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TABLE of CONTENTS

1. Introduction to the Study of Contract Law2. Mutual Assent, Intention to Be Bound: The Objective Theory of Contract3. Offer and Acceptance & Option Contracts4. Offer and Acceptance in Bilateral Contracts5. Offer and Acceptance in Unilateral Contract6. Revocation of Offer7. Battle of the Forms: Other Methods of reaching Mutual Assent8. Consideration: A Bargained for Exchange9. Pre-Acceptance Reliance & Postponed Bargaining10.Protection of Promisee Reliance: The Doctrine of Promissory Estoppel11.Charitable Subscriptions12.Restitution in the Absence of a Promise13.Contract-in-Law, Contract-in-Fact, Quasi-contract14.Material Benefit Rule and Statute of Frauds15.The Meaning of the Agreement: Principles of Interpretation and the Parol Evidence Rule16.Supplementing the Agreement: Implied terms, the Obligation of Good Faith17.Avoiding Enforcement: Void v. Voidable Contracts & Incapacity: Minors, Mental Incapacity18.Avoiding Enforcement: Bargaining Misconduct Duress and Undue Influence19.Avoiding Enforcement: Unconscionability and Public Policy20.Justification for Nonperformance: Mistake, Changed Circumstances21. Impossibility, Impracticability, Frustration of Purpose22.Non-Performance: Express Condition, Material Breach, & Anticipatory Repudiation23.Remedies: Expectation Damages: Reliance Damages & Restitution24.Case Briefs


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Introduction to the Study of Contract Law

Study of contract law: the way agreements are made and enforced in our legal system.

Contract - an agreement between two or more persons , not merely a shared belief, but a

common understanding as to something that is to be done in the future by one or both parties

Contract has legal effects creates obligations for which some sort of legal enforcement will be

available if performance is not forthcoming as promised.

Sources of contract law: Judicial opinions (stare decisis, precedents, policy), statutory law (UCC

Uniform Commercial Code governs sale of goods including consumer transactions but not real

estate and a few exceptions), Restatements, Legal Commentary (Williston and Corbin, Perillo,

currently Farnsworth), International Commercial Law (General Agreements on Tariffs and Trade

or GATT, United Nations Convention on the International Sale of Goods or CISG [although does

not apply to consumer transactions], and a private organization the International Institute for

the Unification of Private Law or UNIDROIT).

In most contractual relationships both parties should feel better off. Contracts are volitional.

Most transactions are not instant but are set to happen in the future. Future estimate of how

resources should be allocated.

Contract law is to compel parties. The nanosecond, when the contract is made it is the

magical moment - we will try to determine when that occurs.

Specific performance v. money damages most prefer money damages

Classical Williston objective contract law was a set of abstract rules that courts could use

by deduction to decide individual cases - viewed as a set of universal rules distilled from decided

cases - black letter of the law courts not allowed to use moral or political values. Formalism.

Modern Corbin believed contract law was to discover what the courts were actually doing

and weave those into what he called the working law doctrines such as good faith and

unconscionability - to look at intention of parties more subjective approach

What is a Contract?

A contract is formed in any transaction in which one or both parties make a legally enforceable promise.

A promise is a commitment or undertaking that a given event will or will not occur in the future and may

be express or implied from conduct or language and conduct. A promise is legally enforceable where it:

was made as part of a bargain for valid consideration;

reasonably induced the promisee to rely on the promise to his detriment; or

is deemed enforceable by a statute despite the lack of consideration.

Contracts may be of the following types:

1) Express an agreement manifested by words

2) Implied-in-fact an agreement manifested by conduct

3) Implied-in-law("quasi-contract") not a true contract but an obligation imposed by a courtdespite the absence of a promise in order to avoid an injustice


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Mutual Assent, Intention to Be Bound: The Objective Theory of Contract

Mutual Assent

Contract formation requires mutual assent to the same terms by the parties, generally manifested by an

offer and acceptance (see chapters 3 and 4). Current law favors an objective standard for determining aparty's intent to be contractually bound. Thus, in general, communications are given the meaning that

the recipient of the communication should have reasonably understood. Nevertheless subjective intent

is relevant in determining whether the parties intended to be bound. Without such subjective intent,

there is no contract.

