Contracts
Class Notes 11/6/03
The
buyer rejects cotton because the buyer expected the cotton to arrive two and
half months earlier on a different ship named “Peerless”. What was the real reason for the
rejection? When people get out of a
contract, they try to do so by concluding that the other party is in breach or
that there never was a contract. You can
be certain that the buyer wouldn’t have made a fuss if he was getting the
cotton on favorable terms. If the market
price had been higher than the 17.5 cent contract price when the cotton
arrived, the buyer would have bought it and not sued. We conclude that the market price must have
been lower than the contract price.
That’s why the buyer is suing, and that’s why they didn’t perform.
What
else is going on? The Civil War. Cotton wasn’t being shipped out from the
The
buyer in this case probably figured he wouldn’t pay for the cotton, because
even if he has to pay damages, he’ll be able to buy cotton much, much cheaper
later. People are always making
decisions on the basis of these kinds of predictions. These decisions, in turn, influence market
prices. But this buyer made a big
mistake because
What
if the plaintiff in Raffles had
known about both ships, but the defendant knew only about the first ship? In that case, we’ll almost certainly make a
contract on the defendant’s terms.
The seller hasn’t fulfilled the contract; therefore the seller would be
in breach. Consider this in terms of the
Restatement.
Also
compare this to Embry. If there is no subject of mutual assent, that
is, if the minds “miss” each other, we won’t find a contract. That’s the basis upon which this case was
decided. Neither side was at fault;
there was just a failure of communication.
We will come to the same result if both parties knew there were
two different “Peerlesses”. If they had
thought about it in that case, they could have clarified. We would find that they’re both careless and
both at fault. But whether neither of
them knew or both of them knew, there’s no basis to favor one over the
other. The way to declare a tie, in some
sense, is to declare that there’s no contract.
§ 201. Whose Meaning Prevails
(1) Where the parties have attached the same meaning
to a promise or agreement or a term thereof, it is interpreted in accordance
with that meaning.
(2) Where the parties have attached different
meanings to a promise or agreement or a term thereof, it is interpreted in
accordance with the meaning attached by one of them if at the time the
agreement was made
(a) that party did not know of any different meaning
attached by the other, and the other knew the meaning attached by the first
party; or
(b) that party had no reason to know of any
different meaning attached by the other, and the other had reason to know the
meaning attached by the first party.
(3) Except as stated in this Section, neither party
is bound by the meaning attached by the other, even though the result may be a
failure of mutual assent.
If
the defendant only knew about one ship, and the plaintiff knew about both, then
the defendant is not at fault, but the plaintiff is. There was asymmetrical information. Thus, we will infer the careful
party’s meaning. In this case, that
means the contract takes on the defendant’s meaning. Whoever has less information gets the benefit
of interpretation.
Notice
that Restatement § 201 is more or less a repetition of § 20. § 20 deals with formation, and § 201 deals
with interpretation. They cover more or
less the same ground.
What
§ 201 says is that if the parties communicate effectively, we make the deal on
that basis. You can make a deal on the
basis of subjective mutual assent. For
example, a man and a woman pass each other on the street. Each one is interested[2]
in the other, but they don’t talk to each other.
On
the other hand, if the two parties intended different meanings, we’ll interpret
it in favor of the party that had less information.
If
you can’t make a contract under § 201(1) or § 201(2), and the parties’ minds
didn’t meet, we’ll find failure of mutual assent, no agreement, and no deal.
Note
that this means that if you use words in such a way as to act like you’re
making a deal, and another party takes your words to mean that you’re making a
deal, you’ve made a deal, even if you “crossed your fingers behind your
back”. Parties’ subjective intentions
are almost never precisely alike.
We are constrained to look at the objective manifestations of the
parties.
If
we use objective mutual intent, it saves a lot of time. We just look at the writing and take it to
reflect what the people said. This can
let us decide more cases on the basis of summary judgment. We can handle more cases without a full
trial. When you use subjective
intentions, you more often have to look at whether people are credible and thus
go to trial and do lots of testimony and stuff.
New York Trust Co. v. Island
Oil & Transport Corp.
Non-Mexicans
weren’t allowed to drill for oil within 50 miles of the Mexican coastline. Island tried to fool
But
now the subsidiaries have fallen into other owners’ hands. Those new owners want to get into the
parent’s pocket. Judge Hand will have
none of it. Hand says that the books
were a sham. Nobody who understood the
situation could understand the promises to pay as intended to be anything more
than a sham. When you have a sham, it
doesn’t do anybody any good to enforce this arrangement.
