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

Contracts II | Henning
Definitions
 
                        Mistake
a.       Restatement (2nd) § 151 è “a belief that is not in accord with the facts”
 
 
The Bargain Relationship
 
I.                    Insufficient Agreement
a.      Defective Formulation and Expression of Agreement
                                                   i.      MISUNDERSTANDING è Certain “defects” in the process of either formulating or expressing an agreement justify withdrawal or avoidance w/o liability, even though that agreement otherwise satisfies the requisites for a K.
                                                 ii.      Peerless RULE
1.      Restatement (2nd) §20
a.       There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings [of material terms] to their manifestations AND
                                                                                                                           i.     
NO Contract è
Neither party knows or has reason to know the meaning attached by the other; OR
                                                                                                                         ii.      Each party knows or each party has reason to know the meaning attached by the other.
b.      The manifestations of the parties ARE operative in accordance w/the meaning attached to them by one of the parties IF
                                                                                                                           i.     
Contract è
That party does not know of any meaning attached by the other, and the other knows the meaning attached by the first party; OR
                                                                                                                         ii.      That party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
2.      Translation of Restatement
a.       Level of Knowledge
                                                                                                                           i.      No reason to know (least blameworthy)
                                                                                                                         ii.      Have reason to know
                                                                                                                        iii.      Know (most blameworthy)
b.      If both parties have = level of knowledge è NO K
c.       If not, then è YES K
                                                                                                                           i.      Use the understanding of party closest to “no reason to know” when enforcing the K
3.      Three principles [398] a.       Doctrine applies only when the parties have different understandings of their expression of agreement
b.      Does NOT apply when one party’s understanding, b/c of that party’s fault, is less reasonable than the other party’s understanding (both parties must be reasonable and equally at fault to apply doctrine)
c.       Parol evidence IS admissible to establish the facts necessary to apply the rule
                                                iii.      Willistonè “where a phrase of K … is reasonably capable of different interpretations … there is no K”
                                               iv.      ALTERNATIVES
1.      Expansive principles of K interpretation è wide range of context evidence to answer question of which party’s understanding is more reasonable
2.      Restatement (2nd) §206 (method of last resort) è Use the understanding“which operates against the party who supplies the words or from whom a writing otherwise proceeds”
b.      Indefinite Agreements
                                                   i.      Ks are “avoided” rather than “disaffirmed”
1.      In effect saying there was never sufficient detail for there to be a K to begin with
                                                 ii.      Not a misunderstanding b/c you don’t know if they meant different things and neither party had a clue what they meant è AMBIGUITY
1.      No reasonably objective basis for making a rational determination
2.      Does not have to be mathematically precise è just need some reasonable framework
                                                iii.      Restatement (2nd) §33
1.      Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a K unless the terms of the K are reasonably certain.
2.      The terms of a K are reasonably certain if they provide a basis
a.       for determining the existence of a breach, AND
b.      for giving an appropriate remedy.
3.      The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
                                               iv.      Ex of Vague Term è Employer promises architect that if he keeps working, he will give him a “fair share of my profits”
1.      “the amount cannot be computed from anything that was said by the parties or by reference to any document, paper, or other transaction.”
a.       Varney’s atty might look for industry standard, course of dealing, or previous conversations
2.      Term was left subject to further negotiation
3.      “The courts cannot aid parties in such a case when they are unable or unwilling to agree upon the terms of their own proposed contract.”
4.      See Varney v Ditmars [400]                                                  v.      Ex of Vague Term è “3 Brand New Fur Coats Worth to $100”
1.      See Lefkowitz v Great Minneapolis Surplus Store [249] c.       Incomplete and Deferred Agreement
                                                   i.      Agreement to Agree / Agreement to Negotiate
1.      MODERN APPROACH [412] a.       EnforceableK if…
                                                                                                                           i.      Both parties have manifested an intention to be bound by its terms; AND
                                                                                                                         ii.      The terms are sufficiently definite to be specifically enforced; AND
                                                                                                                        iii.      Consideration on both sides
b.      Methodology of filling the gap:
                                                                                                                           i.      Would parties have wanted gap filled at the time of the 1st agreement? 
1.      If NO è No K
2.      If YES è Is there a reasonably objective basis for making a rational determination (e.g., usage and custom, industry practice, w/in the agreement itself)?
a.       If NO è No K
b.      If YES èK
c.       Key Issue è What would the parties have intended at time of negotiation if they had thought of the problem at the time of K?
d.      Ex è Court uses industry standard as the gap filler where an actor and studio agree to later agree on a starting date of a TV series if the pilot is successful. See MGM v Scheider [407]                                                                                                                            i.      Modern approach probably used here b/c subject matter (movies) is more modern and probably less precedent
e.      Ex è Long-term agreement to agree on shipping prices for iron ore based on a published rate or, if that failed, rates charged by similar competitors. Court held that the parties intended to be bound despite the failure of the pricing mechanisms. See Oglebay v Armco [413]                                                                                                                            i.      Factors      
1.      Long-standing and close business relationship (e.g., joint ventures, inter-locking Board of Directors, owning each others stock, etc.)
2.      Contractual recognition of the vital and unique interest of each other
2.      HISTORICAL APPROACH
a.       Mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.
                                                                                                                           i.      ALTHOUGH it may be sufficient to make enforceable IF there is a methodology or formula for determining rent OR if tied to an objective, extrinsic event.
b.      Ex è Deli signs 5-year lease with renewal clause stating Deli may renew the lease for an additional 5 years “at annual rentals to be agreed upon”. LL wants $900/mo even though fair market value is only $545. Court decides agreement to agree is unenforceable here since there is no formula and no hint at a commitment to be bound by the fair market rental value. See Joseph Martin Delicatessen v Schumacher [408]                                                                                                                            i.      Historical approach probably used here b/c subject matter is property
                                                                                                                         ii.      If modern approach had been used è gap filler set rent; use appraiser to establish range
3.      UCC APPROACH
a.       UCC § 2-204(3) è “Even though one or more terms are left open a contract for sale does not fail for indefiniteness if:
                                                                                                                           i.      the parties have intended to make a contract, AND
                                                                                                                         ii.      there is a reasonably certain basis for giving an appropriate remedy.”
b.      No quantity term èK fails for indefiniteness
c.       No price term è Reasonable price at time for delivery (if requisite intent is present)
                                                 ii.      Written Contract Intended
1.      Parties contemplate that their final agreement will be reduced to writing and signed by both of them. What if parties reach sufficient agreement to conclude a contract but one of them withdraws before signing? 
a.       If explicitly stated they do not intend to be bound until signature è NO K
b.      If no explicit statement è Question whether parties intended for the signature to occur before a K is formed
                                                                                                                           i.      FACTORS: Whether…
1.      There has been an expres