Basis for Remedy

A validly formed contract must provide a basis for determining the existence of a breach and for giving

an appropriate remedy. 33 Non-goods contracts, according to the Restatement, must include terms

that are sufficiently definite and certain; goods contracts, on the other hand, do "not fail for

indefiniteness even if one or more terms are left open if the parties intended to make a contract and

there is a reasonably certain basis for giving an appropriate remedy."

Rstmt (2nd) 17 states the formation of a contract requires a bargain in which there is a

manifestation of mutual assent to the exchange and a consideration.

This concept of bargaining in which the parties manifest mutual assent traditionally was a give

and take process of negotiations designed to either ultimately reach a deal (manifestation of

mutual assent) or break off negotiations.

Contracts can be formed even when they parties do not engage in a bargaining process.

Some noncommercial transactions involving family members, friends and charities may (but not

always) result in contracts even though there was no formal negotiation.

When parties are in a bargaining relationship, one party can incur legal obligations to another

even though they have not entered into a contract such as the doctrines of restitution and

promissory estoppel . These involve liability between parties even though no contract has been

formed or even contemplated these are additional bases of obligation.

Even if a contract has been formed, a party may be relieved of that obligation if the other party

has engaged in some form of bargaining misconduct (duress, fraud, or undue influence) or if

circumstances that existed at the time of the contract have changed sufficiently to justify

nonperformance.

Intention to Be Bound The Objective Theory of Contract

Ray v. Eurice Bros: Ray had a contract drawn up to build a home and attached

specifications contract signed by both parties Eurice Bros. later claimed that they

didnt realize the specific terms and they couldnt build for the price agreed upon.

Trial court found for the Eurice Brothers but appeal found for the plaintiff. RULE: The

court took an objective view and read the black letter of the law and that a reasonable

person would have read the contract and known it was bound by the terms.


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One central feature of classical contract law was that it ignored any imbalances in

bargaining power.

Presence of a Promise a manifestation of intention to act or refrain from acting in a

specified way, so made as to justify a promisee in understanding that a commitment has

been made.

Mere expressions of present intention (as opposed to manifestation of actual intention)

do not constitute promises.

Is the promise serious? Sometimes the maker of a promise will claim it is a joke, or not

serious, and that the other party either knew that or should have.


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Offer and Acceptance & Option Contracts

Offer Defined

An offer is a manifestation of intent to be contractually bound upon acceptance by another party. Anoffer creates in the offeree the power to form a contract by an appropriate acceptance. 24

Communications that do not constitute offers because they do not manifest intent to be contractually

bound:

1) opinions about future results, including professional opinions

2) statements of intention (including letters of intent which merely memorialize negotiations)

3) invitations to submit a bid

4) price estimates However, where the estimate is deemed to be a factual misrepresentation

because it was made by an expert, estoppel may be invoked if the offeree relied to his

detriment on the estimate.

5) advertisements, catalogs and mass mailings Courts have ruled that it is unreasonable for one

to believe that the merchant intends to be bound with all whom receive or read such literature

unless the power of acceptance is clearly limited to the first person(s) that fulfills the act for

which the incentive is offered.

6) auctions with reserve An auction is "with reserve" unless announced to the contrary. In an

auction with reserve, the auctioneer solicits offers in the form of bids. However, if the auction is

announced to be "without reserve," the auctioneer's request for bids or his statement that an

item will go to the highest bidder will be deemed an offer.

When is the Offer Effective

Receipt of offer: An offer is not valid until received by the offeree or his agent. 68

Duration of offer: If the offer has a stated time within which the acceptance must be made, any

attempted acceptance after the expiration of that time will fail and will merely constitute a counter-

offer by the offeree. If no specific time is stated within which the offeree must accept, it is assumed that

the offeror intended to keep the offer open for a reasonable period of time, to be determined based on

the nature of the proposed contract, trade usage, prior dealings and other circumstances of which the

offeree knows or should know.

The time for accepting an offer begins to run from the time it is received by the offeree. If there was a

delay in delivery of the offer of which the offeree is aware, the usual inference is that the time runs from

the date on which the offeree would have received the offer under ordinary circumstances.

In telephonic or face-to-face communications in which an offer is made, the offer lapses when the

conversation terminates in the absence of a clear indication that the offer remains open beyond the

conversation.


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Traditionally, the nature of the contract dictated whether the offer could be accepted by a return

promise or by actual performance of the promised act.

