Contracts II 2005
I. Making of agreements
A. A K is a promise or a set of promises the breach of which results in a remedy of law.
a. Making agreements is much easier, much harder it is to understand what people mean.
b. Risk that one person’s intention will not be revealed fully or accurately to another. A meaning intended by one party may be understood quite differently by the other
c. Contract obligation is voluntarily assumed resting on the assent of each party to the proposed exchange.
d. Also difficulty encountered when one attempts to define in general terms the elements of agreement.
e. Bargain is then the social and legal machinery appropriate to arranging affairs in any specialized economy which relies on exchange rather than tradition or authority for apportitionment of productive energy and of product. It is a machinery which like statutes but in contrast to tort makes it easy to insist on positive affirmative action
f. We can also mean by contract is whatever the officials do about promises in these various fields.
g. The difficulty is when the parties are not in agreement. Think about the conversation where the understanding was different among the parties. The law has to be able to sort through that.
B. Embry v. Hargadine, McKittrick Dry Goods Co.: (page 325) Facts: the appellant was an employee of the respondent company under written K to expire 12/15/03 on 3/1/04 he was discharged having been notified on 2/1/04. Contentions: Plaintiff’s: on 12/23/03 he was re-engaged by respondent. for another year at the same compensation and for the same duties in K . Defendant’s: that the president never re-employed appellant after the termination of his written K and hence he had to discharge him when he chose. Issue: Did what was said constitute a K of re-employment on the previous terms irrespective of the intention or purpose of McKittrick? the next question is whether or not the language used was of that character, namely, was such that Embry, as a reasonable man, might consider he was re-employed for the ensuing year on the previous terms Rule: ISSUE 1: the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. It judges his intention by his outward expressions and excludes all questions in regard to his unexpressed intention. If his words or acts judged by a reasonable standard manifest and intention to agree in regard to the matter in question, that agreement is established and it is immaterial what may be the real but unexpressed state of his mind on the subject. Intentions are not really important b/c if the words are taken by a reasonable person to mean a K then there was a valid K even if no intention by one party. the standard used is a reasonable person standard. Objective test, reasonable person standard. ISSUE 2: the general rule is that it is for the court to construe the effect of writings relied on to make a K and also the effect of unambiguous oral words, However, if the words are in dispute the question of whether they were used or not is for the jury Holding: Judgment is reversed and the cause is remanded
a. Discussion in class: we need to ask many questions now that the case is being remanded. In this case what type of questions will we ask? What a kind of Ks were being signed before, 1 years etc? How many times had Embry gone to McKittrick’s office prior to the reemployment, and how many times after? (0) does this mean he relied on McKittrick’s conversation and that is why he did not go? The real question is would a reasonable man think this was a K! We should not care about what Embry thought.
C. Kabil Developments Corp v. Mignot: (page 329) Facts: defendants did not perform and the plaintiff had to get services somewhere else at a higher cost. Contentions plaintiff: alleged and oral agreement defendant: defendants denied there was a K, defendants contend that to allow this testimony permitted the jury to assume that unexpressed convictions purely subjective reactions had probative bearing on the fundamental issue of whether or not an oral contract had been formed. (page 330) Issue: whether the trial court’s rulings on certain testimony and instructions permitted the jury erroneously to find a contract on the basis of subjective intentions and expectations rather than on the objective manifestations of mutual assent Rule: An objective test is one in which the manifestation of a party’s intention, rather than the actual or real intention is controlling, that the essential agreement is not determined by the secret intentions of the parties but by their expressed intentions which might be totally different Analysis: It was not an error to permit Munroe to testify to his own sense of the state of negotiations, as long as the jury was not misled into treating this testimony, in its context, as something more than evidence bearing on the behavior and perceptions of the parties to the negotiation Procedure: defendants appeal from a judgment awarding plaintiff damages for breach of K. Holding: affirmed. Discussion: keep in mind we are judging the communications in the way they occur, when the way you understand it can has an impact on the way you communicate it. How you say it makes a huge difference. Personal conversations make a difference, gestures make a difference. Subjective use is overriding objective use. The sham is part of the context of the conversation.
