pl.

1. SARDO & JOHNSON both asked to be covered for certain things

a. here did not specifically ask

2. insurance policies must fullfil the insureds REASONABLE EXPECTATION OF COVERAGE

3. exclusionary clauses must be CONSPICUOUS, PLAIN, and CLEAR.

a. can't be in fine print

VI. WEAVER V. AMERICAN OIL (p. 642)

A. Facts:

1. oil co. had "hold harmless clause" which indemnified oil co. from negl. by oil co. occurring on the property

2. gas station lessee was uneducated

B. no enforcement of the K

1. gross unequal bargaining power

a. lessee was uneducated and lessor took advantage of him by not explaining terms of the agreement

(1) party wanting to enforce must show that provisions were explained and lessee knew the terms of the K

2. arg. for lessor if lessee knew and understood the terms

a. crts shouldn't be paternalistic

(1) parties allocate the risk -- lower lease price

VII. UCC

 2-313 EXPRESS WARRANTIES BY AFFIRMATION, PROMISE, DESCRIPTION, SAMPLE (p. A-28)

1) EXPRESS WARRANTIES by the SELLER are created as follows:

a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an EXPRESS WARRANTY that the goods shall conform to the affirmation or promise.

- seller says to the buyer that its Brazilian mahogany -- has to be Brazilian Mahogony

b) Any description of the goods which is made part of the basis of the bargain creates an EXPRESS WARRANTY that the goods shall conform to the description.

- subset of (a)

c) Any sample or model which is made part of the basis of the bargain creates an EXPRESS WARRANTY that the whole of the goods shall conform to the sample or model.

2) It is not necessary to the creation of an EXPRESS WARRANTY that the seller use formal words such as warrant or guarantee or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

- not necessary to use word warranty

 2-314 IMPLIED WARRANTY: MERCHANTABILITY; USAGE OF TRADE (p. A-29)

1) Unless excluded or modified ( 2-316), a warranty that the goods shall be merchantable is implied in a K for their sale if the seller is a merchant with respect to goods of that kind. Under this section, the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

2) Goods to be merchantable must be at least such as

a) pass without objection in the trade under the K description; and

b) in the case of fungible goods are of fair average quality within the description; and

c) are fit for the ordinary purposes for which such goods are used; and

- if buy shoes - soles just can't fall off

d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and

e) are adequately contained, packaged, and labeled as the agreement may require; and

f) conform to the promises or affirmations of fact made on the container or label if any.

3) Unless excluded or modified ( 2-316), other implied warranties may arise from COURSE OF DEALING or USAGE OF TRADE.

 2-315 IMPLIED WARRANTY: FITNESS FOR PARTICULAR PURPOSE (p. A-30)

Where the seller at the time of contracting has reason to know

1) any particular purpose for which the goods are required; AND

2) THAT the buyer is relying on the seller's skill or judgement to select or furnish suitable goods

there is unless exlcuded or modified under the next section an IMPLIED WARRANTY that the goods shall be fit for such purpose.

- buyer asks for mountain climbing shoes - seller must furnish mtn. climbing shoes

- seller does not have to be a merchant

. comment 4 - seller usually a merchant

 2-316 EXCLUSION OR MODIFICATION OF WARRANTIES (p. A-30)

1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on Parol or Extrinsic Evidence ( 2-202), negation or limitation is inoperative to the extent that such construction is unreasonable.

2) Subject to (3), to exclude or modify the implied warranty of merchantability or any part of it, the language must mention MERCHANTABILITY and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness, the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof."

- to exclude implied warranty of MERCHANTABILITY

. must USE word "MERCHANTABILITY"

. does not have to be written - can be oral

. if in writing - must be conspicuous (BOLD PRINT)

. not sufficient to state "There are no warranties which extend beyond the description on the face thereof."

- to exclude implied warranty of FITNESS

. must be in WRITING and CONSPICUOUS

. sufficient if it states "There are no warranties which extend beyond the description on the face thereof."

3) Notwithstanding (2)

a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and

- "as is" gets rid of implied warranties except merchantability

b) when the buyer before entering into the K has examined the goods or the sample or model as fully as he desired or has refused to examine the goods, there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and

c) an implied warranty can also be excluded or modified by COURSE OF DEALING or COURSE OF PERFORMANCE or USAGE OF TRADE.

4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy ( 2-718 and  2-719).