The modern approach, an offer invites acceptance by any means reasonable under the circumstances,

unless otherwise indicated by language or circumstances. 30(2) This approach reflects the fact thatmany offers do not specify whether acceptance is to be by full performance or promise. A contract may

be formed even if an offer clearly indicates that acceptance is to be by promise if:

1) the offeree begins to perform, in lieu of making the required promise; and

2) the offeror learns of the commencement of performance and acquiesces to such manner of

acceptance.

An offeree's power to accept an offer is terminated by:

the death or insanity of the offeror, even without notice to the offeree of such occurrence

death or insanity of the offeree, unless an offer is irrevocable, such as in the case of an option

contract

death or destruction of a person or thing essential to performance

the offeree's rejection of the offer, which cannot be reinstated by the offeree's subsequent

attempted acceptance.

the offeree's counter-offer, which impliedly manifests a rejection of the offer

revocation of the offer

expiration of the offer

Classical Principles of Offer and Acceptance

The power of acceptance created by an offer will be terminated by the offerees rejection (or

revocation by the offeror)

An acceptance must be unequivocal and unqualified in order for a contract to be formed

A qualified acceptance is a counter-offer and will have the same effect as a rejection as far as

the original power of acceptance is concerned

Policy Analysis of Classical Rules

The rule of termination-by-counter-offer Rstmt (2nd) 39(2) is not inflexible and states that

effect should be given to the expressed intention of either offeror or offeree to the contrary.

Is probably not what most bargainers believe is happening most believe they are negotiating

and maybe even have an option to purchase

Option Contracts

Plaintiff Normile thought that when he received the defendants counter-offer with the changes

they didnt like, he had a first option on the property

The court found that the defendant Miller had made no promise to keep the offer open, so

there was no option


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Even if there had been an expressed promise on the defendants part to keep the offer open for

a stated period, it was still not an enforceable option contract because Normile had not

provided consideration

Under the modern theory of consideration, a promise is generally enforceable only if the

promissee has given either a promise or a performance in exchange for the promise that the

promisee seeks to enforce

Normille did not give Miller anything to hold the offer open

Possibility of Multiple Acceptances

Because the parties failed to assent to the same things in the same sense, there was no

meeting of the minds and hence there was no contract

Validity of Particular Kinds of Offers:

Made in Jest: an offer in which the offeree knows or should know is made in jest is not a valid

offer, thus even if it is accepted there is no valid contract.

Preliminary Negotiations: If a party who desires to contract solicits bids, this solicitation is not an

offer and cannot be accepted.

Longeran v. Scolnik: P responds to an ad in paper placed by D for land. D sent a form

letter in response. P believed that there had been an offer and acceptance. Court

holds that the form letter was merely an invitation to an offer, not an offer.

Advertisements: Most advertisements are not offers to sell. This is so because they do not

contain sufficient words of commitment.

Specific Terms: But if the advertisement contains specific words of commitment, especially a

promise to sell a specific number of units, then it may be an offer.

Words of Commitment: Look for words of commitment, these suggest an offer.

Izadi v. Machado: P brought a breach charge against D because of a car advertisement.

The test of a true interpretation of an offer or acceptance is not what the party making

it thought it meant or intended it to mean, but what a reasonable person in the position

of the parties would have thought it to mean. A binding offer may be implied form the

very fact that the deliberately misleading offer had the intention of misleading the

reader to the conclusion that an offer existed (Bait and Switch).

Auctions: When an item is up for auction, this is usually not an offer, but rather a solicitation of

an offer from the audience.Acceptance:

Who may accept: An offer may be accepted only by a person in whom the offeror intended to

create the power of acceptance.

Offeree must know of offer: offer must be known to the offeree at the time of acceptance.


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Method of Acceptance: the offeror is the master of the offer and can invite acceptance by

performance or by promise.

A. 30 (1) An offer may invite or require acceptance to be made by an affirmative

answer in words, or by performing or refraining from performing a specified act, or

may empower the offeree to make a selection of terms in his acceptance. (2) Unless

otherwise indicated by the language or the circumstances, an offer invites

acceptance in any manner and by any medium reasonable in the circumstances.

B. If there was not medium suggested for acceptance then acceptance can be

rendered in any reasonable manner.

C. Acceptance of a unilateral offer is done upon full performance of requested acts.

Acceptance by silence: Generally an offer cannot by accepted by silence.

