Contracts II outline – Professor Maggs Contract Interpretation

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Contracts II Outline – Professor Maggs

  1. Contract Interpretation

    1. Parole Evidence Rule – Prior Agreements

      1. Rules:

        1. An integration is the final written expression of an agreement. Rest. 2nd § 209(1).

          1. An integration is complete if it is intended to be the exclusive statement of the agreement. § 210(1). Otherwise it is incomplete. § 210(2).

        2. A complete integration discharges any terms of a prior agreement that are w/in its scope. § 213(2).

        3. A partial integration discharges any terms of a prior agreement that are inconsistent. §§ 213(1), 216(1).

        4. Williston’s 4-Corners Test (Majority): courts determine whether an integration is complete by looking only w/in the 4 corners of the document

          1. Contract must appear on its face to be incomplete in order to permit parol evidence of add’l terms

          2. if it looks complete- integrated; if doesn’t look complete- partially integrated

        5. Corbin’s All Circumstances Test (Minority): for issues of completeness, no relevant evidence, parol or otherwise, is excluded; no written document is sufficient standing alone

        6. A court may reform a written contract based on mutual mistake or fraud as to its content. § 155.

        7. Merger clauses (i.e. Henningsen, p. 446) – specifies this contract/document is an exclusive statement of all the terms as a complete integrated agreement

      2. Pattern of Argumentation

        1. Π’s claim: Δ made a promise and did not keep it

        2. Δ’s defense: the alleged promise was discharged under the parol evidence rule b/c it was not included in our subsequent written agreement.

        3. Π’s 1st reply: the promise was not discharged b/c it is outside the scope of the written agreement

          1. Gianni v. R. Russell- contract says Gianni can’t sell tobacco; new drugstore in building; Held- the alleged prior agreement (exclusive right to sell soda) was w/in the scope of the lease (b/c would naturally be included in document)- given the clause giving up right to sell tobacco (4 Corners Test used)

        4. Π’s 2nd reply: The promise was not discharged b/c the written agreement was only a partial integration, and the promise is not inconsistent (term not discharged b/c not inconsistent)

          1. Masterson v. Sine- Masterson sold ranch to sis, incl. in contract clause that he could repurchase w/in 10 yrs. for “same consideration”, he goes bankrupt, bankruptcy trustee wants to repurchase; Held-possible alleged prior agreement that the option was assignable only for family exists; remand to find parties intent

        5. Π’s 3rd reply: The written agreement should be reformed to include the promise b/c we both mistakenly thought the promise was included or b/c Δ fraudulently misled me to think it was included

          1. Bollinger v. Central Penn Quarry- Quarry deposits waste on Boll’s farm; Boll alleges prior agreement they will cover all waste w/topsoil , which they did initially; Held- contract includes prior term- Quarry wouldn’t have initially covered waste if they hadn’t agreed to do so from beginning (court reformed lease to include the promise)

    1. Parol Evidence Rule – Meaning of Terms (discharge of prior agreements)

      1. 2 Questions:

        1. Can parol evidence by admitted (to show the meaning of terms)?

        2. If extrinsic evidence is admitted, whose meaning controls?

      2. Rules:

        1. Traditional “Plain Meaning Rule” (Minority): if the contract has a plain/ clear meaning, then no extrinsic evidence can be introduced.

          1. Usage of Trade (“Custom”) Exception- some fields use terms w/special meaning that ppl in that trade understand; trade usage meaning can always be admitted

            • Hurst- Lake contracted w/Hurst to buy meat scraps w/Lake having right to discount if meant < 50% protein, Lake took discount; Hurst- we meant 49.5% + protein; Held- allowed custom exception- trade meaning of the term

        2. Modern Intent Rule (Majority): if there is an ambiguity, you may introduce extrinsic evidence; § 214(c); may ALWAYS introduce extrinsic evidence (doing away w/parol v. rule)

          1. Side-issues:

            • Arguments for: goal- figure out intent of parties; language is not precise and difficult to figure out; this ev. should always come in

            • Extrinsic evidence never excluded (unless irrelevant); problem- no certainty in contracts b/c can always bring in parole v. – implies words inadequate to bind meaning

