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vi)
vii)
viii)
(3)
which does in fact induce action or forbearance
(4)
Injustice may be avoided only by enforcement
Any analysis must walk through all four of these elements!
Think of the promisee as having changed position. They relied on the promise
Might this doctrine have served as a basis to enforce in Kirksey?
2)
3)
4)
5)
(1)
iii)
iv)
v)
vi)
vii)
viii)
Subsection (1) provides how to form a contract when terms of an acceptance are at variance with terms of an offer. Unless the acceptance requires express assent to the additional terms, a K will be
created by this paragraph. Unless clauses dont have to have the word unless. It suffices if they say something to the effect of, we have the right to terminate in the event of X, and that
the acceptance is silent w/respect to this term. See last sentence of Flat-Tops acceptance in the Flat-Top winery hypo.
(2)
Turning from a paragraph (1) K, you look at paragraph (2) to determine the exact terms of the K. The additional terms are treated as proposals to the K, and if the parties are both merchants, the
proposals become parts of the contract unless
(a)
the offer expressly limits acceptance to the terms of the offer (rarely seen)
(b)
they materially alter it; or (this is usually the issue, and its a factual one)
(i)
If an additional term is a surprise or hardship (note 4, or Bayway), it materially alters
(ii)
Hardship - requires some doctrine of impossibility. Mere losses dont count. Realize the tax is a small portion of the total value of the entire transaction
(iii)
Surprise - would a reasonable merchant have assented to the new term?
(c)
notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (rarely seen)
(3)
Section 3 offers a way (sufficient conduct) to create a K when one is not created by paragraph (1). When additional terms to an acceptance require specific assent that are NOT assented to, but the parties act
like they have an agreement, not realizing that they really dont, K is formed under (3). In this event, terms are eliminated to the extent they are in conflict (the knock-out rule), and the UCC gapfillers (2-3xx) are incorporated by the court. Remember: if a K was formed by (1), dont even look at (3). The analysis stops there and you can move to (2) to flesh out the terms.
Stems from rational businessmen making rational decisions to not read the fine print. All they care about it buying and selling goods. On the same logic, I have never read the terms and conditions when
updating iTunes.
Formulated to solve 2 problems:
(1)
Welshing Buyers - theyve signed the contract but now they want out, and theyre claiming the mirror image rule.
(2)
Last Shot Rule - whose terms govern? What will the terms of our K be? Under the last shot rule, whoever last changed the terms prior to performance will control. UCC 2-207 changes this, provides a
better way to flesh out terms of offers and acceptances that disagree.
Dorton v. Collins & Aikman Corp.
(1)
(carpet distributor) sued (carpet manufacturer) for selling sub-standard carpet. moved to stay litigation pending arbitration, because s acknowledgment added an arbitration clause to the agreement.
Issue: if there is a K, what are the terms? Do they include an arbitration clause?
(2)
Paragraph (1) creates the K, because the acknowledgement/acceptance didnt expressly require offeror/buyers (Dorton) assent though the argument could be made that express consent was required
of the buyer.
(3)
Paragraph (2) in turn will flesh out the terms. (a) and (c) dont apply, but did the arbitration clause materially alter the terms of the offer? Remand to determine this factual question.
If a K is formed under (1), look to (2) to flesh out terms. If not formed under (1), look to (3) to form the K, and the 2nd sentence of (3) to flesh out terms.
C. Itoh & Co. v. Jordon Intl Co.
(1)
K formation under UCC 2-207(3)
(2)
Acceptance was made expressly conditional on buyers assent to addl terms, therefore (3) controlled.
(3)
Because conduct of parties recognized the existence of a K (buyer paid for goods that were shipped), terms were fleshed out by knocking out conflicting terms and replacing with UCC gap fillers
2-3xx.
Determining K terms under Article 2
(1)
Bayway Ref. Co. v. Oxygenated Marketing & Trading A.G. - Petroleum Products Tax Clause dispute: UCC 2-207(2)(b) - material alteration of original offer terms must constitute surprise or hardship.
