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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 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.12

Supp. to § 2.12 Printed Terms on Billheads, Letterheads, Receipts, Baggage Checks, etc.

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(A) The following cases are noteworthy:

(1) McGraw-Edison Co. v. Northeastern Rural Electric Membership Corp., 678 N.E.2d 1120 (Ind. 1997) . A boilerplate limitation of seller's warranty liability was held unenforceable and the buyer permitted to proceed with its claim that purchased equipment was defective and caused buyer property loss. For two reasons, the court declined to apply U.C.C. § 2-719, which authorizes such limitations. First, the Indiana Product Liability Act, which codified strict liability, applied rather than the UCC because it was more recently enacted. Second, the court said in any event § 2-719 should be limited to ''knowing waivers'' of a buyer's right to sue. There was no such waiver in this case, as the buyer was not a large or sophisticated party and did not participate in active negotiations over this contract or the limitations provision.

(2) McEwan v. Mountain Land Support Corporation, 116 P.3d 955, 2005 UT App. 240, 526 Utah Adv. 28 (2005) . The landlords' insurer appealed the grant of summary judgment in favor of tenants in a subrogation action whereby the insurer sought to recover damages resulting from a fire that destroyed the leased premises. The trial court denied recovery, concluding that an insurer may not recover against its own insured, or a coinsured under a policy. A tenant is presumed to be a coinsured of the landlord absent an express agreement between the landlord and the tenant to the contrary. Thus, where a lease agreement between the landlord and the tenant is silent regarding responsibility to obtain fire insurance, the tenant is considered a coinsured under the landlord's fire insurance policy, and the landlord's insurer is not entitled to subrogation against the tenant. The instant lease agreement between the landlord and the tenant contained a provision with the heading ''PROPERTY INSURANCE.'' The paragraph that followed, however, did not require the tenant to maintain ''property'' insurance but only ''casualty'' insurance. ''Property'' insurance under Utah law means insurance against loss or damage to real or personal property of every kind and interest, from all hazards and causes. Property insurance includes fire insurance. ''Casualty'' insurance, on the other hand, does not include fire insurance, as it simply insures against liability for death, injury, or disability and other types of property damage that do not include fire damage. On appeal, the instant court affirmed, holding that the lease agreement did not obligate the tenants to obtain property insurance on the premises. Citing Corbin as persuasive authority, the court explained that the landlord drafted the lease by cutting and pasting from a form lease on her computer, and that the ''PROPERTY INSURANCE'' heading, which essentially contradicts the ''casualty'' insurance obligation in the paragraph beneath it, was ineffective. The lease was silent regarding responsibility to obtain property insurance making the tenants presumptive coinsureds under the landlord's fire insurance policy for the limited purpose of defeating subrogation. Again relying on Corbin, the court concluded that the presence of the heading ''PROPERTY INSURANCE'' did not render the contract ambiguous to allow the admission of extrinsic evidence to explain the meaning of the insurance provisions because contract headings are more appropriately regarded as organizational tools then substantive contract provisions. The court held that the lease agreement was not ambiguous and did not require the tenants to obtain property insurance.