          2. Pacific Gas- turbine dropped, damaged; Pacific- you have to pay for damage b/c you promised you would “indemnify” us; Thomas- “indemnify” meant only 3rd party prop. damage would be covered, not that owned by you; Held- plain meaning rule applies; damages covered under contract

          3. Trident- Trident took out loan, interest rates fell, Trident wanted to pay off loan & get lower rate elsewhere; clause- “shall not have right to prepay”; Trident argues this mean you could prepay but there would be a 10% penalty; Held- evidence can come in

        3. When evidence shows that 2 parties attached different meanings to a term, if one party knew or should have known the meaning attached by the other party, it will be interpreted against the party who should have known the meaning attached by the other. § 201(2).

        4. If neither party’s meaning of a term prevails under the previous rule, the term cannot be enforced; if no fault, then no contract. § 201(3).

      3. Pattern of Argumentation

        1. (Round 1)

          1. Π’s claim: Δ promised to do X, which means Y, and did not do it.

          2. Δ’s defense: X means Z, and I did Z.

            • Raffles v. Wichelhaus- Δs, Wichel, buying cotton from Πs “to arrive ex Peerless”; Π meant- any ship Peerless; Δ meant- Oct. ship; cotton came on Dec. Peerless, Δs didn’t pay; Held- parol evidence admitted; one party thought it meant one thing, other party thought it meant something else, neither should have known what other thought, so no binding contract

            • Oswald- Allen had 2 coin collections, “Swiss” (only Swiss coins) and “Rarity” (some Swiss); Π, Oswald, wanted to buy all of the Swiss coins; Δ thought just the “Swiss” collection; Held: parole v. shows parties construed different meanings of “all Swiss coins,” so no contract

            • Frigaliment- BNS sells Frig chix; Π, Frig, meant “broiler”; Δ meant “any chicken”; extrinsic evidence admitted, which conflicted; to win, Frig would have to show BNS knew/should have known what Frig meant or meant it as Frig did

        2. (Round 2)

          1. Π or Δ: The court should conclude the X has my meaning based on the following extrinsic evidence: [description of evidence; i.e. Frigaliment- testimony as to meaning of “chix”].

          2. Π or Δ: The court should not consider the other party’s proffered extrinsic evidence (other than usage of trade evidence) b/c X has a plain meaning.

            • i.e. in Raffles, seller asserted: plain under contract that as long as goods arrived on a ship called Peerless, doesn’t matter when sailed (ct. rejected)

        3. (Round 3)

          1. Π or Δ: My meaning of X should prevail b/c the other party knew or should have known what I thought X meant. Frigaliment- buyer said seller should have known b/c we used “chicken” in Engl. (tho rest in German) to convey meaning; ct. rejected

          2. Δ: If my meaning does not prevail, then the term has no meaning and cannot be enforced b/c I did not know and should not have known what Π thought X meant.

            • Raffles, Oswald, Frigaliment- this defense succeeded in all; held- no agreement on that aspect, cannot be enforced

    2. Filling Gaps w/Implied Terms

      1. Rules

        1. Contracts may include not only their express terms, but also terms implied in law or implied in fact.

        2. Implied in fact: implied based on the particular circumstances of the contract at issue

          1. Wood v. Lucy- “reasonable efforts” implied; Lucy gave Wood exclusive right to market her products, then she gave someone else the rights, he sued; Held- implied duty of good faith – that he would use reasonable efforts

        3. Implied in law- based on policy considerations, law says this term will be part of the contract; 2 Kinds:

          1. Mandatory (i.e. every contract includes duty of good faith)- cannot be waived/ altered, always present. § 205

            • Dalton- Dalton’s SAT varies b/c he is sick 1st time; ETS won’t release his score, relies on their handwriting expert; Π submits evidence, but ETS won’t look at it; Held- implied duty of good faith – ETS MUST evaluate materials he has submitted

          2. Default (i.e. general assignability of contract rights, such as was waived in Masterson)- implied in law, unless contract says otherwise – parties may change. § 317(2)(c).

