LA450 Midterm (Class Notes)
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LA450 MIDTERM REVIEW (CLASS NOTES)
Tu. 9/3 Chapter 19 - Practical Contracts Statute of Frauds - contracts must be in writing in order to be enforceable (you can have a verbal agreement, but the problem arises if one side backs out) Land Debt of another Contract that cannot be fulfilled within a year Sale of goods over $500 or more Drafting The party that has the most control drafts the contract Example: Land contract - the seller makes the contract, the buyer is the receiving end Mistakes 3 Major types of mistakes Vagueness - intentional; most likely can lead to litigation Ambiguity Scrivener's error Arbitration - resolve the matter out of court, binding decision by the arbitrator who is a neutral party; decision is confidential Quake Construction v. American Airlines Jones Brothers Construction invited Quake to bid on the project; Quake needed a guarantee that they'd be able to work on it so - didn't want to be on the hook for their sub-contractors Jones wrote a letter of intent, but it was vague. Ended the letter with the right to cancel the letter of intent Th. 9/5 Letter of intent factors for enforceable: If it's in writing Is there a full agreement? If there are many or few details Covenant - the terms/ promises in the contract Quake Construction v. American Airlines The court looked at what made the letter enforceable and what made it unenforceable Enforceable Short period of time Cancellation clause implies the intention to be bound by the letter Unenforceable However mentioning the execution of a formal contract meant they did not intent to be bound by the letter Decision: return to lower court (circuit court) and allow parol evidence regarding their intent Parol evidence normally not allowed in court (Parol evidence refers to anything (apart from the written contract itself) that was said, done, or written before the parties signed the agreement or as they signed it) Ambiguity Whoever drafts the contract is typically the one at fault Typically accidental mistake Cipriano v. Patrons Mutual Insurance Company of Connecticut House burned down by an arsonist; vacant for more than 30 days Didn't define "vandalism" and "fire" properly
Filed for motion for summary judgment Court rejects motion and sends case to court Lawyer pay Billable hours - the hours they spent working on the case Contingency - lawyer takes a certain % agreed upon ahead of time; % of what you recover Timeline of general case Pleadings --> Discover --> Motion for summary judgment ---> trial Heritage Technologies v. Phibro-Tech TBCC would increase an additional $15 per ton for each $0.01 increase in the cost of copper sulfate over $0.38/pound Somewhere $.01 got changed to $.10 - Heritage lawyer caught the mistake and Heritage said it was payment for something else Heritage found a mistake and Phibro agree to make the change even though it was not advantageous for them Phibro thought it was getting it's extra money, but Heritage said nope look at the contract is says $.10 Outcome: Phibro: that clause was meant to protect them, so clearly it was a mistake; there was no negotiations for $.10, only $.01; doesn't make sense economically Heritage: you had your chance to change it Court: enforce the contract as written, as $.10 Covenant of Good Faith and Fair Dealing Inherent in every deal and contract
Tu. 9/10 Handout 1st page - 2nd Revision to Purchase and Sale Agreement Includes: Title, introductory paragraph, covenant, date, (need consideration for a valid contract) Covenant - a promise for something to be done "Time still being of the essence of this agreement as revised" = Makes the date of the closing/contract strictly enforceable; can still change the date if both sides want to 2nd Page - Third Amendment to Purchase and Sale Agreement Breach Nonmaterial breaches happen all the time Material breach - important enough to defeat the essential purpose or essence of the contract Things need to be done reasonably and in good faith LeMond Cycling vs. PTI Holding Inc. LCI contracting with PTI to sell bike accessories under names like Barbie, etc. Deal: PTI would use commercially reasonable efforts (not actually defined in the contract) and keep LCI apprised of what PTI was doing Target the only one who was interested and only a little bit at that PTI didn't keep LCI informed of the rejections or limited store space in Target Argued that it was Target's job to market the products PTI started to sell the same type of products for Schwinn and it was successful Abandoned efforts to sell LaMond items LaMond filed for breach; PTI filed for motion for summary judgment Court: PTI not providing the annual marketing plans was not material to the contract The deal memo fails to define commercially reasonable
Motion for summary judgment granted in part (marketing plans), denied in part (good faith) The only part going to trial: good faith and fair dealing Representations and Warranties Conditional promise - one that one agrees to if the other side does what they're supposed to Sole discretion - complete and total ability to decide on that specific issue Boilerplate Arbitration clauses Go to an arbitrator for an issue, resolved out of court and the decision is final Non-compete clauses Has to be reasonable in terms of time, distance, and scope Force Majeure An event beyond your control that may prevent a party from complying with the obligations under your contract Acts of God (weather), War/terrorism, embargo, riots, strikes, lockouts, etc. A disruptive unexpected occurrence for which neither party is to blame that prevents the parties from complying with the contract If it is force majeure, it is not a breach of contract
Ch. 18 Remedy Different types of remedies Injunction Expectation damages Specific performance Force the parties to go through with the deal Only for contracts where monetary damages wouldn't be able to properly compensate - the uniqueness or if it deals with land There are no two properties identical Liquidated damages clause Will in advance say what the party is entitled to if there is a breach in the contract
Th. 9/12 1st Quiz format Multiple choice Moved to next Thursday (not Tuesday) Remedies 4 types of Contract Interests 1. Expectation interest a. Direct b. Consequential } What party thought he would get from contract c. Incidental 2. Reliance interest (unclear if there would be a profit -- but party spent money in reliance on contract) 3. Restitution interest (restore to injured party benefit that was provided) 4. Equitable interest (money not sufficient) specific performance; injunctive relief Arguing in the alternative Can argue for separate interests (if you aren't sure they'll accept one of the interests - cover your bases) Will only win one of them Use if you want to give more reasons Liquidated damages - clause that states in advance how much money you'll get in the event of a breach Has to be reasonable Not meant to be a penalty
Only an estimate for damages Prevents people from going to court Settlement Always try for settlement Even if one side is absolutely right, sometimes how the case comes across to the public/others might make you want to settle and never go to trial Hawkins v. McGee (1929) (hairy hands) Hawkins had electrical burns; McGee was going to perform graft surgery McGee: "I will guarantee to make the hand a hundred percent perfect" McGee took skin from Hawkins chest; hair started growing on his palm Court: Gave $3000, judge reduced to $500 New judge: Take the difference between the value of a perfect hand the current condition of his hand Jury took two elements into account: (1) pain and suffering due to the operations, and (2) positive ill effects of the operation upon the plaintiff's hand Measure of recovery is what the defendant should have given the plaintiff not what the plaintiff has given the defendant True measure of damages: difference between the value to him of a perfect hand and the value of his hand in its present condition, including any incidental consequences fairly within the contemplation of the parties when they made their contract --> Remanded for a new trial Because at the 1st trial, the jury wasn't given the right information base their decision; were given the wrong instructions Should have decided based on the difference between the value of perfect hand and current condition Direct Damages Part of expectation Come directly from the contract - if there's a breach Octomom strip club case Supposed to strip at Florida strip club; signs contract Instead goes to strip in Hollywood gentlemen's club because offer more money Florida club sued for injunction and expectation interest Wasn't granted injunction
Tu. 9/17 (chapter 18 - remedies) Hadley vs. Baxendale (1854) Hadley's flour mill had a broken part - the crankshaft. Baxendale was hired to take the broken part with his cart and take it to a place for a new one to be manufactured; Baxendale promised one day delivery but was 5 days late; mill was shut down Hadley's won; Baxendale appealed Baxendale: I didn't know that the crankshaft was vital to the operation of the mill; didn't know if they didn't have any backup parts The plaintiff (Hadley) can only recover if he communicated the special circumstance to the defendant (Baxendale) Bi-economy Market vs. Harleysville Insurance (consequential damages) Bi-economy market - family owned meat market Insurance policy: deluxe package; replacement costs for building and inventory including business interruption service (loss of pretax profit plus normal operating expenses, including payroll) Market had a fire; destroyed everything; filed a claim
