Select Page

Contracts II
University of Alabama School of Law
Henning, William H.

Contracts 2: Outline
Chapter 4: The Bargain Relationship – Insufficient Agreements : Indefinite, Incomplete, Deferred Terms – NO CONTRACT SITUATIONS
1. “Mistakes”- Over-arching term; 3 types:
a. Misunderstanding (parties use the same words and mean different things- NOT MISTAKE CASE) – This is it’s own category of mistake = Insufficient Agreements
b. Mutual Mistake ( parties share a mistaken belief about an existing fact)- Ch. 5
c. Unilateral Mistake ( one party is mistaken about a fact) –Ch.5
2. 4 Insufficient Agreement Situations:
a. Misunderstanding of Terms
b. Ambiguous Terms (neither party gives specific meaning to term)
c. Missing Terms
d. Agreements to Agree
3. Misunderstanding of Terms; 3 possible states of mind (level) : Both parties different meanings
a. No Reason to Know
b. Reason to Know : reasonable person would have inferred other parties true meaning; element of carelessness, but not level of deviousness w/ knowledge
c. Knowledge: buyer had actual knowledge that seller meant Peerless #1 but didn’t raise the issue
d. Restatement (Second) 20 (pg. 396)
(1) Tells us when no contract: No mutual assent if parties attach a materially (refers to distinction in meaning→ must be material distinction) different meaning to a material term( not within R2 but applied by courts) IF:
a. Neither party had reason to know L2 (meaning attached by other)→ no contract
b. Neither party had knowledge or reason to know L1 → no contract
i. Court would never apply section 1 and find no contract, if not a material term; if immaterial term we will find contract, we will use meaning of one party or gap filler, not of sufficient import to invalidate
(2) Tells us 1.) when to find contract 2.) who controls
a. This tells us what happens if they are on different levels, if when you do analysis party on same level no contract
b. If different, party who is more innocent (L1) will have their terms control
c. SUBJECTIVE THEORY: in play here, we have to look at what the parties subjectively thought, in order to ascertain whether manifestation of assent (should the buyer have been able to figure out what the buyer meant; and vice versa)
e. “Peerless”- Raffles v. Wichelhaus
i. Misunderstanding case- Dispute over cotton shipment; 2 ships named “Peerless,” one party was thinking of Peerless 1 and other thinking about Peerless 2; 1 arrived earlier than the other
ii. Discussion as to whether “Peerless” should have been considered a material term, since it really only has to do with mode of delivery, which ship→ court makes it out as the delivery date is in question, and is material
iii. Latent ambiguity – not obvious that there were 2 ships named Peerless
iv. Result: Since material term + no reason to know = no mutual assent, no contract
f. Konic v. Spokane:
i. Dispute over a surge protector system; seller quotes “fifty-six twenty,” (meaning 5620.00) seller shopping in the range of 50-200 dollars, thinks he means (56.20)
ii. Some indication that seller had reason to know that buyer was looking in different price range- also some evidence that buyer was careless in not realizing equipment was worth lots of money ( both could be L1 or L2?)
iii. Appellate court wants to dispose of case- parties have already spent too much in legal fees and seller is in a better position to re-sell system so makes analogous to Raffles and holds NO CONTRACT
4. AMBIGUOUS TERM- Indefiniteness (neither party had a definite meaning
a. Varney v. Ditmars- Employment dispute, employee promised “a fair share of the profits” if he helps w/ busy season, gets sick, still claims “fair share”
i. Here we have indefiniteness not misunderstanding b/c neither party attached a specific meaning to the material term (so not enforceable b/c too indefinite)
1. Patent Ambiguity- no clear meaning
ii. Cardozo Dissent (thinks we should give “ obj.” meaning to term where possible via):
1. “percentage regulated by custom”- look at transactional history etc..
2. Agrees that in this case no obj. basis so term is fatal
iii. Quantum Meruit: (other possible remedy discussed)
1. (pg. 403) → similar to “quasi-contract” off-shoot; applied to situations where could apply Wade test, but obvious that it is business transaction, but still non-contractual basis for recovery; if they used this basis for recovery he would get value of services rendered, based on fair market value (would not have really given him a different result)
a. Common law approach: : look at contracts of the same type (ex. employment contract, common in these type contracts to state the duration or specific job hired to do (range of responsibility);
i. if a contract says nothing about either then parties haven’t reached a contract yet..still negotiating= missing material term fatal to contract,
ii. but if you do work for me still have a remedy via quasi contract)
b. UCC Approach: (asks):
i. Did the parties intend to be bound?
ii. Is there some objective basis for filling the gap?
6. AGREEMENTS TO AGREE (party says we will fill in the term at some later time)
a. Agreement to Agree 2 steps:
i. Did the parties intend to be bound to agreement?
ii. Is there an objective basis on which to fill in the term?
1. This approach adopted by UCC, Restatement
b. MGM v. Scheider (contract says will agree later on dates when Scheider will start work on the film; he gets better gigs wants to get out of the contract)
i. Court (NY Court of Appeals) says:
1. At time of contract both parties wanted to be bound
2. Can look at trade customs to determine starting date
a. Favored UCC Restatment approach here
c. Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher (dispute over NY Real Estate contract, same court as MGM different result)
i. Traditional common law approach- if material term cannot be enforced (missing) contract can’t be enforced
1. “Definiteness requirement”- settled principle in the common law that mere agreement to agree is unenforceable if not certain and specific, unless parties have provided a methodology
a. Ex. methodology: “gap filler will be shipping prices set by _____”
2. Why different result here? How do we reconcile?:
a. Policy reasons→ Better to try and make people make certain and specific contracts in certain fields
b. Channeling effect- assu