      2. Patterns of Argumentation

        1. (Implied Promise)

          1. Π’s claim: Δ made an implied promise and did not keep it

          2. Δ’s claim: I did not make the implied promise

            • ct. must look at all circumstances of the case

        2. (Implied Condition)

          1. Δ made a promise and did not keep it

          2. Δ’s defense: my performance was excused by the non-occurrence of an implied condition

          3. Π’s response: the implied condition does not exist or, in the alternative, was satisfied

  1. Performance and Breach

    1. Express Conditions

      1. Rules

        1. The non-occurrence of an express condition excuses performance subject to the condition, regardless whether it has a material effect on the performance.

          1. defense- party being sued claims they didn’t have to perform b/c their performance was subject to a condition (which didn’t occur)

          2. Strict Compliance Rule- unless the condition is strictly met, the party whose performance is condition doesn’t have to perform

          3. Luttinger v. Rosen- Luttinger agrees to buy Rosen’s house if he gets an interest rate < 8.5%, he doesn’t (non-occurrence of express condition); Δs offer to reduce the house price so payments stay the same; Held- Π may reject the offer; new offer irrelevant b/c there must be strict compliance w/the orig. terms of bargain

        2. A party may condition performance on a subjective event/ standard (i.e. satisfaction w/the other party’s performance). But when practicable, courts will interpret a condition of satisfaction to mean satisfaction of a reasonable person. § 228.

          1. Gibson v. Cranage- Gibson, artist, offered to enlarge Cranage’s small portrait of his dead daughter subject to condition that Cranage would only pay if satisfied; Held- subjective standard okay if Cranage evaluated photo and acted in good faith

      2. Pattern of Argumentation

        1. Π’s claim: Δ made a promise and did not keep it

        2. Δ’s defense: My performance of the promise was excused by the non-occurrence of an express condition.

    2. Constructive Condition of Prior Performance

      1. Rules

        1. Prior performance by one party may be a constructive condition to the other party’s performance (when facts suggest one performance is “dependent” on another). § 237

        2. Substantial performance (performance w/o a material breach) will satisfy the constructive condition.

        3. Courts determine whether a material breach has occurred by considering a variety of circumstances. § 241. In general, courts are hesitant to find a material breach.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ made a promise and did not keep it.

        2. Δ’s Defense: My performance was excused b/c Π’s prior performance was a constructive condition to my performance, and Π did not perform as promised.

        3. Π’s 1st Reply: There was no constructive condition of prior performance; our performances were meant to be independent of each other.

          1. Kingston (Π) v. Preston- Kingston was to buy Preston’s business and provide security (i.e. mortgage thru bank); he did not provide security, Preston didn’t deliver business; Lord Mansfield, Held- evidence, sense, and meaning of the contract – there was logically a constructive condition here; promises not independent of each other

        4. Π’s 2nd Reply: Even though I did not perform exactly as promised, I substantially performed (no material breach) and therefore satisfied the constructive condition. (claim used in regard to what remedy should be; Δ must still pay, but allow damages)

          1. Jacobs & Youngs v. Kent- J & Y promise to build house w/Reading pipe (constructive condition?) in exchange for payment; Held- there was substantial performance, wrong pipe not material breach, so Kent must perform/pay (Court may subtract allowance for damages)

          2. Walker & Co. (Π) v. Harrison- Harrison, Δ, contracted w/W & Co. for them to install and maintain a sign; cobwebs, graffiti, tomato, Harrison defaulted; Held- poor maintenance not severe (no material breach), so Δ not excused from paying

          3. Plante (Π) v. Jacobs- Plante built Jacobs a house, they didn’t pay, asserted non-occurrence of constructive condition – building house to the contract (no downspouts, kitchen cabinets, wall in living rm. 1 ft. off); Held- Plante substantially performed, no change in value of house, Jacobs must pay

            • example of some courts’ reluctance to find a material breach, even when breach is somewhat substantial

    1. Restitution Despite a Material Breach

      1. Rules

        1. In some jurisdictions, a party to a contract may recover in restitution despite having committed a material breach. § 374(1).

        2. The measure of recovery is the benefit conferred in excess of any loss caused. § 374(1).

      2. Pattern of Argumentation

        1. Π’s claim: I conferred a benefit on Δ in attempting to perform a promise, and although I breached, Δ would be unjustly enriched if he did not pay for the benefit.

