Pre-K Liability 2

Contracts – Prof. Merges

Feb. 28, 2011

3/1: Statute of Frauds

Intro. and Notes on Contemporary Statutes, 257-270; C.R. Klewin, 270-77.

3/3: S o F II

Richard v. Richard, 280; Note on Sales of Goods and St. Ansgar, 289-295; Notes on 2-201(3) and Estoppel, 294; Surety clauses, 297-9, Intro and Monarco, 305.

1. Pre-contractual liability

2. Definiteness

Cyberchron Corp. v. Calldata Systems

Cyberchron Corp. v. Calldata

• Procedural History

• Facts

Who appealed?

• Why?

• How many causes of action in the Cyberchron complaint?

Cyberchron Corp. v. Calldata

• How many causes of action in the Cyberchron complaint?

1. Breach of K

2. “Quantum meruit”

3. Promissory Estoppel/Reliance

Cyberchron Corp. v. Calldata

Negotiation History

• 1989-90: “extended negotiations”

• May 15, 1990 – Grumman P.O.

• June 2, 1990 Letter from Grumman (“insist” on perf. Under “K”)

Negotiation History

District Court Ruling

• Enforceable agreement?

District Court Ruling

• Enforceable agreement?

Why not?

District Court Ruling

• Enforceable agreement?

Why not?

“two of the most essential, material and substantial terms” missing

District court

• Theory of recovery?

District court

• Theory of recovery?

–Reliance

District court

• Theory of recovery?

–Reliance

–On what promise?

The key promise

–Reliance: On what promise?

–Grumman/Calldata’s Wilhelm, to Cyberchron’s Paul: P. 237

What was the district court’s “reliance period”?

What was the district court’s “reliance period”?

• July 15 – Sept. 26 1990

• Why this period?

What was the district court’s “reliance period”?

• July 15 – Sept. 26 1990

• Why this period?

[From] Grumman direction to proceed “as if we have a K” [to] entering into 2nd K with Codar Technology on Sept. 26

Reliance Period

7.15.90 9.26.90

Reliance Period

7.15.90 9.26.90

Why no reliance before 7/15?

Reliance standard

3 Elements in NY: p. 237:

1. Clear unambiguous promise2. Reasonable foreseeable reliance3. Injury to relying party

“Unconscionable” injury?

§ 90. Promise Reasonably Inducing Action Or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

Reliance Period

7.15.90 9.26.90

Why no reliance after 9/26?

What was the enforceable promise?

• We will pay you for expenses in preparing the data terminal prototype?

• OR: we will negotiate a final agreement in good faith?

Channel Home Centers v. Grossman

Famous historical site?

Who was Washington’s No. 2 person at Valley Forge?

Alexander Hamilton

What was the 1st major battle after Valley Forge?

What was the 1st major battle after Valley Forge?

• Battle of Monmouth, June 19, 1778

What major legal figure was encamped wit Washington at

Valley Forge?

What major legal figure was encamped wit Washington at

Valley Forge?

Channel Homes v. Grossman

• Facts

• History

Negotiation history

Negotiation history

• Location tour Nov. 28, 1984

• Memo Dec. 7, 1984

“To induce the Tenant to proceed with the leasing of the store, you will withdraw the store from the rental market and only negotiate [this K] to completion.”

District court holding

District court holding

• No K

• Reliance?

• Restitution?

Holding – 3d Circuit

Holding – 3d Circuit

• “Evidence existed” to support K to negotiate in good faith

• Remand: Issues to consider

• Was there actually a K?

• Was the offer open only for 30 days?

What about lost opportunities?

What about lost opportunities?

• Note 1, p. 245

South Bend

D&G Stout v. Bacardi

D&G Stout v. Bacardi

• Reliance on promise not to withdraw distributor’s account

• Caused promisee to forego acquisition offer – led to significant damages

“Tribune I” and “Tribube II” Contracts

• Fully enforceable preliminary agreement

• Vs. Agreement to negotiate in good faith

Rennick v. O.P.T.I.O.N. Care Inc., 77 F.3d 309 (9th Cir.1996)

To determine whether the agreement binds anything, the court must look to the content of the letter and to the circumstances. The agreement in Rennick contained a non-binding clause and also contained a provision requiring approval of the O.P.T.I.O.N. Board of Directors. Id. at 313. The court found no binding intent absent approval of the board of directors. However, the Rennick agreement contained express language that the parties agreed to "continue good faith discussions directed toward the creation of formal written contract." Id. at 314. Thus, a good faith obligation could be found in an otherwise nonbinding agreement where the parties included such language. Id. at 316.

Tribune II Ks

• Breach?

• Remedies?

Burlington and definiteness

• Terms vs.

• Standard for determining terms

• Here: fully enforceable option

– Unfair to defendant?