Contracts II
Frost, Spring 2017
Promissory Estoppel, Part II
Charitable estoppel (Allegheny College v. National Challtauqa)
Implied promise
As an alternative to breach (Goodman v. Dicker; Hoffman v. Red Owl Stores)
Rest. § 90-
A promise which the promisor should reasonably except to induce action or forbearance of definition and substantial character of the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance
Establishing “elements” of promissory estoppel (Ypsilanti v. GM)
II. Performance
Duty of Good Faith Performance (Goldberg v. Levy, Stop & Shop v. Ganhem, Mutual Life v. Tailored Woman, Great American Cookie)
The standards from UCC § 1-203 applies to ALL transactions.
Good faith centered around making honest business decisions.
Good faith is a minimum standard that we DO NOT have to write into a contract.
Good faith standard is honesty in fact.
Exploitation of the circumstances for illegitimate purposes (in these cases exploiting the lease for the illegitimate purpose of destroying the lease).
There is some discretion allowed to conduct business in the way they want.
A good way to prove good faith is through the showing of observance of reasonable standards of fair dealing in the trade. This would probably involved expert testimony.
There are two aspects of good faith (1) the subjective, honesty in fact and (2) the objective, reasonable standards of fair dealing.
The question in good faith issues is not “will I get sued,” but “If I get sued, at one point can I win.”
The more triggers and protections you imbed into the contract, the less likely you are to get into good faith litigation.
Rest. § 205: Duty of Good Faith and Fair Dealing
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement
UCC § 1-203: Obligation of Good Faith
Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement
UCC § 2-103: Definitions and Index of Definitions
1b) In this article unless the context otherwise requires…. “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable standards of fair dealing in trade
Warranties
Implied Warranties of Merchantability & Fitness for a Particular Purpose (Step-Saver v. Wyse)
There are 3 requirements for warranty of fitness (Step Saver)
When goods are sold for a particular prupose, the seller gives an implied warranty of fitness for that purpose unless it is disclaimed conspicuously in writing.
Fungible goods are substitutable goods, and basically anything where you can swap out identical things.
UCC § 2-314: Implied Warranty: Merchantability; Usage of Trade
Unless excluded or modified (§2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this Section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
Goods to be merchantable must be at least such as
Pass without objection in the trade under the contract description; and
In the case of fungible goods, are of fair average quality within the description; and
Are fit for the ordinary purposes for which such goods are used; and
Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
Are adequately contained, packaged, and labeled as the agreement may require; and
Conform to the promises or affirmations of fact made on the container or label if any.
Unless excluded or modified (§2-316) other implied warranties may arise from course of dealing or usage of trade
UCC § 2-315: Implied Warranty: Fitness for a Particular Purpose
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose
Note: seller must have reason to know of a particular purpose, and the seller must know that the buyer is relying on the seller’s skill or judgment.
UCC § 2-714: Buyer’s Damages for Breach in Regard to Accepted Goods…
2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been warranted, unless special circumstances show proximate damages of a different amount
3) In a proper case any incidental and consequential damages under the next section may also be recovered.
Express Warranties (Royal v. Loraine, CBS v. Ziff-Davis)
There are 3 requirements for an express warranty, (1) affirmation of fact/promise, (2) relates to the goods, and (3) becomes a part of the bargain.
With multiple transactions it becomes difficult to determine when something becomes the basis of a bargain.
Expectation damages are the standard for breach of warranty.
Conspicuousness is a requirement for the writing of an express warranty.
UCC § 2-313: Express Warranties by Affirmation, Promise, Description, Sample
Express warranties by the seller are created as follows
Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description
Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample of model.
2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.
Express Disclaimers of Warranty (Schnider v. Miller, Morris v. Mack)
If there are words in that contract that create an express warranty AND words that disclaim/limit warranties, we need to try to get them to be consistent with each other as must as possible.
However, if you cannot make them consistent with each other, the express warranty will override the disclaimer on whatever the topic of the express warranty is.
Things like “as is” and “with all faults” makes it plain that there is no implied warranty, HOWEVER this are inoperative in so far as they conflict with the express warranties
UCC § 2-316: Exclusion or Modification of Warranties (
Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of the Article on parol or extrinsic evidence (§ 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable
Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitne
on it is entitled to withhold counter performance and seek a remedy for breach.
Rest. § 261: Interpretation of Doubtful Words as Promise or Condition
Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometime mean that one party promises a performance and that the other party’s promise is conditional on that performance
Rest. § 227: Standards of Preference with Regard to Conditions (when you cannot tell)
In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicated that he has assumed the risk
Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether
a duty is imposed on an oblige that an event occur, or
the event is made a condition of the obligor’s duty, or
the event is made a condition of the obligor’s duty and a duty is imposed on the oblige that the event occur
the first interpretation is preferred if the even is within the obligee’s control
Condition, promise, or neither (Chirichella v. Erwin)
Conditions require explicit language.
When something is not a promise or a condition is can be a simple duty to perform.
When it is unclear whether something is a condition or just an element of a contract, like payment time, the courts will attempt to interpret the intent of the parties by examining the purpose of the language.
Waiver and Estoppel (Avoiding Conditions) (Clark v. West)
Estoppel in conditions means that a party can be estopped from claiming nonfulfillment if, by words or actions, the party induces the other party to act to his detriment by causing him justifiably to believe that the condition has been satisfied, or that compliance with it will not be required.
This is an action based doctrine.
Waiver is when, after the contract is made, the beneficiary of a condition agrees to perform even if the condition is not satisfied
This is an intention based doctrine
Waiver is basically voluntary abandonment of a contractual right.
A party can only waive a condition that is solely for his benefit.
A waiver is one-sided, where one of the parties unilaterally gives up a contractual right without asking for anything else in exchange.
Modification is a mutual agreement under which one party agrees to relinquish rights in return for consideration given by the other.
If the right to be given up is material then unilateral waiver cannot validly relinquish it.
This basically means that you cannot waive something that is material basis of the contract.
Note: the UCC does not require consideration for contract modification.
Estoppel should be used when detrimental reliance can be show, and there is question about whether the right relinquished is material enough to require consideration.
Waiver should be used if there is no prejudicial reliance, but there is an argument that the abandoned right is ancillary, not central to the exchange.