nless he bears the risk of the mistake…”
2.      ASSUMPTIONS
a.       Basic assumptionsè CAN rescind K
                                                                                                                           i.      If buyer knew the truth, he would have never gone through with the transaction
b.      Collateral assumptionsè Does NOT rescind K
                                                                                                                           i.      Ex è value and quality
3.      BEARING THE RISK OF MISTAKE (See Restatement (2nd) § 154)
a.       Conscious ignorance
                                                                                                                           i.      A party was aware that he did not know the value of the item and proceeded anyway
                                                                                                                         ii.      Ex è Sell inherited jewelry that you don’t know if real or fake for $500 and tell the buyer he may get lucky
b.      Risk allocated by agreement
                                                                                                                           i.      Explicit
1.      Ex è “As is” clause stating the purchaser has examined the property and agrees to accept in its present condition. See Lenawee County Bd of Health v Messerly [484] 2.      Possible ways around clause è show good faith examination is all that is required
                                                                                                                         ii.      Implied
1.      Ex è Usage of trade “having such regularity of observance in a trade as to justify an expectation that it will be observed with respect to the transaction in question”
c.       Disparate sophistication
                                                                                                                           i.      Disparate sophistication such that the more sophisticated party should have uncovered the problem
4.      Ex è Mistake by both parties as to the fertility of a cow (Rose 2d of Aberlone) was not of the “mere quality of the animal, but went to the very nature of the thing.” 
a.       Court emphasizes nature instead of value
b.      “The thing sold and bought had in fact no existence”
c.       Parties would not have made the K except upon the understanding and belief that the cow was barren.
d.      Dissent: Turns on P being more correct in his judgment as to one quality of the cow than the Ds
e.      See Sherwood v Walker [482] 5.      ALTERNATIVE
a.       Reformationè Court uses equitable powers to “re-write” the K to effect the original meaning of the parties
b.      More proper to use rescission rather than reformation if the “mutual” mistake is in the formulation instead of the expression of the agreement.
b.      Misrepresentation: Fraud and the Duty to Disclose
                                                   i.      Restatement (2nd) § 159 èAn assertion that is not in accord with the existing facts(rather than a promise to do something in the future or a prediction of future facts)
                                                 ii.      Typical occurrences:
1.      A statement that is not in accord with the facts;
a.       Ex è Car salesman says there is nothing wrong with car when he knows transmission is shot.
2.      A statement that conceals the facts (half-truth);
a.       Ex è Home seller tells buyer there has been recent litigation over title but seller won but doesn’t tell buyer the judgment is on appeal
3.      Conduct that conceals the facts;
a.       Ex è Used car salesman who runs the odometer backwards
4.      A failure to disclose the facts.
a.       Ex è Homeowner knows of large crack but it is situated where a normal inspection wouldn’t reveal it and the seller fails to mention it.
b.      DISCLOSURE RULE: A party need NOT disclose information UNLESS:
                                                                                                                           i.      The party has made a previous assertion that she believed to be true but that later turns out to be untrue; OR
The party knows that the other party is operating on a mistaken fact that is material to his decision to enter into the K (party knows