Insurance company very slowly; had an arbitrator come in and market got more money; Insurance company paid for 7 months of lost income but declined to pay more Market sued; insurance company gave the money too slowly Wanted consequential damages for the permanent damages for the destruction of the company Lower court granted summary judgment (no reason to go to trial, waste of time); appellate court affirmed lower courts decision Consequential damages: damages that result from the unique circumstances This case: market couldn't keep company going because of the delay in payments It wasn't the unique circumstance that it went out of business, but the unique circumstance of the unfair delay of the payments Insurance: you should have paid for the higher premium The point of business interruption insurance is to pay in the event of a disaster so the company will go under UCC Will find a contract where common law doesn't Reliance interest Promissory estoppel Defendant made a promise knowing the plaintiff would likely rely on it - detrimental reliance Toscano v. Greene Music Toscano was the general manager of Field Pianos and sought employment with Greene Music who offered a job. Toscano resigned from his original job, however Green withdrew the employment offer. Toscano ended up at lower-paying jobs Toscano sued for breach of contract and promissory estoppel Trial court ruled Toscano entitled to reliance damages for all lost wages at Fields, starting from the day he resigned to his anticipated retirement in 2017 for $536,833; Greene appealed Court: don't know if Toscano would have stayed/been fired form Field Pianos (at-will employment; anything could have happened - it's too speculative); current award vacated and matter remanded for a new trial on the issue of damages only; judgment otherwise affirmed (not successful on breach of contract - only on detrimental reliance damages) Quasi-contract Rescission Reverse the contract - rescinds the contract Putnam Construction vs. Byrd Putnam owned USBC, a office complex. Byrd and associates were going to buy the building for $16.2 million with a loan from Northwestern Mutual Life (if they failed to pay Northwestern got the building); after closing, Byrd learned that several of the major tenants were leaving; sued Putnam seeking rescission of the contract and restitution of their money Trial court found Putnam committed fraud; rescinded sales contract, returning the property to the Putnam, ordered sellers to assume full liability for the mortgage; didn't order restitution of buyers' expenses; sellers appealed Judge after appeal: added repayment of $483,006.75 in closing costs on the purchase of USBC, $121,000 in interest payments they paid to the sellers on the $1.5 million note; and the $500,000 nonrefundable fees the buyers paid to Northwestern to get the loan as the buyers incurred out of pocket expenses to finance the transaction born from the seller's fraud Plaintiffs got both remedies Secured loan - loan is backed by mortgage; if the company can't pay the mortgage, the bank can foreclose and take the property Shortly after close the property, found out major tenants were leaving the building - rent money needed to pay off loan
Th. 9/19 Ch. 20 - Introduction to Sales
(LA245 covered common law contracts and just a little bit of UCC) UCC Article 2 covers Sale of goods (not services) Covered in this class Article 2 - Sales Article 9 - Secured Transactions Article 3 - Negotiable Instruments Commercial - involving commerce Section 1-102: Purpose and scope of code All things movable other than money, investment securities Land is not a good (properties and services excluded) Things in action are excluded Mixed transaction (sale of services and goods) can go either way Court will employ predominant purpose test UCC will apply if the predominant purpose is for sale of goods Common law will control if the predominant purpose is for sale of services Merchants 2-104 Merchant - routinely deals in goods Held to a higher standard under UCC if a merchant Good faith and unconscionability Unconscionable - the terms of the contract are grossly unfair Different standards for merchants and non-merchants Non-merchants need to have honesty and fact Merchants - need to have honesty and fact and reasonable commercial standards of fair dealing Section 2-204 Three rules to making a contract quickly and informally 1. Any manner that shows agreement: with words, writings, or even their conduct 2. Moment of making is not critical 3. One or more terms may be left open: common law insists the parties clearly agree on all important terms Under the UCC, a court may enforce a bargain even though one or more terms were left open Jannusch v. Naffziger Jannusch had a food concession business they were going to sell to Naffzigers; Jannuchs helped them get setup but at the end of the season the Naffzigers decided they didn’t want it Trial court: ruled in favor of Naffzigers citing no meeting of the minds and therefore no contract Jannusch appealed Applied predominant purpose test (mixed) It's for a business that deals with services, but it includes sale of goods/tangible assets along with it --> UCC overrides Common Law Now it doesn't matter that Naffzigers can't remember exactly when the contract was formed/meeting of the minds Also, they took possession of the business for 6 events Statute of frauds UCC 2-201 requires a writing for any sale of goods worth $500 or more Under the UCC it doesn't need to be fully complete or entirely accurate Exceptions to writing requirement under statute of frauds (for >$500): Merchant exception: 2-201(2) When two merchants make an oral contract, and one sends a memo to the other within a reasonable time, and the memo is sufficiently definite that it could be enforced against the sender herself, then the memo is also valid against the merchant who receives it, unless he objects within 10 days
Specialty goods exception: If a buyer orders goods that are specially manufactured for the buyer and not suitable for sale to others in the ordinary course of the seller's business, then a verbal agreement is enforceable even if it exceeds $500 Judicial admission exception If a defendant admits in his pleading, testimony, or otherwise in court that a contract for sale was made, then the contract he admitted to is enforceable against him Delta Star, Inc. v. Michael's Carpet World Ivan from Delta Star hired Michael's in a verbal agreement to install carpet in office suite, and tile office of CEO (Ivan) and his assistant Michael's faxed a purchase order and installed the carpet (got paid), but Delta Star tried to cancel the remaining part of the work Delta Star argued because it was priced above $500 so needed a written agreement, statute of frauds was unenforceable Trial court disagreed citing the tiles were specially manufactured (Michael's had never ordered that type of tile for a customer before); Delta Star appealed Judge: tiles were chosen from samples and were not altered in any way special to Delta Star so were not "specifically manufactured" for Delta Star; no writing exists as the purchase order was only for the installation of flooring in the entryway and not the office; Delta Star hadn't agreed to the estimate and therefore hadn't admitted to any existence of a contract for the office floors Is there a confirmatory memo? No Are there specialty goods? No Did they admit to having a contract? No
Tu. 9/24 Ch. 20 Intro to Sales Added term: Section 2-207 Additional terms Different terms Similar to mirror image rule in common law Mirror image rule: the offeror (makes the offer); the offeree has to make the exact same terms as the offeror or it's a counteroffer In 2-207: an acceptance that can change terms or add terms often creates a contract Battle of Forms Each side submits its own version of the forms Superior Boiler Works, Inc. v. RJ Sanders, Inc. Case Facts: Sanders had a contract with federal government to install the heating system at a federal prison; company negotiated with Superior Boiler to buy 3 large commercial units March 27: Superior sent a proposal to Sanders, offering to sell 3 boilers for $156,000 and estimated delivery of 4 weeks; had more discussions July 20: Sanders sent a "purchase order" (writing) for 3 boilers agreeing to pay $145,827 and "Date required: 4 Weeks" that is August 20. August 6: Superior sent a "sales order" agreeing to sell 3 boilers at that price but with a shipping date of October 1st; forced Sanders to rent temporary boilers at $45,315 Oct 5: Sanders received boilers and sent check for $100,000; Superior sued for additional $45,000 and moved for summary judgment, which trial court granted Sanders appealed, claiming the contract required Superior to deliver the boilers within four weeks Justice Flander:
Even though the two documents disagree on an important term - delivery time - doesn't prevent the formation of a contract under the UCC because they both intended to be bound contractually Must be considered in light of section 2-207(2) Void filled by Section 2-309 "the time for shipment or delivery … if…. Not agreed upon shall be a reasonable time" The August 6 sales order and the amended purchase order require the 3 boilers to be delivered with a reasonable period after August 6 Only available evidence indicated that Superior's performance was reasonable, by industry standards Appeal is denied, and Superior Court's judgment is affirmed Why didn't they clear up the shipping dates? Possibly didn't even see the different dates Different terms So the UCC uses gap fillers to fill in reasonable time frame - determined the shipment or delivery should be a reasonable time (based on industry standards) Court: if there is a critical issue/absolutely need by a certain date, put in a clause that expressly makes acceptance conditional on assent to that term Additional Terms Typically become a part of the contract Open Terms Section 2-305 (open prices) Section 2-306 (output + requirements contracts) Open Terms If the price is not stated, it becomes the reasonable price at the time of the delivery under 2-305 Output contract - obligates the seller to sell all of his output to the buyer, who agrees to accept it Requirements contract - obligates a buyer to purchase all his needed goods from the seller The UCC requires that the parties in an output or requirements contract make their demands in good faith. Mathis v. Exxon Corporation Exxon markets gasoline to retailers in 3 ways: Franchises (owned local gas stations) - required to purchase a minimum number of gallons/ month; Exxon set the price each month (known as Deal Tank Wagon price (DTW)) Jobbers (distributors who could resell to dealers) - paid the "rack price" , generally lower than the DTW Company operated retail stores (CORS) - paid nothing because Exxon owned them Case: 54 Texas franchises sued claim Exxon set their gas prices artificially high to drive them out of business and replace them with CORS Evidence: franchisees' DTW was consistently higher than rack price; many franchises became unprofitable; 62% of franchisees were selling gas below price they paid for; 75% of competitors could buy gas at a lower price; Exon documents showed that franchises were becoming unprofitable Plaintiffs said Exxon set prices in bad faith Court: Jury agreed, awarded plaintiffs $5.7million, plus $2.3million in attorney's fees; Exxon appealed Judge Smith's Decision: Section 2-305(2) rejects the idea that the seller may fix any price he wants - the price must be fixed in good faith (includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant) Produced enough evidence: Exxon planned to replace a number of franchises with CORS DTW price was higher than the sum of the rack price and transportation Exxon prevented the franchisees from purchasing gas from jobbers Number of franchisees were unprofitable or noncompetitive Documents: marketing strategy to reduce dealer stores; reduce dealer stations from 95 to 45 and to increase CORS from 83 to 150 Affirmed