69: Silence in a reply can be an acceptance: (a)Where offeree takes benefit of offer and

has reasonable opportunity to reject it. Or (b) Where the offeror has said that silence isacceptance or (c) Where because of previous dealings silence means acceptance

i. Reason to Understand: silence can constitute acceptance if the offeror has giventhe offeree reason to understand that silence will constitute acceptance.

ii. Benefit of Services: an offeree who silently receives benefit of services will beheld to have accepted a K if he had a reasonable opportunity to reject and knew

or should have known that the provider of services expected to be compensated.

iii. Prior Conduct: prior conduct of course of dealing may make silence acceptance.iv. Acceptance by Dominion: where the offeree receives goods and keeps them, this

exercise of dominion is likely to be held as acceptance.

Duration of Power of Acceptance

General: for an acceptance to be valid, it must become effective while the power of acceptance

is still in effect. So where there is doubt about whether the acceptance is timely: pinpoint the

exact moment of acceptance and ask whether the power of acceptance was still in effect at that

moment.

Ways of Terminating the Power of Acceptance: 36.

Rejection by the Offeree: 38

Counter-Offer: 39

Normille v. Miller: D put house up for sale. P made an offer, D made counter-offer

asking for more money. While P was deciding, D told them the offer was gone as she

had sold to someone else. P claims there was a contract or at least a first option. Court

held that D's counter-offer was a rejection of Ps offer. The new offer was rescinded

prior to P accepting.


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Offer and Acceptance in Bilateral Contract

In a bilateral contract, the offers empower the offeree to only accept by return promise. Bilateral

contracts are formed upon the giving of the promise to perform an obligation in the future, and failure

to fulfill such promise results in breach.

Ks typically involve an element of some course of action to be undertaken in the future. Most contracts

of commercial importance involve commitments on both sides an exchange of promises.

These are traditionally known as bilateral contracts an exchange of reciprocal commitments and are

seen by classical theorists as typically being the product of a negotiating process known as offer and

acceptance.

Usually involves a period of negotiation and then one party makes an offer (offeror).

An offer is a direct complete proposal that a K be entered into, providing for an exchange of defined

performances.

The offer has the effect ofcreating the power of acceptance in the offeree. If the offeree manifests

acceptance of the offer in a legally effective way, then at that moment a contract comes into being.

If the initial offer is not acceptable, the offeree can respond with a counter-offer of her own to the

offeror (which gives rise to a contract different from the original proposal).

There may be no contract if the offer is rejected, or an acceptance is delayed too long (beyond an

implied or explicit time limit), or by the offerors revocation of the offer.

Lonergan v. Scolnic: an action for specific performance there can be no contract

unless the minds of the parties have met and agreed upon some specific thing. This is

usually evidenced by making an offer that is accepted by the other party. Issue: Was

an offer made? RULE: The advertisement in the paper for a parcel of land was a mere

request for an offer an invitation for offers.

Time of acceptance the mailbox rule both an offer and a revocation (by the offeror) must be

communicated to be effective. Generally, an acceptance is treated as effective as soon as dispatched. A

revocation will be effective as soon as it is received.

Offeror is master of the offer, so offeror can stipulate time/method required for effective acceptance.

This has been modified by placing the risk of nonarrival of the acceptance on the offeree to be

effective in concluding the bargain the acceptance must reach the offeror in a timely fashion.

Izadi v. Machado Ford (1989) ads that are misleading bait and switch are an

exception to the traditional rule that ads are not offers, but merely invitations for

offers. The test of the true interpretation of an offer or acceptance is not what the

party making it thought it meant or intended to mean, but what a reasonable person

in the position of the parties would have thought it meant (Williston). If an offer were

conveyed by an objective reading of the ad, it does not matter that the car dealer may

subjectively have not intended for its language to constitute a binding offer. RULE:

Court used a line of persuasive authority that a binding offer may be implied from the

very fact that deliberately misleading advertising intentionally leads the reader to the

conclusion that one exists.


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Normile v. Miller: In consolidated cases, separate plaintiffs sued property owner for

specific performance of identical written contracts to sell same parcel of real estate.

The Superior Court entered summary judgment in favor of one of the plaintiffs, and

the other plaintiff appealed. The Court of Appeals affirmed, and plaintiff against

whom the court decided petitioned for discretionary review. Review was granted

court held that:

vendor's qualified acceptance of purchasers' offer was in reality a rejection of

the original offer because it was coupled with certain modifications or changes

not contained in the original offer;

thus, vendor's conditional acceptance amounted to a counteroffer;

time limit within which offer must be accepted, contained in purchasers' original

offer, did not become a term of vendor's subsequent counteroffer;

purchasers rejected vendor's counteroffer, despite their mistaken belief that

they had an option to purchase; and

by entering into contract with another purchaser, vendor manifested herintention to revoke her previous counteroffer to purchasers, and purchasers

had no power to revive offer by any subsequent attempts to accept. Modified

and affirmed.

