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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

Supp. To CHAPTER 4 INDEFINITENESS AND MISTAKE IN EXPRESSION

1-4 Corbin on Contracts Supp. to § 4.10

Supp. to § 4.10 Mistake as to the Words Used, or as to the Meaning Given to Words and Expressions

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(A) The following cases cite this section:

(1) Local Motion, Inc. v. Niescher, 105 F.3d 1278 (9th Cir. 1997) . A distribution agreement provided that a distributor would ''be granted the option to extend her distribution rights to three more years at the same terms'' (emphasis added) if she bought a specified dollar amount of merchandise. The court affirmed the district court's conclusion that the parties attached different meanings to the emphasized phrase: the distributor understood the renewal arrangement to apply indefinitely, so long as she bought the specified dollar amount of merchandise, while the supplier understood it to consist of a one-time three year extension only. On that basis, said the court, the agreement was entered into on ''the basis of a mutual mistake as to the renewal,'' showing a lack of a ''meeting of the minds'' on an ambiguous material term.

(2) International Paper Co. v. Suwyn, 966 F. Supp. 246 (S.D.N.Y. 1997) (applying New York law). A noncompete provision restricted an employee's right to work for a ''major paper company'' but the meanings assigned to the phrase by the parties were different and were both reasonable. The employee understood it to mean the employer's largest paper competitors while the employer understood it to mean all companies in the paper and forest products industry generally. This reasonable difference in the attached meanings of a key provision of the agreement meant that no enforceable agreement had been reached. This case is also noted in § 4.13.

(B) The following cases are noteworthy:

(1) In re Global Crossing, Ltd. Sec. Litig., 2006 U.S. Dist. LEXIS 39030 (S.D.N.Y. 2006) . The court distinguished reformation based on a mistake of law from the situation where parties, unsure of their legal positions and eager to avoid litigation, enter a settlement agreement when the law is uncertain but the uncertainty is later resolved. Contract obligations are determined by the law in force at the time the contract is made. A subsequent change in the law does not render the agreement void.

(2) Griffith v. Clear Lakes Trout Co., 2007 Idaho LEXIS 27 . Clear Lakes operated a fish hatchery and entered into a six-year contract with Griffith, a trout grower, which required Griffith to purchase small trout from Clear Lakes which Griffith would then grow and resell to Clear Lakes. Clear Lakes agreed to sell sufficient trout to Griffith to allow it to grow up to 2 million pounds, live weight, each year. Griffith was obligated to sell the trout back to Clear Lakes when it had grown to ''market size.'' The parties performed satisfactorily for the first three years of the contract. When customers began to demand fish larger than the 12 to 16 ounce trout supplied by Griffith, Clear Lakes began to diminish and delay taking shipments from Griffith which sued. Clear Lakes moved for summary judgment on the footing that no contract was ever formed because the parties had fundamentally different interpretations of ''market size.'' Clear Lakes understood ''market size'' to vary depending upon customer demand, while Griffith the term had a static meaning approximately one pound, live weight. The district court agreed with Griffith and awarded damages for its lost profits except for the last two years of the contract on the ground that such profits would be too speculative. On appeal, the instant court noted that courts do not favor the destruction of contracts because of uncertainty. The applicable standard is ''reasonable certainty'' as suggested by the Uniform Commercial Code, § 2-204(3) that requires only such reasonable certainty accompanied by a manifested intention of the parties to be contractually bound plus a sufficient basis for affording a remedy. Clear Lakes argued that this case was similar to the famous case of Raffles v. Wichelhaus (the ''Peerless'' case), discussed in the text of the main volume prior to footnote 10, because of the ''drastic difference'' in the parties' understanding of the meaning of ''market size.'' The court rejected this argument because the parties manifested no difficulty in performing the contract for the first three years. Such course of performance was very strong evidence of their intended meaning of ''market size.'' The famous ''Peerless'' case manifested neither course of performance, trade usage or course of dealing evidence that may have allowed the court to choose between their different understandings of which ship ''Peerless'' would bring the cotton to the buyer at a particular time. While agreeing with the other holdings below, the court disagreed with the trial court's view that Griffith's damages for the last two years of the contract were fatally uncertain. The case was remanded for that determination.

Supplement to Notes in Main Volume

2. Kan.- United States Fidelity & Guaranty Co. v. Burress, 844 F. Supp. 1475 (D. Kan. 1994) . The parties agreed to a settlement providing for a ten-year annuity payable in specified monthly amounts. In preparing the agreement, lawyers for the paying party used an annuity agreement from a prior case that included language providing for an annuity for life and the parties signed this agreement. The court held this agreement contained a mutual mistake of fact because there was never any agreement to pay a lifetime annuity.

11. Meyer v. Meyer, 2006 Ala. Civ. App. LEXIS 253 . Based upon paragraph 5 of the parties' agreement, the trial court entered a divorce judgment stating that the wife was awarded all benefits to which she may be mandatorily entitled under the Uniformed Former Spouses Protection Act (UFSPA). When the wife was informed that she would not be entitled to a portion of her husband's military retirement pay because the divorce judgment did not award her a specific amount or a specific percentage of that pay, she sought a ''clarification'' of paragraph 5 of the agreement. The parties' subsequent appearances in court clearly indicated that both parties understood that the UFSPA would require certain portions of the husband's compensation to be paid to the wife. Both parties, however, were mistaken since there was no requirement of mandatory payment to the wife under UFSPA. The trial court found paragraph 5 to be ambiguous and issued an order that it be reformed to award the wife 32 percent of the husband's military retirement pay. On appeal, the instant court recognized two forms of ambiguity, patent ambiguity that is apparent on the face of an instrument because of inconsistency or uncertainty of the language used, and latent ambiguity where language appears to have only one meaning but it is later discovered to allow for two reasonable meanings. The court noted the classic example of latent ambiguity in the case in Raffles v. Wichelhaus as discussed in the main volume. In the case before it, the court found no patent ambiguity since the language of paragraph 5 was clear, consistent and certain. The court also found that the language contained no latent ambiguity since there was no later discovered uncertain meaning in the language. Both parties believed that the wife was entitled to a certain portion of the retirement pay under that paragraph as a matter of law, though neither party was aware of what that percentage was to be. Since the reformation granted by the trial court was based exclusively on the assumption that paragraph 5 was ambiguous and ambiguity was the only issue presented to the instant court on appeal, the court reversed the judgment below and remanded the case. While the court did not address the issues on remand, since the parties had expressed no intention as to what share of the retirement pay the wife would have received, the remedy of reformation becomes problematic since it requires clear evidence of the true intention of the parties which did not appear in these facts. Rather, the agreement appeared to be fatally uncertain as to what the wife should have received.

12. N.Y.- Gould v. Board of Ed., 81 N.Y.2d 446, 599 N.Y.S.2d 787, 616 N.E.2d 142 (1993) (resignation tendered by teacher who had earned tenure-by-estoppel ineffective because she and school board that accepted it both held mistaken belief that she was untenured; school board's good intentions and innocent unawareness held irrelevant).