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SUNY Buffalo Law School
Schlegel, John Henry

Subject: Contracts

Professor: John Schlegel

Semester: Spring 2013

A. Words and Their Meaning

1. Contracts Interpretation – Note that these cases did not have actual contracts but exchanges of communications, absent an actual contract the court may interpret meaning in a way that does not meet either parties’ expectations.

The Chicken case – Good Faith, Trade Usage, Reasonableness, Ambiguity, business relationship

· Facts – K called for “chicken” at 2 ½ – 3 pounds and 1 ½ – 2 pounds. ∆ shipped P stewing chicken or “fowl” not young chicken suitable for broiling and frying. P claims its order had to be for young chickens since older birds don’t come in that size. P claims that although all the cables were in German, they used English word for “chicken” so it would be understood chicken meant young chicken because the German word for chicken means both broilers and stewing chicken. But ∆ claims its secretary asked the middle man what kind of chickens he wanted and he said any kind and then in German he was asked whether the cable meant the German meaning of chicken and he said yes. P also claims there is a trade usage that “chicken” means young chickens. This was disputed. Ps witnesses closer to the actual chicken trading business (buyer for Swiss cooperative, worker at company that published market reports on poultry trade), whereas ∆s witnesses operated a chicken eviscerating plant and food inspection service. Also, D makes an argument based on the impossibility of obtaining broilers and fryers for 33 cents-they are 35-37-P should have known this. P said 33 is closer to 35 then to 30 (price of fowl) but P must have expected D to make a profit not incur a loss.

· Issue – What did the term “chicken” mean in the contract – stewing, frying, or neither?

· Holding: The seller was not liable for damages for sending stewing chickens when the buyers wanted frying chickens because the chickens sent fell both within what the court determine to be the realities of the market and the Dept. of Ag definitions of chicken

· Class – issue of good faith – seller was aware of ambiguity because of the price differences and Stovicek said “any kind”. P aware of ambiguity because it used both English and German when both parties knew and spoke German

o Good faith depends on – (1) pricing: P offered price below market value (2) P tripled their order after establishing contract with ∆.

o Evidence ∆ had bad faith: chose to use English work

o Evidence of P bad faith – tried to get good quality chicken at lower price.

· Terms in contracts are not always as explicit as parties may want them to be, when they are not the court will use whatever evidence it has which is not a lot if the case is decided on summary judgment, and will determine what the parties meant sometimes using what it call common sense, or from a businessman’s point of view – this is rarely objective and does not necessarily fall within the meaning intended by the parties.

· Why would someone take a loss? Because they’re new to the business so you want to network and get any business that you can

· Stovicek – he’s the odd party because he is Czech and working for the Czech government, but acting as middleman for Swiss company. He doesn’t care about what happens as long as he gets his cut, so this should put seller on notice that something is going on

· To determine good faith you must show there was bad faith.

· Both the buyer and seller should have known there were two types of chickens, whose obligation was it to make the type of chicken known?

o It’s not whether you can twist it one way or another, but why and how you do it and what facts you use to back it up.

Hurst v. WJ Lake – trade usage/industry standard, reasonable businessmen

· Facts – sustain ∆ motion for summary judge. Both P [Hurst] and ∆ [WJ Lake and Co.] members of horse meat selling trade. P claims that since it was a common trade usage, the P knew or should have known that minimum 50% protein content or less than 50% protein were used in the K for the sale of horse meat and knew that a protein content of not less than 49.5% was equal to and the same as a content of 50% protein. For the 140 tons that ranged from 49.53%-49.96% the ∆ buyer paid reduced price of $45 per ton pursuant to K that said buyers receive a discount of $5 per ton for horse meat scraps analyzed to be less than 50% of protein.

· Issue – did the buyer owe seller the higher price for these 49.5% scraps in light of the fact that the industry standard was to count this percentage as 50%?

· Holding – in interpreting terms the court can look to industry standard usage of a term and parties absent a contract which discloses their rejection of those definitions parties will be held to this interpretation, so the buyer does have to pay the higher price

· Importance – reasonable businessman AND trade usage.

· Like Outlet because there is no evidence here (because this was an appeal on motion for judgment on the pleadings). All of these cases are about language, so we must determine who interprets the language and what language is right.