Why did Exxon appeal? It would have set a precedent - they want to be able to do this again UCC Non-merchant - good faith is honesty and fact Merchants - Honesty and fact plus the exercise of reasonable commercial standards of fair dealing Lohman v. Wagner (2004) Court Facts Farmer Charles Lohman talked with John Wagner about raising weaner pigs for a new "pork network" that Wagner was thinking of creating; Lohman needed to money to convert his farm Lohman asked Wagner for something to show his banker; Wagner faxed over a document with several blanks, "Produce agrees to supply __ weaner pigs weekly"; Lohman filled in "300"; received loan and never sent Wagner a copy of the document with blank filled in Lohman shipped pigs and received $28 for each of them; Wagner dropped price to $18 and never assembled promised pork network which Lohman said would have helped boost prices Lohman sued Wagner for breach of contract Trial court: the agreement didn't meet the UCC requirement that a quantity term be included and therefore unenforceable and that Lohman was entitled to nothing; Lohman appealed Argument for Lohman: UCC statue of frauds and the requirement that quantity term be included shouldn't apply: this agreement is for services and not for goods Even if contract is deemed to be a sale of goods, there is a quantity term included (300); number was entered as a good-faith estimate UCC2-306 doesn’t require a quantity term in this case; an output contract; Lohman sold every weaner pig her produced to Wagner, and Wagner accepted and paid for them Output contracts - do not include specific quantity terms; merely obligate a seller to sell all of his output to the buyer Argument for Wagner: UCC applies because pigs are goods The 300 was never communicated to my client; never agreed to it or even had a chance to review it Bank has a security interest in the farm - wouldn't give him the loan just on the basis of the document Arguing in the alternative - making several different arguments
Th. 9/26 Chapter 21 - Ownership and Risk BFP - bona fide purchaser 2 types of titles: Voidable - has the power to transfer valid title for value to a good faith purchaser (aka BFP) If fraud or deception Prove you're a BFP: Give value for the goods Acted in good faith Void - Thief has void title if used fraud or deception (i.e. cattle stolen in the night) Depends on how the thief acquires the goods Bakalar v. Vavra Franz Grunbaum - Jewish man, lived in Vienna before WWII; Nazis imprisoned him in concentration camp and took his possessions; he died a few years later Possession included a painting worth $675,000 Bakalar bought the painting in 1963
Vavra and Fischer - Grunbaum's heirs; claiming title to the painting Lower Court - Bakalar got the painting; Vavra and Fischer appealed Bakalar - I bought it in good faith; he's a BFP Appeals Court Nazi's never had a valid title (thieves can't pass valid title) NYC - we have case law; don't want to be a marketplace for stolen goods
Tu. 10/1 Quiz: Costs to store a vehicle for a short period of time after an auto dealer fails to complete the contract to purchase the vehicle would be: incidental damages A requirements contract is a contract: in which the seller provides all of the goods that the buyer needs. (Punitive damages - for punishing someone/a company) Additional Case (handout): People v. Simmons (Chapter 21) Goods Identification of Crops: You can contract to sell crops when it's planted Identification of Animals: when its conceived Circuit City Stores, Inc. v. Commissioner of Revenue (2003) Facts: Circuit City allowed customers to purchase a CD in Mass but pick it up in NH where there's no sales tax For "alternative location" sales, the receipt said where the item had been bought and where it would be picked up; receipt said "reserved" and that the collection store would have one less item available to customers Until the customer picked it up, could demand a refund or pick it up in the store of purchase Mass Commissioner of Revenue demands sales tax on the "alternative location" sales claiming it was a Mass sale because it was where the title passed; Circuit City said no because (1) goods were not identified to the contract until a customer picked them up in NH and (2) title passed in NH Issue: Where were the goods identified to the contract? Where did title to the goods pass? Judge: Do not agree with Circuit City's reasoning that it's merely a deposit on an order and not a sale The customer sales receipt contains a description of the item(s), plus the time and date of the sale; sales receipt represents proof of his or her right to the purchased merchandise The reserve notation on the receipt clearly reflects its status of being set aside or identified Affirmed Valley Forge Insurance Co. v. Great American Insurance Co. Facts: Karl and Linda Kennedy went to buy a new car from John Nolan Ford; couldn't secure financing before the dealership closed but were deemed creditworthy by Ford and were allowed to take the car home for the weekend Kennedy allowed his brother-in-law, Cella, to drive the car with a passenger named Campbell Cella got in an accident; Campbell was injured and sued Which insurance company is liable? Ford (Milwaukee Mutual), Cella (Valley Forge), or Kennedy (Great American) Trial Court: title had never passed to Kennedy and found Milwaukee Mutual liable Issue: Had title passed to Kennedy at the time of the accident?
Per Curiam Decision: Milwaukee argued that the risk of loss and insurable interest had passed because the car had been delivered; Kennedys also signed "Agreement to Provide Insurance" Great American countered that in New Vehicle Buyer's Order, any interest in the car would not pass until "either the full purchase price is paid in cash or a satisfactory deferred payment agreement is executed by the parties - no financing had been arranged at the time of the accident Agreement to Provide insurance doesn't state exactly when they were to obtain insurance John Nolan Ford/Milwaukee insurance still had the risk of loss Affirmed Lindholm v. Brant Facts: Kerstin Lindholm and husband, Magnus, were art collectors; Andrews Malmberg sold and bought paintings for the couple, including an Andy Warhol named Red Elvis 1989 - loaned to MoMA exhibit that also had paintings owned by Peter Brant; Brant saw Red Elvis and learned that Kerstin was the owner and represented by Malmberg Decade later, another dealer, told Brant that Malmberg had purchased Red Elvis and might sell it; Lindholms still owned the picture Brant orally agreed to pay Malmberg $2.9M for it; nothing put in writing and he made a $900,000 deposit Brant learned of the Lindholms divorce; concerned Magnus would make claims to the painting, he hired a lawyer to investigate; lawyer reported finding no liens or art-loss claims but told Brant that this did not prove that Malmberg owned the painting Brant asked Malmberg for documents proving that Kerstin had sold him the painting; Malmberg refused pointing to the norm of confidentiality in the art world; paid the remaining $2M Kirsten, assumed she owned Red Elvis and made plans to sell it for $4.6M Trial Court: Brant was a BIOC and entitled to keep painting Issue: Was Brant a BIOC? Judge: Norm is handshake and exchange of an invoice; not norm to request the underlying invoice or corroboration information as to a dealer's authority to convey title Brant took an extraordinary step of hiring counsel; during the course of investigation, counsel found no competing claims to Red Elvis Both art dealers had reputations as honest, reliable, and trustworthy art dealers Judgment: Affirmed
Th. 10/3 (Ch. 21) Entrustment Section 2-403(2) - covers cases in which the owner of goods voluntarily leaves them with a merchant, who then sells the goods without permission Any entrusting to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business (BIOC) Buyer in the ordinary course of the business (BIOC) - one who acts in good faith, without knowing that the sale violates the owner's rights Entrusting - delivering goods to a merchant or permitting the merchant to retain them Deals in Goods of That Kinds Purpose - to protect innocent buyers who enter a store, see the goods they expect to find, and purchase something having no idea that the storekeeper is illegally selling the property of others In the ordinary course of business BIOC - one who acts in good faith, without knowing that the sale violates the owner's rights Lindholm v. Brant
Facts: Kerstin Lindholm and husband, Magnus, were art collectors; Andrews Malmberg sold and bought paintings for the couple, including an Andy Warhol named Red Elvis 1989 - loaned to MoMA exhibit that also had paintings owned by Peter Brant; Brant saw Red Elvis and learned that Kerstin was the owner and represented by Malmberg Decade later, another dealer, told Brant that Malmberg had purchased Red Elvis and might sell it; Lindholms still owned the picture Brant orally agreed to pay Malmberg $2.9M for it; nothing put in writing and he made a $900,000 deposit Brant learned of the Lindholms divorce; concerned Magnus would make claims to the painting, he hired a lawyer to investigate; lawyer reported finding no liens or art-loss claims but told Brant that this did not prove that Malmberg owned the painting Brant asked Malmberg for documents proving that Kerstin had sold him the painting; Malmberg refused pointing to the norm of confidentiality in the art world; paid the remaining $2M Kirsten, assumed she owned Red Elvis and made plans to sell it for $4.6M Trial Court: Brant was a BIOC and entitled to keep painting Issue: Was Brant a BIOC? Judge: Norm is handshake and exchange of an invoice; not norm to request the underlying invoice or corroboration information as to a dealer's authority to convey title Brant took an extraordinary step of hiring counsel; during the course of investigation, counsel found no competing claims to Red Elvis Both art dealers had reputations as honest, reliable, and trustworthy art dealers Judgment: Affirmed Harmon v. Dunn Facts: Bess Harmon owned horse named Phantom Recall in Tennessee; boarded her horse with Steve Dunn at his stables in Alabama; Harmon had Dunn sell the horse for $25,000; arranged for his friend Scarbrough to buy the horse June 30 - Dunn delivered Scarbrough's check to Harmon who handed over the horse's certification of registration and a "transfer of ownership" document; Dunn told Scar that he delivered the check and had the papers in his car but didn't actually hand over the papers; Scar knew the horse was boarded at Dunn's stables July 4 - horse died Scar stopped payment on his check and Harmon sued for her money Trial court found for Harmon Issue: Which party bore the risk of Phantom Recall's death? Judge: Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer: (a) on his receipt of a negotiable document of title covering the goods, or (b) on acknowledgment by the bailee of the buyer’s right to possession of the goods, or (c) after his receipt of a non-negotiable document of title or other written direction to deliver Established a bailor-bailee relationship between Harmon and Dunn In the absence of any prior arrangement with Dunn or Harmon that the horse be delivered elsewhere upon purchase from the latter, we find that the risk of loss passed to Scarbrough if and when the applicable provisions under subsection 2 occurred Affirmed
