401 Ware Contracts Spring 2011

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I.

Introduction

a. UCC: general sectionsi. Scope

1. UCC 2-102: UCC applies to transactions in goods (not just sale of goods).a. Extends to other business relationships

2. UCC 2-106(1): contract and agreement are limited to those relating to the present or

future sale of goodsii. Goods:

1. UCC 2-105: goods mean all things which are moveable at the time of identification to

the contract for salea. Also includes the unborn young of animals and growing crops

iii. UCC 1-103: if the UCC does not address a specific issue, principles of law and equity willsupplements its provisions

iv. Almost all states have adopted a UCCv. UCC 1-201(3): Agreement means the bargain of the parties in fact as found in their language or

by implication from other circumstances including the course of dealing or usage of trade orcourse of performance

vi. UCC 1-201(11): Contract means the total legal obligation which results from parties

agreement as affected by this act and any other applicable rules of law.vii. UCC 1-203: every contract or duty within this act imposes an obligation ofgood faith in its

performance or enforcementII. Basis for enforcing Promises

a. CONTRACTS:

i. Definition:1. Re. 1: A K is a promise or set of promises for the breach of which the law gives a

remedy, or the performance of which the law may in some way recognize as a duty.2. UCC 1-201(11): see above

3. Element of the future is in inherent in a K.ii. General Terms

1. Promise: Re. 2: manifestation of intention to act or refrain from acting in a specified

way, so made as to justify a promise in understanding a commitment has been made2. Agreement:

a. Re. 3: manifestation of mutual assent on the part of two or more persons

b. UCC 1-201(3): see abovec. Agreements are not contractsExample: I think it is going to rain today. I

agree. This is an agreement and not a contract3. Bargain: Re. 3: Agreement to exchange promises or to exchange a promise for a

performance or to exchange performances4. How a K is made: Re. 4: A promise may be stated in words either oral or written, or may

be inferred wholly or partly from conduct.5. Beneficiary: performance benefits person other than promisee

6. Guaranty: promise that 3rd person wont/will perform something

7. Illusory promises: promise that makes performance optional8. Opinions and predictions: opinions lack manifestation of intent, unless person was paid

for opinion as an expertthen there may be a promiseiii. Why enforce contracts?

1. Creates confidence in business2. Reliance is bigthese people are relying on conditions being enforced. The promisee

has a reliance interest if it has changed its position to its detriment in reliance on thepromise.

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3. Expectation interestputs person in position as if K was performedall persons expeccontract to come through. The promisees injury consists of being worse off than if thepromise had been performed.

4. Restitution interestthe promisee has a restitution interest if it has not only relied on

the promise but conferred a benefit on the promisor5. Relief to the aggrieved promisee should attempt to put the promisee in the position in

which it would have been had the promise been performed.

iv. 3 questions to the creation of a contract1. Was there mutual assent?2. Was there consideration or some substitute therefore?3. Are there any defenses to creation of the contract?

III. Creating contractual obligations

a. The nature of assent

i. General rule: objective assent over subjective assent

ii. Re. 17 Requirement of a bargain: formation of a K requires a bargain in which there ismanifestation of mutual assent to the exchange and consideration

iii. Re. 18 Manifestation of mutual assent: manifestation of mutual assent to an exchange requiresthat each party either make a promise or begin or render a performance

iv. Objective v. subjective assent

1. Subjective: what your actual intent is2. Objective: does not matter what the intent is, its a matter of outward manifestations and

is judged on the basis of what a reasonable person would believea. Re. 19(3): the conduct of a party may manifest assent even though he does not in

fact assent. In such cases a resulting K may be voidable b/c of fraud, duress,mistake, or other invalidating cause.

v. Hand and Frankboth said that a contract has nothing to do with the personal intent of theparties, but is created by the acts of the parties

vi. Manifestation of intention: it means the external expression of intention as distinguished from

undisclosed intention Re. 2 comment bvii. Jesting: Re. 18 comment c: where all parties to what would otherwise be a bargain manifest

intention that transaction is not to be taken seriously, there is no such manifestation of assent to

the exchange1. Lucy: A person cannot set up that he was merely jesting when his conduct and words

would warrant a reasonable person in believing he intended a real agreement. (117)viii. Lucy v. Zehmer, 117 : mental assent not required

1. the mental assent of the parties is not requisite for the formation of a K. If the words orother acts of one of the parties have but one reasonable meaning, his undisclosedintention is immaterial except when an unreasonable meaning which he attaches to hismanifestations is known to the other party

2. A contract is determined on the basis of words and actionsix. Drunkenness: K is voidable if person is too drunk to know what hes doing and other person is

aware of it.

1. Re. 16: intoxicated persons: a person incurs only voidable contractual duties by entering

into a transaction if the other party has reason to know (objective outward expression)that by reason of intoxication

a. He is unable to understand in a reasonable manner the nature and consequencesof the transaction (subjective) OR

b. He is unable to act in a reasonable manner in relation to the transaction(objective)

c. Comment bintoxication must be so extreme as to prevent any manifestation ofassent

x. Some contracts are unenforceable because of obvious absurdity

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1. Leonard v. Pepsi P sent a check for $700,000 and 15 Pepsi points for Harrier jet; Heldfor D on obvious absurdity of the commercial

b. Intent to be bound p.122

i. Generally

1. Re. 21 Intention to be legally bound:Neither real nor apparent intention that a promise

be legally binding is essential to the formation of a K, but manifestation of intention thata promise shall not affect legal relations may prevent the formation of a K.

a. a promisor may not be bound if the promise, whether from its content or thecircumstances of its making, is insufficiently serious to indicate the promisorsintent to be bound

2. a partys intent is what a reasonable person in the position of the other party would thinkthat the 1st partys objective manifestation of intent meant

3. intent to be bound factors (in the absence of a document executed by both sides)a. whether there has been an express reservation of the right not to be bound in the

absence of writingb. whether there has been a partial performance of the Kc. whether the terms of the alleged K have been agreed upond. whether the agreement at issue is the type of contract that is usually committed to

writing

e. Re. 26: Preliminary negotiations4. Not every agreement results in a binding, legally enforceable K

a. Social affairsp.1232 friends went hunting, driver took a curve too fast,injured passenger, passenger sued, claiming he had told him he wouldaccompany him on the agreement he would take a carNo K, not a commercialagreement

b. Married couplescourt denied wife recovery on the her husbands promise topay her an allowance on the grounds that such promises are not Ks becauseparties did not intend that they should have legal consequences

5. Letter of intentsigned by the issuer which sets out, often in considerable detail, theterms of the purposed underwriting, but states that no liability or obligation of any naturewhatsoever is intended to be created as between the parties

a. Letters of intent are serious and arent typically expected to be final, but youhave to be careful

6. Gentlemens agreementfirm commitment understanding says we are not bound by

this7. Formal contract contemplated: this can happen in a routine house sale. B and S can

exchange very short notes with the main issues, but saying we anticipate a more formalcontract

a. Re. 27: Existence of contract where written memorial is contemplated

b. Absent an expressed intent that no K shall exist, mutual assent between theparties, even though oral or informal, to exchange acts or promises are sufficientto create a binding K

c. To avoid the obligation of a binding K, at least one of the parties must express an

intention not to be bound until a writing is executedii. Re. 22 Mode of assent: offer an acceptance

1. The manifestation of mutual assent to an exchange ordinarily takes the form of an offeror proposal by one party followed by an acceptance by the other party or parties

2. A manifestation of mutual assent may be made even though neither offer nor acceptancecan be identified and even though the moment of formation cannot be determined

c. Ks for the sale of goods

i. UCC 2-204formation in general

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1. A K for the sale of goods may be made in any manner sufficient to show agreement,including conduct by both parties which recognizes the existence of such a K.

2. An agreement sufficient to constitute a K for sale may be found even though the momentof its making is undetermined.

3. Even though one or more terms are left open a K for sale does not fail for indefinitenessif the parties have intended to make a K and there is a reasonably certain basis for givingan appropriate remedy

d. OFFER i. Definition

1. an act whereby one person confers upon another the power to create contractualrelations b/w themthe act of the offeror operates to create in the offeree a power;thereafter the voluntary act of the offeree alone will operate to create a new relationcalled a KCORBIN

2. 3 questions to an offer

a. Was there an expression of promise, undertaking, or commitment to enter into aK?

b. Were there certainty and definiteness in the essential terms?c. Was there communication of the above to the offeree?

3. Re. 24: Offer defined: an offer is the manifestation of willingness to enter into a bargain

so made as to justify another person in understanding that his assent to that bargain isinvited and will conclude it.

ii. Language:

1. Degradation in order of probability that language would constitute an offera. I offerI will sellI promise to sellI would sellI might sell

2. The word quote is commonly understood as inviting an offer rather than as making onea. Ex. I quote youfor immediate acceptance will probably be construed as an

offer. By coupling words of invitation with words of offer, the offeror has atleast created an ambiguity, which will be construed in the favor of the offeree.