Offer to purchase land remains only an offer until the vendor accepts it on

terms contained in the original offer by the prospective purchaser, and if vendor

accepts terms in purchaser's offer, he denotes this by signing offer to purchase

at the bottom, thus forming a valid, binding, and irrevocable purchase contract

between vendor and purchaser.

Where a seller changed purchaser's original offer for land in several material

respects, most notably in terms regarding payment of the purchase price, the

qualified acceptance was in reality a rejection of purchasers' original offer, and

additionally, amounted to a counteroffer.

If a vendor purports to accept purchaser's offer, but changes or modifies terms

of the offer, he makes what is generally referred to as a qualified or conditional

acceptance, which is actually a counteroffer and a rejection of the purchaser's

offer.

Purchasers who received vendor's counteroffer for sale of land rejected it,

where they did not manifest any intent to agree to or accept terms contained in

the counteroffer, despite purchasers mistaken belief they had an option on

the property and that it was off the market for duration of time limitation

contained in purchasers' original offer. A necessary ingredient to the creation ofan option contract - a promise to hold an offer open for a specified period of

time was not present there was no independent consideration.

o Accordingly, the court held that the defendants counter-offer was not transformed into an

irrevocable offer for the time-limit contained in the original offer because the defendants

conditional acceptance did not include the time for acceptance provision as part of its terms and

because the defendant did not make any promise to hold her counter-offer open for any stated

period of timeA bilateral contract is formed when the parties exchange promises of


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performance to take place in the future: each party is both a promisor and a promisee - the

offerees communicated acceptance also constitutes in effect a promise to perform.

o However, if the offeror should offer to exchange his promise of a future performance only in

return from the offerees actual rendering of a performance rather than the mere promise of a

future performance then the transaction is a unilateral contract.

o R2K 45 Unilateral contractonly the offeror makes a promise and only the offerees rendering

of the performance (traditional theory meant completed performance) constitutes acceptance

and that is the moment the contract is formed.

o There is maximum protection to the offeror who is not bound unless and until he has received

the performance sought.

o Classical theory denied the offeree any protection or remedy if they had started to perform, but

not completed the performance, and the offeror decided to revoke the offer. Offeree could

have a considerable investment at this time.

An acceptance becomes effective according to the following rules:

1) The offeror may specify when the acceptance will be effective.

2) Absent such specification, an acceptance is effective when sent, if sent by reasonable means,e.g., by an authorized medium and with proper postage and correct address.

3) If an acceptance is sent by means that are not appropriate or reasonable under the

circumstances or if it is improperly dispatched, the acceptance will be effective upon receipt.

66 However, if the acceptance is seasonably but improperly dispatched, it will still be deemed

effective when sent if it is received within the time in which a properly dispatched acceptance

would have been received. 67

4) option contracts, an acceptance is not operative until received by the offeror. 63(b)

Late Acceptance: communications that are intended as an acceptance but sent after the offer expires

1) the communication may qualify as a counter-offer

2) the offeror may waive the lateness and honor the acceptance

3) if the acceptance is nevertheless sent within a reasonable time, albeit after the offer's stated

expiration, the acceptance is valid and results in the formation of a contract if the offeror does

not reject it within a reasonable time

mirror image rule: an acceptance must conform to the terms set forth in the offer. No contract is

formed if the acceptance contains terms that are different from or additional to those set forth in the

offer. Such communication merely constitutes a counter-offer. The formation of a contract is generally

precluded even if the discrepancy is trivial, although courts are now increasingly giving effect to an

acceptance if the additional or different terms relate to an immaterial detail.

A contract is formed if the offeree unequivocally accepts the offeror's terms, despite a simultaneous

suggestion of alternative terms. Such circumstances merely represent an attempt to modify the terms

of an already formed contract based on the original terms, as long as the acceptance is not contingent

on the offeror accepting the proposed changes.


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Offer and Acceptance in Unilateral Contract

A unilateral contract is a contract in which the wishes of one of the parties is made known they make

an offer and promise. But there is no promise made (consideration) to the offeror.