CHAPTER 22 WARRANTIES Rite Aid Corp. v. Levy-Gray Facts: Dr. Ronald Geckler diagnosed Ellen Levy-Gray with lyme disease and prescribed doxycycline Told Levy-Gray to stop nursing her son and gave no other information Levy-Gray filled the prescription at Rite Aid Medication came with a pamphlet that said take medication with food or milk if stomach upset unless your doctor directs you otherwise Pamphlet stated: intended to supplement the expertise and judgment of your physician… Levy-Gray began to take milk with medication because she had an upset stomach; drank a lot of milk/ate dairy Her lyme disease didn't improve; and was diagnosed with post-lyme syndrome, a chronic autoimmune response Levy-Gray sued Rite Aid for breach of an express warranty; claimed that the instructions to take milk rendered the drug ineffective and caused her chronic condition Her expert witness: taking dairy products with the drug prevented the drug from being absorbed into the body Rite Aid expert stated any loss of absorption was modest and had no effect on her treatment; also claimed the pamphlet couldn't have been part of the basis of the bargain because Levy-Gray never saw it until after she bought the medication Jury: Rite-Aid breached a warranty and awarded Levy-Gray $250,000; Rite-Aid appealed; intermediate appeals court affirmed; state's highest court took the case Issue: Did Rite-Aid breach an express warranty? Judge: The precise time when words of description or affirmation are made or samples are shown is not material Sole question is whether the language is fairly to be regarded as part of the contract What is paramount is the relationship between the sale of the goods and the affirmations made by the seller The language contained in the "rite Advice" pamphlet encouraged Ms. Levy-Gray to rely on the information contained therein based upon its assertion on the cover that "inside is everything you need to know about your prescription" Affirmed Tu. 10/8 Tell Lindsey the Power's story of burning down the house with the iron Ch. 22 Warranties and Product Liabilities Rite aid case Express warranty created by the statement on the pamphlet Rite Aide blames it on her and her physician The Court: Rite Aid said you could safely take the drug with milk but didn't say how much milk They meant a little; but Levy-Gray had a lot of dairy Implied warranty of merchantability and Implied warranty of fitness for a particular purpose Goodman v. Wenco Foods, Inc. Facts: Goodman ate a Wendy's hamburger; bit straight into a bone 1/16 - 1/4 inch thick and 1/2 inch long Wendy's: meat is purchased from supply company and requires their meat to be free from bone and cartilage in excess of 1/8 in in any dimension; USDA consider any fragment less than 3/4 of an inch to be insignificant Implied warranty of merchantability - Product is fit for the ordinary purpose for which they are used Lower Court: bone was natural to the food and the hamburger was fit for its ordinary purpose (consumption)
Appeals Court: reversed, a hamburger could be unfit even if the bone occurred naturally Judge: Unfit, a consumer should not reasonably have anticipated the bone's presence even though it's meant to be of such a nature - Your food is not supposed to hurt you Test: the reasonable expectation of the consumer, even if the substance occurs naturally, it can breach the implied warranty of merchantability if a reasonable consumer would not expect to encounter it (a jury still has to decide) p.529 - #5 Boboli Co./Highland Group/Comark Merchandising Highland contracted with Comark to print brochures that would be put in hot pizza boxes; ink ran because the pizza was too hot Highland claimed breached its warranty of merchantability Comark didn't know that the brochures would be put on the pizza Fit for its ordinary purpose - brochures typically go on the outside of the box, not inside CCB Ohio, LLC v. Chemque, Inc. Facts: Chemque makes a gel seal; it didn't properly bind the power lines; it leaked; caused millions in damage CCB Ohio sued for breach of warranty; Chemque said they disclaimed the implied warranties - moved for summary judgment To disclaim a warranty: have to specifically say that you are disclaiming the implied warranty of merchantability; must be conspicuous -- that wasn't done here
Th. 10/10 Consequential/special damages Specific to the person's case; harm caused by the person's special circumstance Exclusion of consequential damages Void if unconscionable If it's so shockingly one-sided that it's fundamentally unfair In cases of personal injury, almost guaranteed court will void In cases of economic injury, court may void Reed v. City of Chicago Reed v. City of Chicago Facts: J.C. Reed was arrested and brought to Chicago PD; police allegedly aware that he was suicidal, having seen him slash his wrists; Police removed his clothing and dress him in a paper isolation gown; Reed used the gown to hang himself Reed's mother sued the police for failure to monitor a suicidal inmate and Cypress Medical Products, the manufacturer of the isolation gown; claim - gown should have been made of material that would tear if someone attempted to hang himself with it Cypress moved to dismiss the suit, claiming that Reed had no privity with the company Privity When two parties contract, they are in privity A plaintiff injured by a breach of contract could sue only a defendant with whom he had privity Issue: Could Reed maintain a lawsuit against Cypress despite lack of privity? Judge: Historically, Illinois law has required privity Lack of privity occurs when a user of the product, besides the consumer, is injured UCC: "a seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such
person may use, consumer or be affected by the goods and who is injured in person by breach of the warranty" The beneficiary of any warranty made by the manufacturer and designer of the gown is necessarily a potentially suicidal detainee like Reed. If protection is not provided to plaintiffs like Reed, any warranty as to the safety of the gown would have little, if any, effect. The safety of these detainees was necessarily a part of the bargain, whether explicitly or implicitly, between the seller and buyer. A detainee of the city like Reed must be able to enforce the protections of any warranties made by the manufacturer and designer of the gown Motion denied Motion to dismiss v. summary judgment Timeline: Pleadings --> Discovery --> (Summary Judgment) --> Trial Motion to dismiss is between pleadings and discovery Negligence No bargaining between the parties; no meeting of the minds Failing to act as a reasonable person would Elements for negligence case Duty Breach Causation Foreseeability Boumelhem v. Bic Corp. Facts: Ibrahim Boumelhem, a four year old, was playing with a BIC disposable lighter, started a fire and burned his legs and his 6-month old brother Ibrahim's father sued claiming that the lighter was negligently designed because it could have been childproof; also claimed failure to warn because the lighter did not clearly warn of the danger to children Court considered evidence from several other cases against Bic Argument for Boumelhem The Adams case (court found no negligent design and no failure to warn and dismissed all claims) decided the issues wrongly Bic acknowledged that its lighters can and will get into the hands of children and that it could design a childproof lighter, and it knows perfectly well how to include effective warnings on its lighters Argument for Bic Children's parents are responsible We have no duty to design a different lighter Test in design defect cases is whether the risks are unreasonable in light of the foreseeable injuries; young children can hurt themselves in countless ways Failure to warn is weak - law imposes no failure to warn when the danger is obvious Bic Won Strict liability Burden created by law instead of the parties Plaintiff only needs to show defendant made or sold defective product and that's what caused the harm
Chapter 23 - Performance and Remedies Zion Temple First Pentecostal Church of Cincinnati, Ohio v. Brighter Day Bookstore & Gifts Facts: Zion's choir order new robes from Brighter Day - robes were manufactured by Murphy Cap & Gown
Zion found many faults: Wrong color and material (considered it very different from the sample they reviewed at Brighter Day - samples created an express warranty) Sleeves had been attached facing the wrong way Velcro and tags were visible on the overlays Zion complained to Murphy who offered to repair the sleeves. Zion declined offer because of the other problems. Zion returned the robes, when it didn't get its money back, sued Trial court granted summary judgment for the defendants. Zion appeals Issue: Did Zion Temple afford Murphy a chance to cure? Judge: Zion inspected the robes in a reasonable time and rejected it as not conforming- never accepted it Murphy had a right to cure and indicated its intention to do so within a reasonable time Zion had other reasons for the rejecting the robes; Murphy never indicated its intention to cure these other nonconformities Reverse summary judgment for Murphy; remand this case for trial or further proceedings UCC requires a seller to have a chance to cure