Undue hardship on the other party? – YES label company would be stuck with millions of labels that they couldn’t use (already printed w/ companies name)
2. Outcome-
a. Eventhough “conscious ignorance” which usually gets you out of contract, here the undue hardship on the other party outweighs
b. NOTE: Mistake of value will never get you out of a contract (but if inherently to different things – Sherwood v. Walker (pregnant cow vs. barren cow); different story
i. Must ask is there a basic assumption (other than the value) that has turned out to be false?
2. Misrepresentations : Fraud and the Duty to Disclose
a. Misrepresentations typically occur in 1 of 4 ways:
i. Statement that is not in accord with the facts
1. Must occur in the lead up to the contract (can be made by offeror or the offeree and offeror incorporates it in some way) BUT cannot occur after contract already made must be in the lead up
ii. Statement that conceals the facts (takes the form of half truth)- where the part of the truth concealed is impt.
iii. Conduct that conceals the facts
iv. Failure to disclose the facts (trickiest category; a lot of jurisprudence/ discretion)
1. Generally the case that one is not required to disclose- so we are dealing with a fine line;
2. Rule- failure to disclose becomes misrepresentation when party w/ info knows that information would be material to party deciding to enter into the contract
a. Sometimes courts have been willing to make jump that seller should know that a reasonable person would want certain information (murder occurred at the home)- eventhough they don’t have concrete info. that this specific buyer would want to know that
b. NOTE: generally opinions are not misrepresentations (fine line)
i. Value of house/car is usually considered an opinion
ii. Unless reasonable reliance on the misrepresentation
1. EX) car salesman tells me that car will get 25 mpg, and I see that it will get 19 on the sticker) then I wasn’t relying on it when I purchased it
2. If tooth manufacturer tells you that your teeth will be the whitest white, this is almost a statement of fact…but most courts would likely say that no reasonable person would rely on that
3. If someone gives you an opinion about your house (housing inspector checks out house for you says its fine, and its not) this would probably be a misrepresentation where the homeowner would have a cause of action for damages against inspector (since he misrepresented the status of the house- even though this is an opinion technically)