3. A question is never an offer4. No offers because of language:

a. Owen v. Tunison, 127: P (buyer) writes: will you sell me your store property

for the sum of $6,000? D wrote back: it would not be possible for me to sellunless I were to receive $16,000

b. Price quotec. Considered an invitation to negotiated. Language was such that the offeree would know the offeror wanted further

manifestation of assente. not an offer because

i. he was responding to the question (no indication of intent)ii. not strong enough language

f. see Re. 26 Ill. 4

iii. Preliminary Negotiations: Re. 26

1. A manifestation of willingness to enter into a bargain is not an offer if the person to

whom it is addressed knows or has reason to know that the person making it does notintend to conclude a bargain until he has made a further manifestation of assent

2. General ruleprice quotes arent offers, but quote can be used in an offer

iv. Certainty: Re. 33

1. To form a K, the terms must be reasonably certain i.e. provide basis for determiningexistence of breach and giving appropriate remedy

v. Existence of K when written memorial is contemplated: Re. 27

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1. Its possible to make a K which includes an obligation to execute a final writing whichhas certain set provisions/no others; but if parties regard it as incomplete, theyrepreliminary negotiations and not K

vi. Price Quotes

1. Owen v. Tunison above

2. Harvey v. Facey, 129 (Re. 26 Ill. 1)

a. Mere statement of a possible sale price is not binding as an offer to contract for

that priceb. Reply to will you sell blank with lowest price for blank does not contain an

implied contract3. Fairmount Glass Works, 130 (Re. 26 Ill. 3)

a. A price quote may give rise to an enforceable K if it contains detailed languageregarding the required method of acceptance

b. Responding to an inquiry: to list lowest price that seller will sell goods for,

with the prices as well as the availability of the goods upon immediateacceptance can bind the seller into a K.

vii. Advertisements generally not offers

1. Lefkowitz, 134 (Re. 26 Ill. 1)

a. An advertisement that is clear, definite, and explicit, and leaves nothing open for

negotiations, constitutes an offer, acceptance of which will complete the contractb. Language used in ad was first come, first servebut when P showed up, the

store refused to sell b/c of the house rule that the ad was only for womenc. An advertiser has the right to modify their offer at any time before acceptance,

not afterd. However, the ad is a valid K if nothing was left open for negotiation

viii. Construction contract

1. Elsinore School v. Kastorff , 139

a. A contractor can rescind from K if he made an honest clerical error, promptlyrescinded it and told other party about it

2. Mistakes are common because of limited time to submit bids3. Requirements to rescind:

a. Promptly tell other party about mistakeb. Mistake has to be materialnot resulting from neglect of legal dutyc. Enforcing K would be unconscionabled. Other party can easily be returned to position prior to K

ix. Auctions:

1. Re. 28: general rule is that an auctioneer may withdraw goods until he announces thecompletion of the sale

a. Without reserve: offer to sell at any price to the highest bidder not matter what;goods cant be withdrawn

b. With reserve: unless otherwise stated, auctioneer may withdraw goods at anytime until he announces the completion of the sale

i. UCC 2-328: Sale by auction

x. Option Contracts1. An option is a distinct contract in which the offeree gives consideration for a

promise by the offeror not to revoke an outstanding offer.

2. Definition: A promise which meets requirements for formation of K & limits promisorspower to revoke.

a. Usually expresses fixed time offeree must exercise option.3. How do you create option?

a. Consideration

b. Firm Offers; UCC 2-205

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c. Reliance by offeree

4. Example: A tells B he has until Friday at noon to accept offer for land. B hears A sold toC Thursday afternoon. W/o consideration, A can revoke before deadline. Dickinson v.Dodds

a. Goods: UCC applies so you dont need consideration. Just need signed writingfrom offeror saying firm offer will be held open. UCC 2-205

xi. Firm Offers-

1. An offer by a merchant to buy or sell goods in a signed writing which by its terms givesassurance that it will be held open is not revocable, for lack of consideration.

a. Accept w/in time specified, but if none, it cant exceed three months.

b. Need offerors signature.UCC 2-2052. Merchant - includes not only the person who deals in goods of the kind but also one who

holds himself out as having knowledge/skill peculiar to the practices or goods intransaction. UCC 2-104

3. Signed- includes any symbol executed or adopted by a party w/present intention toauthenticate a writing. UCC 1-201 (37)

4. Written - or writing includes printing, typewriting or any other intentional reduction totangible form. UCC 1-201 (43)

e. MISTAKEi. Definition: Re. 151: a mistake is a belief that is not in accord with the factsii. Effect of misunderstanding:Re. 20

1. No mutual assent if the parties attach different meanings to their manifestations andneither/both parties know the meaning attached by the other

a. This is just frolic and banter2. Their manifestations are operative in accord w/ meaning attached by 1 party if that party

a. Does not know of any different meaning attached by the other, and other knowsthat meaning attached by the first party; or

b. Has no reason to know of any different meaning attached by the other, and theother has reason to know the meaning attached by the first party

iii. Bilateral Mistake: Re. 152

1. Mistake where both parties have a belief of the facts that is not correct2. If mistake has a material affect, the contract is voidable unless the party bears the risk ofmistake under Re. 154

iv. Unilateral Mistake: Re. 153

1. Mistake where one party is mistaken2. Makes it harder on the party claiming the mistake b/c it has added language that it has to

be unconscionable to enforce the K or the other party had reason to know of the mistakein order for it to be voidable

v. When a party bears the risk of a mistake: Re. 154

1. a party bears the risk of a mistake when allocated by agreement, or when he is aware hehas only limited knowledge and treats this knowledge as sufficient, or when the courtallocates the risk to him b/c it is reasonable to do so

2.if a man binds himself b K to do a possible act, he must perform unless prevented by anact of God (Stees v. Leonard)

vi. Damages for mistake:

1. No reliance interest awarded b/c parties were free from fault2. When a party rescinds a K in absence of fraud or misrepresentation, he is entitled only to

restitution for any benefit conferred by part performance or reliance (Renner v. Kehl)vii. Sample cases:

1. Unilateral Mistake:

a. Elsinore v. Kastorff , 139

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i. A contractors error in calculating a bid can be grounds for rescission if iis an honest mistake, offeree is promptly notified, the error was not aneglect of legal duty, the amount is material, and offeree may be placedin the status quo

ii. Re. 153, Ill. 1

2. Bilateral Mistake

a. Stees v. Leonard , 808 (Re. 154, Ill. 5)

i. A person can be held liable for an agreement in which they were requiredto construct a building, even though they are not able to finish the projectdue to the fact that the soil they were supposed to build on was composedof quicksand. (a bi-lateral mistake of facts)

ii. This is an older casecourts have evolved since then, as evidenced in

Renner, rule changed by Restatement

b. Renner v. Kehl , 811

i. A party was allowed to rescind his agreement to buy land when he madeit clear that his only purpose for buying the property was to farm on itand needed an adequate supply of water. Both parties felt the land hadenough water, but eventually found the land to not have enough.

c. Re. 154 comment a

i. Seller of farm land generally cannot avoid the contract of sale upon laterdiscovery that the land contains valuable materials, even though the basicassumption during negotiation was that there were none.

1. The court will ordinarily allocate the risk of the mistake to theseller, so that he is under a duty to perform regardless of themistake.

d. Diamond in the rough , 815

i. D bought stone from P for $1, neither knew what it was. Later it wasdetermined to be a diamond worth $700. The court dismissed Ps actionb/c they had no belief of what a jewel was, so no mistake.

e. Pregnant cow case , 815

i. A contracts to B a cow for $80. Both A and B believe the cow is sterile

and therefore virtually worthless, but in fact the cow is not sterile and isworth $750. The contract is voidable by A.

1. Distinction here is that in the cow case they both knew that thecow was barren. But, in the diamond case, neither party knewwhat the stone really was.

f. ACCEPTANCE

i. Definition: Re. 50(1)

1. Acceptance of offer is a manifestation of assent to the terms made by the offeree in amanner invited or required by the offer

2. A voluntary act of offeree whereby he uses power conferred on him by the offeror andcreates a K.

ii. General terms

1. Form of acceptance invited: Re. 30:offeror may invite or require acceptance by:a. Wordsb. Performance or refraining from certain actsc. Letting the offeree make a choiced. Where none is stated, may accept by any reasonable means

2. Time when acceptance takes place: Re. 63

a. It takes effect as soon as it is out of the offerees possession, regardless if it everreaches offeror

b. Option Knot accepted until offeree receives it

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3. Intl Filter v. Conroe Gin, 147: the offeror controls the method and means ofacceptance by the language of the offer

4. Reasonableness of medium of acceptance:Re. 65a. Medium of acceptance is reasonable if it is one in which the offeror used or is

customary used is similar transactionsb. Not binding when a mental decision isnt indicated by speech/put into some act

of indicationwhite v. corlies and tift, 152

5. What if the type of acceptance isnt clear?a. Re. 32 Invitation of promise or performance

i. if there is a doubt, an offer is seen as inviting promise or performance6. To whom an offer is addressed: Re. 29

a. The manifested intention of the offeror determines the person or persons inwhom is created a power of acceptance

b. Offer may create a power of acceptance in one person or a group of people,acting separately or together, or in anyone who makes a specified promise orrenders a specified performance

7. Who may accept an offer: Re. 52

a. An offer can be accepted only by a person whom it invites to furnish theconsideration

