Dispute

Crow purchased a pleasure boat from Bayliner, but became dissatisfied when it was not as fast as he wanted for his fishing plans. One brochure provided by the salesman stated that similar models could achieve speeds of 30 mph. Crow sued Bayliner under express warranty, implied warranty of merchantability, and implied warranty of fitness. Trial court found for Crow and Bayliner appealed.

Rules of law

Express warranty must be specific, not mere commendation or puffery. Reasonably relied upon? Implied warranty of merchantability is an objective standard contemplating general use and reasonable satisfaction. Implied warranty of fitness requires effectual communication of intended use to merchant.

Arguments

Crow and the trial court argued that the boat was too slow to be used for offshore fishing and he would not have purchased it if he had not believed it as fast as he wanted. He also argued that his inquiries about the boat’s speed and his desired purpose were enough to trigger implied warranty of fitness. He argued statements about speed were express warranties and that the lack of utility for offshore fishing was a breach of warranty of merchantability.

The appellate court argued that commendations of the boat were mere puffery which did not constitute any express warranty. The brochures advertised a different rotor and lighter load and thus were not applicable. There was no evidence Crow had effectually communicated his intended purpose or specific needs. Finally, the boat was within the range of suitability for typical, objective use.

Conclusion

The appellate court reversed and ordered a directed verdict for Bayliner.

Dispute

Sondra Locke, with the assistance of ex Clint Eastwood, entered into an agreement under which Warner Bros. would entertain film pitches. Unknown to her, Eastwood was reimbursing Warner for their costs in exchange for not considering Locke’s films. Locke sued for sex discrimination, breach of the implied obligation of good faith, breach of contractual obligations, and fraud. The trial court granted Warner’s motion for summary judgment.

Rule of law

The implied obligation of good faith extends to discretion even in dealing with issues of artistic discretion. It may be fraud to enter into a contract with intent to breach it.

Arguments

The trial court, along with Warner, argued that because Warner had paid Locke the sums due under the contract, and because Warner had no obligation to make any of Locke’s films, there was no breach. It held that the questions of bad faith or fraud were barred because there was actual breach, and the only evidence of fraud was after the fact.

The appellate court, on the other hand, pointed out that simply paying the fees due under the contract were not enough because Warner had a good faith obligation to actually consider the films, and Locke had evidence they had failed to do so. It stated that it was bad faith for Warner to try to deprive Locke of the fruits of her contract and that she might have a claim for fraud based on the facts presented.

Conclusion

Reversed and remanded for trial.

Dispute

GM hired defendant’s firm to perform construction, and defendant firm hired plaintiff to supply ad erect aluminum walls. The contract specified the wall type and said the walls had to satisfy the agent of GM. The wall was rejected despite being virtually perfect, and defendant hired another company to replace them while witholding payment from plaintiff. Plaintiff sued for the balance and won; defendant appealed on jury instructions.

Rules of law

In contracts with satisfaction terms, satisfaction is judged on an objective, reasonable-businessperson standard when the service or goods is of a utilitarian use and a subjective, good-faith-vs-bad-faith basis when it is a matter of aesthetics.

Arguments

Defendant argued that the word “aesthetics” was included and so actual subjective satisfaction was required. The court argued that this was boilerplate and made null by adjacent language. It argued that plaintiff would not have entered into the contract expecting to be bound to the whimsy of a specific person and that the defendant would have known that such a requirement would only come at an additional premium. They also noted that if a subjective standard were to be upheld, they would need to determine the actual mental state of the GM agent to evaluate bad faith.

Conclusion

The court upheld the jury instructions and decision, saying the contract should be evaluated on an objective standard with respect to satisfaction.

Dispute

After plaintiffs sold their brokerage firms to defendant in exchange for defendant stock, management positions, and profit proceeds, defendant failed to perform as plaintiffs expected and ultimately terminated them. Plaintiffs sued for breach of good faith and the court dismissed for failure to state a claim.

Rules of law

The parole evidence rule applies to evidence presented to alter or supplement a contract, not to the implied covenant of good faith. Good faith may involve factors such as unequal bargaining power, frustration of purpose, the drafting party, the discretion of the parties, and a standard of commercial reasonableness.