· Members of a trade or business group who have employed in their Ks trade terms are entitled to prove the fact in their litigation and show the meaning of those terms to assist the court in the interpretation of their language.

Outlet Embroidery – reasonable businessmen, bad faith, reliance (see also Morin)

· Facts – motion to dismiss! Parties communicated about a sale through a series of cables. One of the letters stated the terms of the order and said that they were subject to tariff revision. The buyer sent a response letter accepting the terms, and then 3 days later the seller sent a cancellation of the order. P = buyer, ∆ = seller (Derwent Mills)

· Issue – did the ∆ have to pay for the unfulfilled expectations of the buyer? Did the ∆ have the right to cancel the order after it confirmed and the buyer accepted the terms? Is this a K?

· Holding – seller is responsible for paying the buyer for damages for the unfulfilled order, the seller had a responsibility to the buyer.

· Importance – arguing MTD is difficult because little evidence, just assertions in complaint. Need: allege custom in reasonable detail. Seller should’ve plead: at time K entered into Congress was debating new tariff, all ppl in this trade were insecure at this time.

o The court looked at the letters and arrangement as a reasonable “businessman” would in deciding its answer. They are here assuming based on their experience that a reasonable businessman would have acted a particular way – Once again absent an actual contract the court has chosen to interpret the meaning of terms based on subjective experience and assumption of facts based on a complaint and without complete evidence as to the intent of the parties or the circumstances surrounding this transaction

o Use reasonable businessman standard – letters should be read as business men would read them. (no reasonable person would interpret this letter as giving the seller the right to arbitrarily change the price)

o Difference between this case and the chicken case:

§ The chicken case was tried in court, but outlet was a MTD – means that someone thought the judge could get away with not letting a jury decide the case and deciding it himself

o Puts emphasis on facts.

· Two most important questions in contract law

o What happened?

o What evidence do I have?

§ How do I structure that evidence, so that the system works for me?

Embry – reasonableness, reasonable person (not reasonable person in the trade), parties’ intent

· Facts – case on appeal. Originally heard before a jury at trial stage. P an employee under ∆ under K that expired 12/15/1903. P claims that on 12/23 he called ∆ president and told him that his employment had lapsed and he had only a few days to find new employment elsewhere and that if respondent wanted to retain his services he had to have a K for another year. P claims ∆ then said “Go ahead, you’re all right. Get your men out, and don’t let that worry you.” ∆ claims that he told P he had no time to deal with the issue and that he wouldn’t take up the issue until the stockholders’ meeting was out of the way. He then said go back upstairs and get your men out on the road. P then discharged.

· Issue – could a reasonable person have understood this as a K?

· Holding – judge assumes the facts and determines that if a reasonable man would understand the promise to be an agreement for employment, it’s a valid contract. Both parties don’t have to intend to make a K to form one, if one party relies on the promise of another and a reasonable person could have expected his, then a K exists.

· Importance – previous cases dealt with interpreting the meaning of exchanged pieces of paper, but here the court is trying to decide if an oral agreement can also be deemed to be a K.

o To get out of ambiguity:

§ Look at actions

§ Look at reasonable man would believe

o Like Outlet because the judge makes a determination on the jury instructions, just like he makes a determination on the law (Outlet) because the cases both concern questions of law and not fact.

o Goes back to Cardozo and how does he determine what businessmen mean? Here the answer is not unambiguous, but it is the facts taken as a whole that resolve some of the ambiguity.

Vallarta v. Lee Optical – reasonableness, trade usage

· Facts – appeal and cross appeal for an order by trial court that awarded P damages for breach of K of employment. P appealing that trial court’s assessment of damages incorrect, ∆ appealing the judgment was against weight of evidence. P claims when meeting with representatives of ∆ he was offered position as district supervisor at salary of $15,000 per year plus 1% commission on sales at stores under Ps responsibility. Contract was to be from period of hire (April 1968) to end of 1968. He was fired in October 1968. Up until that point he had received a salary of $600 per month plus 1.5% commission on the sales of a Mt. Prospect Store. P admitted he signed a written application for employment which set compensation at $600 per month plus 1% commission. ∆ witness was one of the men who met with P and said a salary of $15,000 was never discussed and there was no definite term of employment.