8. Necessity of acceptance complying with terms of offer: Re. 58a. Acceptance must comply with the terms of the offer

9. Acceptance of offer which states place, time or manner or acceptance: Re. 60

a. If an offer merely suggests a permitted place, time, or manner of acceptance,another method of acceptance is not precluded.

b. Prescribed terms must be complied with in order to create a K.10. Mirror Image Rule:

a. Acceptance must be on the terms proposed by the offer and without the slightestvariation. Anything else is a rejection/counter-offer.

b. An offerees power of acceptance in terminated by him making a counter-offer,unless the offeror has manifested contrary intention or unless the counter-offermanifests a contrary intention of the offeree. Re. 39

iii. Shipment of goods as acceptance1. Formation in general: UCC 2-204

a. A contract for the sale of goods may be made in any manner sufficient to showagreement, including conduct by the parties

b. Agreement may be sufficient to constitute a K even though the moment of itsmaking is undetermined

c. If parties intend to make a K, its valid despite missing terms, if there is anyreasonably certain basis for granting a remedy

2. Offer and acceptance in formation of K: UCC 2-206

a. Any reasonable manner of acceptance is intended to be available unless theofferor has indicated ambiguously otherwise

b. An offer to buy goods for prompt or current shipment invites acceptance by

either promise for prompt or current shipmenti. Shipping nonconforming goods isnt acceptance if seller notifies buyer

that the shipment is offered only as an accommodation to the buyerii. Buyer is too late if the seller has promptly shipped

c. If an offeror isnt notified of acceptance in reasonable time, he may treat is aslapsed.

iv. Uni-lateral contracts

1. Only 1 party makes a promiseits a promise seeking a performance

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a. Ex. a guy loses a dog and promises $50 for anyone to find it. No one actuallyaccepts the offer, they just perform it.

2. Restatments:a. promise by performance: Re. 50(2)

i. Requires that at least part of what the offer requests be performed, so thaperformance is deemed acceptance, which operates as a return promise

b. Do you have to notify of acceptance? Re. 54

i. (1) Offeree doesnt have to notify offeror when accepting performance,unless the offeror requests such notification

ii. (2) Exceptions1. When the offeree knows that the offeror has no adequate means

of promptly learning of the performance with certainty2. If so, offeror is not bound unless

a. Offeree uses reasonable diligence to notify the offeror,b. Offeror learns of performance w/in a reasonable timec. The offer indicates notification of acceptance isnt

requiredc. Acceptance by performance: Re. 53

i. Invite onlyrendering performance can only be acceptance if offeror

invites such acceptanceii. Saying no after part performanceexcept in Re. 69, performance

doesnt constitute acceptance if in a reasonable time the offeree exercisesreasonable diligence to notify the offeror of non-acceptance

iii. No means nowhere an offer of a promise invites acceptance by

performance and does not invite promissory acceptance, the rendering ofthe invited performance does not constitute an acceptance if before theofferor performs his promise, the offeree manifests an intention not toaccept.

d. Option contract created by part performance: Re. 45

i. If offer only invites acceptance by performance, an option K is createdwhen the offeree begins performance. The offerors duty of performance

is conditional on the completion of the invited performance.ii. Cannot just prepare to begin, must actually begin performance.

e. Effect of performance w/o knowledge of offer: Re. 51

i. offeree who learns of an offer after part performance may accept bycompleting the performance; unless offeror manifests a contraryintention

ii. offeror must be aware before completion of performance3. Sample case

a. Notice in unilateral Ks: Carlill v. Carbolic Smoke Ball, 158, Re. 54 Ill. 2

i. If offeror expressly/impliedly intimates that its sufficient to act onproposal w/o communicating acceptance, performance is sufficientacceptance w/o notification

a. BI-LATERAL CONTRACTSi. Acceptance by Promise-

1. Offeree must complete every act essential to making of a promise. Rstmt 50(3)2. Both parties make promises; Promise for Promise3. Ex: I promise to pay you on April 15 if you promise now that you will walk across the

Brooklyn Bridge on April 1. P. 220ii. Necessity of Notification-

1. Notice is essential part of the acceptance.

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2. Need to make reasonable effort to notify OR offeror must be notified seasonably. Nonotice is necessary if offer manifests a contrary intention. Rstmt 56

iii. Re. 57: Effect of Equivocal Acceptance

1. Where notification is essential to acceptance by promise, the offeror is not bound by anacceptance in equivocal terms unless he reasonably understands it as an acceptance.

iv. SampleCases1. Notice in Bi-Lateral Contracts

a. An offer that was to be submitted for prompt acceptance was a contraryintention that the offeror did not require notification of acceptance.International Filter v. Conroe Gin, Ice, and Light, p. 147; Rest. 56, illust. 1

b. An offer to revoke was timely, even though the offer contained a clause thatsaid, upon agreement to finish in two weeks, you can begin at once, becausethere was no affirmative act that was recognizable as an acceptance of an offerbefore the offeror showed that he desired to revoke his offer. White v. Corlies& Tift, p.152; Rest. 62, illust. 1

c. When K doesnt specify the time w/in acceptance is required, notice to workmenupon their arrival with materials, that the customer did not desire them tocommence the actual work, was not sufficient and timely to indicate theirintention to withdraw from the contract. Ever-Tite Roofing Corporation v.

Green, p. 154b. CHOICE OF METHOD OF ACCEPTANCE OR DOUBT

i. Where Offer Invites Performance or Promise-

1. Where an offer invites an offeree to choose between acceptance by promise andacceptance by performance, beginning the performance is acceptance.

2. This makes it a promise to complete the performance. Rstmt 62(1)ii. What if type of Acceptance isnt clear?

1. In the case of doubt, the offer is interpreted as inviting the offeree to accept byperformance or promise. Rstmt 32

iii. Sample Cases:

1. Mere Suggestion of Acceptance

a. An offeree cant be excluded from the binding acceptance of a contract, when the

offeror said a purchase order should be executed & returned to the buyer foracceptance, and the offeree began work agreed upon by the two parties, but didnot accept by the method suggested by the offeror. Allied Steel v. Ford MotorCompany, p. 158

c. ACCEPTANCE VARYING FROM OFFERi. Acceptance that Adds Qualifications- Reply to an offer which adds qualifications is a counter-

offer, not an acceptance. Rstmt 59ii. Acceptance that Requests Change of Terms- Acceptance that requests a change of terms is not

invalidated unless the acceptance depends on assent to the changed terms. Rstmt 61d. SILENCE AS ACCEPTANCE

i. Silence is not acceptance, except in the following cases: Rstmt 691. When an offeree takes a benefit with reasonable opportunity to reject and has reason to

know offeror wanted compensation.2. Where an offeror states or gives offeree reason to understand that assent may be

manifested by silence or inaction, & offeree remains silent w/intent to accept the offer.a. Mere fact that offeror states that silence will constitute acceptance does not

deprive the offeree of his privilege to remain silent without accepting.3. Where previous dealings or otherwise show it is reasonable that the offeree should notify

the offeror if he does not intend to accept.a. For 20 years, buyer had called in orders to seller in which would be followed

up by a written purchase orders, at which time, seller would begin production.

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When seller refused to fill three orderscourt found that absent a notice ofrejection buyer would be justified in believing that seller had indeed begunproduction. American Bronze Corp v. Streamway, p.167

ii. An offeree who acts inconsistent w/offerors ownership of offered property is bound inaccordance with the offered terms unless they are manifestly unreasonable. But if the act iswrongful as against the offeror it is an acceptance only if ratified by him.

1. A sends B a one-volume edition of Shakespeare with a letter saying, If you wish to buy

this book send me $6.50 within one week after receipt hereof, otherwise notify me and Iwill forward return postage. B examines the book and without replying makes a gift of itto his wife. B owes A $6.50 Rest. 69, Illus. 7

2. Same facts, but B examines the book and without replying carefully lays it on a shelf toawait As messenger. There is no contract. Rest. 69, Illus. 8

iii. Offerors Receipt of Late Acceptance- A late acceptance may be an offer, but silence operatesas acceptance in such a case only as 69. Rstmt 70

2. TERMINATION OF THE POWER OF ACCEPTANCE

a. GENERALi. Offerees Power of Acceptance-

1. Offer gives to the offeree a continuing power to complete the manifestation of mutual

assent by acceptance of the offer2. A contract cannot be created by acceptance of an offer after the power of acceptance has

been terminated in one of the ways listed in 36. Rstmt 35ii. Re. 61: Acceptance which requests change of terms

1. An acceptance which requests a change or addition to the terms of the offer is not therebyinvalidated unless the acceptance is made to depend on an assent to the changed or addedterms.

iii. How to Terminate Acceptance-

1. Offerees power of acceptance may be terminated by:a. Rejection or counter-offer by the offereeb. Lapse of timec. Revocation by the offeror

d. Death or incapacity of offeror or offereee. When a condition of acceptance under offers terms doesnt occur. Rstmt 36

iv. Terminating Power of Acceptance Under Option Contract-

1. Acceptance under option K isnt terminated by rejection or counter-offer, by revocation,or by death or incapacity of the offeror, unless the requirements are met for the dischargeof a contractual duty. Rstmt 37