          1. Britton v. Turner- Britton agrees to work on Turner’s farm for 12 mos., but leaves after 9.5 and isn’t paid; Held- Britton can recover under a theory of restitution, should be compensated for benefit; Damages = contract price – (cost of completion + other loss)

            • ex. of court requiring restitution despite a Π’s breach

    2. Divisibility of Performances

      1. Rules

        1. When practicable, a court may divide a single contract into 2 or more separate contracts. § 240.

        2. Even if a Π materially breached the undivided contract, the Δ’s performances are not excused in any of the separate contracts which the Π has substantially performed.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ made a promise and did not keep it.

        2. Δ’s Defense: My performance was excused b/c Π’s prior performance was a constructive condition to my performance, and Π committed a material breach.

        3. Π’s Reply: Although I committed a material breach, I substantially performed one or more divisible parts of the contract. Δ’s performance is not excused for those parts.

          1. Kirkland v. Archbold- Builder, Kirkland, making repairs to Archbold’s house; he started, she stopped him and refused to pay b/c he used wrong siding; Held- not practical to divide one construction project (where separate payment installments)

    3. Impracticability and Frustration of Purpose

      1. Rules

        1. A party’s performance may be excused by the occurrence of an event that renders the performance impracticable, if both parties assumed that the event would not occur. § 261.

        2. A party’s performance may be excused by the occurrence of an event that frustrates the party’s principle purpose, if both parties assumed that the event would not occur. § 265.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ made a promise and did not keep it.

        2. Δ’s 1st Defense: My performance was excused b/c an event occurred that rendered my performance impracticable, and we both assumed that the event would not occur.

          1. examples: death, illness, destruction; non-occurrence of the constructive condition- that something wouldn’t happen to make performance impracticable

          2. Taylor v. Caldwell- Taylor to rent Caldwell’s property for concerts, hall burnt; Held- implied constructive condition that if something happens to render performance impracticable (that the parties hadn’t specified in contract b/c they didn’t consider it happening), you don’t have to perform

          3. Limitations:

            • promisor’s fault

            • promisor’s negligence (courts are divided)

            • contrary indications in contract

        3. Δ’s 2nd Defense: My performance was excused b/c an event occurred that frustrated my principle purpose, and we both assumed that the event would not occur.

          1. Krell v. Henry- Krell agreed to rent Henry his apt. to see procession of coronation of Edward VII; parade rescheduled, Henry didn’t pay; Held: Henry does not have to pay b/c his purpose had been frustrated

  1. Who May Enforce a Contract

    1. Intended 3rd Party Beneficiaries

      1. Rules

        1. An intended 3rd party beneficiary of a promise may enforce the promise. § 304.

        2. A person is an intended 3rd party beneficiary of a promise if the promise intended to give the person the benefit of the promise and a right to enforce would effectuate the parties’ intention. § 302.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ made a promise and didn’t keep it.

        2. Δ’s Defense: Π is not a person entitled to enforce.

        3. Π’s reply: I am an intended 3rd party beneficiary.

          1. Bain v. Gillispie- Gillispie, whose store sells sports memorabilia, sues Bain, the referee, for making a bad call; Held- Bain cannot recover b/c no close relation/ he was not an intended beneficiary (as promisee or 3rd party)

          2. Seaver v. Ransom- Mrs. Beman wants to leave her house to her niece, but no time to modify; husband agrees to convey the house to her niece, he doesn’t; niece sues; Held- the niece can enforce the promise as an intended 3rd party beneficiary

    2. Assignees

      1. Rules

        1. An assignee of contract rights may enforce those rights.

        2. A party may assign rights under a contract, unless (1) the assignment would increase the burden on the promisor; (2) the assignment is forbidden by statute; or (3) the assignment is precluded by contract. § 317(2).

        3. To assign a right under a contract, a party must manifest an intention to surrender the right permanently to another person.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ made a promise and did not keep it.

        2. Δ’s Defense: Π is not a person entitled to enforce.

        3. Π’s Reply: The promisee assigned his or her rights to me.

        4. Δ’s Argument: The assignment wasn’t valid. Or- there was a restriction.

