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Contracts II
Temple University School of Law
Woodward, William J.

Spring 2010
Choice & Fault: Mistake
Embry v. Hargadine  (1907) pg. 4 – employment contract was ending; boss told him to keep working, worker relied but was fired in 3 months
–          an outward manifestation that would reasonably be interpreted to form a contract, FORMS a contract.  Post-contract activity is relevant to what the contract actually meant and if one existed
–          Court decides writings and unambiguous oral words, however, if words are in dispute the question goes to the jury
–          R-20; where both parties know there is an ambiguity, there is no contract
–          Overrules meeting of the minds
Raffles v. Wichelhaus (1864) pg. 20 – “Peerless” ship case
–          no binding contract because nothing on the face of the contract to show that any particular ship called the “Peerless” was meant by any of them = no consensus ad idem and no binding contract
–          201: neither party is bound by meaning attached by the other even though result is failure of contract
WPC Enterprises, Inc v. United States (1964) pg. 23 – both parties interpreted an ambiguous clause differently, and both felt the other consented to their interpretation due to poor communication
–          Drafter has affirmative duty to clarify ambiguities, or else they will lose = more of policy and fairness rather than a law (for if you are stuck in the middle)
Mistaken Bids
Mailbox Rule – putting it in the mailbox = acceptance, does not apply to offers, rejections, revocations
Revocation – offers are revocable, unless there is consideration for making them irrevocable
UCC-2205: Firm Offer: Only applies to merchant buying and selling goods with a signed writing where one of the terms is to make an offer irrevocable.  However, limited to 3 months.   Only in writing.
R-90: If offer induces other party to rely to their detriment, then it becomes irrevocable.  Reliance must be reasonable, they must have ACTED on it to tis detriment.
Janke Construction Co. v. Vulcan Materials Co. (1976) pg. 41 – Contract allowed interchangeable goods subject to approval.  Subcontractor made an offer that turned out to use inferior parts, relying on this clause.  Contractor had to cover the inferior goods (price).
–          Statute of Frauds can not be used to defend promissory estoppels, because it applies to contracts, not to promises (such as bids)
–          Contractor acted with reasonable care and prudence in relying upon the subcontractor’s offer, which included a proposal to furnish the correct materials, and contractor suffered substantial detriment by acting in reliance thereon
Remedies: expectation = what you would have received in full performance; reliance = degree to which the hurt party was hurt; restitution = giving back unnecessary benefit
UCC- 1-305: governs how to calculate the above kinds of damages: you want to make this match your intuitive damages.  UCC 2-7011 buyers remedies, UCC 2-703: seller’s remedies
Risks of Ambiguity & Misunderstanding
Marana v. AETNA (1985) pg. 54 – contractors for school were required to submit bids and 5% of the money, and they got that 5% back if bids weren’t accepted.  Contractor’s clerical error of substantial proportion, he wanted basically immediately to rescind it, and keep his 5%.  Court rules for them to get their 5% back
–          School Board lost their expectation of a low bid
–          Main Point: innocent clerical error allows to rescind your bid, without punishment, as long as they didn’t rely on it
Forfeiture (of bond) can be avoided if (AZ):  (1) mistake has such great consequences that the contract would be unconscionable;  (2) mistake has to be related to material feature of the contract, (3) it couldn’t have come about because of violation of positive legal duty or culpable negligence; generally satisfied by mechanical, clerical, or mathematical error, NOT by poor judgment; honest negligence is ok, but not gross negligence.  2nd R-157, fault must be in good faith and within reasonable standards of fair dealing (4) other party must be returned to status quo to the extent that he suffers no serious prejudice except for the loss of his bargain
STS v. VOLVO (1985) pg. 70 – P wanted to buy 8 trucks, D agreed to assume the debts of 6 older trucks.  They inadvertently subtracted  a large amount from the price, P acted on the contract and when D learned of the mistake, refused to honor it.  P was told to repossess the 6 older trucks and they didn’t.
–          if the contract is void because of the mistake = no question of mitigati

onment in which they made it doesn’t look like intent to be bound, when taken with the huge other contract
–          in order for there to be a valid contract, it needs to have a reasonable basis for Gap Filling.
–          UCC GAP FILLERS for remedies.  UCC-2-204 = formation in general.  UCC 2-305 = open price terms, rarely upheld. 
–          Cost plus contracts upheld more often, but interpretation is a big hurdle.  Price indexing and price escalator clauses are frequently upheld.
–          Bad faith is a factor here
–          UCC 2-615:  Doctrine of Frustration of Purpose/Impracticability of Performance
–          Blanket Order:  promise to make contract, details of price are worked out, but no contact until order is placed
Flexible Price, Quantity, and Requirements Contracts
Empire Gas Corp. v. American Bakeries CO. (1988) pg. 136: American made requirements contract with Empire Gas for a bunch of converters, and that it would purchase an estimate of 3000 units of propane, solely from Empire.  American never ordered anything, and never gave a decision for that.  Empire sued.
–          UCC-2-306 makers of the provision were more concerned about a buyer taking more than the estimate, then the buyer taking less.
–          Buyer cannot arbitrarily declare his requirements to be zero – especially when it gives no reason. American Bakeries was not acting in good faith because it failed to provide any business reason for its decision not to convert to propane, even though it had ample opportunity to state such a reason.
–          Standard: requires at a minimum that the reduction of requirements not have been motivated solely be a reassessment of the balance of advantages and disadvantages under the contract to the buyer
–          Overestimates: unreasonably disproportionate to any stated estimate