D. New YorkTrust Co. v. Island Oil & Transport Corp (page 333) Facts: in order to circumvent restrictions on its owning and exploiting oil bearing lands within 50 kil. Of the Mexican coast, Island Oil organized several Mexican subsidiary corporations to appear as owners and operators. Island Oil owned virtually all the stock and operated the oil fields Issue: whether legal obligations shall be attached to utterances which would otherwise not create the obligation, because they were part of a plan to deceive 3rd persons. Analysis: we are to distinguish b/w such a situation (in which one uses a K to evade the law) and one in which the person deceived has acted in reliance upon the truth of the utterances, and bases his rights upon them for here we are only concerned with the existence of obligations b/w the parties equally implicated. Here we must raise an obligation where none would otherwise exist, because by hypothesis both were concerned in a fraud upon a 3rd. As compensation this would be fruitless, as punishment it would be capricious; as law, it would create an obligation ex turpi cause Rule: It is quite true that contracts depend upon the meaning which the law imputes to the utterances not upon what the parties actually intended; but in ascertaining what meaning to impute, the circumstances in which the words are used are always relevant and usually indispensable. The standard is what a normally constituted person would have understood them to mean, when used in their actual setting. A writing is conclusive so far as the parties intend to be the authoritative memorial of the transaction. (page 334) circumstances
E. Robbins v. Lynch: (page334)
a. Intent is a conclusion rather than a fact.
b. A signatory to a K is bound by its ordinary meaning even if he have it an idiosyncratic one
c. Private intent counts only if it is conveyed to the other party and shared
d. Intent is important in the sense that if the parties agree on a hortatory instrument the court many not convert it into a different kind. This sense of intent denotes agreement b/w the parties and is not a license to allow undisclosed intent to dominate.
e. Private intent is irrelevant
F. McDonald V. Mobil Coal Producing, Inc. (page 334) Facts: McDonald resigned from his job at Mobil’s mine, Contentions. plaintiff contends that his resignation was in fact a dismissal resulting from a meeting with 3 company officials. He argues that Mobil objectively manifested its intent to modify the initial at-will K with the employment manual and by its course of dealing. Defendant contends that it effectively disclaimed any employment relation other than at will. issue: Whether the employee handbook and Mobil’s course of dealing with appellant modified the terms of appellant’s at-will employment. Whether there is a genuine issue of material fact concerning Mobil’s objective manifestations of assent to K. Analysis: The situation here is the same one as in Jimenez, no explanation was given in the disclaimer that Mobil did not consider itself bound by the terms of the handbook. 1.That Mobil did not subjectively intend that a K be formed is irrelevant, provided that Mobil made sufficient intentional, objective manifestations of contractual assent to create reasonable reliance by McDonald. 2.On the restatement section 21, Mobil’s subjective intent to K is irrelevant if Mobil’s intentional, objective manifestations to McDonald indicated assent to a contractual relationship Rule: For a disclaimer to be effective it must be conspicuous and whether it was conspicuous (OBVIOUS) was a matter of law, in Jimenez v. Colorado Interstate Gas. (page 335). Where the disclaimer was not set off in any way, was placed under a general subheading, was not capitalized, and contained the same type size as another provision on the same page, it was not conspicuous. (page 335). A good disclosure example in page 337 . Under the objective theory of K formation, contractual obligation is imposed not on the basis of the subjective intent of the parties, but rather upon the outward manifestations of a party’s assent sufficient to create reasonable reliance by the other party. Restatement 2nd of K § 21 (1979) further explains neither the real not the apparent intention that a promise be legally binding is essential to the formation of a K, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a K. Class discussion: What do you do with an employment booklet? What to do with an employee handbook? Put a disclaimer in it. Maybe just get rid of the employee handbook all together. Put the disclaimer of the application into the handbook and have the employee sign he handbook. Take care of the problem of conspicuousness.