          1. Shiro v. Drew- Drew gives loan to Fiberlast for manufacturing radome to go to Counter; Fiberlast promises any $ received from Counter would be remitted to Drew; Held- no assignment b/c $ is still going thru Fiberlast (who isn’t giving up right to receive payment), Drew isn’t able to force payment from Counter b/c there is no assignment

          2. Herzog v. Irace- Jones injured in motorcycle accident; Irace obtains settlement for him; Jones gets surgery done by Herzog, Π, agreeing to assign his right to the settlement proceeds; Jones tells Irace to pay him directly and that he’ll pay Herzog, he doesn’t; Held- this was a valid assignment to Herzog

  2. Scope of Article 2

    1. Rules

      1. Provisions of Art. 2 apply to “contracts for the sale of goods,” supplementing or replacing the common law rules that apply to other kinds of contracts. See, e.g. §§ 2-201(1), 2-314(1). See also § 2-102.

      2. The term “goods” includes:

        1. things movable at identification § 2-105(1)

          1. things- must have tangible, physical properties; ambiguity- electricity, natural gas

          2. does not include services (getting a haircut) or intangible properties (copyright); does not include real estate or things attached to real estate

          3. transformation is possible (repaving driveway- concrete movable before mixed/laid)

        2. unborn young of animals § 2-105(1)

          1. i.e. calf after it’s born

        3. growing crops § 2-105(1)

          1. i.e. corn still growing in the field

        4. minerals to be severed by the seller § 2-107(1)

          1. coal, gold

          2. only if severed by seller b/c if buyer severs, will need other property rights (easement, etc.)

        5. structures to be severed by the seller § 2-107(1)

          1. i.e. items attached to realty and capable of severance

        6. other things severable w/out material harm § 2-107(2)

          1. i.e. fixtures at time of purchase that can be torn out w/o harm (presumably to the realty)- i.e. fireplace

        7. timber to be cut § 2-107(2)

        8. future goods § 2-105(2)

          1. i.e. doesn’t fit into a category at the time, but will in the future meet def. of goods

      3. The term “goods” does not include anything not covered by the preceding definition (i.e. real estate or services), and 3 items are expressly excluded from the definition (non-goods: money in which the price is to be paid, securities, things in action, or legal claims) § 2-105(1).

      4. A “sale” of goods is a transaction in which title to the goods passes from the seller to the buyer for a price. § 2-106(1). This definition excludes transactions like leases, bailments, and gifts.

      5. The term “contract for sale” includes both a contract to sell in the future and a present sale, even though a present sale may not involve any promises. § 2-106(1).

      6. A hybrid contract is a contract for sale of both goods and non-goods.

        1. Predominant Purpose Test (Majority) – most courts will apply Art. 2 provisions to a hybrid contract when the predominant purpose of the contract is the sale of goods.

        2. Gravaman of the Complaint Test (Minority) - some courts will apply Art. 2 provisions to a hybrid contract if the complaint of the suit concerns the sale of goods (if complaint is about services, UCC will not apply, and common-law will apply).

          1. Anthony Pools v. Sheehan- Pools constructs a pool for Sheehan, who slips off the diving board and is injured; Pool- 2-314 doesn’t apply b/c sale of services, not goods; Held- Ct applies gravamen of complaint test b/c diving board = sale of good

      7. Most courts will apply Art. 2 provisions to a transaction that is not a contract for the sale of goods but is analogous.

        1. Hoffman v. Horton- Hoffman bids on property, gavel comes down, new bidder says he had bid more, price went up $17k, Hoffman still bout, but sued for difference; Held- UCC doesn’t apply b/c involves property, but okay for trial court to borrow UCC rule and hold ok to continue bidding when there was nothing in the common law

        2. Zapatha (Π) v. Dairy Mart- DM cancels its franchise agreement w/Zapatha, who refused to keep store open longer hrs.; Zapatha- clause allowing cancelation of franchise violates UCC’s good faith req, 1-203, and termination clauses can be unconscionable, 2-302.; Held- contract not w/in scope of UCC (tho it involved sale of goods, thrust was franchise fee), but applies UCC by analogy

        3. Some courts take an inclusive approach to Art. 2 based on policy considerations.

          1. Advent Systems v. Unisys- see below, top of p. 8; i.e. one reason ct. decided to apply Art. II is that software is sold like other goods

    1. Pattern of Argumentation

      1. Example 1: Availability of a Claim

        1. Π’s Claim: Δ breached the implied warranty of merchantability in § 2-314(1).