(a)
Hardship - requires some doctrine of impossibility. Mere losses dont count. Realize the tax is a small portion of the total value of the entire transaction
(b)
Surprise - would a reasonable merchant have assented to the new term?
(2)
Northrop Corp. v. Litronic Industries - When an acceptance containing different ( cf. additional) terms is not made expressly conditional on assent to the additional terms, the K will consist of those terms on
which parties agree, supplemented by UCC gap fillers.
(a)
How to treat differing terms under UCC 2-207(2)?
(i)
Knock-out rule? - Objective neutrality, avoid litigation (equating differing with additional creates factual issues under 2-207(2)(b) that require judicial resources), eliminate element of
surprise
(ii)
Material alteration? - encourages lawyerly rigor, maintains offerors mastery of the offer
1)
2)
3)
4)
Specific Relief
a)
Equitable relief in the form of specific performance is proper when money damages are insufficient to put in the place he wouldve otherwise occupied had no breach occurred. When a -seller requires the unique
items contracted for and breaches, specific performance is proper. Campbell Soup Co. v. Wentz, (Soup carrot case) Morris v. Sparrow, (Keno the horse) PepsiCo Inc. v. Klein (replacement jet)
b)
Discrete (McKinnon v. Benedict) (Dont cut the trees on the Lake Mamie property) two step analysis:
(1)
Did act unlawfully?
(a)
Enforceable K?
(b)
Promise breached?
ii)
Which remedy is appropriate? Requires intimate knowledge of the facts
(1)
Legal?
(a)
Cover remedy available? UCC 2-712.
(2)
Equitable? UCC 2-716.
(a)
Unique goods, e.g. realty, Elvis Presleys blue suede shoes
(b)
Unobtainable except at considerable trouble, loss, or expense, and not estimable in advance. Laclede Gas Co. v. Amoco Oil Co
iii)
The test is discrete. In McKinnon, the court decided there was a breach, and then noted the lopsided-ness of the consideration before denying specific performance. This is not an inquiry into adequacy of
consideration for purposes of evaluating whether a K was in place or had been breached. There was a K in place, and it was breached.
Legal Remedies
a)
Buyers Cover: Laredo Hides v. H. & H. Meat Products When a seller breaches a contract for the sale of goods, a buyer may be entitled to damages calculated as the cost of procuring substitute goods that were due
under the K. UCC 2-712.
i)
Requirements of buyer:
(1)
Good faith
(2)
No unreasonable delay
ii)
Includes incidentals and consequentials (2-715), less expenses saved
iii)
Immaterial if hindsight shows that cover method was not the cheapest or most effective (Note 2)
b)
Lost Volume Sellers
i)
R.E. Davis Chemical Corp. v. Diasonics, Inc. - Buyer repudiated, argued damages should be calculated under 2-706, seller argued for 2-708 because seller was more aptly characterized as a lost volume seller: the
difference in market and K price was zero, but seller did lose out on the one extra sale or profit. Lost profits is an acceptable way to calculate damages only when the lost-volume seller care show that it had the
capacity to make the extra sale, and that the extra sale would have been profitable.
(1)
Exception: if the seller has 10 units available and a waitlist of 90 people, the lost-profits formulation is improper.
Limitations on Damages
a)
Mitigtion
i)
Rule: if you have a contract or employment and the employer breaches, you have an obligation to go out and seek other equivalent employment before you collect damages under the breached contract.
Possible factual issues: are the two jobs equivalent? Point out differences to show that they were different in kind. (Parker v. 20th Century-Fox Film Corp.)
b)
Foreseeability
i)
Damages must be foreseeable in some way to the . Liability is limited to the risks knew or shouldve known about. (Hadley v. Baxendale - Transporter couldnt have known that delay in transporting the crankshaft
was causing damages).
c)
Buyers Remedies
i)
2-712: Damges = Cover + Consequentials + Incidentals (2-715)
(1)
Incidentals: Expenses tied to the goods in question. 2-715(1)
(2)
Consequentials: Expenses flowing from sellers breach, must be reasonably foreseeable. 2-715(2).
(3)
Cover: acquisition of substitute goods. Requires good faith, reasonable timing.