2. A leases land to B w/option to buy for $10k in cash. Mistaken, B offers a mortgage for$10k, & A refuses. B can still use option by following terms of lease. Rest. 37, Illus. 2

b. LAPSE OF THE OFFERi. When Terminated: Power of acceptance is terminated at time specified in offer, or, if no time

specified, at the end of a reasonable time.1. Reasonable time: question of fact that depends on circumstances when offer & attempted

acceptance are made.2. By Mail: Need to mail by midnight on day offer is received, unless otherwise indicated by

the language or the circumstances. Rstmt 413. Delay: If offer is delayed & offeree knows, acceptance is NOT extended; but if offeree

doesnt know about delay, he can accept based on when it arrives. Rstmt 49ii. Face to Face: Ordinarily an offer made face to face is deemed to continue only to the close of

their conversation, and cannot be accepted thereafter. Akers v. Sedberry, Inc., p. 168iii. Reasonable: What time would be thought satisfactory to the offeror by a reasonable man in the

position of the offeree? Rest. 41, comment b

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c. REVOCATIONi. Direct Revocation-

1. Offerees power of acceptance is terminated when offeror manifests intention not to enterinto the proposed contract. Rstmt 42

2. A makes an offer to B, and later says to B, Well I dont know if we are ready. We havenot decided, we might not want to go through with it. The offer is revoked. HooverMotor Express Co. v. Clements Paper Co., p.171; Rest. 42, illust. 5

ii. Option Contract-1. An option contract is a promise which meets the requirements for the formation of a

contract and limits the promisors power to revoke an offer. Rstmt 25iii. Indirect Revocation-

1. Acceptance is terminated when offeror acts inconsistent w/an intention to enter into theproposed contract & offeree gets reliable info to that effect. Rstmt 43

2. A offers land to B at a stated price and gives B a week to consider the proposal. Withinthe week, A contracts to sell to C & B hears this by a tenant of the premises. B thensends formal acceptance which is received by A w/in the week. There is no contractbetween A and B. Dickinson v. Dodds, p. 171; Rest. 43, illust. 1

iv. Revocation of General Offer-

1. Offer by advertisement in paper or to general public, is terminated when notice of

termination gets publicity equal to that of the offer. Rstmt 46v. Firm Offers-

1. An offer by a merchant to buy or sell goods in a signed writing which by its terms givesassurance that it will be held open is not revocable, for lack of consideration.

a. Accept w/in time specified, but if none, it cant exceed three months.b. Need offerors signature.UCC 2-205

2. Merchant - includes not only the person who deals in goods of the kind but also one whoholds himself out as having knowledge/skill peculiar to the practices or goods intransaction. UCC 2-104

3. Signed- includes any symbol executed or adopted by a party w/present intention toauthenticate a writing. UCC 1-201 (37)

4. Written - or writing includes printing, typewriting or any other intentional reduction to

tangible form. UCC 1-201 (44)d. DEATH OF AN OFFEROR

i. When is Acceptance Terminated? When the offeree or offeror dies or is deprived of legalcapacity to enter into the proposed contract. Rstmt 48

1. Acceptance not terminated by death/incapacity under an option K.ii. Is Contract Terminated? Generally, if K is made, it is enforceable after death/incapacity.

1. Sale of land is a situation in which a contract would be enforced even after death.e. REJECTION

i. Rejection-

1. Offerees power of acceptance is terminated by rejecting the offer, unless offeree has saidcontrary.

2. Manifestation of intent not to accept offer is rejection unless offeree does so to take it

under further advisement. Rstmt 383. Rejection isnt effective until its received. Rstmt 40

ii. Mirror Image Rule-1. Acceptance must be on the terms proposed by the offer without the slightest variation.

Anything else is rejection/counter-offer. Text, p. 1822. An offerees power of acceptance is terminated by a counter-offer, unless the offeror has

manifested a contrary intention or unless the counter-offer manifests a contrary intentionof the offeree. Rstmt 39

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iii. Implied Terms: What seems to be an additional or different term in the acceptance could be animplied term in the offer, so that language that at first appeared to vary the terms of the offerdid not really do so.

iv. A court may conclude that the language of the acceptance relating to an additional offer ordifferent term is only recommended.

f. MAILBOX RULE: CONTRACTS BY CORRESPONDENCE

i. When Offeror Revokes-1. Power of acceptance is terminated when the offeree receives from the offeror a

manifestation of an intention not to enter into the proposed contract. Rstmt 42ii. Acceptance good on dispatch- Unless the offer provides otherwise, acceptance takes effect when

dispatched, whether or not offeror receives it. Rstmt 631. Option K- Acceptance not good until received by the offeror.2. Lost/delayed acceptance- Offeror bears risk if acceptance is lost or delayed.3. Example: A firm of wool dealers that had made an offer by post to sell 800 fleeces could

not revoke the offer after the offeree, a firm of woolen manufactures, had put a letter ofacceptance in the post. Adams v. Lindsell, 185, Re. 63 comment a

4. If rejection is sent after acceptance but arrives first, acceptance is still good on dispatch.a. But, offeree may be estopped from enforcing K if offeror relied on rejection.

iii. Rejection good when received-1. Rejection or counter-offer by mail or telegram does not terminate the power of

acceptance until received by the offeror.a. But acceptance mailed after sending rejection/counter-offer is only a counter-

offer Unless the acceptance is receivedby the offerorbefore he receives therejection or counter-offer. Rstmt 40

2. Exceptions: Offeror can back out if offeree sends acceptance & rejection & rejection wasreceived 1st. Even though acceptance is good when sent, offeror relied on rejection b/c hegot it 1st.

iv. Acceptance by Telephone- Acceptance by telephone governed by same principles as if partieswere in the presence of each other. Rstmt 64

v. Must be Properly Dispatched- Precautions must be taken to insure safe transmission of

acceptance or it isnt good. Rstmt 66vi. Effect of Receipt of Acceptance if Improperly Dispatched-If offeree uses means of transmission

not invited, or does not take proper care in transmission, it is good on dispatch if it arrives withinthe time a properly dispatched acceptance would have. Rstmt 67

3. PRECONTRACTUAL LIABILITY

a. RELIANCE ON PROMISE THAT SEEKS A PROMISEi. Promise Reasonably Inducing Action or Forbearance-

1. Promise reasonably inducing action or forbearance is binding if injustice can be avoidedonly by enforcement of the promise. Rstmt 90

a. Was promise 1 which promisor should reasonably expect to induce action orforbearance?

b. Did promise induce such action/forbearance?c. Can injustice be avoided only by enforcement of the promise?d. MUST LOOK TOWARDS RELIANCE NOT EXPECTATIONS

ii. Option K-1. An offer that should reasonably expect to induce action/forbearance on the part of the

offeree before acceptance is binding as an option K to the extent to avoid injustice. Rstmt 87(2)

iii. Option Contract Created by Part Performance-

1. Option K is created when offeree begins invited performance. Rstmt 45

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2. A writes to daughter B in another state, & offers to leave As farm to B if she gives upher home & cares for As remaining life; B remains free to terminate arrangement at anytime. B gives up her home, moves to As farm, and begins caring for A. A is bound byan option contract. Rest. 45, Illus. 6; Move to Maine, p. 221

iv. Performance or Promise-

1. If offeree has a choice of performance or promise, and starts performing he has acceptedand must complete performance. Rstmt 62

v. Sample Cases1. A subcontractors offer was irrevocable, even though there was no acceptance, because

the general contractor relied to his own detriment on the subcontractor. Drennan v. StarPaving, p. 225; Rest. 87(2) illust. 6

a. **This applies 87(2) because it was an offer, not a promise2. A general contractor was not bound to hire a subcontractor whose bid was listed under

the general contractors bid to owner b/c subcontractors dont rely on the generalcontractor in the same way. Holman Erection v. Orville E. Madsen & Sons, p. 227

b. LIABILITY WHEN NEGOTIATIONS FAILi. Promissory Estoppel (Detrimental Reliance)-

1. Promise may be enforced to prevent injustice if the promisor reasonably expected the

promisee to rely on the promise. Person who is suing must have relied on it. Rstmt 902. Requirements: Cyberchron v. Calldata, 234

a. Clear & unambiguous promiseb. Reasonable/foreseeable reliance by promisec. Injury sustained reliance

3. Examples:a. Family Promisesb. Promises to convey landc. Promises coupled w/gratuitous bailmentsd. Charitable Subscriptions

ii. Benefits Conferred- If during the course of negotiations one party has conferred a benefit on the

other, the recipient of the benefit may be required to make restitution.1. Example: Clear case is when buyer has made a down payment2. Claimants seeking recovery for services performed during negotiations have rarely

succeeded.iii. Inducing Action, etc - Promise reasonably inducing action or forbearance is binding if injustice

can be avoided only by enforcement of the promise. Rstmt 901. The remedy granted for breach may be limited as justice requires.

iv. See Uni-Lateral and Bi-Lateral Contracts above - 54 and 56

v. Sample Cases

1. Under the advice of franchisor, franchisee sells bakery at a loss, buys a grocery store,puts down payment on lot in another town, moves his family, & rents a house.Franchisor fails to keep promises that induced franchisee to act to his detriment.