A unilateral contract lacks consideration for want of mutuality. Once the promisee performs,

consideration is supplied and the contract is enforceable. It had always been revocable until the

performance was complete, but that was unfair so under 45 it became enforceable once the

performance had begun.

Cook v. Coldwell Banker: Was there breach of a bonus agreement that was a unilateral

contract after the plaintiff had substantial performance and been partially paid? Real

estate broker promised agents a bonus system to induce them to stay and to increase

there sales. The bonus program was announced orally and included a $500 bonus

payable as soon as an agent earned $15k in commissions. The next levels were to be

paid at the end of the year. Cook achieved the first bonus (but payment was not

immediate). In September the boss announced he would be paid in March of the

following year. Cook stayed till the end of the year but then went to another brokers

office. She had achieved all the levels by the time the September announcement was

made. Because she was no longer working with the broker, he did not want to pay

her the bonus and she sued for the bonus she had earned. Jury awarded her the

money. Broker filed appeal. Judgment affirmed. In this case, the bonus offer induced

her to stay she was an at-will employee and she could leave at any time RULE: she

had performed and was owed, 45 imposes only that the performance has begun, not

substantial, and within the terms.

Petterson v. Pattberg John Petterson, of whose last will and testament the plaintiff is the executrix, was the owner of

a parcel of real estate in Brooklyn.

The defendant was the owner of a bond executed by Petterson, which was secured by a third

mortgage upon the parcel.

On April 4th, 1924, there remained unpaid upon the principal the sum of $5,450. This amount

was payable in installments of $250 on April 25th, 1924, and upon a like monthly date every

three months thereafter

Thus the bond and mortgage had more than five years to run before entire sum became due.

April 4, 1924, the D wrote Petterson as follows: "I hereby agree to accept cash for the mortgage

which I hold against premises 5301 6th Ave., Brooklyn, N. Y. It is understood and agreed as a

consideration I will allow you $780 providing said mortgage is paid on or before May 31, 1924,and the regular quarterly payment due April 25, 1924, is paid when due."

On April 25, 1924, Petterson paid the defendant the installment of principal due on that date.

Subsequently, on a day in the latter part of May, 1924, Petterson presented himself at the

defendant's home, and knocked at the door.

Petterson went to Pattbergs house and hollered through the closed door that he had come to

pay off the mortgage.


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Petterson was told by Pattberg that the mortgage had been sold. Then he opened the door and

Petterson tried to give the payment of the cash.

D had the right to withdraw his offer at any time before payment was made and his statement

that he had sold the mortgage was a definite notice to testator that he could not perform his

offered promise and that a tender would be ineffective. Pattberg refused to take the money.

It clearly appears that the defendant's offer was withdrawn before it became a binding promise(before he accepted the payment) and that no contract was ever made.

Before Petterson had come to pay the mortgage, he had made a contract to sell the property

free and clear of the 3rd mortgage to Pattberg. And before Petterson arrived there, Pattberg had

sold the mortgage. So Petterson had to pay the guy who bought the mortgage for the full

amount of the bond and the mortgage. He thought there was a breach of contract and he had

lost the discounted price of $780 plus interest.

Clearly an offering party has the right to name the precise act of performance of which would

convert his offer into a binding promise. Whatever the act may be until it is performed the offer

must be revocable. In this particular instance the offer of the defendant was withdrawn before

it became a binding promise, and, therefore, that no contract was ever made for the breach of

which the plaintiff may claim damages.

Perhaps too harsh and that in cases of doubt, the courts should conclude the offeror intended to

allow the offeree to accept by either making a return promise or rendering the performance

requested.

This would not apply if it was clear the offeror only wanted the specific performance

This would not apply if the offeree began the performance without an accompanying promise

so presumably in that situation the offeror would be free to revoke at any time prior to

completion of the performance.

Rstmt 45 once started the offeror is bound under a unilateral contract and cannot revoke hisoffer so long as offeree completes it within the terms of the offer.

This is considered an option contract although it is not truly an option contractmostly

because an option contract involves holding an offer open for a specified time period and this is

for a reasonable time or in accordance with the terms of the offer.

Does not impose substantial performance just that it begins and within the terms.


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Revocation of Offer

Revocation: an offer is generally revocable at any time prior to acceptance.

Communication of revocation: An offer may be revoked by any words that communicate to the offeree

that the offeror no longer intends to be bound.