(4)
See Delchi Carrier Spa v. Rotorex, Inc.. Legal damages require that the breaching party foresaw or reasonably shouldve foreseen the damages. Potential factual issue.
Liquidated Damages and Penalties
a)
Liquidated Damages: two elements of enforceability. Dave Gustafson & Co. v. State.
i)
Difficult to otherwise calculate?
ii)
Proportional to the reasonable amount of damages probably suffered? Generally, bigger contracts justify bigger LDs. Reasonable proportionality assessed either at K formation, or at time of breach
iii)
These are both in keeping w/compensatory aim of K-law. LDs are not to be punitive.
Conditions are different from promises. Failure to abide by a condition excuses the adverse party from performance. Failure to uphold a promise entitles the adverse party to damages.
a)
Express condition: If buyer is late making payment, seller is not obligated to sell any widgets.
i)
Draconian effect: failure to satisfy entails adverse partys excuse from performance. Luttinger v. Rosen.
ii)
Its a matter of contractual language. If the language is ambiguous, intent may be inferred from the context. Peacock Construction Co., where agreement involved a common transaction (contractor/subcontractor) and
intent could be inferred from such similarly situated parties (nonpayment from owner was not a condition of payment; payment was a promise).
iii)
Conditions may be waived: if a party routinely disregards the absence of conditional satisfaction, the condition may be waived. McKenna v. Vernon.
b)
Promise: Buyer agrees to remit payment by the first of the month.
i)
Breach entails damages only (put promisee in original position)
ii)
Preferred interpretation, where ambiguous. 227(1).
c)
Interpretation
i)
Condition vs. Duty = matter of law. Peacock Construction Co. v. Modern Air Conditioning.
ii)
Whether something is a condition or a promise is a matter of reading the contract. If the words seem to be Ill make you a painting that youll like, this is a promise. On the other hand, Ill make a painting, and
if you dont like it, you dont have to pay for it, creates a condition, namely the patrons satisfaction. Gibson v. Cranage.
d)
Constructive Conditions
i)
Implied after the contract is disputed
ii)
Involves fairness considerations: Whether performance of some term is a constructive condition of another partys promise depends on the timing of the promises, the context, and the nature of the agreement.
Jacob & Youngs v. Kent. Consider the purpose to be served, the desire to be gratified, the excuse of deviation from the letter, the cruelty of enforced adherence, etc.
iii)
Kingston v. Preston involved the apprentices failure to come up with security for a 250 per month payment to his master for the masters silk business. Though not expressly stated, the security was a constructive
condition of owners conveyance
iv)
B doesnt get the benefit of a constructive condition if A either substantially performed, or if As breach was not material. Walker & Co. v. Harrison
e)
Repudiation
i)
Substantial performance? No repudiation allowed.
ii)
Material breach? Restatement 241. Repudiation is allowed. Walker & Co. v. Harrison. Tomato splatter and spiderwebs on a rented neon sign that came with a maintenance agreement.
iii)
Laredo Hides lesson:
(1)
If one party breaches and its a minor breach, the other party still has to perform.
(2)
If one party breaches and its a major breach, the other party is excused from performance.
Miscellaneous Topics/Points
1)
Develop the habit of justifying your answers. Dont leave bare conclusions flapping in the wind.
2)
Fact Issues vs. Law Issues radically different
a)
Fact found out by considering evidence
i)
Did the run the red light? At what time did the robbery occur? What amount of compensatory damages will be assessed?
b)
Law found out in the law library
i)
Should the jury be instructed in this manner? Is this evidence admissible? Are these damages compensatory or punitive?
c)
Develop the habit of distinguishing/analogizing cases based on factual and legal issues
3)
When drafting a contract (or an exam answer), TRACK THE LANGUAGE OF THE APPLICABLE STATUTE. Be like the Jordon attorney in the Itoh case, not the Dorton attorney in the Dorton case. (language did/didnt make
acceptance expressly conditional on buyers assent, tracking UCC 2-207(1).
Exam Tips
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If an issue on an exam is consideration, you better not talk about offers, acceptance, or anything other than consideration.