Franchisee gets damages, but only actual losses. Since the agreement was never made,franchisee gets no expectation interest. Hoffman v. Red Owl Stores, p. 230; Rest. 90,illus. 10

2. was offered job, rejected another offer & quit current job. Then hirer required letters ofrec which he couldnt get, & offer was terminated. find new employment, & court held relied on employer to his detriment to allow him to have an opportunity to perform isduties to satisfaction on the job. Grouse v. Group Health Plan, p. 233

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3. was compensated under the theory of promissory estoppel despite the fact thatnegotiations had not been concluded. The damages awarded were only the reliancedamages. Cyberchron Corp. v. Calldata Systems, p. 234

c. LETTER OF INTENTi. Letter of intent has a clause that parties do not intend to be bound

ii. P could sue on letter of intent b/c there was consideration when D used deal to get funding frombanks by proving he had interested tenants. Letter of Intent was basically a K. Channel Home

Centers v. Grossman, p. 239

4. REQUIREMENT OF DEFINITENESS

a. Certainty- Rstmt 33

i. Terms have to be reasonablycertain to form K, even though a manifestation of intention isintended to be understood as an offer.

ii. Terms are reasonably certain if they provide a basis for determining existence of a breach and anappropriate remedy.

1. Employer promised to pay a fair share of my profits. Court held no K b/c it could beany amount from a nominal sum to a material part according to the views of the person.Varney v. Ditmars, p. 246

iii. By leaving 1 or more terms of a proposed bargain open, it may show that a manifestation of

intention is not intended to be understood as an offer or as an acceptance.iv. Indefinite Price- Where parties intend to conclude K for sale of goods & the price isnt settled,

the price is a reasonable price at the time of delivery if:1. Nothing is said to the price2. Price is left to be agreed upon by the parties and they fail to agree3. The price is to be fixed in third person or agency and it is not so set or recorded.

b. Causes of Indefiniteness-

i. Too time consumingii. People hesitate to raise tough issues b/c deal may fall through

iii. Dont foresee future problemsiv. Dont want to disclose info that gives other party the advantage

c. Certainty and Choice of Terms-

i. Choosing Terms- Terms may be reasonably certain even if one or both parties have power tomake selection of terms duringperformance. Rstmt 34(1)

ii. Part Performance- Part performance may remove uncertainty. Rstmt 34(2)iii. Reliance- Action in reliance may make a contractual remedy appropriate even though uncertainty

is not removed. Rstmt 34(3)1. A says to B: I will employ you for some time at $10 a day. An acceptance by B either

orally or in writing will not create a contract. But if B serves one or more days with Asassent, A is bound to pay $10 for each days service. Illus. 4

d. Preliminary negotiations-i. If it looks like the offeror isnt ready to go there are only preliminary negotiations. Rstmt 26

e. Uncertainty of Terms-

i. Specific performance/injunction wontbe granted unless terms of K are sufficiently certain to

provide a basis for such. Rstmt 362ii. Could be certain enough to allow damages, but not an injunction.

f. Sample Cases

i. A and B make a K where A promises to convey part of land to B and B promises to pay $100,000& build a first class theatre on it, which will enhance the value of As remaining land. Aconveys the land to B, who pays the price but refuses to build the theatre. A sues B for specificperformance; but its refused b/c the K terms are uncertain. Although A can get damages from Bfor failure to enhance lands value b/c he can prove them w/reasonable certainty. Rest. 362,Illus. 1

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ii. Agreement b/w Lessee and Lessor stated price shall be renegotiated to the then prevailing rate inthe mall. The lessor wrote the K, & it was held to be an option for the lessee because if there isan ambiguity it should be construed against whoever wrote it. Toys v. F.M. Burlington, p. 249

iii. Oglebay v. Armco, 252

1. Did the parties intent to be bound by the terms of this contract despite the failure of itsprimary and secondary pricing mechanisms.

o Court finds that both had an intent to be bound.

If the parties did intend to be bound, may the trial court establish $6.25 per gross ton as areasonable rate for P to pay D for shipping Ps ore.

o The court was justified in granting a reasonable rate.

May the trial court continue to exercise its equitable jurisdiction over the parties, and mayit order the parties to utilize a mediator if they are unable to mutually agree on a shippingrate for each annual shipping season.

o The court deemed it necessary for the parties to negotiate and mediate during

each shipping season for the duration of the contract.

II. BASIS FOR ENFORCING PROMISES

1. CONSIDERATION AS A BASIS FOR ENFORCEMENT

a. FUNDAMENTALS OF CONSIDERATIONi. General2. In a law suit the is trying to uphold the contract, and is trying to get out. So is the

promisee and is the promisor.3. is trying to get to do what they promised to do. is trying to fight the contract, so

they will claim failure of or lack of consideration4. Focus on what the promisee promised b/c that is what is being argued by the promisor as

constituting a lack of consideration.5. Consideration has to do with situations in which promises are not made for a fair

equivalent exchange. At the other end a gift promise is not enforceable, b/c they donothing for the other person, even if a person relies on it.

6. Seals- Using seals dont apply to K to buy/sell goods, nor does such seal law. UCC 2-

203iv. Requirements for Consideration

1. Bargain- the exchange of somethingforsomething else.a. Mutual Reciprocal Inducement- each promise is done to induce the other.

b. Benefit to promisor or detriment to promisee

2. Legal value: detriment element is emphasized in determining whether an exchange

contains legal value

a. Restatement departs from use of benefit/detriment test. Only question it

would ask about consideration is whether something was bargained for and

given (or promised to be given) in exchange

v. Restatements

1. Requirement of Exchange- Rstmt 71a. A performance or a return promise must be bargained for!!!b. Performance or return promise is bargained for if it is sought by promisor in

exchange for his promise and is given by the promisee in exchange for thatpromise.

c. Performance may consist of:i. An act other than a promise, or

ii. a forbearance, oriii. The creation, modification, or destruction of a legal relation

d. Example- A desires to make binding promise to give $1k to his son B. Beingadvised that a gratuitous promise is not binding, A offers to buy from B for

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$1,000 a book worth less than $1. B accepts the offer knowing that the purchaseof the book is a mere pretense. There is no consideration for As promise to pay$1,000.

e. Abandoning or limiting a legal right such as smoking/driving, as an inducementfor a promise, is sufficient consideration to create a legally binding K. Hamer v.Sidway, p. 34; 71(3)(b)

2. Performance bargained for is Consideration-

a. Any performance which is bargained for is consideration, except as stated in 73-74,. Rstmt 72

3. Settlement of Claims-a. Promising not to bring a claim or defense which turns out to be invalid is not

consideration unless:i. It was doubtful b/c of uncertainty to the facts or law, or

ii. Surrendering party believes it may be valid Rstmt 74b. Forbearance to bring a legal claim is sufficient consideration if the party

forbearing intended in good faith to sue a well-founded claim. Fiege v. Boehm,p. 40

4. Consideration as Motive or Inducing Cause-

a. What is bargained for doesnt need to induce the making of a promise to be

consideration.b. A promise doesnt need to induce performance or return promise for such

performance or return promise to be consideration. Rstmt 81c. Basically, promisor can have more than 1 motiveits immaterial.

5. Adequacy of Consideration-

a. Rstmt 79: If you have consideration, you dont need:

i. Benefit to promisor or detriment to promisee, or1. A contracts to sell property to B. As a favor to B (Cs friend) &

in consideration of As performance of the K, C guarantees thatB will pay agreed price. As performance is consideration forCs promise. Rest. 79, Illus. 1

ii. Equivalence in the values exchanged or1. A borrows $300 from B to enable A to begin litigation to recover

a gold mine through litigation, and promises to repay $10,000when he recovers the mine. The loan is consideration for thepromise. Rest. 79, Illus. 3

iii. Mutuality of obligation6. Option Contract-

a. Rstmt 87(1): An offer is binding as an option K if its:

i. In writing & signed by offeror, andii. Recites consideration for the making of the offer, andiii. Proposes an exchange on fair terms w/in a reasonable time.iv. OR- if it is made irrevocable by statute

7. Guaranty-a. Rstmt 88: A promise to be surety is binding if:

i. Promise is in writing & signed by the promisor andrecites apurported consideration; or

1. A executes a written guaranty to B of a debt then due from C.The guaranty is stated to be in consideration of one dollar paidto me by B, the receipt of which is acknowledged. The guarantyis binding whether the dollar is in fact paid or not.

ii. The promise is made binding by statute; or

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iii. The promise induces action/forbearance which promisor shouldvereasonably expected.