G. Kari v. General Mortos Corp. (Page341) Facts plaintiff was separated from the company following an extended leave of absence. Contentions. Plaintiff that the handbook’s separation allowance provision constituted an offer which he had accepted by working for defendant. Issue did the handbook constitute a K for a severance pay plan? Analysis in this case the employer by use of the handbook clearly evinced an intention not to create an offer capable of acceptance, an employee reasoning this should know that further negotiations are needed in order for it to constitute a valid severance plan. Holding summary judgment for defendant affirmed as a matter of law no contract existed. rule: the theory that an employer’s communications to employees may constitute an offer to K is sound. But the offer must contain a promise communicated in such a manner that the promisee may justly expect performance and may reasonably rely thereon
H. Pine River State Bank v. Mettille (Page 341) Issue: whether an employer’s power to discharge an at-will employee had been limited by disciplinary procedures contained in a personnel handbook? Analysis: we do not think that applying the unilateral K doctrine to personnel handbooks unduly circumscribes the employer’s discretion… rule: if the handbook language constitutes an offer, and the offer has been communicated by dissemination of the handbook to the employee, the next question is whether there has been an acceptance of the offer and consideration furnished….where an at will employee retains employment with knowledge of new or changed conditions, the new or changed conditions may become a contractual obligation. In this manner the original employment K may be modified or replaced by a subsequent unilateral K. The employee’s retention of employment constitutes acceptance… by continuing to stay on the job, although free to leave, the employee supplies necessary consideration
I. Altering the terms of at will employment: (page 342)
a. Pine River Bank analysis conceptualizes at-will employment as a unilateral; K that is accepted by the employee’s continuing to work, is seen often in the employment cases
b. Torosyan v. Boehringer Ingelheim Pharmaceuticals: all employer employee relationships not governed by express K necessarily involve some type of implied K there is a bargain of some kind. the typical implied K of employment includes terms specifying wages, working hours, job responsibilities etc. the contents of any particular implied K of employment are to be determined by examining the factual circumstances of the parties’ relationship in light of legal rules governing unilateral Ks. 1.the representations or issuances in the manual must constitute and offer 2.subsequent oral representations or the issuance of subsequent handbooks must be evaluated by the same criteria. 3.When an employer issues a manual that confers greater rights than an employee previously had, the employee’s continued work ordinarily demonstrates acceptance of the offer of new rights. 4.When an employer issues a manual that substantially interferes with an employee’s legitimate expectations about the terms of employment the employee’s continued work after notice of those terms cannot be taken as conclusive evidence of consent to the new terms. Continued work is admissible evidence but cannot itself mandate finding of consent. 5.The ppl that promises made in an employee handbook may be binding on an employer is no doubt accepted by most courts. however as McDonald demonstrates there are disagreements both as to the theory of liability and the circumstances justifying a finding of handbook based obligation
J. Noutlton v. Kershaw (page 343) Facts On 9/19/1882 defendants sent a letter. Plaintiff received letter and on 9/20 wired defendants in reply to ship him 2,000 barrels of Michigan fine salt, as offered in letter. On 9/21 defendants notified plaintiff of their withdrawal of the 9/19 letter. Procedure: upon defendant’s refusal of a demand of delivery of 2,000 barrels plaintiff sued to recover 800 damages. Defendant’s demurrer to the complaint was overruled below and defendants appeal Contentions. Plaintiff: claims that the letter is an offer to sell the respondent, on the terms mentioned any reasonable quantity of Michigan fine salt that he might see fit to order. Defendant: claim that the letter was not an offer to sell any specific quantity of salt, but simply a letter such as a business man would send out to customers or those with whom he desired to trade, soliciting their patronage. Issue: whether defendants letter, and the telegram sent by plaintiff in reply thereto, constitute a K for the sale of salt analysis: to give the letter the construction claimed for it by the plaintiff would introduce such an element of uncertainty into the K as would necessarily under its enforcement a matter of difficulty. Option offer 1: If the letter of the defendants is an offer to sell salt to the respondent on the terms stated then it must be held to be an offer to sell any quantity at the option of the respondent not less than one car load. This is unjust and the counsel did not pursue it. (page 344) Option 2: Rather than to bring such an element of uncertainty into the K, we deem it much more reasonable to construe the letter as a simple notice to those dealing in salt that the appellants were in a condition to supply that article for the prices named and requested the person to whom it was addressed to deal with them. We place our opinion upon the language of the letter of the appellants and hold that it cannot be fairly construed into an offer. The language is not such as a business man would use in making an offer to sell to an individual a definite amount of property they do not say we offer to sell you. it is clearly in the language of an advertisement or business circular to attract attention of those interested in that business to the fact that good bargains in salt. Rule: We do not wish to be understood as holding that a party may not be bound by an offer to sell personal property where the amount or quantity is left to be fixed by the person to whom the offer is made when the offer is accepted and the amount or quantity fixed before the offer is withdrawn. 