        2. Δ’s Defense: § 2-314(1) does not apply (and therefore no implied warranty of merchantability was made) b/c this is not a contract for the sale of goods.

      2. Example 2: Availability of a Defense

        1. Π’s Claim: Δ made a promise and did not keep it.

        2. Δ’s Defense: The promise is not enforceable b/c the requirements of the statute of frauds in § 2-201(1) were not satisfied.

        3. Π’s Reply: § 2-201(1) does not apply b/c this is not a contract for the sale of goods.

          1. Advent Systems v. Unisys- Unisys backed out of contract to buy software from Advent; Unysis defends- SOF, no signed writing; Advent- SOF doesn’t apply b/c software not a good; Held: software is a good b/c 1. once on floppy disk, it’s tangible; 2. good to have a uniform rule to apply to software

      3. Example 3: Availability of an Exception to a Defense

        1. Π’s Claim: Δ promised to keep an offer open and broke the promise.

        2. Δ’s Defense: The promise is not enforceable b/c Π gave no consideration in exchange.

        3. Π’s Reply: No consideration is needed b/c of the exception for firm offers in § 2-205.

        4. Δ’s Response: § 2-205 does not apply b/c this is not a contract for the sale of goods.

  1. Article 2 Basic Concepts

    1. Merchant Rules

      1. Rules

        1. Art. 2 applies to both merchants and non-merchants, but it contains some provisions applicable only to merchants.

          1. i.e. the SOF in § 2-201(1) applies to everyone, but the confirmation exception in § 2-201(2) applies only to contracts btw 2 merchants.

        2. A party can be a merchant by:

          1. dealing in goods of the kind involved in the transaction;

          2. having knowledge or skill as to the goods involved in the transaction, for the purpose of “goods” provisions like § 2-314 on the implied warranty of merchantability;

          3. having knowledge or skill as to the practices involved in the transaction, for the purpose of “practices” provisions like § 2-201(2) or § 2-205 on firm offers

            • Decatur Coop v. Urban- Urban offers to sell wheat to Decator Coop, who then contracts to sell it to a grain elevator; price of grain increases, and Urban denies making the contract, asserts SOF; Held- Urban is non-merchant, does not have knowledge in the business practice; exception to SOF non-applicable

          4. hiring an agent who has the knowledge or skill to qualify as a merchant. § 2-104 & cmt. 2.

        3. A person can be a merchant for the purpose of some UCC provisions or some transactions but not others.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ breached a promise to buy or sell goods.

        2. Δ’s Defense: My promise is not enforceable b/c the SOF is not satisfied. § 2-201(1)

        3. Π’s Reply: The SOF is satisfied b/c Δ failed to respond to my confirmation w/in 10 days. § 2-201(2)

        4. Δ’s Response: The confirmation exception does not apply b/c I am not a merchant. § 2-104(1)

          1. Decatur Coop (see above)

    1. Modification of Contract Terms

      1. Rules

        1. Common law- consideration req’d. Rest. § 72, Alaska Packers

        2. Art. 2- no consideration req’d. 2-209(2)

          1. But- request for modification must be made in good faith (must have a good reason, not just intent to extort more $)

          2. Contract may bar oral modification

        3. Waiver of Contract Rights

          1. Common law- waiver permitted.

            • Swartzreich- Swartzreich received a job offer, then got another offer for more $; his current employer offered him more $ and tore up the old contract; Held- free to waive your contractual rights

          2. Art. 2- same- may waive your contractual rights for the sale of goods. 2-209(4)

            • Wisconsin Knife v. Nat’l Metal Crafters- Nat’l agreed to make blanks for Wis. Knife; Nat’l’s delivery was late; Wis. Knife initially accepted late orders and then sued when they continued to be late; Held- Wis. Knife waived right to insist on timely deliver, and Nat’l relied on that waive

            • Majority- must have reliance for a waiver to be enforceable (problem- not in code)

            • Takeaway- UCC is different from common law in that it doesn’t require consideration for modifications

    2. Unconscionability

      1. Rules

        1. A court may refuse to enforce a contract or term of a contract that it finds unconscionable. § 2-302(1). Q: does enforcing the clause shock the conscious?