1. A, an agent to sell books published by B, dies owing B $4k andleaves all his property to his widow C. C, desiring to continuethe agency, promises in writing to pay the debt. In reliance onthe promise B continues the agency for a year and makes noclaim against As estate, which is solvent, until the time for

filing claims has expired. Cs promise is binding.

b. THE REQUIREMENT OF EXCHANGE: ACTION IN THE PASTi. General

1. Promise for Benefit Received-

a. Moral Obligation: A promise made for benefits previously received is bindingto the extent to prevent injustice.

b. A promise is not binding under subsection (1)i. If promisee conferred benefit as a gift or for other reasons the promisor

has not been unjustly enriched; or

ii. To the extent that its value is disproportionate to the benefit. Rstmt 862. Past performance is not consideration-

a. Actions done prior to the bargaining process, which were not done as part of thebargaining, arent sufficient consideration to support a promise. Feinberg v.Pfeiffer, p.46

b. A gives emergency care to Bs adult son while the son is sick and without fundsfar from home. B subsequently promises to reimburse A for his expenses. Thepromise is not binding under this section. Mills v. Wyman, p. 50; Rest. 86,Illus. 1

i. Would probably have been a different result had the sick child been aminor because then the father would have had a legal duty to take care ofhis son, and would have received a benefit for A having taken care ofhim.

c. Example:

i. When a past action involves saving a party from death or serious injury,the assisting party may enforce a subsequent promise to pay for theassistance. Webb v. McGowin, p. 52; 86, Illus. 7

d. Exceptions:

i. Statute of Limitations - if A owes debt, but doesnt have to pay b/c of S ofL, if he promises to pay, he has to. Rstmt 82

ii. Bankruptcy - an express promise to pay debts out of bankruptcy isbinding. Rstmt 83

ii. Exceptions for Past Performance1. Statute of Limitations-

a. Promise to pay indebtedness is binding if its enforceable or would be but forstatute of limitations. Rstmt 82b. Examples of such:

i. Voluntarily acknowledging the debt; orii. Voluntarily paying $/interest on previous debt; or

iii. Stating the statute of limitations wont be used as a defense.

c. A owes B three debts of $500 each. All of the debts are barred by the statute oflimitations. A writes to B, I promise to pay you one of those $500 debts which Iowe; the other two I shall not pay. As promise of $500 is binding. Rest. 82,Illus. 2

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2. Bankruptcy-

a. Promise to pay previous debt excused by bankruptcy is binding. Rstmt 83b. A owes B $100 & is about to file bankruptcy. Immediately before filing his

petition he promises to pay despite any discharge that he may get in bankruptcy.The promise is not binding but would have been binding if it had been made afterthe petition in bankruptcy was filed. Rest. 83, Illus. 1

c. REQUIREMENT OF BARGAINi. General

1. There must be a bargained for exchange to create a contract.ii. Bargained for Exchange

1. Asking someone to live at your home and offering them a comfortable place to stay is notvalid consideration, even if the person abandons their previous home on reliance of thepromise to provide a place to live. Kirksey v. Kirksey, p. 56

2. If benevolent man says to a tramp, If you go around the corner to the clothing shopthere, you may purchase an overcoat on my credit. The walk requested is notconsideration for the promise, but if the tramp goes to the shop the man will make a giftof the coat. Benevolent man and tramp, p. 57

3. Estranged daughter refuses to see father. He says if she meets him for lunch at Tiffanys,

he will buy her an emerald ring. They came, but he failed to buy the ring. This isbargained for exchange, not a gratuitous promise. The daughter was forced to give upresentment she had towards him by meeting him. Lunchtime at Tiffanys, p. 57

4. A non-competition covenant signed by an employee after he is employed by the companyfor a few weeks, is supported by valid consideration when that employee remainsemployed by the company for a substantial period after signing the covenant and receivesbenefits beyond continued employment. Lakeland v. Columber, 58

iii. Rewards1. Person cant get reward if he didnt know of it b/c its not in exchange for the advertisers

promise. Thus, no consideration. Taft v. Hyatt, p. 66 & Rstmt 712. If he learns of reward after part-performance, he may accept by completing performance.

Rstmt 51

d. PROMISES AS CONSIDERATION

i. Consideration for a promise can be found in a return promise. Rstmt 71(1)ii. Promise for Promise-

1. A promise bargained for is consideration only if promised performance would beconsideration, & not including conditional/illusory promises. Rstmt 75

iii. Promise to Perform Voidable Duty-1. A promise to perform all/part of previous K voidable by promisor, but not avoided prior

to the making of the promise, is binding. Rstmt 852. Example: A is induced by Bs fraud to promise $100 for worthless chattel. After

discovering fraud A promises to pay as agreed. Its binding. Rstmt 85, Ill. 2iv. Conditional Promises-

1. Definition: A promise is conditional if its performance will become due only if a certainevent, or condition, occurs.

2. A conditional promise isnt consideration if promisor knows when K is made that thecondition cant occur. Rstmt 76

3. A promise conditional on performance by the promisor is a promise of alternativeperformances within 77 unless occurrence of the condition is also promised.

a. Ex: I will pay you if you suffer a profit-lossv. Illusory Promises-

1. Definition: The K is optional & party may or may not go through w/it.

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2. A promise is not consideration if the promisor reserves a choice of alternativeperformances, unless

a. Each alternative performance wouldve been consideration if bargained for; or

b. One of the alternative performances wouldve been consideration & its likelythat before promisor chooses b/t them, events would eliminate the alternative thatwasnt consideration. Rstmt 77

2. General

a. Will not have a suing for an illusory promise made by , because will justsay it was choice to perform or not, and he chose not to.

3. SampleCasesa. Promise not to collect on a debt for an unspecified period of time isnt sufficient

consideration to create K b/c debt can be collected right away. Strong v.Sheffield, p. 69

i. The consideration is tested by the agreement itself, not what happensafterwards. If the promisee had bargained for 2 yr forbearance, thenthere would be consideration.

4. Exceptions to Illusory Promisesa. Satisfaction Clauses-

i. Where 1 partys performance is dependant on his good-faith satisfactionw/a related matter. Mattei v. Hopper, p. 72

1. A party that must determine the satisfaction of a lease is legallyobligated to make a good-faith determination of his satisfaction.Thus, there is a legal obligation & the promise was not illusory.

b. Requirements and Output Contracts

i. Definition: Buyer buys everything it requires from seller.ii. UCC 2-306 recognizes these b/c party is required to act in good faith.

Eastern Air Lines, Inc. v. Gulf Oil Corporation, p. 76

iii. Illusory in the sense that buyer says they will buy everything they needfrom a supplier, or vice versa. Hypothetically, a buyer could ceaseoperations and not require anything.

c. Exclusive Dealing Contracts

i. Seller is obligated to use best effort to supply the goods and the buyer touse best efforts to promote their sale in an exclusive dealingarrangement. UCC 2-306(2)

1. This is technically a service covered by the UCC. It does notinvolve the sale of goods, but a transaction in goods.

ii. Exclusive dealing arrangements impose an obligation by seller to use hisbest efforts to distribute & market goods.

iii. Although the never expressly promised to use reasonable efforts topromote s product, that promise may be fairly implied by the court.Thus there is consideration for the s promise to split the profits with .Wood v. Lucy, Lady Duff-Gordon, p. 83

2. RELIANCE AS A BASIS OF ENFORCEMENT

a. 4 Basic Categories Before Restatement 2nd

i. Family Promises-

1. Grandfathers promise to make a gift of $ in the future was w/out any valuableconsideration, but she relied on it by quitting her job. The promise is binding. Rickettsv. Scothorn, p. 89

ii. Promises to Convey Land-

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1. When promisee relies on promise to convey land by moving onto the land and makingimprovements, the promise is binding. Freeman v. Freeman, p. 92

iii. Promises Coupled with Gratuitous Bailments-

1. A, a bank, lends money to B based on mortgage of Bs new home. The mortgagerequires B to insure the property. At the closing of the transaction A promises to arrangefor the required insurance, and in reliance on the promise B fails to insure. Six monthslater the property, still uninsured, is destroyed by fire. The promise is binding. Siegel v.Spear, p. 92; Rest. 90, Illus. 13

iv. Charitable Subscriptions-1. The strong desire among American courts to favor charitable institutions has established

a doctrine which once would have been looked upon as legal heresy.b. Promise that Induces Action or Forbearance

i. A promise which the promisor should reasonably expect to induce action/forbearance does justthat, its binding if injustice can be avoided only by enforcement of the promise.

1. The remedy granted for breach may be limited as justice requires.

ii. Charitable subscriptions & marriage settlements dont require showing promise induced action orforbearance. Rstmt 90

iii. Promissory Estoppel: A promise intended to induce/forbear, & did, reliance can be enforced onlywhere requiredto prevent injustice. Cohen v. Cowles Media, 98

1. Modern Estoppel:a. Need promise that promisor should reasonably expect to induce/forbear action.b. It has to actually induce/forbear action.c. Injustice can be avoided only by enforcing K.

c. Damages

i. Damages are limited to reliance interest in 90, not expectancy damages. D &G Stout v.Bacardi Imports, p. 100

ii. When an employee gives up another job in reliance on the promise of another employer to hirehim, he cant get lost wages because this is expectancy. He could get things like travel expensesto find a new job.

d. SampleCases

i. A has been employed by B for 40 years. B promises to pay A a pension of $200 per month whenA retires. A retires and forbears to work elsewhere for several years while B pays the pension.Bs promise is binding. Feinberg v. Pfeiffer, p. 94; Rest. 90, Illus. 4

1. The fact that she worked for two years after this is irrelevant b/c it was not bargained for.In this case, it is her reliance that makes the promise binding.

ii. Newspaper was held liable for breaking a promise to keep a source anonymous, when their reportresulted in the sources loss of employment. Cohen v. Cowles Media Company, p. 98

iii. Supplier assured distributor he would continue to act as his supplier, knowing that distributorcould only remain in business if he continued to be his supplier. Distributor in reliance on thispromise chose not to accept an original offer to sell his plant for more than he would be able to ifsupplier ceased to supply him. Supplier is liable for the difference in the sales price. D &G Stoutv. Bacardi Imports, p. 100

1. Court held this damage was the opportunity cost of relying on the suppliers promise, andthus not expectancy damages.2. This case also shows that 90 can apply to the traditional business context

3. RESTITUTION AS AN ALTERNATIVE BASIS FOR ENFORCEMENT

a. Generali. Recovery is based on preventing unjust enrichment.