If
the buyers of the shares of the subsidiaries didn’t know that there had been a
sham transaction when they, in good faith, bought the shares in good faith
reliance on the fact that they could collect debts from the parent, then the
parent is going to have to pay. It
appears from the facts that it was a well-enough known fact that
Here’s
a simpler way to look at it. Let’s say a
father promises his daughter $1,000,000 to get married. The daughter says that she doesn’t want to
get married, but she would like the $1,000,000.
The daughter decides to recruit someone to marry her in order to defraud
Dad of the $1,000,000. Do they get the
million dollars out of Dad? It’s not
clear, but if either person seeks an annulment, they should get it because the
whole marriage was a sham. We should
treat it as a “non-marriage contract”, just as we treat the sham that occurred
in New York Trust
as a sham contract. What’s the doctrine?
§ 21. Intention To Be Legally Bound
Neither real nor apparent intention that a promise
be legally binding is essential to the formation of a contract, but a
manifestation of intention that a promise shall not affect legal relations may[3]
prevent the formation of a contract.
Say
you have two backwoodsmen who don’t know anything about the legal system and
never have a single thought about being legally bound. They don’t even know that there are
courts. They make a bargain to trade a
gold nugget for a stand of timber. Their
ignorance is irrelevant. When do we not
have a contract? There’s no contract
only when both parties formed a positive intent not to be legally bound.
Some
friends are having fun! “How much will
you take for that crappy watch?” The
other guy says, “$300!” The first guy
says “Alright!” He takes out his
checkbook and writes a check for $300 in exchange for the watch. There is no contract here! Jokes are not contract! Here, there weren’t out to make a deal, but
rather to make a joke. When both of them
get the joke, it’s no problem. It’s
trickier when one of them gets the joke, but one of them takes the agreement
seriously. If both meanings are equally
justifiable, then there’s no contract.
But if the joker should have realized that the non-joker would take the
joke seriously, the contract will be held against the joker. If you’re going to joke, make sure the other
party gets the message!
Say
Clovis invites the class to his house for beer and brats. When we arrive, he hides and for some reason
we have to go elsewhere to eat. We’re
disappointed. We bring a class action
lawsuit against
So
if a guest who promised to show up doesn’t come to a party, there’s no legal
obligation broken. However, if a caterer
who was hired by the host doesn’t show up, they could get sued for breach of
contract.
Shams,
jokes, and social engagements include a positive intent on both sides not to be
legally bound. They don’t form
contracts.
Mother
says to Junior, her 14-year-old son, I’m going to give you an allowance of $20
per week. Junior behaves like a jerk
after a few weeks, Mom cuts off the allowance, and Junior sues. Junior will not recover. This kind of close family relationship is
construed to include the intention not to be legally bound. C.f. Balfour v. Balfour.
What
about disclaimers in tiny print in handbooks and stuff like that? What if they decide to shut down the law
school? Do we have any recourse?
The
law school catalog can say all sorts of wonderful things, then at the end they
can say that it’s all subject to change.
McDonald v. Mobil Coal Producing,
Inc.
In
employment cases in
The
only real decision in this case is that there’s no summary judgment for the
employer. It seems clear that the
disclaimer in the welcome note is not conspicuous. However, McDonald signed something that’s a
lot clearer on the application. If that
notice is immediately above the signature line he’s going to sign, it might
well be conspicuous.
“Conspicuous”
But
what does conspicuous mean? According to
UCC § 1-201, it says: “‘Conspicuous’, with reference to a term, means so
written, displayed, or presented that a reasonable person against which it is
to operate ought to have noticed it.” It
goes on to say:
Whether a term is "conspicuous" or not is
a decision for the court. Conspicuous terms include the following:
(A) a heading in capitals equal to or greater in size
than the surrounding text, or in contrasting type, font, or color to the
surrounding text of the same or lesser size; and
(B) language in the body of a record or display in
larger type than the surrounding text, or in contrasting type, font, or color to
the surrounding text of the same size, or set off from surrounding text of the
same size by symbols or other marks that call attention to the language.
In
a really big document, you might need to flag in particular ways that which you
want to be conspicuous. For example, a
printed heading in capital letters is conspicuous. If you use larger type or a different color
within the body of text, that makes it conspicuous too. So if you want something to be conspicuous,
make it obvious.
The
Wyoming Supreme Court cites a guideline that the New Jersey Supreme Court came
up with. All you have to do is include
in a very prominent place in the document a statement that says that there is
no promise contained in the manual and everything can be changed.
From
a political perspective, your HR department might not like making something
conspicuous that is unpleasant.
You
might have a case if
Why did McDonald come out one way while Keri came out the other way?