An offer is revoked by inconsistent action with intent to be bound once the offeree learns of action.

Irrevocable offers:

1) there is an option contract in which the offeree gave consideration for an irrevocable offer for

some period of time

2) the offeree relied to his detriment upon an implied or express promise by the offeror not to

revoke if such detrimental reliance was foreseeable by the offeror.

3) the offeree relied to his detriment upon the offer itself if the such detrimental reliance was

reasonably foreseeable by the offeror87(2)

4) in the case of a unilateral contract, the offeree began performance of the promised act to any

extent 45 Upon commencement of performance, the offeror must give the offeree theamount of time specified in the offer (or, in the absence of a specified time, a reasonable time)

in which to complete the bargained-for promise. However, the offeree's mere preparation to

perform does not preclude the offeror from revoking.

Effective time of revocation: A revocation is effective upon receipt by the offeree. However, a few

jurisdictions provide by statute that revocations are to be treated similar to acceptances; thus, courts

might interpret these statutes to make a revocation of an offer effective when sent by the offeror.

Restatement 42 Revocation by Communication from Offeror Received by Offeree: An offerees power

of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention

not to enter into the proposed contract

Restatement 43 Indirect Communication of Revocation: An offerees power of acceptance is

terminated when the offeror takes definite action inconsistent with an intention to enter into the

proposed contract and the offeree acquires reliable information to that effect

Restatement 46 Revocation of General Offer:An offer made to the public by an ad is revoked when

notice of termination is given through equal means to the offer

Common Law

o Revocation can be communicated directly or indirectly

o Revocation is only effective after communication to offeree

o Notice to other partys agent, within the scope of the agents authority, is bindingo If the offer is not supported by consideration, the offer can be withdrawn at any time because it

is not an option contract

o In order to keep an offer open, you must give some sort of consideration to keep the promise

from being gratuitous

o A mere promise to keep offer open is not enough to create irrevocable offer

o Manifestation inconsistent with intent to keep the offer open is enough

o Can be Word or Deed


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Battle of the Forms: Other Methods of reaching Mutual Assent

2-102 (consumer-merchant, consumer-consumer, merchant-merchant)

Goods are defined as any tangible, moveable property, such as a car or computer.

Harlow v. Advance Steele (1976) alleged breach to buy steel this was the battle of the formsand UCC 2-204 even if one or more terms are left open, a contract for sale does not

fail for indefiniteness transaction of goods not services.

Article 2 governed the transaction for the sale of steel.

Under common law, a contract requires a bargain in which there is a manifestation of mutual

assent (at least in commercial contracts). Under the UCC 2-204(1) a contract was formed by

several telephone conversations under the UCC the sale of goods in excess of $500 (now

$5000) must comply with the written requirements of the UCC Statute of Frauds 2-201.

The UCC does necessarily require a formal signed contract in order to satisfy the statute of

frauds.

2-207 Battle of the forms

The parties exchanged conflicting documents but neither party agreed to or signed the other

parties documents. The court did not try to resolve issues regarding conflicts in the documents

because it found the parties had agreed by their conduct to form a contract.

Introduction to the CISG is the international equivalent to Article 2 of the UCC involves

foreign countries, commercial and not consumer sales, and if CISG would be applicable, the

parties can agree to not use it or to use some other law to govern the transaction.

U.C.C. Battle of the Forms

The UCC attempts to prevent a party from slipping out of a contract as they could under the

common-law rule that stated "acceptance must be a mirror image of offer"

It also attempts to deny an unwarranted advantage to the party firing the "last shot" in the

battle of these forms

UCC 2-207 provides that a contract may be created where the acceptance does not match the

offer and attempts to specify what the terms are of such a contract

"Battle of the Forms"

Most offers and acceptances come in the form of pre-printed forms and are rarely custom-

written for a particular transaction. These forms consist of:

a. Purchase Order: buyer sends this to the seller with fine-print clausesfavoring the buyer

b. Acknowledgement: seller responds with a pre-printed acknowledgement

form with terms that favor the seller

Usually the parties pay no attention to these forms and the transaction continues with the seller

shipping the buyer the goods involved. The dispute usually arises concerning the inadequacy of

the seller's performance (dispute over the quality of the goods). Only then do the parties look to


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the purchase order and acknowledgement and realize that the forms differ on several terms.

The result is a "BATTLE OF THE FORMS".