          1. Some arguments a party might assert to an objectionable term: may argue for strict construction, may argue lack of adequate notice (Klar), may argue it’s unenforceable b/c it violates public policy

        2. Courts monitor contracts for “oppression” (substantive unconscionability), perhaps produced by remedy meddling or excessive prices, and for “unfair surprise” (procedural unconscionability), perhaps resulting from hidden contract terms or contracts offering no meaningful choice. § 2-302 cmt. 1.

          1. Substantive unconscionability- oppression; i.e. limiting remedies (Bloomfield Motors) or modification of warranties

            • restriction of recovery for personal injury more commonly viewed as unconscionable than restricting recovery of economic loss

          2. Procedural unconscionability- unfair surprise; manner in which the contract is made is unconscionable; i.e. tiny terms one can’t read, terms one wouldn’t ordinarily expect, no meaningful choice over terms, such as an adhesion contract

        3. Courts rarely invalidate contract provisions as unconscionable, especially in contracts btw merchants. Note- don’t get carried away.

      2. A & M Produce case- A & M purchased a tomato sorting machine from FNC, machine defective, tomato crop lost; A & M claims breach of express and implied warranties; FNC- contracts disclaimer says no consequential damages; Held- procedurally uncons. b/c: 1. terms in small print on back of form contract; 2. unequal bargaining power; substantively uncons. b/c: 1. unreasonable disclaimer on mass-produced product; 2. FNC is expert, relied upon by A & M; 3. consequential damages foreseeable; 4. manufacturer should bear risk machine won’t work

        1. FNC’s response (common, decent arg.)- § 2-316 specifies method by which warranties can be excluded (writing must be conspicuous and mention merchantability), and we complied w/this, so it was not unconscionable

      3. Pattern of Argumentation

        1. Π’s Claim: Δ breached the implied warranty of merchantability. § 2-314(1).

        2. Δ’s Defense: The implied warranty of merchantability was disclaimed. § 2-316(2).

        3. Π’s reply: The attempted disclaimer is unconscionable and therefore not enforceable. § 2-302(1).

    3. Good Faith

      1. Rules

        1. Some UCC provisions expressly require good faith. I.e.- the buyer under a requirements contract must specify the quantity of goods required in good faith. § 2-306(1).

        2. All UCC contracts also contain an implied duty of good faith in their performance and enforcement, though not in their formation. § 1-203.

        3. The general definition of good faith requires only honesty in fact. § 1-201(19).

        4. The merchant definition of good faith requires honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. § 2-103(1)(b). The existence of commercial standards of fair dealing in the trade must be proved.

      2. Pattern of Argumentation

        1. Π’s Claim: Δ breached the implied duty of good faith when Δ did X. § 1-203.

        2. Δ’s Defense: There was no dishonesty and (if Δ is a merchant) Π has not shown that standards of fair dealing in the trade prohibit X.

          1. Zapatha v. Dairy Mart (see p. 7)- Zapatha had not proved existence of fair dealing

    4. UCC Statute of Frauds Special Rules

      1. Rules

        1. Contract must specify only the quantity of the goods (not essential terms). 2-201(1), cmt. 1

          1. Can’t rely on SOF if you received a written confirmation and didn’t object

          2. Merchant exception. 2-201(2) – a writing in confirmation of the contract satisfies the writing requirement of 2-201(1) if btw merchants and sent w/in a reasonable time unless written notice of objection to the contents is given w/in 10 days after receipt

            • Decatur Coop- p. 8

        2. Special manufacture- if manufacturer started work, can’t assert SOF as a defense

        3. Admissions- if you admit you made the promise, can’t assert SOF as a defense

          1. Unique Designs- Court rejected SOF argument ruling oral agreement was valid b/c it was undisputed the parties had made the agreement

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