Chapter 9. The Scope Of Contractual Obligations (200-230) Flashcards
A, a tenant of B, promises to pay $1,000 for “such repairs as an architect appointed by B shall approve.” What are the conditions of A’s duty to pay for repairs?
The appointment by B of an architect and the architect’s approval of repairs are conditions of A’s duty to pay for repairs. Restatement 2d of Contracts § 226(a)
A and B agree that A will sell goods to B “f.o.b.” the place of destination. Prior correspondence shows that the price has been adjusted on the assumption that B’s insurance policies will cover the goods during shipment. Is this open to interpretation? What does this mean for B?
Notwithstanding the normal meaning of the “f.o.b.” term declared in Uniform Commercial Code § 2-319, it may be found that the parties have “otherwise agreed” under that section and that B bears the risk in transit. Restatement 2d of Contracts § 201(c)
A signs a negotiable promissory note payable to B’s order, and C signs his name on the back without more. Is this open to interpretation? What does this mean for C?
Under Uniform Commercial Code § 3-402, C’s signature is an indorsement, and evidence of a contrary understanding is not admissible except for the purpose of reformation of the instrument. This conclusion does not rest on interpretation of the writing. Restatement 2d of Contracts § 201(c)
A agrees to sell beer to B at a specified price per barrel. At the time of the agreement both parties and others in their trade use as standard barrels wooden barrels which originally hold 31 gallons and hold less as they continue in use. A statute defines a barrel as 311/2 gallons. Is this open to interpretation?
The statute does not prevent interpretation of the agreement as referring to the barrels in use. Restatement 2d of Contracts § 201(d)
A agrees to sell and B to buy a quantity of eviscerated “chicken.” A tenders “stewing chicken” or “fowl”. B rejects on the ground that the contract calls for “broilers” or “fryers.” Each party makes a claim for damages against the other. It is found that each acted in good faith and that neither had reason to know of the difference in meaning. Which interpretation, if any, is upheld? Who will prevail?
Both claims fail. Restatement 2d of Contracts § 201(d)
A orders goods from B, using A’s standard form. B acknowledges the order, using his own standard form. Each form provides that no terms are agreed to except those on the form and that the other party agrees to the form. One form contains an arbitration clause. the other does not. The goods are delivered and paid for. Later a dispute arises as to their quality. Is this open to interpretation? Is the arbitration clause to be enforced?
There is no agreement to arbitrate the dispute. Restatement 2d of Contracts § 201(d)
A contracts with B to do concrete work on a bridge, to be paid for according to “the number of square yards of concrete surface included in the bridge deck.” An estimate included in the proposal for bids and an estimate submitted by A to B after award are shown to have been based on the top surface only, not including the side and bottom surfaces. Is this open to interpretation? How is the contract to be interpreted?
On a finding that this was the mutual understanding, the contract is to be so interpreted. Restatement 2d of Contracts § 202(b)
In a written agreement between A and B it is stated that B owns half of the stock of C Company, that “A has rendered valuable services to C Company for which B desires to compensate A in the sum of $25,000 payable in the manner hereinafter set forth,” and that B will pay A “one-half of all money received from C Company, such as dividends, or profits until A has been paid the said amount of $25,000.” It is shown that the written agreement was executed after the services were rendered, that there was no prior explicit understanding that A would be compensated, and that before signing the written agreement A and B orally agreed that the $25,000 was to be a “bonus out of B’s profit,” “double or nothing,” “a gamble.” How is the agreement to be interpreted?
The written agreement is to be interpreted in accordance with the oral agreement. Restatement 2d of Contracts § 202(b)
A promises B as follows: “In consideration of your supplying my nephew C with china and earthenware during the coming year, I guarantee the payment of any bills you may draw on him on account thereof to the amount of $200.” C is engaged in the business of selling such goods. B sells C $2,000 of china during the year and draws bills for their price in varying amounts. C pays $1,000 and then defaults. How is A’s promise to be interpreted?
A’s promise is to be interpreted as a continuing undertaking, not limited to the first $200 of purchases. Restatement 2d of Contracts § 202(c)
A agrees with his divorced wife B and C, trustee, to pay to C $1,200 each year for the benefit of D, the 10-year-old son of A and B, until D enters college, and to pay $2,200 each year for the period of D’s higher education but not more than four years. At age 19 D completes high school and is inducted into the army. How is the agreement to be interpreted?
Upon a finding that the main purpose of the agreement is to provide for D’s maintenance and education, the agreement is to be interpreted as not requiring payments during D’s military service. Restatement 2d of Contracts § 202(c)
A written agreement between A and B for the exchange of real estate provides that A and B will each pay a $200 commission to C, a broker, “upon the signing of this agreement by both parties hereto.” The last sentence of the agreement states, “The commission being due and payable upon the transfer of the properties.” It is shown that A refused to sign the agreement until the last sentence was added. How is the agreement to be interpreted?
The agreement is to be interpreted to make the commission due only when both the signing and the transfer take place. Restatement 2d of Contracts § 202(d)
A agrees to appoint B exclusive distributor in a specified area for a new product to be manufactured by A, and B agrees to use his best efforts to promote sale of the product. The written agreement includes an initial retail price list and a provision that A will sell to B at the lowest price and highest discount it gives to any distributor. How is the agreement to be interpreted?