1. Implied K- (quasi) no meeting of minds; used when services are expensive or burdensometo person giving them.

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2. Implied in fact- parties intend but fail to make K, so court implies their intentions.3. Implied in law- one who is unjustly enriched at cost of another should make restitution.

b. Implied in Law Contracti. Definition-

1. Implied in fact contract is one where the court finds that the parties intended to make acontract but failed to articulate their promises and the court merely implies what it feelsthe parties really intended.

2. Implied in law, there is never actually an agreement

3. Fiction of the law, based on the maxim that one who is unjustly enriched at the expenseof another is required to make restitution to the other. It is as if we could have asked theparties at the time that if you could have contracted would you have?

ii. Sample Cases-

1. Surgeon worked on unconscious man w/o consent in emergency; he died. Surgeon wasentitled to fair compensation for time/skill, but jury cant consider victims wealth indetermining reasonable compensation. Cotnam v. Wisdom, p. 106

c. Quasi-Contractual Liabilityi. Definition-

1. Imposed or created by law w/out regard to the assent of the party bound, on the groundthat they are dictated by reason and justice.

2. The intention of the parties is entirely disregarded; the duty defines the contract. Thisduty is frequently based on the doctrine of unjust enrichment.

3. must prove that the was enriched, received a benefit, and that retention of the benefitwithout payment therefore would be unjust.

4. Requirements: Direct relationship b/t P & D + no other alternative recovery methods.ii. Sample Cases-

1. put shrubbery on land for a man that was going to buy a house. The man died w/outpaying & real estate company cancelled the sale. There were no dealings w/company or, & didnt expect compensation from company when he planted the shrubs. Recoveryhere was developed to provide a remedy where none existed. In this case can go afterthe deceaseds estate. Callano v. Oakwood Park Homes Corp., p. 110

2. built a bathroom in home at the request & on credit of their daughter. Contractorwent after daughter, but she filed bankruptcy; he went after owners. The was awardeddamages for unjust enrichment. This was different from Callano because the service wasin the knowledge and consent of the owners, the originally went after the party hecontracted with, and when that didnt work to the party that was unjustly enriched.Paschalls Inc. v. Dozier, p. 112

3. Wife agreed to put husband through law school in return for his promise to put herthrough school when he graduated. He filed for divorce once he graduated, & wife suedfor unjust enrichment. Usually, unjust enrichment doesnt apply to marriage. However,when theres an agreement b/w the spouses & a unilateral effort by 1 spouse solely forthe benefit of the other, restitution is appropriate. Pyeatte v. Pyeatte, p. 113

4. Established the principal of palimony that when two people live together there can be a

cause of action. If you can separate the sexual aspect from the rest of it, then there can bea claim for expressed or implied contract or other equitable relief or restitution.d. Gratuitous Promises

i. assisted s intestate who said he owed him $50k for his help over the yrs, & took steps to bindthe K. Intestate had promise notarized & delivered it to , but died before he could change thewill. Court said the promise was for services already performed, and not supported byconsideration. The court ruled that the services were gratuitously performed, without theexpectation of compensation.

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III. POLICING THE BARGAIN

1. CAPACITYa. 3 CONCERNS

i. Status of Parties- certain classes of people are disqualified (retarded, minors)ii. Behavior of Parties- how the parties bargained; was there duress?

iii. Substance of Bargain- was bargain lopsided?

b. INFANTSi. Restatements

1. Person only enters voidable contractual duties before the age of 18, unless statuteprovides otherwise. Rstmt 14

2. Voidable or unenforceable can still be consideration. Rstmt 783. Generally courts do not enquire into the adequacy of consideration. Rstmt 79

ii. General1. A minor may disaffirm a contract during minority, but also within a reasonable time after

reaching the age of majority.

2. Exception: When minors contract for goods or services considered as necessaries (food,shelter, clothing)

3. Restitution:

a. A minor can receive only restitution of payments already made to the seller, butmust return the goods to the seller.

iii. SampleCase1. Minor bought a car from a dealer, and signed a sheet certifying that he was 21 years old.

The K is voidable by the minor. Kiefer v. Fred Howe Motors, Inc., p. 312b. MENTAL INFIRMITY

i. Mental Infirmity or Defects

1. Person incurs only voidable contractual duties by entering into a transaction if by reasonof mental illness or defect:

a. He is unable to understand in a reasonable manner the nature and consequence ofa transaction, or

b. He is unable to act in a reasonable manner in relation to the transaction and theother party has reason to know of his condition. Rstmt 15(1)

2. Where the K is made on fair terms & other party doesnt know of the mental illness, thepower of avoidance under (1) terminates to the extent that the K has been performed inwhole/part or the circumstances have changed that avoidance would be unjust. In such acase the court may grant relief as justice requires. Rstmt 15(2)

ii. SampleCases1. School teacher suffered from mental defect, & took leave of absence. She retired &

revoked previous election, electing a larger annuity w/no death benefit to her husband. Inview of her life expectancy, change was foolhardy & nothing explains the change. Theofficers of the plan have reason to know of her condition. She dies 2 months later. Theelection is voidable. Ortelere v. Teachers Retirement Bd, p. 316; Rest. 15, Illus. 1

2. Mere weakness of body, mind, or both, dont constitute mental incompetency to render aK voidable. It is, however, highly relevant in determining whether the deficient partywas overreached and defrauded. Cundick v. Broadbent, p. 319

c. INTOXICATIONii. Restatements

1. The drunk person held only to voidable contractual duties if the other party has reason toknow:

a. Hes unable to understand in a reasonable manner the nature and consequences ofthe transaction, or

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b. He is unable to act in a reasonable manner in relation to the transaction. Rstmt 16

2. If the intoxication is so extreme as to prevent any manifestation of assent, there is no K.Otherwise the party is affected only by intoxication of which he has reason to know.Rstmt 16, comment b

2. UNFAIRNESSa. Restatements

i. Duty of Good Faith-1. Every contract imposes a duty of good faith and fair dealing in its performance and

enforcement. Rstmt 205& UCC 1-2032. Does not say anything about the negotiation

ii. Interpretation Against Draftsman-1. If there is an ambiguity in a contract it will be construed against the person who wrote it.

Rstmt 206

iii. Specific Performance & Injunctions-

1. Rstmt 364 (1) - Specific performance or an injunction will be refused if such reliefwould be unfair because:

a. The K was induced by mistake or by unfair practicesb. The relief would cause unreasonable hardship or loss to the party in breach or to3rd persons, or

c. The exchange is grossly inadequate or the terms are unfair

2. Granted: Specific performance/injunctions granted in spite of agreement term, if denialwould cause unreasonable hardship/loss to the party seeking relief or to 3rd persons.

iv. Unconscionable Term-1. If K is unconscionable a court may refuse to enforce it, or enforce only the remainder of it

w/out the unconscionable term, or limit application to avoid unconscionable results.Rstmt 208

b. EquityCourtsi. Equity courts give specific performance

ii. Equity courts we give judges discretion, but they are guided by Maxims1. Clean Hands doctrine2. Equity follows law

c. SampleCasesi. Harsh K: A K which is harsh, oppressive, & unconscionable may be enforced, but is w/in court to

choose not to enforce equitable remedies when such conditions exist. McKinnon v. Benedict, p.455

ii. A is an aged, illiterate farmer. B is an experienced speculator in real estate who knows that adeveloper wants to acquire As Land & will probably pay well above previous market price. Btakes advantage of As ignorance of this fact & tells A not to seek advice. He induces A to sell atthe previous market price. A refuses to perform and B sues for specific performance. Specificperformance may properly be refused on the ground of unfairness. Rest. 364, Illus. 1

iii. A contracts w/B, niece, to leave B her farm by will in return for Bs promise to care for A for life.B quits her job & begins care for A, but A goes to the hospital, & dies w/out changing will. Bsues As estate for specific performance. If the court finds the K was fair when made, b/c burdenof caring for A & risk that she might live long, it will order specific performance. Tuckwiller v.Tuckwiller, p. 458

iv. The fact that someone is making a huge profit on a contract does not make it unenforceable.Black Industries v. Bush, p. 460

3. OVERREACHING

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a. PRESSURE IN BARGAINING

i. Duress:Whether the statement that induced the promise is the kind of offer that the court shoulddiscourage and call a threat.

1. 2 Forms-

a. Person physically compels conduct of manifestation of assent when victim has nointention of doing such. Rstmt 174

b. Person makes improper threat that induces a party who has no reasonablealternative to manifesting his assent. Rstmt 175

2. Physical Compulsion-a. If conduct is physically compelled by duress, it is not effective as a manifestation

of assent. Rstmt 174b. Thus contract is void.