VIII. HENNINGSEN V. BLOOMFIELD (p. 646)

A. Facts:

1. Pl. bought car from D.'s

2. K had express waiver of implied warranties in fine print

B. for buyer

1. gross inequality in bargaining power

a. HIGHLY CONCENTRATED INDUSTRY

(1) buyer has nowhere to go - every seller has the same fine print

(2) weaker party not in the position to shop around for better terms

(a) author of Form K has MONOPOLY; or

(b) all competitors use the same clause

IX. FORM K's - quick review

A. FORM K's are generally binding

B. Exceptions

1. REST.  211 (p. 641)

a. if 1 party knows other would not agree if the other party knew of the term - term is not part of the K

(1) Airplane Insurance case - JOHNSON V. UNITED INVESTORS LIFE INSURANCE (p. 630)

b. comment (f)

(1) parties not bound to terms which are BEYOND A REASONABLE EXPECTATION

2. Interpret ambiguities against the drafter

3. Unconscionability

a. if K is UNCONSCIONABLE - not enforceable

4. Against PUBLIC POLICY

a. K's against PUBLIC POLICY will not be enforced

5. GROSS INEQUALITY in BARGAINING POWERS

a. self-protect consumers

CHAPTER 18 - MISTAKE

- MISUNDERSTANDING

- MUTUAL MISTAKE

- UNILATERAL MISTAKE

- MISTAKE IN TRANSCRIPTION

I. MUTUAL MISTAKE

A. SHERWOOD V. WALKER (p. 654) - COW CASE

1. Facts:

a. buyer bought cow from seller for $80

b. seller thought that the cow was sterile

c. turns out that the cow was with calf -- worth $750

2. seller gets rescision of the K

a. mutual mistake - thing K for is not what the product really is -- no K

b. mistake of a material fact

(1) thing bargained for is different in substance

c. DISSENT

(1) seller only told buyer that the cow was probably fertile

(a) buyer took the risk

i) hwr. what kind of risk is this when if cow not fertile - buyer gets same thing but if cow fertile -- buyer gets windfall

B. hypo

1. seller has race horse - only run this fast

2. buyer buys the horse - thinks that he can make it run faster

3. buyer in fact - makes the horse run faster

a. NO RESCISSION of K

4. if can get the horse to run faster - take the risk

a. REST.  154 (c) - (p. 664)

C. GRIFFITH V. BRYMER (p. 660)

1. Facts:

a. Pl. paid 100 pounds for a hotel room for the purpose of viewing the King's procession

b. neither party was aware that 1 hr. earlier the coronation was cancelled

2. Pl. got his money back

a. missuposition of facts went to the root of the matter

b. price for room take into acct. the special event

c. arg. against = Pl. just rented the room AS IS

d. UCC by analogy - warranty of fitness

(1) where other side knows of 1 parties intention must provide what they want

D. WOOD V. BOYNTON (p. 660) - DIAMOND CASE

1. Facts:

a. Wood found small stone and took it to the jeweler

b. both jeweler and Wood did not know what it was

c. jeweler gave Wood $1

d. turned out to be a diamond worth

2. for jeweler

a. REST.  154 (b) - (p. 664)

b. both ignorant to what the product was

E. RESTATEMENTS (p. 664-665)

 152 WHEN A MISTAKE OF BOTH PARTIES MAKES A K VOIDABLE

Where a mistake of both parties at the time a K was made as to a BASIC ASSUMPTION on which the K was has a MATERIAL effect of the agreed exchange of performances, the K is VOIDABLE by the adversely affected party UNLESS he bears the risk of the mistake under  154.

- MATERIAL MUTUAL MISTAKE allows rescision unless 1 party bears the risk.

 154 WHEN A PARTY BEARS THE RISK OF A MISTAKE

A party bears the risk of a mistake when . . .

a) the risk is allocated to him by agreement of the parties; or

- take something AS IS

b) he is aware, at the time the K is made, that he has only LIMITED KNOWLEDGE with respect to the facts to which the mistake relates, but treats his limited knowledge as sufficient; or

- CONSCIOUS IGNORANCE

. party knows that that they don't know the answer but don't take the time to investigate

- WOOD V. BOYNTON (p. 660)

c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

- prediction by 1 party

- predict that can make the horse run faster

comment (a)

- seller does not know that his farm has oil underneath

- sale is not voidable

illustration 1 (p. 664)