Tu. 9/3 Chapter 19 - Practical Contracts Statute of Frauds - contracts must be in writing in order to be enforceable (you can have a verbal agreement, but the problem arises if one side backs out) Land Debt of another Contract that cannot be fulfilled within a year Sale of goods over $500 or more Drafting The party that has the most control drafts the contract Example: Land contract - the seller makes the contract, the buyer is the receiving end Mistakes 3 Major types of mistakes Vagueness - intentional; most likely can lead to litigation Ambiguity Scrivener's error Arbitration - resolve the matter out of court, binding decision by the arbitrator who is a neutral party; decision is confidential Quake Construction v. American Airlines Jones Brothers Construction invited Quake to bid on the project; Quake needed a guarantee that they'd be able to work on it so - didn't want to be on the hook for their sub-contractors Jones wrote a letter of intent, but it was vague. Ended the letter with the right to cancel the letter of intent Th. 9/5 Letter of intent factors for enforceable: If it's in writing Is there a full agreement? If there are many or few details Covenant - the terms/ promises in the contract Quake Construction v. American Airlines The court looked at what made the letter enforceable and what made it unenforceable Enforceable Short period of time Cancellation clause implies the intention to be bound by the letter Unenforceable However mentioning the execution of a formal contract meant they did not intent to be bound by the letter Decision: return to lower court (circuit court) and allow parol evidence regarding their intent Parol evidence normally not allowed in court (Parol evidence refers to anything (apart from the written contract itself) that was said, done, or written before the parties signed the agreement or as they signed it) Ambiguity Whoever drafts the contract is typically the one at fault Typically accidental mistake Cipriano v. Patrons Mutual Insurance Company of Connecticut House burned down by an arsonist; vacant for more than 30 days Didn't define "vandalism" and "fire" properly
Filed for motion for summary judgment Court rejects motion and sends case to court Lawyer pay Billable hours - the hours they spent working on the case Contingency - lawyer takes a certain % agreed upon ahead of time; % of what you recover Timeline of general case Pleadings --> Discover --> Motion for summary judgment ---> trial Heritage Technologies v. Phibro-Tech TBCC would increase an additional $15 per ton for each $0.01 increase in the cost of copper sulfate over $0.38/pound Somewhere $.01 got changed to $.10 - Heritage lawyer caught the mistake and Heritage said it was payment for something else Heritage found a mistake and Phibro agree to make the change even though it was not advantageous for them Phibro thought it was getting it's extra money, but Heritage said nope look at the contract is says $.10 Outcome: Phibro: that clause was meant to protect them, so clearly it was a mistake; there was no negotiations for $.10, only $.01; doesn't make sense economically Heritage: you had your chance to change it Court: enforce the contract as written, as $.10 Covenant of Good Faith and Fair Dealing Inherent in every deal and contract
Tu. 9/10 Handout 1st page - 2nd Revision to Purchase and Sale Agreement Includes: Title, introductory paragraph, covenant, date, (need consideration for a valid contract) Covenant - a promise for something to be done "Time still being of the essence of this agreement as revised" = Makes the date of the closing/contract strictly enforceable; can still change the date if both sides want to 2nd Page - Third Amendment to Purchase and Sale Agreement Breach Nonmaterial breaches happen all the time Material breach - important enough to defeat the essential purpose or essence of the contract Things need to be done reasonably and in good faith LeMond Cycling vs. PTI Holding Inc. LCI contracting with PTI to sell bike accessories under names like Barbie, etc. Deal: PTI would use commercially reasonable efforts (not actually defined in the contract) and keep LCI apprised of what PTI was doing Target the only one who was interested and only a little bit at that PTI didn't keep LCI informed of the rejections or limited store space in Target Argued that it was Target's job to market the products PTI started to sell the same type of products for Schwinn and it was successful Abandoned efforts to sell LaMond items LaMond filed for breach; PTI filed for motion for summary judgment Court: PTI not providing the annual marketing plans was not material to the contract The deal memo fails to define commercially reasonable
Motion for summary judgment granted in part (marketing plans), denied in part (good faith) The only part going to trial: good faith and fair dealing Representations and Warranties Conditional promise - one that one agrees to if the other side does what they're supposed to Sole discretion - complete and total ability to decide on that specific issue Boilerplate Arbitration clauses Go to an arbitrator for an issue, resolved out of court and the decision is final Non-compete clauses Has to be reasonable in terms of time, distance, and scope Force Majeure An event beyond your control that may prevent a party from complying with the obligations under your contract Acts of God (weather), War/terrorism, embargo, riots, strikes, lockouts, etc. A disruptive unexpected occurrence for which neither party is to blame that prevents the parties from complying with the contract If it is force majeure, it is not a breach of contract
Ch. 18 Remedy Different types of remedies Injunction Expectation damages Specific performance Force the parties to go through with the deal Only for contracts where monetary damages wouldn't be able to properly compensate - the uniqueness or if it deals with land There are no two properties identical Liquidated damages clause Will in advance say what the party is entitled to if there is a breach in the contract
Th. 9/12 1st Quiz format Multiple choice Moved to next Thursday (not Tuesday) Remedies 4 types of Contract Interests 1. Expectation interest a. Direct b. Consequential } What party thought he would get from contract c. Incidental 2. Reliance interest (unclear if there would be a profit -- but party spent money in reliance on contract) 3. Restitution interest (restore to injured party benefit that was provided) 4. Equitable interest (money not sufficient) specific performance; injunctive relief Arguing in the alternative Can argue for separate interests (if you aren't sure they'll accept one of the interests - cover your bases) Will only win one of them Use if you want to give more reasons Liquidated damages - clause that states in advance how much money you'll get in the event of a breach Has to be reasonable Not meant to be a penalty
Only an estimate for damages Prevents people from going to court Settlement Always try for settlement Even if one side is absolutely right, sometimes how the case comes across to the public/others might make you want to settle and never go to trial Hawkins v. McGee (1929) (hairy hands) Hawkins had electrical burns; McGee was going to perform graft surgery McGee: "I will guarantee to make the hand a hundred percent perfect" McGee took skin from Hawkins chest; hair started growing on his palm Court: Gave $3000, judge reduced to $500 New judge: Take the difference between the value of a perfect hand the current condition of his hand Jury took two elements into account: (1) pain and suffering due to the operations, and (2) positive ill effects of the operation upon the plaintiff's hand Measure of recovery is what the defendant should have given the plaintiff not what the plaintiff has given the defendant True measure of damages: difference between the value to him of a perfect hand and the value of his hand in its present condition, including any incidental consequences fairly within the contemplation of the parties when they made their contract --> Remanded for a new trial Because at the 1st trial, the jury wasn't given the right information base their decision; were given the wrong instructions Should have decided based on the difference between the value of perfect hand and current condition Direct Damages Part of expectation Come directly from the contract - if there's a breach Octomom strip club case Supposed to strip at Florida strip club; signs contract Instead goes to strip in Hollywood gentlemen's club because offer more money Florida club sued for injunction and expectation interest Wasn't granted injunction
Tu. 9/17 (chapter 18 - remedies) Hadley vs. Baxendale (1854) Hadley's flour mill had a broken part - the crankshaft. Baxendale was hired to take the broken part with his cart and take it to a place for a new one to be manufactured; Baxendale promised one day delivery but was 5 days late; mill was shut down Hadley's won; Baxendale appealed Baxendale: I didn't know that the crankshaft was vital to the operation of the mill; didn't know if they didn't have any backup parts The plaintiff (Hadley) can only recover if he communicated the special circumstance to the defendant (Baxendale) Bi-economy Market vs. Harleysville Insurance (consequential damages) Bi-economy market - family owned meat market Insurance policy: deluxe package; replacement costs for building and inventory including business interruption service (loss of pretax profit plus normal operating expenses, including payroll) Market had a fire; destroyed everything; filed a claim