1.If the letter had said we will sell you all the Michigan fine salt you will order at the price and on the terms named then it is undoubtedly the law that the appellants would have been bound to deliver any reasonable amount the respondent might have ordered possibly any amount or make good their default in damages. 2. the fixing of the quantity must be left to the person to whom the offer was made, but the amount which the defendant offered was also fixed by the amount of grapes he might have in his vineyard that year. holding: No contract was perfected by the order telegraphed by the respondent in answer to appellants’ letter. Discussion: what prevented this from being a K? The quantity was not fixed. Why did the language not qualify this as a valid offer? This is direct mail (like a credit card offer) what is it that made this letter an Add and not an offer? The language. Since this was a flyer then there is enough to think this was not an offer b/c the company could not possible have enough in stock to fulfill all orders. Would this be a K if the UCC applied (section 2-204 FORMATION OF Ks IN GENERAL)? In order for it to be an offer it must be able to determine the amount. If we put a limit on the Add (for example first one, first 10 etc) then this might be considered an offer. Very important to look at the words used (in the add they used the words coats (plural) therefore they must have had at least 2 and if they restricted the sale to first come first served then at least the first 2 should have gotten the coats) If the customer had gone to the shop the first week and he had been informed that it was for women only then when he returned the second week, he would have no argument b/c the 2nd week he had knowledge. A. We have to look at the communication, we have to focus on all the stuff in the context of the communication
K. Sharp, Promissory Liability (page 346)
a. An offer as distinguished from a mere statement of intention or invitation to deal
b. The offer may also be a promise
c. Advertisements to sell are usually not considered offers to sell
1. the TEST is whether the facts show that some performance was promised in positive terms for something requested
2. Izadi v. Machado (Gus Ford) a binding offer may be implied from very fact that deliberately misleading advertising intentionally leads the reader to the conclusion that one exists.
L. Joseph Martin, Jr Delicatessen v. Schumacher (page 346) Facts in 1973 landlord leased a retail store to respondent for a 5 year term at a rent graduated upwards from 500 per month for the 1st year to 650 for the 5th year, the renewal clause stated that the tenant may renew his lease for an additional period of 5 years at an annual rentals to be agreed upon, the tenant shall give the landlord 30 days written notice to be mailed by certified mail, return receipt requested, of the intention to exercise such right. The tenant gave such notice, once he did the landlord made it clear that he would do so only at a rental starting at 900 a month, the tenant then engaged and appraiser who opined that a fair market rental value would be 545.41. Issue Is a realty lease’s provision that the rent for a renewal period “was to be agreed upon” enforceable? (NO) Procedure: the tenant commenced an action for specific performance to compel landlord to extend the lease for the additional term at the appraiser’s figure or such other sum as the court would decide was reasonable, the landlord then proceeded to evict the tenant. Rule A renewal clause in a lease providing for future agreement on the rent to be paid during the renewal term is enforceable if it is established that the parties’ intent was not to terminate in the event of a failure to agree (page 347) also if the tenant met that burden then the court could proceed to set a reasonable rent A contract is a private ordering in which a party binds himself to do or not to do a particular thing. This liberty is no right at all if it is not accompanied by freedom not to K. Before one may secure redress in our courts because another has failed to honor a promise, it must appear that the promise assented to the obligation in question. It also follows that to enforce the power of law a promise it must be sufficiently certain and specific so that what was promised can be ascertained. (page 347) The definitiveness as to material matters is of the very essence of K law. Impenetrable vagueness and uncertainty will not do! (page 348)It is rightfully well settled that a mere agreement to agree in which a material term is left for future negotiations is unenforceable this is especially true of the amount to be paid for the sale or lease of real property. Had this been a sales of goods K we could apply UCC § 1-205, also § 2-305 Analysis: This is not to say that the requirement for definitiveness in the case could only have been met by explicit expression of the rent to be rapid. The concern is with substance, not form. Nor would the agreement have failed for indefiniteness b/c it invited recourse to an objective extrinsic event, condition or standard on which the amount was made to depend.