- A gives B a QUIT-CLAIM DEED

- A's title is defective

- K not voidable -- QUIT-CLAIM DEED says that the buyer assumes the risk

F. LENAWEE COUNTY V. MESSERLY (p. 666)

1. Facts:

a. buyer bought apt. from seller with an AS IS clause

b. 5 days later - apt. condemned cuz of leeking sewage

c. buyer sue for mutual mistake - thing K is not what paid for

(1) not an income producing property

2. for seller - no rescision

a. have AS IS clause -- buyer assumes the risk

(1) REST.  154 (a)

b. like WOOD V. BOYNTON

(1) CONSCIOUS IGNORANCE - REST.  154(b)

(a) buyer could have gotten an expert to determine if their was any defects

c. all-or-nothing for one side

(1) since have 2 innocent parties - parties should divide out the damages

3. UCC by analogy

a. no express warranties --  2-313 does not apply

b. at most have an IMPLIED WARRANTY -  2-314

(1)  2-314(c)

(a) ordinary purpose - apt. not fit for ordinary purpose cuz no longer can be income property

(b) hwr. must be MERCHANTS for IMPLIED WARRANTY

- if seller = big real estate development co. -- probably merchant but not here

c.  2-315

(1) seller does not have to be a merchant under this section

(2) here seller must know that buyer relied on his expertise

(a) no implied warranty for a particular purpose here cuz NO EVIDENCE that the buyer was relying on the seller's expertise

d.  2-316

(1) words "same in its present cond" in clause 17 sufficient to exclude warranties under (2) - "There are no warranties which extend . . ."

(2) (3)(a)

(a) have AS IS clause -- no implied warranties

G. MISTAKE to MKT. VALUE

1. property sold at $25,000 - FMV = $10,000

2. NO RESCISSION

a. buyer could have gotten an appraiser

b. CONSCIOUS IGNORANCE

H. GARTNER (p. 671)

1. seller said land zoned for M-1

a. hwr. zone had condition where couldn't build

2. neither knew of the condition

3. held for mutual mistake and rescision granted

I. IMPLIED WARRANTY OF HABITABILITY

1. only applies to new homes

a. seller of new homes considered merchants

2. does not apply to subsequent owners

I. UNILATERAL MISTAKE

A. RESCISSION is allowed . . .

1. if other party knows or has reason to know of the MISTAKE when the K is made

a. ie. other party knows that the K is not the real bid

b. if know mistake - NO MEETING of the MINDS

OR

2. under 2 - all 3 elements must be met

a. enforcing K would be OPPRESSIVE or result in an UNCONSCIONABLY UNEQUAL exchange of values

(1) must be pretty SUBSTANTIAL

(2) does not have to be astronomical

b. RESCISSION must impose NO SUBSTANTIAL HARDSHIP on the other party

(1) either K is EXECUTORY

or

(2) put party in the STATUS QUO ANTY

(a) put party where there were before through RELIANCE damages

c. mistake must be CLERICAL or COMPUTATIONAL - not a mistake of JUDGEMENT or WISDOM

(1) CLERICAL/COMPUTATIONAL - easily verified

(2) mistake of JUDGEMENT/WISDOM - assume the risk

B. ELSINORE ELEMENTARY V. KASTORFF (p. 676)

1. Facts:

a. building contractor forgot that he didn't carry plumbing costs onto bid sheet

b. upon discovering the mistake - immediately asked for rescission

2. rescission granted

a. material mistake - prompt notice given

b. don't want to unjustly enrich the other side

c. counter-arg.

(1) rescission may allow HOOK and BAIT

(a) don't want people to start CHISELING their K's once they have an acceptance by lying about a mistake

II. NON-DISCLOSURE

A. OBDE V. SCHLEMEYER (p. 684)

1. seller knew of latent termite condition but didn't disclose to buyer

2. buyer granted rescission of the K - fraud

3. PATENT v. LATENT DEFECTS

a. PATENT DEFECTS

(1) defects which can be seen

b. LATENT DEFECTS

(1) defects which cannot be seen

(2) ordinary inspection would not disclose

4. crt here ruled

a. LATENT DANGEROUS defects must be disclosed

5. other crts have held that . . .

a. LATENT defects (does not have to be dangerous) must be disclosed

B. RESTATEMENT (p. 689)

 159 MISREPRESENTATION DEFINED

A misrepresentation is an assertion that is not in accord with existing facts

 161 WHEN NON-DISCLOSURE IS EQUIVALENT TO AN ASSERTION

A person's NON-DISCLOSURE of a fact known to him is EQUIVALENT to an ASSERTION that the fact does not exist in the following cases only . . .