Insurance company very slowly; had an arbitrator come in and market got more money; Insurance company paid for 7 months of lost income but declined to pay more Market sued; insurance company gave the money too slowly Wanted consequential damages for the permanent damages for the destruction of the company Lower court granted summary judgment (no reason to go to trial, waste of time); appellate court affirmed lower courts decision Consequential damages: damages that result from the unique circumstances This case: market couldn't keep company going because of the delay in payments It wasn't the unique circumstance that it went out of business, but the unique circumstance of the unfair delay of the payments Insurance: you should have paid for the higher premium The point of business interruption insurance is to pay in the event of a disaster so the company will go under UCC Will find a contract where common law doesn't Reliance interest Promissory estoppel Defendant made a promise knowing the plaintiff would likely rely on it - detrimental reliance Toscano v. Greene Music Toscano was the general manager of Field Pianos and sought employment with Greene Music who offered a job. Toscano resigned from his original job, however Green withdrew the employment offer. Toscano ended up at lower-paying jobs Toscano sued for breach of contract and promissory estoppel Trial court ruled Toscano entitled to reliance damages for all lost wages at Fields, starting from the day he resigned to his anticipated retirement in 2017 for $536,833; Greene appealed Court: don't know if Toscano would have stayed/been fired form Field Pianos (at-will employment; anything could have happened - it's too speculative); current award vacated and matter remanded for a new trial on the issue of damages only; judgment otherwise affirmed (not successful on breach of contract - only on detrimental reliance damages) Quasi-contract Rescission Reverse the contract - rescinds the contract Putnam Construction vs. Byrd Putnam owned USBC, a office complex. Byrd and associates were going to buy the building for $16.2 million with a loan from Northwestern Mutual Life (if they failed to pay Northwestern got the building); after closing, Byrd learned that several of the major tenants were leaving; sued Putnam seeking rescission of the contract and restitution of their money Trial court found Putnam committed fraud; rescinded sales contract, returning the property to the Putnam, ordered sellers to assume full liability for the mortgage; didn't order restitution of buyers' expenses; sellers appealed Judge after appeal: added repayment of $483,006.75 in closing costs on the purchase of USBC, $121,000 in interest payments they paid to the sellers on the $1.5 million note; and the $500,000 nonrefundable fees the buyers paid to Northwestern to get the loan as the buyers incurred out of pocket expenses to finance the transaction born from the seller's fraud Plaintiffs got both remedies Secured loan - loan is backed by mortgage; if the company can't pay the mortgage, the bank can foreclose and take the property Shortly after close the property, found out major tenants were leaving the building - rent money needed to pay off loan
Th. 9/19 Ch. 20 - Introduction to Sales
(LA245 covered common law contracts and just a little bit of UCC) UCC Article 2 covers Sale of goods (not services) Covered in this class Article 2 - Sales Article 9 - Secured Transactions Article 3 - Negotiable Instruments Commercial - involving commerce Section 1-102: Purpose and scope of code All things movable other than money, investment securities Land is not a good (properties and services excluded) Things in action are excluded Mixed transaction (sale of services and goods) can go either way Court will employ predominant purpose test UCC will apply if the predominant purpose is for sale of goods Common law will control if the predominant purpose is for sale of services Merchants 2-104 Merchant - routinely deals in goods Held to a higher standard under UCC if a merchant Good faith and unconscionability Unconscionable - the terms of the contract are grossly unfair Different standards for merchants and non-merchants Non-merchants need to have honesty and fact Merchants - need to have honesty and fact and reasonable commercial standards of fair dealing Section 2-204 Three rules to making a contract quickly and informally 1. Any manner that shows agreement: with words, writings, or even their conduct 2. Moment of making is not critical 3. One or more terms may be left open: common law insists the parties clearly agree on all important terms Under the UCC, a court may enforce a bargain even though one or more terms were left open Jannusch v. Naffziger Jannusch had a food concession business they were going to sell to Naffzigers; Jannuchs helped them get setup but at the end of the season the Naffzigers decided they didn’t want it Trial court: ruled in favor of Naffzigers citing no meeting of the minds and therefore no contract Jannusch appealed Applied predominant purpose test (mixed) It's for a business that deals with services, but it includes sale of goods/tangible assets along with it --> UCC overrides Common Law Now it doesn't matter that Naffzigers can't remember exactly when the contract was formed/meeting of the minds Also, they took possession of the business for 6 events Statute of frauds UCC 2-201 requires a writing for any sale of goods worth $500 or more Under the UCC it doesn't need to be fully complete or entirely accurate Exceptions to writing requirement under statute of frauds (for >$500): Merchant exception: 2-201(2) When two merchants make an oral contract, and one sends a memo to the other within a reasonable time, and the memo is sufficiently definite that it could be enforced against the sender herself, then the memo is also valid against the merchant who receives it, unless he objects within 10 days
Specialty goods exception: If a buyer orders goods that are specially manufactured for the buyer and not suitable for sale to others in the ordinary course of the seller's business, then a verbal agreement is enforceable even if it exceeds $500 Judicial admission exception If a defendant admits in his pleading, testimony, or otherwise in court that a contract for sale was made, then the contract he admitted to is enforceable against him Delta Star, Inc. v. Michael's Carpet World Ivan from Delta Star hired Michael's in a verbal agreement to install carpet in office suite, and tile office of CEO (Ivan) and his assistant Michael's faxed a purchase order and installed the carpet (got paid), but Delta Star tried to cancel the remaining part of the work Delta Star argued because it was priced above $500 so needed a written agreement, statute of frauds was unenforceable Trial court disagreed citing the tiles were specially manufactured (Michael's had never ordered that type of tile for a customer before); Delta Star appealed Judge: tiles were chosen from samples and were not altered in any way special to Delta Star so were not "specifically manufactured" for Delta Star; no writing exists as the purchase order was only for the installation of flooring in the entryway and not the office; Delta Star hadn't agreed to the estimate and therefore hadn't admitted to any existence of a contract for the office floors Is there a confirmatory memo? No Are there specialty goods? No Did they admit to having a contract? No
Tu. 9/24 Ch. 20 Intro to Sales Added term: Section 2-207 Additional terms Different terms Similar to mirror image rule in common law Mirror image rule: the offeror (makes the offer); the offeree has to make the exact same terms as the offeror or it's a counteroffer In 2-207: an acceptance that can change terms or add terms often creates a contract Battle of Forms Each side submits its own version of the forms Superior Boiler Works, Inc. v. RJ Sanders, Inc. Case Facts: Sanders had a contract with federal government to install the heating system at a federal prison; company negotiated with Superior Boiler to buy 3 large commercial units March 27: Superior sent a proposal to Sanders, offering to sell 3 boilers for $156,000 and estimated delivery of 4 weeks; had more discussions July 20: Sanders sent a "purchase order" (writing) for 3 boilers agreeing to pay $145,827 and "Date required: 4 Weeks" that is August 20. August 6: Superior sent a "sales order" agreeing to sell 3 boilers at that price but with a shipping date of October 1st; forced Sanders to rent temporary boilers at $45,315 Oct 5: Sanders received boilers and sent check for $100,000; Superior sued for additional $45,000 and moved for summary judgment, which trial court granted Sanders appealed, claiming the contract required Superior to deliver the boilers within four weeks Justice Flander:
Even though the two documents disagree on an important term - delivery time - doesn't prevent the formation of a contract under the UCC because they both intended to be bound contractually Must be considered in light of section 2-207(2) Void filled by Section 2-309 "the time for shipment or delivery … if…. Not agreed upon shall be a reasonable time" The August 6 sales order and the amended purchase order require the 3 boilers to be delivered with a reasonable period after August 6 Only available evidence indicated that Superior's performance was reasonable, by industry standards Appeal is denied, and Superior Court's judgment is affirmed Why didn't they clear up the shipping dates? Possibly didn't even see the different dates Different terms So the UCC uses gap fillers to fill in reasonable time frame - determined the shipment or delivery should be a reasonable time (based on industry standards) Court: if there is a critical issue/absolutely need by a certain date, put in a clause that expressly makes acceptance conditional on assent to that term Additional Terms Typically become a part of the contract Open Terms Section 2-305 (open prices) Section 2-306 (output + requirements contracts) Open Terms If the price is not stated, it becomes the reasonable price at the time of the delivery under 2-305 Output contract - obligates the seller to sell all of his output to the buyer, who agrees to accept it Requirements contract - obligates a buyer to purchase all his needed goods from the seller The UCC requires that the parties in an output or requirements contract make their demands in good faith. Mathis v. Exxon Corporation Exxon markets gasoline to retailers in 3 ways: Franchises (owned local gas stations) - required to purchase a minimum number of gallons/ month; Exxon set the price each month (known as Deal Tank Wagon price (DTW)) Jobbers (distributors who could resell to dealers) - paid the "rack price" , generally lower than the DTW Company operated retail stores (CORS) - paid nothing because Exxon owned them Case: 54 Texas franchises sued claim Exxon set their gas prices artificially high to drive them out of business and replace them with CORS Evidence: franchisees' DTW was consistently higher than rack price; many franchises became unprofitable; 62% of franchisees were selling gas below price they paid for; 75% of competitors could buy gas at a lower price; Exon documents showed that franchises were becoming unprofitable Plaintiffs said Exxon set prices in bad faith Court: Jury agreed, awarded plaintiffs $5.7million, plus $2.3million in attorney's fees; Exxon appealed Judge Smith's Decision: Section 2-305(2) rejects the idea that the seller may fix any price he wants - the price must be fixed in good faith (includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant) Produced enough evidence: Exxon planned to replace a number of franchises with CORS DTW price was higher than the sum of the rack price and transportation Exxon prevented the franchisees from purchasing gas from jobbers Number of franchisees were unprofitable or noncompetitive Documents: marketing strategy to reduce dealer stores; reduce dealer stations from 95 to 45 and to increase CORS from 83 to 150 Affirmed