Arguments

The trial judge dismissed for failure to state a claim, arguing that parole evidence barred the bad faith allegations and that the parties did not have unequal bargaining power or inequity in drafting power.

Conclusion

The court held that bad faith can contemplate oral agreements without violating the parole evidence rule as well as the exercise of discretionary performance, so it should not have been dismissed.

Dispute

A garage door manufacturer and a garage door distributor entered into an oral exclusive distribution agreement, but the manufacturer terminated without advance notice when sales declined. The trial court entered a motion for summary judgment on the grounds that the agreement was not for the sale of goods and there was no expectation of reasonable notice.

Rules of law

A contract which is primarily about the sale of goods is a sale of goods contract. Under U.C.C. §2-309, termination of a contract of indefinite duration requires reasonable notification unless the parties otherwise agree.

Arguments

The manufacturer argued that the agreement was a distribution arrangement rather than a goods contract, and so the U.C.C. should not apply. It argued that under the common law an agreement of indefinite duration can be terminated at will by either party.

The distributor argued that the contract was for the sale of goods and argued that under a sale of goods contract they were entitled to reasonable notice.

Conclusion

The Kentucky Court of Appeals ruled that the Uniform Commercial Code clearly applied to a case where the essential arrangement was the sale of goods even though the agreement could be termed a “distribution” arrangement. It ruled that the trial court erred in granting summary judgment on the question of reasonable notice.

Dispute

Defendant, a fashion influencer, entered into an agreement with plaintiff under which he had exclusive rights to market her brand and she would receive half of all proceeds. When she violated the agreement, he sued; she countered by arguing that there was no consideration because plaintiff was not bound to do anything.

Rule of law

A promise lacking in an agreement but clearly implied by the intent of the parties and the context may be provided by the court.

Arguments

Defendant argued that because there was no requirement for plaintiff to use reasonable efforts to market her brand, the contract was invalid. Plaintiff argued that reasonable effort was implied and that the promise to pay half the profits and render accounts monthly was a thing of value suitable as consideration

Conclusion

The court reversed the appellate decision and granted judgment for plaintiff.

Dispute

A subcontractor brought a suit against an office building owner for the cost of work performed. The office building owner claimed that they had paid the contractor for the overall project, but the contractor did not pay the subcontractor. The subcontractor sued the owners under the theory of quantum meruit, which it and the court took to mean a quasi contract or contract implied in law, but which the owners took to mean a contract implied in fact.

Owner’s motion for dismissal on the grounds that there was no contract implied in fact was denied by the trial court. The owner claimed it had paid out more than the original contracted price. The trial court entered judgment in favor of the subcontractor, and the owner appealed.

Rule of law

A contract implied in fact is an enforceable contract inferred in whole or in part by the parties’ actions. A quasi contract, or contract implied in law, is a legal fiction, an obligation created by the law without regard to expressions of assent, and was adopted to provide a remedy in situations of unjust enrichment. A quasi contract requires that the plaintiff conferred a benefit on the defendant, the defendant had knowledge of the benefit, the defendant accepted the benefit, and it would be inequitable for the defendant to retain it without paying for it. The most significant requirement for a recovery on quasi contract is that the enrichment be unjust, and a plaintiff cannot recover if the defendant gave any consideration to any party for the enrichment.

Arguments

The defendant argued it had paid substantial money to the contractor as well as to several subcontractors. It also argued, without relevance, that there was no contract implied in fact.

The plaintiff argued the defendant had not made payments for the enrichment received and that they deserved payment under a theory of quantum meruit, or a contract implied in law.

Conclusions

The appellate court held that the trial court had erred by treating the question of payment by the defendant as an affirmative defense rather than as an element of the quasi contract claim. The burden of proof was on the plaintiff to plead and prove that the defendant had not made payments to any party for the benefits conferred on the property. Reversed and remanded for trial.

Dispute

Pelo was involuntarily committed to a hospital for severe mental impairment and asked to sign a payment consent form. He initially refused, then later signed. After his release, he refused to pay, stating he did not consent to the services. The hospital transferred the account to a creditor, who brought a small claims action. The small claims court entered judgment for the creditor, which Pelo appealed to the district court, which affirmed. Pelo appealed to the Iowa Supreme Court.