(b) where he knows that DISCLOSURE of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the K AND if NON-DISCLOSURE of the fact amounts to a failure to act in GOOD FAITH and in accordance with REASONABLE STDS. of FAIR DEALING

NON-DISCLOSURE = MISREPRESENTATION where

1) it amounts to a failure to act in GOOD FAITH (honesty in fact)

2) according to REASONABLE STDS.

a. hwr. stds. are nebulous

- see examples (p. 689)

C. Policy

1. strong argument not to undue transactions

III. MISTAKES IN TRANSCIPTION; REFORMATION

A. TRAVELER'S INSURANCE V. BAILEY (p. 691)

1. party's original intent was that policy pay $500/yr

2. insurance co. made mistake on policy which said that it paid $500/mo

3. REFORMATION allowed

a. reform writing to conform to the parties' original intent

b. CLEAR and CONVINCING STD.

(1) higher std. than the normal "preponderance of evidence" std. used in most civil trials

(a) worried about PERJURY -- have to meet a higher std.

c. NO JURY

d. PAROL EVIDENCE does not come in

(1) mistake = exception to the parol evidence rule

(2) since asking for an EQUITABLE REMEMDY (reformation) - no jury to worry about -- no need for parol evidence

IV. hypo. (review of concepts)

A. Facts:

1. seller sells car with faulty transmission to buyer

2. buyer wants his money back

B. LEGAL DOCTRINES that may apply

1. MUTUAL MISTAKE

2. UNILATERAL MISTAKE

3. WARRANTY

4. NON-DISCLOSURE

5. INNOCENT MISREPRESENTATION

6. NEGLIGENT MISREPRESENTATION

C. MUTUAL MISTAKE

1. 3 elements of mutual mistake

a. mistake as to a BASIC ASSUMPTION

(1) car doesn't run

b. MATERIAL EFFECT

(1) new transmission will cost a lot of $

c. NO ASSUMPTION of RISK

(1) used cars are sold AS IS

2. MUTUAL MISTAKE does NOT apply

D. UNILATERAL MISTAKE

1. 2 prong test

a. 2nd prong does not work cuz not a clerical or computational error

2. if seller knows or knows that the buyer does not know - rescission

3. hwr. under unilateral mistake have an ASSUMPTION of RISK

a. take the car AS IS

4. UNILATERAL MISTAKE does NOT apply

E. WARRANTY

1. EXPRESS WARRANTY

a. seller did not say that the transmission was good -- no EXPRESS WARRANTY

2. IMPLIED WARRANTY of MERCHANTABILITY

a. does NOT apply - seller is not a merchant

3. IMPLIED WARRANTY for a PARTICULAR PURPOSE

a. seller does NOT have to be merchant

b. here seller knew that the buyer wanted the car to drive around

c. hwr. seller did not know that the buyer was relying on his expertise

d. does NOT apply

- NO WARRANTIES APPLY

F. NON-DISCLOSURE

1. K law - REST.  161 (p. 689)

a. non-disclosure of this basic assumption does not amount to a failure to act in good faith and a failure to act in accordance with reasonable stds. of fair dealing

(1) used car business take things AS IS

2. Tort Law

a. mere silence is not fraud between private parties

(1) hwr. if lie = fraud

(2) 1/2 truth = fraud

(a) ie. tell buyer that the engine is fine

(b) transmission could or could not be part of the engine -- 1/2 truth

(c) if say anything - must tell the whole truth

(3) if have some kind of relationship (fiduciary) - silence = fraud

CHAPTER 19 - THE EFFECT OF CHANGED CIRCUMSTANCES

I. TAYLOR V. CALDWELL (p. 696)

A. Pl. rented music hall from D. to have a concert

1. before 1st concert - music hall burned down through no fault of either party

B. RESCISSION of the K - everybody walks away

1. arg. that the landlord is liable

a. landlord is in a better position to CONTROL and INSURE the PREMISES

C. TACIT ASSUMPTION

1. nobody thinks that there is going to be a fire

a. but TACITLY ASSUME that the building is going to be there

(1) foundation of the agreement

b. CONTRADICTION

(1) how assume that building going to be there when nobody thought about the possibility of the fire