Why did Exxon appeal? It would have set a precedent - they want to be able to do this again UCC Non-merchant - good faith is honesty and fact Merchants - Honesty and fact plus the exercise of reasonable commercial standards of fair dealing Lohman v. Wagner (2004) Court Facts Farmer Charles Lohman talked with John Wagner about raising weaner pigs for a new "pork network" that Wagner was thinking of creating; Lohman needed to money to convert his farm Lohman asked Wagner for something to show his banker; Wagner faxed over a document with several blanks, "Produce agrees to supply __ weaner pigs weekly"; Lohman filled in "300"; received loan and never sent Wagner a copy of the document with blank filled in Lohman shipped pigs and received $28 for each of them; Wagner dropped price to $18 and never assembled promised pork network which Lohman said would have helped boost prices Lohman sued Wagner for breach of contract Trial court: the agreement didn't meet the UCC requirement that a quantity term be included and therefore unenforceable and that Lohman was entitled to nothing; Lohman appealed Argument for Lohman: UCC statue of frauds and the requirement that quantity term be included shouldn't apply: this agreement is for services and not for goods Even if contract is deemed to be a sale of goods, there is a quantity term included (300); number was entered as a good-faith estimate UCC2-306 doesn’t require a quantity term in this case; an output contract; Lohman sold every weaner pig her produced to Wagner, and Wagner accepted and paid for them Output contracts - do not include specific quantity terms; merely obligate a seller to sell all of his output to the buyer Argument for Wagner: UCC applies because pigs are goods The 300 was never communicated to my client; never agreed to it or even had a chance to review it Bank has a security interest in the farm - wouldn't give him the loan just on the basis of the document Arguing in the alternative - making several different arguments
Th. 9/26 Chapter 21 - Ownership and Risk BFP - bona fide purchaser 2 types of titles: Voidable - has the power to transfer valid title for value to a good faith purchaser (aka BFP) If fraud or deception Prove you're a BFP: Give value for the goods Acted in good faith Void - Thief has void title if used fraud or deception (i.e. cattle stolen in the night) Depends on how the thief acquires the goods Bakalar v. Vavra Franz Grunbaum - Jewish man, lived in Vienna before WWII; Nazis imprisoned him in concentration camp and took his possessions; he died a few years later Possession included a painting worth $675,000 Bakalar bought the painting in 1963
Vavra and Fischer - Grunbaum's heirs; claiming title to the painting Lower Court - Bakalar got the painting; Vavra and Fischer appealed Bakalar - I bought it in good faith; he's a BFP Appeals Court Nazi's never had a valid title (thieves can't pass valid title) NYC - we have case law; don't want to be a marketplace for stolen goods
Tu. 10/1 Quiz: Costs to store a vehicle for a short period of time after an auto dealer fails to complete the contract to purchase the vehicle would be: incidental damages A requirements contract is a contract: in which the seller provides all of the goods that the buyer needs. (Punitive damages - for punishing someone/a company) Additional Case (handout): People v. Simmons (Chapter 21) Goods Identification of Crops: You can contract to sell crops when it's planted Identification of Animals: when its conceived Circuit City Stores, Inc. v. Commissioner of Revenue (2003) Facts: Circuit City allowed customers to purchase a CD in Mass but pick it up in NH where there's no sales tax For "alternative location" sales, the receipt said where the item had been bought and where it would be picked up; receipt said "reserved" and that the collection store would have one less item available to customers Until the customer picked it up, could demand a refund or pick it up in the store of purchase Mass Commissioner of Revenue demands sales tax on the "alternative location" sales claiming it was a Mass sale because it was where the title passed; Circuit City said no because (1) goods were not identified to the contract until a customer picked them up in NH and (2) title passed in NH Issue: Where were the goods identified to the contract? Where did title to the goods pass? Judge: Do not agree with Circuit City's reasoning that it's merely a deposit on an order and not a sale The customer sales receipt contains a description of the item(s), plus the time and date of the sale; sales receipt represents proof of his or her right to the purchased merchandise The reserve notation on the receipt clearly reflects its status of being set aside or identified Affirmed Valley Forge Insurance Co. v. Great American Insurance Co. Facts: Karl and Linda Kennedy went to buy a new car from John Nolan Ford; couldn't secure financing before the dealership closed but were deemed creditworthy by Ford and were allowed to take the car home for the weekend Kennedy allowed his brother-in-law, Cella, to drive the car with a passenger named Campbell Cella got in an accident; Campbell was injured and sued Which insurance company is liable? Ford (Milwaukee Mutual), Cella (Valley Forge), or Kennedy (Great American) Trial Court: title had never passed to Kennedy and found Milwaukee Mutual liable Issue: Had title passed to Kennedy at the time of the accident?
Per Curiam Decision: Milwaukee argued that the risk of loss and insurable interest had passed because the car had been delivered; Kennedys also signed "Agreement to Provide Insurance" Great American countered that in New Vehicle Buyer's Order, any interest in the car would not pass until "either the full purchase price is paid in cash or a satisfactory deferred payment agreement is executed by the parties - no financing had been arranged at the time of the accident Agreement to Provide insurance doesn't state exactly when they were to obtain insurance John Nolan Ford/Milwaukee insurance still had the risk of loss Affirmed Lindholm v. Brant Facts: Kerstin Lindholm and husband, Magnus, were art collectors; Andrews Malmberg sold and bought paintings for the couple, including an Andy Warhol named Red Elvis 1989 - loaned to MoMA exhibit that also had paintings owned by Peter Brant; Brant saw Red Elvis and learned that Kerstin was the owner and represented by Malmberg Decade later, another dealer, told Brant that Malmberg had purchased Red Elvis and might sell it; Lindholms still owned the picture Brant orally agreed to pay Malmberg $2.9M for it; nothing put in writing and he made a $900,000 deposit Brant learned of the Lindholms divorce; concerned Magnus would make claims to the painting, he hired a lawyer to investigate; lawyer reported finding no liens or art-loss claims but told Brant that this did not prove that Malmberg owned the painting Brant asked Malmberg for documents proving that Kerstin had sold him the painting; Malmberg refused pointing to the norm of confidentiality in the art world; paid the remaining $2M Kirsten, assumed she owned Red Elvis and made plans to sell it for $4.6M Trial Court: Brant was a BIOC and entitled to keep painting Issue: Was Brant a BIOC? Judge: Norm is handshake and exchange of an invoice; not norm to request the underlying invoice or corroboration information as to a dealer's authority to convey title Brant took an extraordinary step of hiring counsel; during the course of investigation, counsel found no competing claims to Red Elvis Both art dealers had reputations as honest, reliable, and trustworthy art dealers Judgment: Affirmed
Th. 10/3 (Ch. 21) Entrustment Section 2-403(2) - covers cases in which the owner of goods voluntarily leaves them with a merchant, who then sells the goods without permission Any entrusting to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business (BIOC) Buyer in the ordinary course of the business (BIOC) - one who acts in good faith, without knowing that the sale violates the owner's rights Entrusting - delivering goods to a merchant or permitting the merchant to retain them Deals in Goods of That Kinds Purpose - to protect innocent buyers who enter a store, see the goods they expect to find, and purchase something having no idea that the storekeeper is illegally selling the property of others In the ordinary course of business BIOC - one who acts in good faith, without knowing that the sale violates the owner's rights Lindholm v. Brant
Facts: Kerstin Lindholm and husband, Magnus, were art collectors; Andrews Malmberg sold and bought paintings for the couple, including an Andy Warhol named Red Elvis 1989 - loaned to MoMA exhibit that also had paintings owned by Peter Brant; Brant saw Red Elvis and learned that Kerstin was the owner and represented by Malmberg Decade later, another dealer, told Brant that Malmberg had purchased Red Elvis and might sell it; Lindholms still owned the picture Brant orally agreed to pay Malmberg $2.9M for it; nothing put in writing and he made a $900,000 deposit Brant learned of the Lindholms divorce; concerned Magnus would make claims to the painting, he hired a lawyer to investigate; lawyer reported finding no liens or art-loss claims but told Brant that this did not prove that Malmberg owned the painting Brant asked Malmberg for documents proving that Kerstin had sold him the painting; Malmberg refused pointing to the norm of confidentiality in the art world; paid the remaining $2M Kirsten, assumed she owned Red Elvis and made plans to sell it for $4.6M Trial Court: Brant was a BIOC and entitled to keep painting Issue: Was Brant a BIOC? Judge: Norm is handshake and exchange of an invoice; not norm to request the underlying invoice or corroboration information as to a dealer's authority to convey title Brant took an extraordinary step of hiring counsel; during the course of investigation, counsel found no competing claims to Red Elvis Both art dealers had reputations as honest, reliable, and trustworthy art dealers Judgment: Affirmed Harmon v. Dunn Facts: Bess Harmon owned horse named Phantom Recall in Tennessee; boarded her horse with Steve Dunn at his stables in Alabama; Harmon had Dunn sell the horse for $25,000; arranged for his friend Scarbrough to buy the horse June 30 - Dunn delivered Scarbrough's check to Harmon who handed over the horse's certification of registration and a "transfer of ownership" document; Dunn told Scar that he delivered the check and had the papers in his car but didn't actually hand over the papers; Scar knew the horse was boarded at Dunn's stables July 4 - horse died Scar stopped payment on his check and Harmon sued for her money Trial court found for Harmon Issue: Which party bore the risk of Phantom Recall's death? Judge: Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer: (a) on his receipt of a negotiable document of title covering the goods, or (b) on acknowledgment by the bailee of the buyer’s right to possession of the goods, or (c) after his receipt of a non-negotiable document of title or other written direction to deliver Established a bailor-bailee relationship between Harmon and Dunn In the absence of any prior arrangement with Dunn or Harmon that the horse be delivered elsewhere upon purchase from the latter, we find that the risk of loss passed to Scarbrough if and when the applicable provisions under subsection 2 occurred Affirmed