Whether the parties intend to be bound before any other distributor is appointed or any price fixed is a question of the meaning of the entire agreement in its context. If they do, the agreement has the effect of an agreement to sell at a reasonable price at the time for delivery. See Uniform Commercial Code § 2-305. Restatement 2d of Contracts § 202(d)
A contracts in writing to build a house for B according to specifications, and C, a surety company, guarantees A’s performance. After completion and acceptance the house and its contents are damaged by hot water because of defective work by the plumbing and heating subcontractor. How is the contract, specifications and surety bond to be interpreted?
In determining the responsibility of A and C, the contract, specifications and surety bond are to be read together. Restatement 2d of Contracts § 202(d)
A issues to B a fire insurance policy covering lumber stored in “sheds.” B also keeps lumber in the basement of a two-story warehouse. How is the coverage to be interpreted?
In the absence of contrary indication, lumber in the basement of a two-story warehouse is not covered. Restatement 2d of Contracts § 202(e)
A leases restaurant premises to B. The lease provides that A will pay for electricity and that B will “pay for gas or fuel used in the preparation of food.” Can the lease to be interpreted to include general electricity use by B on the restaurant premises?
In the absence of contrary indication, “fuel” should be read not to include electricity. Restatement 2d of Contracts § 202(f)
A leases restaurant premises to B. The lease provides that A will pay for electricity and that B will “pay for gas or fuel used in the preparation of food.” There is a local usage in the restaurant trade that “fuel” includes electricity used in cooking. How is the lease to be interpreted regarding the local usage?
In the absence of contrary indication, “fuel” may be read in accordance with the usage. But a provision in the lease that if B installs a new electric range he will also install a special meter and pay for electricity used by the range would show that the parties did not adopt the local usage. Restatement 2d of Contracts § 202(f)
A contract for the sale of horsemeat scraps calls for “minimum 50% protein.” As both parties know, by a usage of the business in which they are engaged, 49.5 per cent is treated as the equivalent of 50 per cent. How is the contract to be interpreted regarding the usage?
The contract is to be interpreted in accordance with the usage. Restatement 2d of Contracts § 202(f)
A discloses to B a secret formula for an antiseptic liquid and B agrees to pay monthly royalties based on amounts sold. Fifty years later the formula has been published in medical journals. After continuing to pay for 25 years more, B contends that the duty to pay royalties ended when the formula ceased to be secret. Does B still have a duty?
B’s conduct strongly negates the contention. Restatement 2d of Contracts § 202(g)
Several railroads agree in writing to share working expenses and taxes of X, another railroad, on a “wheelage basis.” For several years they pay shares in proportion to their stock ownership in the other railroad. Then all but one agree that they have been mistaken and that future payments will be made on a basis of use of X’s physical properties. How is the performance to be interpreted?
Stock ownership is so plainly unrelated to any possible meaning of “wheelage” that the course of performance does not support an interpretation of “wheelage basis” as requiring payments in proportion to stock ownership. Restatement 2d of Contracts § 202(g)
A licenses B to manufacture pipes under A’s patents, and B agrees to pay “a royalty of 50 cents per 1,000 feet for an output of 5,000,000 or less feet per year, and for an output of over 5,000,000 feet per year at the rate of 30 cents per thousand feet.” The 50 cent rate is payable on the first 5,000,000 feet, the 30 cent rate only on the excess. How is the agreement to be interpreted?
The more literal reading is unreasonable, since it would involve a smaller payment for 6,000,000 feet than for 4,000,000 feet. Restatement 2d of Contracts § 203(c)
A, an agent of C, authorized to make contracts for C, writes a letter to B beginning “We offer,” and stating a proposal in detailed and clear language, signed “C by A, Agent.” At the bottom of the office stationery which A uses for the offer there is printed “All contracts and orders taken are subject to the approval of the executive office.” A portion of the letter is typed over a portion of this printing. How might a jury find that there is an offer? Can this be set aside?
A jury’s finding that the printed words were not part of the letter and that it is therefore an offer will not be set aside. Restatement 2d of Contracts § 203(f)
A charter party contains the printed provision “vessel to have turn in loading.” There is written below this, “vessel to be loaded promptly.” What is the appropriate interpretation?
The printed and written provisions are given the consistent meaning that the vessel shall take its turn in loading, though this involves considerable delay, but when its turn arrives, the vessel shall be loaded promptly. Restatement 2d of Contracts § 203(f)
A’s agent B draws checks on the C bank, imprinting the amounts with perforations made by a check-writing machine. The amounts are also handwritten in figures. Does this open up the question of interpretation? Which should control: the perforation or the handwritten figures?
In case of conflict, since the perforated amounts are more difficult to alter, they control the handwritten figures. See Uniform Commercial Code § 3-118(b), (c). Restatement 2d of Contracts § 203(f)
A and his wife convey their ranch to A’s sister and her husband, reserving an option to repurchase. The parties agree orally that the property will be kept in the family, but the deed says nothing as to assignment of the option. How does partial integration or complete integration change the assignability of the option?
If the deed is found to be a partial integration, the oral agreement is effective to show that the option is not assignable. If the deed is found to be a complete integration, the oral agreement is discharged and the option is assignable. Restatement 2d of Contracts § 204(e)