1. What can be made certain is certain.
2. The renewal clause here contains no such ingredients.
3. neither landlord nor tenant is bound to any formula
4. nowhere is there an inkling that either of the parties directly or indirectly assented, upon accepting the clause to subordinate the figure on which it ultimately would insist, to one fixed judicially
b. Class discussion: Lease and renewal clause. What is the problem? The renter felt there was a breach of K b/c it was not w/in their original K. he wanted a reasonable rent. The court says that the renewal was unenforceable b/c it was too open, it was too indefinite, not enforceable b/c it was not specific enough. Do they offer other means of coming up wi
ething else you have to say something because or else you will be stuck with that meaning unless you say something.
T. Flower City Painting Contractors v. Gumina Constr. Co., (page 360) Facts: flower thought that they had K for painting just the interiors of individual units in an apartment project. When he demanded more money Gumina refused and fired them. Issue did Flower have reason to know of the custom practice in the area? Procedure flower sued for damages, the trial court adopted Gumina’s interpretation of the subK and dismissed the complaint on the ground that Flower’s asking for extra pay for work it was obligated to do under K was the equivalent of a repudiation justifying cancellation. On appeal the court held that judgment of dismissal affirmed under the rule of the peerless case, no K ever came into existence for lack of a mtg of the minds in the 1st instance. Rule: given the ambiguity created by multiple K documents, 2 different understandings of the subject matter embraced by the K are both possible and plausible. Yet the ambiguity might be resolved (in favor of Gumina) by construing the K as incorporating the customary practice of the construction industry in the area. But proof of a trade usage is not enough to establish the meaning of a K, for a party is bound by usage only if he either knows or has reason to know of its existence and nature. (good faith is very important, some mistakes can be made). standard is knew or had reason to know that this was the practice. Reasoning Proof makes it clear that Flower did not know of the usage. This was flower’s 1st big K on a construction job it would it be unrealistic to hold it to a strict reason to know standard. accordingly it cannot be said that either party acted unreasonably
a. class discussion: we are trying to figure out what the parties knew or should have known about the understanding b/w the parties. Communicate full, this is the central issue here.
U. Colfax Envelope Corp. v. Local No. 458-3M (page 361) Rule: a literal meaning of meeting of the minds is not required for an enforceable K… a K ought to be terminable w/o liability and the parties allowed to go their own ways when there is no sensible basis for choosing b/w conflicting understandings of the contractual language
1. Neither party can be assigned the greater blame for the misunderstanding there is no nonarbitrary basis for deciding which party’s understanding to enforce so the parties are allowed to abandon the K w/o liability.
2. inter-subjectivity is not the test of an enforceable K
3. courts in K cases are for resolving interpretive questions founded on ambiguity
V. Dickey v. Hurd (page 362) Facts: Dickey wrote to Hurd asking the price for which he would sell land he owned in GA. On 7/18/1926 Hurd wrote back “15 per acre cash” adding, that he would give him till July 18,1926 to accept this offer. On July 17 Dickey sent a telegraph accepting and said he would send payment down in a few days, Contentions: Defendant: Hurd contended that the acceptance was ineffective b/c the offer called for the whole cash price to be paid by July 18.Reasoning: the judge said the original offer was ambiguous but Dickey’s letters to Hurd indicated that he had understood July 18 only for an answer. When Hurd learned how Dickey interpreted the offer it was Hurd’s duty to inform him that the offer called for payment rather than an answer or promise of payment. It is not open to him to lie quietly by until the time limit has expired and then assert that full cash payment was required.