CHAPTER 22 WARRANTIES Rite Aid Corp. v. Levy-Gray Facts: Dr. Ronald Geckler diagnosed Ellen Levy-Gray with lyme disease and prescribed doxycycline Told Levy-Gray to stop nursing her son and gave no other information Levy-Gray filled the prescription at Rite Aid Medication came with a pamphlet that said take medication with food or milk if stomach upset unless your doctor directs you otherwise Pamphlet stated: intended to supplement the expertise and judgment of your physician… Levy-Gray began to take milk with medication because she had an upset stomach; drank a lot of milk/ate dairy Her lyme disease didn't improve; and was diagnosed with post-lyme syndrome, a chronic autoimmune response Levy-Gray sued Rite Aid for breach of an express warranty; claimed that the instructions to take milk rendered the drug ineffective and caused her chronic condition Her expert witness: taking dairy products with the drug prevented the drug from being absorbed into the body Rite Aid expert stated any loss of absorption was modest and had no effect on her treatment; also claimed the pamphlet couldn't have been part of the basis of the bargain because Levy-Gray never saw it until after she bought the medication Jury: Rite-Aid breached a warranty and awarded Levy-Gray $250,000; Rite-Aid appealed; intermediate appeals court affirmed; state's highest court took the case Issue: Did Rite-Aid breach an express warranty? Judge: The precise time when words of description or affirmation are made or samples are shown is not material Sole question is whether the language is fairly to be regarded as part of the contract What is paramount is the relationship between the sale of the goods and the affirmations made by the seller The language contained in the "rite Advice" pamphlet encouraged Ms. Levy-Gray to rely on the information contained therein based upon its assertion on the cover that "inside is everything you need to know about your prescription" Affirmed Tu. 10/8 Tell Lindsey the Power's story of burning down the house with the iron Ch. 22 Warranties and Product Liabilities Rite aid case Express warranty created by the statement on the pamphlet Rite Aide blames it on her and her physician The Court: Rite Aid said you could safely take the drug with milk but didn't say how much milk They meant a little; but Levy-Gray had a lot of dairy Implied warranty of merchantability and Implied warranty of fitness for a particular purpose Goodman v. Wenco Foods, Inc. Facts: Goodman ate a Wendy's hamburger; bit straight into a bone 1/16 - 1/4 inch thick and 1/2 inch long Wendy's: meat is purchased from supply company and requires their meat to be free from bone and cartilage in excess of 1/8 in in any dimension; USDA consider any fragment less than 3/4 of an inch to be insignificant Implied warranty of merchantability - Product is fit for the ordinary purpose for which they are used Lower Court: bone was natural to the food and the hamburger was fit for its ordinary purpose (consumption)
Appeals Court: reversed, a hamburger could be unfit even if the bone occurred naturally Judge: Unfit, a consumer should not reasonably have anticipated the bone's presence even though it's meant to be of such a nature - Your food is not supposed to hurt you Test: the reasonable expectation of the consumer, even if the substance occurs naturally, it can breach the implied warranty of merchantability if a reasonable consumer would not expect to encounter it (a jury still has to decide) p.529 - #5 Boboli Co./Highland Group/Comark Merchandising Highland contracted with Comark to print brochures that would be put in hot pizza boxes; ink ran because the pizza was too hot Highland claimed breached its warranty of merchantability Comark didn't know that the brochures would be put on the pizza Fit for its ordinary purpose - brochures typically go on the outside of the box, not inside CCB Ohio, LLC v. Chemque, Inc. Facts: Chemque makes a gel seal; it didn't properly bind the power lines; it leaked; caused millions in damage CCB Ohio sued for breach of warranty; Chemque said they disclaimed the implied warranties - moved for summary judgment To disclaim a warranty: have to specifically say that you are disclaiming the implied warranty of merchantability; must be conspicuous -- that wasn't done here
Th. 10/10 Consequential/special damages Specific to the person's case; harm caused by the person's special circumstance Exclusion of consequential damages Void if unconscionable If it's so shockingly one-sided that it's fundamentally unfair In cases of personal injury, almost guaranteed court will void In cases of economic injury, court may void Reed v. City of Chicago Reed v. City of Chicago Facts: J.C. Reed was arrested and brought to Chicago PD; police allegedly aware that he was suicidal, having seen him slash his wrists; Police removed his clothing and dress him in a paper isolation gown; Reed used the gown to hang himself Reed's mother sued the police for failure to monitor a suicidal inmate and Cypress Medical Products, the manufacturer of the isolation gown; claim - gown should have been made of material that would tear if someone attempted to hang himself with it Cypress moved to dismiss the suit, claiming that Reed had no privity with the company Privity When two parties contract, they are in privity A plaintiff injured by a breach of contract could sue only a defendant with whom he had privity Issue: Could Reed maintain a lawsuit against Cypress despite lack of privity? Judge: Historically, Illinois law has required privity Lack of privity occurs when a user of the product, besides the consumer, is injured UCC: "a seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such
person may use, consumer or be affected by the goods and who is injured in person by breach of the warranty" The beneficiary of any warranty made by the manufacturer and designer of the gown is necessarily a potentially suicidal detainee like Reed. If protection is not provided to plaintiffs like Reed, any warranty as to the safety of the gown would have little, if any, effect. The safety of these detainees was necessarily a part of the bargain, whether explicitly or implicitly, between the seller and buyer. A detainee of the city like Reed must be able to enforce the protections of any warranties made by the manufacturer and designer of the gown Motion denied Motion to dismiss v. summary judgment Timeline: Pleadings --> Discovery --> (Summary Judgment) --> Trial Motion to dismiss is between pleadings and discovery Negligence No bargaining between the parties; no meeting of the minds Failing to act as a reasonable person would Elements for negligence case Duty Breach Causation Foreseeability Boumelhem v. Bic Corp. Facts: Ibrahim Boumelhem, a four year old, was playing with a BIC disposable lighter, started a fire and burned his legs and his 6-month old brother Ibrahim's father sued claiming that the lighter was negligently designed because it could have been childproof; also claimed failure to warn because the lighter did not clearly warn of the danger to children Court considered evidence from several other cases against Bic Argument for Boumelhem The Adams case (court found no negligent design and no failure to warn and dismissed all claims) decided the issues wrongly Bic acknowledged that its lighters can and will get into the hands of children and that it could design a childproof lighter, and it knows perfectly well how to include effective warnings on its lighters Argument for Bic Children's parents are responsible We have no duty to design a different lighter Test in design defect cases is whether the risks are unreasonable in light of the foreseeable injuries; young children can hurt themselves in countless ways Failure to warn is weak - law imposes no failure to warn when the danger is obvious Bic Won Strict liability Burden created by law instead of the parties Plaintiff only needs to show defendant made or sold defective product and that's what caused the harm
Chapter 23 - Performance and Remedies Zion Temple First Pentecostal Church of Cincinnati, Ohio v. Brighter Day Bookstore & Gifts Facts: Zion's choir order new robes from Brighter Day - robes were manufactured by Murphy Cap & Gown
Zion found many faults: Wrong color and material (considered it very different from the sample they reviewed at Brighter Day - samples created an express warranty) Sleeves had been attached facing the wrong way Velcro and tags were visible on the overlays Zion complained to Murphy who offered to repair the sleeves. Zion declined offer because of the other problems. Zion returned the robes, when it didn't get its money back, sued Trial court granted summary judgment for the defendants. Zion appeals Issue: Did Zion Temple afford Murphy a chance to cure? Judge: Zion inspected the robes in a reasonable time and rejected it as not conforming- never accepted it Murphy had a right to cure and indicated its intention to do so within a reasonable time Zion had other reasons for the rejecting the robes; Murphy never indicated its intention to cure these other nonconformities Reverse summary judgment for Murphy; remand this case for trial or further proceedings UCC requires a seller to have a chance to cure