Dont overspend valuable word space on fact recitation
Casto will want you to move quickly into analysis
o
Argue both sides, Casto doesnt care so much about whether you said yes or no, as he does about the quality of argument
Even if the answer seems relatively cut and dried (e.g. should punitives be imposed for breach of contractclearly no), a better answer might give reasons (policy, bad precedent, etc.) for punitive damages
Learn to break down a rule into elements, and analyze each element of a rule. Give rigorous attention to as many issues as you can find.
Dont alternate yes and no arguments, one section: yes they should, next section: no they shouldnt
Casto really values teaching the distinction between legal and factual issues
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Organize your thinking/writing in a systematic way. On an exam, if the issue is promissory estoppel, address whether all four elements of PE are present, even if you think the real question is whether or not the
promisor might reasonably have expected inducement
Always answer: does the UCC apply? Cite! (e.g. yes, blow-pops are goods UCC 2-105
Dont make up your own hypo on the final. Stick with Castos.
Where applicable, hijack (quote) the UCC, and cite. Use the applicable exact language of the statute when drafting documents
Dont gloss over issues that seem obvious (are punitives available to breach claims? Does the objective or the subjective school apply in determining whether or not assent has occurred?). Glossing over seemingly
obvious issues is an awesome way to lose points.
See tutoring powerpoint from week 5 for more Casto exam tips
A simple yes or no answer is laughably insufficent. But so is something like, Yes, a contract was formed because UCC 2-207(3) says the conduct of the parties recognized the existence of a contract. You must
apply the law to the facts of the case. ITC, argue why the specific conduct did/didnt recognize the existence of a K. Also to remember to deal with the forks in the law before you move to the forks in the facts.
Systematically work through statutes one point at a time.
If you conclude that legal test A will control, make your factual arguments, but dont end there. Youd be missing major points to not make factual arguments under legal test B.
SEE CLASS NOTES FROM 10/13-10/15. CASTO REVIEWED THE MIDTERM THOSE DAYS.
Exam Outline
1)
2)
3)
Legal Issue
a)
Arguments that X will give.
i)
If you can give three quality arguments this puts you in a good place.
b)
Arguments that Y will give.
i)
If you can give three quality arguments this puts you in a good place.
c)
Who prevails, and briefly why.
4)
Factual Issue
a)
Arguments that X will give.
i)
If you can give three quality arguments this puts you in a good place.
b)
Arguments that Y will give.
i)
If you can give three quality arguments this puts you in a good place.
c)
Who prevails, and briefly why.
UCC
o
o
2-306
o
(1): obligations of good faith are involved with supply contracts
Hijack anything you can straight from the words of the UCC. Use the statute as your guide in drafting applicable Ks. Dont wonder how Charles Dickens wouldve said it. If youre writing to a buyer that a
shipment is an accommodation, use 2-206 to draft the letter.
Legal Issues
I.
Cognitive Test vs. Volitional Test (Mental Incapacity)
A.
See hypo, week 9 (email from Kevin Smith
B.
Cognitive Test
1.
More certainty
2.
Stare decisis
3.
Based on traditional understanding of human behavior, reduces need for experts and protracted litigation
C.
Volitional
1.
fairness
2.
Modern understanding
3.
more consistent rulings
II.
Subjective Test vs. Objective Test (Assent Formation)
A.
Subjective
1.
Enforce K according to the intent of the parties, obligations spring from intent, not the written word (see Traynors opinion in Pacific Gas)
B.
Objective Test
1.
The unknowable state of a partys mind.
2.
K certainty
III.
The Parol Evidence Rule
A.
For 1.
later agreement discharges prior agreements
2.
Control jury sympathy and impose dispassionate assessment
B.
Against
1.
C.
Factual Dispute
1.
PE rule only applies to partially integrated agreements. Is the agreement fully integrated? (Appear complete? Contain merger and integration clause?)
IV.
Traynor vs. Trident (Extrinsic evidence allowed to establish ambiguity? Traynor. Extrinsic evidence only allowed after judge determines K is ambiguous? Trident wants to rule this way, but doesnt end up doing so bc
bound by Calif. Supreme Court. Hippies)
A.