W. Restatement of K second §20 Effect of Misunderstandings (page 363)
II. Control over K formation:
A. Cobaugh v. Kicl-Lewis, Inc. (page 363) Facts: Amos Cobaugh was playing a golf tournament and on whole 9 saw a board that advertised to win a free car for a whole in one, he made the whole in one and demanded his price. The dealer refused to give him the car because the advertisement was meant for a previous tournament held there a couple of days earlier. Issue was there a valid offer? Procedure: after Cobaugh sued to compel delivery of the car the parties entered a stipulation regarding the facts and then moved for summary judgment. The trial court granted Cobaugh’s motion and Klick-Lewis appealed. Contentions: defendant contends that all it did was propose a contingent gift and that a proposal to make a gift is without consideration and unenforceable (this contentions was not accepted page 364) appellant’s final contention that the K to award prize to appellee was voidable b/c of mutual mistake was also rejected b/c there is no basis for believing that Cobaugh was aware that the car had been intended as a prize only for an earlier tournament. (page 365)
a. Rule: an offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding his assent to that bargain is invited and will conclude it (page 364)
1. consistent with the laws of K pertaining to unilateral Ks it has generally been held that the promoter of a prize winning contest by making public the conditions and rules of the contest makes an offer, and if before the offer is withdrawn another person acts upon it the promoter is bound to perform his promise… the only acceptance of the offer that is necessary is the performance of the act requested to win the prize
2. the requirement of consideration is an essential element of a K is nothing more than a requirement that there be a bargained for exchange, consideration confers a benefit upon the promisor or causes a detriment to the promisee
3. It is manifested intent of the offeror and not his subjective intent which determines the persons having the power to accept the offer.
b. Reasoning: the K does not fail for lack of consideration, in order to win the car Cobaugh was required to do something he was not under no legal duty to perform. The car was to be given in exchange for the feat of making a hole in one this was adequate consideration to support the K. 1. it is clear that the mistake in this case was not mutual but unilateral and was the product of the offeror’s failure to exercise due care. Holding: Such a mistake does not permit appellant to avoid its K. Affirmed. Class discussion: Who do you agree w/? The essential facts are that the car dealer puts in a sign saying a hole in one would get a car. Would it make difference that the guy who made the hole in one was a tournament player or just playing w. his friends? It is also important that this guy is playing in the east game open? What Knowledge did you bring to the 9th tee? Did you know or have reason to know about the 9th tee? No indication that Cobaugh knew or should have known that this was some kind of mistake. We stick the offeror with what they offer.
B. Unknown Offers and Rewards
a. Knowledge of an offer typically becomes an issue in situations where the offeror bargains for a performance not a return promise and the performance is rendered in total ignorance of the offer
b. So far as private rewards are concerned there can be no K unless the claimant when giving the desired information (performance) knew of the offer of the reward and acted with the intention of accepting such offer
c. It is impossible for an offeree actually to assent to an offer unless he knows of its existence. (page 367)
d. Requirement of an offeree to know of the reward and act with the intention of accepting it
C. Master of the Offer:
a. The offeror is the master of the offer this just means that he has the power to determine not only the substance of the exchange and the identity of the offeree but such procedural matters as time, place and form or mode of acceptance.
b. And offeror may waive formal acceptance it is enough that offeree performs as specified in the offer
c. Caldwell v. Cline (page 368) facts: on 1-29 cline addressed a letter to Caldwell proposing to exchange land on specified terms. The letter gave Caldwell 8 days to accept or reject the offer. Caldwell received the letter on 2-2 and six days later on 2-8 Caldwell wired cline accepting. Cline refused the deal reasoning Cline was wrong in urging that the 8 day limitation ran from 1-29 1. It is followed that Cline’s words had no legal existence until his letter was received y Caldwell on 2-2 and thus the acceptance was timely. 2. Moreover the language of 8 days is conclusive of the offeror’s intention to date the time limit from the moment the letter was put in Caldwell’s hands. procedure: Caldwell brought a bill in equity for specific performance. The trial court believing that Caldwell’s acceptance was untimely dismissed the suit on demurrer. On appeal Caldwell’s allegations were held sufficient to withstand a demurrer. Rule: when a person uses the post to make an offer, the offer is not made when it is posted but when it is received.