Rule of law

A person who supplies services to another without the other’s consent is entitled to restitution if he acted unofficiously with intent to charge, the services were necessary to prevent serious harm, the supplier had no reason to think the recipient would refuse consent if mentally capable of it, and consent is impossible.

Arguments

Pelo argued that his consent to payment was given under duress. He also argued that because the hospitalization referee later determined he did not need to remain hospitalized, the original hospitalization was unnecessary and he should not be required to pay. He further argued that being required to pay was a violation of his due process rights and freedom to contract.

The creditor argued that the consent to payment was sufficient, and even if it was not, it would be unjust enrichment for Pelo to receive services he did not pay for, when the services were required by court order.

Conclusion

The court held that the question of the consent form was immaterial because the plaintiff was entitled to recover the value of medical services under the theory of restitution. This was held to be a quasicontract or contract implied in law, not a contract implied in fact. The court stated that Pelo’s due process rights were not violated because a quasicontract was implied in law, not in fact, and thus was not subject to the ordinary limitations of contract law.

Dispute

After falling behind on her mortgage, plaintiff Claudia Aceves filed for Chapter 7 bankruptcy, placing a stay on the defendant bank’s attempted foreclosure. Plaintiff intended to convert to a Chapter 13 bankruptcy and use her husband’s income to cure the default under Chapter 13 protections; however, the defendant assured her that they would “work with her on a mortgage reinstatement and loan modification” and accordingly she chose not to proceed with the bankruptcy. The bank immediately resumed foreclosure and verbally offered her terms at double her prior monthly payment, which she could not meet. She sued under quiet title, slander of title, fraud, promissory estoppel, and declaratory relief; the trial court dismissed on motion of defendant.

Rule of law

Promissory estoppel applies whenever a promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee…and which does induce such action or forbearance would result in an injustice if the promise were not enforced. A promise must be clear and unambiguous.

Arguments

The plaintiff argued that because they could have saved the home by converting to Chapter 13 but chose not to do so in reliance on defendant’s promise to work with them, but defendant had not in fact worked with them, promissory estoppel applied. The defendant argued that there was no fraud, no consideration, no clear and unambiguous promise, and that they had made an offer anyway.

Conclusion

The court held that the plaintiff had made out a case for promissory estoppel. The promise was clear and unambiguous, and they had relied on it to their detriment, as Chapter 13 definitely provided them an alternate relief that they had given up. The court held that a unilateral offer did not satisfy the promised negotiations and that the defendant had never intended to work with plaintiff. The court held that the defendant made the promise only to convince the plaintiff to forgo further proceedings and thus enable them to foreclose. Reversed with attorney’s fees.

Dispute

Plaintiff Mary DeFontes and a class sued Dell in Rhode Island for alleged violations of the Deceptive Trade Practices Act, and Dell moved to compel arbitration under an alleged contract accepted when the parties accepted delivery of Dell products. The trial court denied, stating that the plaintiffs did not have reasonable notice of the contract and that the contract was illusory because it included the language “these terms and conditions are subject to change without prior written notice, at any time, in Dell’s sole discretion”, and Dell appealed to the Supreme Court of Rhode Island.

Rules of law

The matter was subject to the UCC. Under the UCC, a sale contract can be created when the goods are shipped, and any subsequent terms are “additional terms in acceptance or confirmation” under section 2-207. Alternately, the contract can be created at acceptance, because the buyer retains the power to accept or return the product.

Under ProCD, Inc. v. Zeidenberg, the practicality of sales is such that a consumer who receives a product and is expressly provided the right to accept or return the product for a refund subject to new terms and conditions may be bound by that contract. However, they must be temporally bound to acceptance.

Under the “layered contract” theory of formation, a seller must prove that a buyer has accepted a seller’s terms after delivery. A buyer who receives a product with additional terms is tendering acceptance by keeping it if the buyer understands that he has the option to reject it.

Conclusions

The court held that although it would have been possible for Dell to give the plaintiffs notice, Dell had failed to do so sufficiently and they could not have reasonably concluded that they had the ability to send the products back and thereby change the agreement. “Although Dell does provide a ‘total satisfaction policy’ whereby a customer may return the computer, this return policy does not mention the customer’s ability to return based on their unwillingness to comply with the terms.”

The court found that too many inferential steps were required of the plaintiffs and too many relevant provisions were left ambiguous.