2. hwr. if parties would have though about the fire - would have rescinded the K

I. KEL KIM V. CENTRAL MKTS. (p. 704)

A. Facts:

1. Pl. leased vacant supermarket from D. for a roller rink

2. lease provided that Pl. must have $1 million liability insurance

3. Pl.'s insurance refused to renew and Pl. couldn't secure new insurance due to the crisis in the industry

4. K had FORCE MAJEURE CLAUSE

a. clauses excusing non-performance due to circumstances beyond the control of the parties

b. COMMON LAW has contrued these clauses NARROWLY

(1) must be SPECIFICALLY provided for

B. for D.'s - rescission allowed

1. defenses to compliance have been construedly NARROWLY at common law

a. purpose of K law = to allocate risks that might affect performance

b. performance should only be excused in EXTREME CIRCUMSTANCES

II. WEGEMATIC (p. 706)

A. computer co. signed K with government providing for a REVOLUTIONARY new system

B. technology hwr. not advanced enough to provide what promised

C. crt did not allow non-performance for impossibility

1. parties ASSUMED THE RISK

a. shouldn't have promised what they couldn't provide

III. TRANSATLANTIC V. US (p. 707)

A. Facts:

1. Trans. K with US to deliver wheat

2. implied route = via Suez Canal

a. war closed Suez Canal

3. Trans. want IMPRACTICABILITY of performance

B. held for US - no impracticability of performance

1. TRANSATLANTIC 3 PRONG TEST for IMPRACTICABILITY of PERFORMANCE

a. UNEXPECTED CONTIGENCY has occurred

(1) something unexpected happened

b. NO ALLOCATION of the RISK of this PARTICULAR PROBLEM

(1) don't promise what can't provide

(a) if promise to do something = allocation of the risks

c. PERFORMANCE must become COMMERCIALLY IMPRACTICAL

2. application of the 3 tests

a. UNEXPECTED CONTINGENCY has occurred

(1) Trans. could have foreseen that such an occurrence would have happened

(2) Trans. in a better position to foresee and insure cuz that was their business

b. ALLOCATION of the RISK

(1) Trans. assumed risk

(a) promised to deliver without specifying the route

(b) lots of uncertainties -- assume risk

(c) business of costs - Trans = sophisticated businessman - knows that certain things can happen

- ie. storms can delay ship -- shippers take into acct. these factors and come out with a price

c. COMMERCIAL IMPRACTICABILITY

(1) crt held that increase cost of $43,972 above K price of $306,000 (increase of 14%) not too much of an increase

(a) therefore no impracticability

IV. Doctrine of Impractiability

A. parties can't realistically map out every possibility

1. transaction costs would be too much

2. therefore have Impracticability - since don't allocate all potential risks/situations -- let off in extreme circumstances

B. In essence, the IMPRACTICABILITY DOCTRINE says that K's will be enforced unless it really hurts

V. SUPERIOR RISK BEARER

- the party that is the more efficient bearer of the risk in the particular circumstances of the transaction

A. Party is SUPERIOR RISK BEARER he is in a better position to . . .

1. prevent the risk from materializing

2. insure/protect against its occurrence through

a. allocating specific risk in the K

b. buying insurance

c. raising prices

VI. 3 PRONG TEST of IMPRACTICABILITY (recap)

A. UNEXPECTED CONTINGENCY

1. foreseeable v. unforeseeable consequences

B. NO ALLOCATION of the RISK

1. if the party who wants to be excused from the K has assumed the particular risk - can't get out

2. EXPRESS ASSUMPTION

a. PRICE ESCALATOR

b. COST PLUS

3. PRICE GUARANTEE

4. which party is the SUPERIOR RISK BEARER

C. PERFORMANCE has become COMMERCIALLY IMPRACTICAL

1. does not have to be impossible

VII. STEES V. LEONARD (p. 716)

A. builder provided the specs.

1. builder couldn't build cuz soil too porous

B. held for owner

1. builder contracted to build -- must take necessary steps to build

VIII. ARCHITECTS and BUILDERS/CONTRACTORS

A. Traditional Rule

1. if the building burns down 1/2 way through construction

a. contractor still has to build - contractor held to K

b. contractor is the SUPERIOR RISK BEARER

(1) contractor in a better position to

(a) prevent the fire; or

(b) buy insurance

2. if BUILDER provides the SPECIFICATIONS

a. BUILDER ASSUMES the RISK

(1) BUILDER is not let off the hook

3. if OWNER provides the SPECIFICATIONS

a. OWNER ASSUMES the RISK

(1) BUILDER gets off

B. ARCHITECT/BUILDER industry has OPTED OUT of the legal rule by K (p. 718)

1. builder does not assume any risk -- not liable

IX. MUTUAL MISTAKE can also be argued for EFFECT of CHANGED CIRCUMSTANCES

X. ALBRE MARBLE V. JOHN BOWEN (p. 720)

A. general contractor lost bid

1. therefore impossibility of performance