· Issue – for what reason do we have to say the reasonable judge or man is the one who gets to determine meaning of the words? Determining the terms of a K, specifically the compensation the P was due.

· Holding – in favor of ∆.

· Importance – assumption of the facts: “the fact that his prior job paid $150 per week plus commissions didn’t render it illogical that P might accep ta similar position with greater opportunity for advancement at a salary of $600 per week plus commissions. P was obligated to

ave some mix of facts and background àassertion by Friendly in Chicken case. You can’t answer a question about what legal category we’re in without understanding facts and the background.

To make a corporation liable: some agent was liable. Start with facts and background thenàshall we let evidence in? Answer àambiguity

Fairfield Lease Corp v. Radio Shack – intent

· Facts – P is assignee of a K entered into by U-Vend Corp. Manager Mel Williams of a ∆ store in Connecticut requested U-Vent deliver a hot-drink machine and pop machine to the store and signed a receipt for them as store manager. Mel Williams made a check to the U Vend Corp which was ultimately for P. this was not a check from the ∆. P notified the ∆ store that payments should be made directly to the P. After this correspondence the P received money orders from Stamford Fidelity Bank and Trust Company signed “Radio Shack Corp”. Subsequent monthly payments were made to P by money orders signed by various employees at ∆ Stamford store including Williams. All correspondences to and from the Stamford store were by Mel Williams or other employees from the store. The lease from U Vend Corp was signed by Mell Williams for Radio Shack and personally guaranteed by him. Williams had no authority to make purchases of stock or any other items used in the store. And he didn’t have authority to write checks for ∆. And didn’t have ∆ checkbook in his possession. P was never in contact with any officer of ∆ in connection with the lease. ∆ never made any payments on the lease and it knew nothing about the lease until Mel Williams left his job. P appealing judgment in favor of ∆ during trial. Looks like weight of the evidence question.

o Weight of evidence similar to Aino

· Issue – could Mel Williams bind the ∆ in a lease for the vending machine?

· Holding – affirm lower court’s decision in favor of radio Shack

· Importance – different from Aino because there the corporation loses, but here the corporation wins. Question of what corporation knew (in Aino) depends on weak testimony. In Aino at lease someone had an idea Aino worker for corp. Certain amount of knowledge up higher in corp. that was either ignored or unavailable. But in Radio Shack no one knew anything and on the other side no one care

o Williams isn’t an agent. He uses his own checks (not company’s). Why doesn’t this bother P? Because they’re getting paid and the bill stub only includes an account # so they don’t know who specifically is paying for it.

Cady v. Mitchell

· Facts – trial took place, appellate court considering finding. Mom busy with the kids while husband and King were discussing the releases. The circumstances, including when, where, and how the releases were secured, and the inadequacy of the consideration collectively support the jury’s action in voiding the release insofar as the injureis to Mrs. Cady are concerned.

Boccarossa v. Watkins (what impacts reasonableness here and in Cady? B was in insurance, C was a common man)

· Facts – considering trial court’s directed verdict. So question of law, not fact because a ruling entered by a trial judge after determining that there was no legally sufficient evidentiary basis for a reasonable jury to reach a different conclusion. Bocc in car accident; he was rear ended at a stop light driven by ∆. P executed release of all claims in favor of Watkins and received a check for $100. Four months later he experienced pain in neck and left arm that he went to hospital. Diagnosed with disc defect and laminectomy was performed. P seeking (1) workmen’s compensation from Nationwide (his employer) and (2) negligence action against Watkins. ∆ pleaded execution of the release as a bar to any recovery of damages from her.

· Issue – validity of the release executed by P and could he have it set aside?

· Holding – no

· Importance – P worked for an insurance company, he knew what he was doing. Mutual mistake – must involve both parties, ∆ had no independent knowledge and she accepted Ps own diagnosis and opinion of his injuries. If there was a mistake, it was a unilateral one. A release is a type of K and that a unilateral mistake in formation of a K afford errant no relief.

o Ps job was insurance. Cady’s wife probably didn’t understand what insurance adjusters do. Bocca did because he was one. Class example of facts and background