Traynor (CA rule)
1.
Apparent unambiguity to a judge might be ambiguous in the parties minds.
2.
Dont presuppose linguistic judicial perfection. This could impart meaning unintended by either party.
B.
Trident (NY rule)
1.
Many aspects of law presuppose and even require constant referents.
2.
Under the hippie California rule, parties are incentivized to contend for interpretations that may not reflect their original understanding, when such a re-interpretation so suits them.
3.
Time passes, people forget. The writing is still the best evidence of what the parties intended at the time.
4.
Less litigation
5.
More certainty
6.
The California rule creates ambiguity where there mightve been none originally.
7.
The NY rule is the majority rule (weak argument).
V.
Differing (cf. additional) Terms under 2-207(2) : judicial knockout doctrine but dont refer to 2-207(3) versus Apply (2) anyway
A.
Judicial knock out doctrine - Majority rule, because
1.
Apply the neutrality of the UCC
a)
Contra: UCC generally favors buyers.
2.
Applying (2) creates a factual issue which requires more judicial resources (did the term materially alter the K?)
3.
Its the majority rule, and we like uniformity
4.
Eliminate the element of surprise that (2) might involve
5.
The statute doesnt say different. Only additional.
B.
Apply (2) anyway
1.
Offeror is master of the offer.
2.
Comment 3
a)
Contra: but comments arent binding
VI.
Remedial Arguments
A.
Legal
1.
Money damages are sufficient!
2.
Injunction would be difficult to enforce, impractical (Northern Delaware v. E.W. Bliss)
3.
When dealing w/output or requirements Ks, argue that comments 1 and 2 to 2-716 are not the law
4.
Cover remedy available? UCC 2-712
5.
Specific performance would be harsh, oppressive. McKinnon v. Benedict.
B.
Equitable
1.
The goods are unique!
2.
Money damages would be difficult to calculate
3.
Inability to cover
VII.
Legal Damages
A.
Legal Arguments Incomplete performance: how to measure damages?
1.
Difference in fair market value!
a)
The promisee just wants to turn around and sell it, and cost of completion (to the extent it outweighs FMV difference) puts promisee in a better position he wouldve occupied had the K been
completed.
b)
Cost of replacement is substantially more. Jacob & Youngs v. Kent.
c)
Difference in value would be nominal to nothing
2.
Cost of completion (Note: this is the general rule)
a)
Aesthetics
b)
Hope for increased market value in the future
c)
The law generally gives the landowner the right to do what she wants with her property, whether it increases the value or not! If I pay somebody to build me a worthless structure, I should get my
worthless structure!
d)
Promisee paid for the performance, not necessarily for the additional market value.
e)
Value rule might allow a windfall to the promisor!
VIII.
When sellers repudiate and the buyer has a resale contract, how are damages calculated? Buyers remedy: 2-713.
iv)
Compensatory?
(1)
Plain language of 1-305 (codification of compensatories). If we can leave the promisor better off and the promisee no worse off, all the better!
(2)
Fact utilitarianism (if buyer had a resale K, as in Tongish v. Thompson): whats fair under these specific circumstances?
(3)
Mkt minus K would give a windfall if the buyer had a resale K (e.g. Tongish)
v)
Market minus contract price? (2-713)
(1)
Plain language of 2-713
(2)
Dont reward breach; this makes for an inefficient, non-stable market.
(3)
By limiting damages to s losses, youre ignoring the risk allocation measured by the K price! We need to value the calculations of the parties.
(4)
Majority rule
(5)
2-713 is the mirror of 2-708
(6)
Rule utilitarianism: greatest good for the greatest number
(7)
Honor the risk calculations of the parties
(8)
Increase predictability of damages
NY parol evidence rule: Is the term ambiguous on its face? Yes? Extrinsic evidence can come in
to clarify.
The word because is ambiguous. Notice:
Grandpa is still in bed this morning because he is sick. Causation
I think grandpa is sick, because he is still in bed. Evidence