3. Threat-a. Victim cant have reasonable alternative for K to be voidable. Rstmt 175(1)b. By 3rdParty: K is voidable by victim if assent is induced by a 3rd party, unless

they, in good faith & w/out reason to know of duress gives value or relies ontransaction. Rstmt 175(2)

c. In contrast, a threat of a lawfulaction cannot be wrongful, but it is not unlimited

-- depends on equitable means.4. When Threat is Improper-

a. Threat is improper if:i. Its a crime/tort or would be if it resulted in obtaining property

ii. Its criminal prosecutioniii. Its a bad-faith threat of civil process

iv. Its a breach of duty of good faith & fair dealing under K w/recipient.Rstmt 176

b. Threat is improper if resulting exchange isnt on fair terms, and:

i. It would harm recipient and wouldnt significantly benefit threatmakerii. The threats effectiveness in inducing assent is significantly increased by

prior unfair dealing by threatmaker

iii. Threat is a use of power for illegitimate ends5. Important Notes-

a. Need to Resist Some: The requirement of at least some resistance serves to restrictrelief for duress by denying it to persons who yield to pressure too easily.

b. Legal Threats: Its not duress to threaten what there is a legal right to do6. Duress in Business-

a. Economic Duress:i. Show that the party threatened breach by withholding needed goods

ii. Show that the victim cant obtain goods elsewhere

iii. Show that ordinary remedy would be inadequate, withholding partiesfree will Austin Inst v. Loral Corp. p. 340

b. Contract is voidable if a party is forced to act against their free-will, & they couldnot obtain the goods from another source. Austin Inst. v. Loral Corp.

i. P, under contract with D to furnish parts needed by D in executingcontract with US Navy, refused to accept order for less than all parts onsubcontract for second contract between D and US Navy, told defendantthat P would cease deliveries of parts due under existing subcontractunless D consented to increases in prices, and unless D placed order withP for all parts needed under second contract.

ii. Pre-Existing Duty Rule

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1. Definition: Essentially 1 party promises to do more & other party just promises to dowhat they were already obligated to do.

a. Modifying an existing K not fully performed is binding if modification is fair &equitable. D intentionally and voluntarily yielded to a demand for a specialprice. This yielded his contract right up to the new price. No protest bydefendant.

2. Performance of a Legal Duty-a. Performance of legal duty is consideration only if it differs from what was

required in a way that reflects more than pretense of bargain. Rstmt 73

b. A, an architect, agrees with B to superintend a construction project for a fixedfee. During the course of the project, without excuse, A takes away his plans andrefuses to continue, and B promises him an extra fee if A will resume work. Asresumption of work is not consideration for Bs promise of an extra fee. 73,Illus. 4

c. D hires workers to sail to Alaska, but at sea they threaten to stop working if notpaid more. D agrees but doesnt have to pay more b/c no consideration AlaskaPackers Assn v. Domenico, p. 325; Rest. 73, Illus. 4

d. When a party merely does what he has already contracted to do, he cannotdemand an additional compensation by taking advantage of the necessities of theparty The law will regard it as nudum pactum (getting nothing in return).

3. 4 Exceptions-a. UCC

i. Agreement modifying a K needs no consideration to be binding. UCC 2-209(1)

ii. Can have a no oral modification clause; unless its b/t merchants, theclause must be on a separate form that is signed by the other party. UCC2-209(2)

iii. Must meet a good faith requirement under1-203

b. Statutesi. Modification isnt invalid b/c of no consideration if its in writing. NewYork, p. 327

c. State Law

i. State common law may reject the pre-existing duty rule. Alabama, p.327

d. Executory Contracts (neither side has performed yet)i. Modifying these unperformed promises is binding if:

1. Modification is fair/equitable in view of the circumstances notanticipated when K was made; or

2. To the extent provided by statute; or

3. Justice requires enforcement b/c material change of position

from reliance. Rstmt 89 (Modification of an executory K)ii. Examples:

1. B employs A as coat designer at $90/week for a year startingNov. 1 under written K executed Sept. 1. A is offered $115 aweek elsewhere & tells B. A & B agree A will get $100 a week& new K in October for such, & tears up the prior K. The new Kis binding. Rest. 89, Illus. 3

2. Watkins & Sons v. Carrig, 331: A agrees to excavate cellar forB in K for stated price. Solid rock is unexpectedly encountered

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& A tells B. A & B orally agree that A will remove it at unitprice which is reasonable but 9 times the original price, & Acompletes the job. B is bound to pay the increased amount.Rest. 89, Illus. 1

4. Partially Executory Contractsa. Definition

i. Contracts in which only one side has performed.

b. PayingoffDebti. You cant be exonerated from the whole debt by paying part of it on due

date. Can sue on the difference Foakes v. Beer, p. 337

c. LiquidatedAmounti. An unliquidated amount is in dispute.

ii. A liquidated amount is not in dispute.1. An amount on a note would not be in dispute

iii. Payment in Full: When a creditor accepts a check for $800 on a $1000debt that says payment in full on the check, they can go after that $200if it is a liquidated amount.

d. Accord & Satisfaction

i. Accord- K where obligee accepts stated performance as satisfaction &discharges original duty, using substituted performance. Rstmt 281(1)1. It is the essence of an accord that the original duty is not satisfied

until the accord is performed

ii. Example: If a lawyer paid by the hour sends a bill for hours, then therecould be dispute over hours. If so, & debtor sends this type of check, itscalled an Accord and Satisfaction when the creditor takes and signs thecheck.

iii. UndueInfluence1. Restatements

a. What is Undue Influence?i. Its unfair persuasion of a party who is under the domination of another

or who by their relationship is justified in assuming that person wont actin a manner inconsistent with his welfare.

1. If assent is induced by this, K is voidable by victim.2. If assent is induced by a 3rd party, K is voidable unless other

party to the transaction didnt know in good faith & gives valueor relies on the transaction. Rstmt 177

2. TypicalCharacteristicsp. 346, Odorizzi v. Bloomfield School Districta. Discussing the transaction at unusual or inappropriate timesb. Consummation of it in an unusual placec. Insistent demand that business be done at onced. Extreme emphasis on consequences of delaye. Multiple persuaders by dominant side against 1 person

f. No 3rd party advisers to the weaker partyg. Statements that theres no time to consult attorneys

3. SampleCasesa. School authorities assured teacher arrested for homosexual activities that they

were assisting him, he should take their advice, there wasnt time attorney, if hedidnt resign hed be suspended & dismissed & itd be publicized. But if heresigned, it wouldnt hurt his chances of getting hired elsewhere. This is undueinfluence. Rule: Duress sufficient to authorize rescission of an instrumentconsists of unlawful confinement of another's person, or relatives, or property

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which causes him to consent to a transaction through fear. Odorizzi v.Bloomfield School District, p. 346

b. A, an elderly & illiterate man, lives with/depends on B, his nephew. B tells Athat he will no longer support him unless A makes a K to sell B land. A isinduced to make K. Even though Bs conduct doesnt amount to duress, it isundue influence b/c B dominated A & the K is voidable by A. Rest. 177, Illus.2

b. CONCEALMENT AND MISREPRESENTATIONi. Definitions

1. Misrepresentation-a. An assertion that is not in accord with the facts. Rstmt 159b. Similar to mistake, except mistake says belief.

2. Concealment-a. Action intended or likely to prevent another from learning a fact is equivalent to

asserting that the fact does not exist. Rstmt 160

3. Non-Disclosure- By not disclosing a fact known to him, he is asserting that the fact doesnot exist in the following cases ONLY:

a. Where he knows disclosure is necessary to prevent some previous assertion frombeing a misrepresentationb. Where he knows disclosure would correct a vital assumption of other party, &

not disclosing destroys good faith & fair dealing.

c. Where he knows disclosure would correct a mistake of the other party as to thecontents or effect of a writing, evidencing or embodying an agreement in wholeor in part.

d. Where the other person is entitled to know the fact because of a relation of trustand confidence b/w them. Rstmt 161

4. Key Point- If party speaks about condition/info, he is bound to divulge all material factsw/in his knowledge.

ii. Sample Cases1. A, seeking to induce B to buy As house, knows B doesnt know its riddled w/termites &

doesnt disclose this. B makes the K. As non-disclosure is equivalent to an assertion thatthe house is not riddled with termites, misrepresentation. Whether the K is voidable by Bis determined by 164. However, in Swinton, the law cannot provide special rules fortermites and can hardly attempt to determine liability for all the possibilities of varyingexistences and defects in trade. In absence of any sellers representations, there was noduty to disclose. Swinton v. Whitninsville p. 353

2. A, seeking to induce B buy an apartment house, tells B that the apartments are all rentedat $200/month. A knows that the rent of $200 has not been approved by the local rentcontrol authorities and that w/out approval its illegal but doesnt tell B. B makes the K.As statement omits matter needed to prevent the implied assertion that the rent is legal,

& this is misrepresentation. Whether the contract is voidable is determined by 164.Vendor only gave partial truth. If he does speak about a point of information, he mustthen d

401 Ware Contracts Spring 2011

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