B. Role of 2-207:

1. To determine whether a contract has been formed at all by the exchange of

documents

2. If a contract has been formed, to determine what the terms of that contract are

C. Major changes from the common-law approach:

1. It allows a document to constitute an acceptance even though it states terms

additional to or different from those offered or agreed upon, thus abolishing the

"mirror-image" rule

2. The additional terms proposed in the acceptance can become part of the contract in

certain circumstances if the other party merely remains silent, thus modifying the

common-law rule that a proposal for a contract cannot be accepted by silence

U.C.C. Battle of the Forms

2-207: Additional Terms in Acceptance or Confirmation

a. A definite and seasonable expression of acceptance or a written confirmation which is sent

within a reasonable time operates as an acceptance even though it states terms additionalto or different from those offered or agreed upon, unless acceptance is expressly made

conditional on assent to the additional or different terms.

b. The additional terms are to be construed as proposals for addition to the contract. Between

merchants such terms become part of the contract unless:

a.the offer expressly limits acceptance to the terms of the offer;

b.they materially alter it; or

c.notification of objection to them has already been given or is given within a reasonable

time after notice of them is received.

c. Conduct by both parties which recognizes the existence of a contract is sufficient to

establish a contract for sale although the writings of the parties do not otherwise establish a

contract. In such case the terms of the particular contract consist of those terms on whichthe writings of the parties agree, together with any supplementary terms incorporated

under any other provisions of this Act.

Princess Cruises, Inc. v. General Electric Co: Facts: Princess scheduled the SS Sky

Princess for routine inspection services and repairs in December 1994. They requested

that GE perform the services and provide the parts needed for the project. When the

ship arrived for repairs and service, GE noted rust on the rotors and it was agreed by

both parties that the ship be taken ashore and cleaned. This cleaning made to rotors

unbalanced, causing Princess to cancel a ten-day Christmas cruise due to repairs. It

was also alleged that another ten-day Easter cruise had to be cancelled due to

problems still related to the rotors. Rule: In order for the UCC 2-207 to apply, the

transaction must be predominately for the sale of goods. In determining whether

goods or services predominate a contract, the test is whether their predominant

factor, thrust, and purpose is the rendition of service with goods incidentally involved

or a transaction of sale with labor incidentally involved. When the predominant

purpose of a maritime or land-based contract is the rendering of services rather than

the furnishing of goods, the Uniform Commercial Code is inapplicable, and courts must

draw on common-law doctrines when interpreting the contract.


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Other Methods of Reaching Mutual Assent

Harlow and Jones, Inc. v. Advance Steel Co. FACTS: Parties made an agreement for the

purchase of steel. The steel was shipped in 3 separate orders. Advance Steel accepted

the first two shipments of steel but refused to accept or pay for the third shipmentclaiming it was late.RULE: A contract for the sale of goods may be made in any manner

sufficient to show agreement and conduct between the parties which recognizes the

existence of a contract. A meeting of the minds is not necessary according to the UCC,

only a knowledge of the agreement. Under the Uniform Commercial Code(U.C.C.), a

contract for the purchase of goods is formed orally, even though the exact moment of

its making is undeterminable and even though one or more terms are left open, where

the conduct of the parties corroborates the creation of such a contract and their

writings do not.


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Consideration: A bargained-for exchange

Defining Consideration

A promise is supported by consideration if 2 requirements are met: 1) the promisee gave up

something of value or circumscribed her liberty in some way (legal detriment) and 2) thepromisor made his promise as part of a bargain, that is, he made his promise in exchange for the

promisee giving up something of value.

Hamer v. Sidway Benefit/Detriment Classical Case. At a party an uncle promised a

nephew $5000 when he became 21 if he would refrain from drinking swearing, etc.

Found that the there was consideration because the nephew gave up something that

he was legally entitled to do a forebearance. His uncle made a promise and he

performed. This was a unilateral contract and he completed performance (later we

will learn he may have been able to enforce this under promissory estoppel?

History of Consideration Doctrine

Pennsy Supply v. American Ash Bargain for exchange more subjective than benefit/detriment

Pennsy was supplied aggrite for free to use in a paving project. The aggrite was a waste

biproduct and Pennsy using it relieved American ash of disposal costs. The product failed and

Pennsy requested American ash arrange removal and disposal AA refused so when Pennsy had

to dispose, they turned to AA to recover costs. Trial court said there was no enforceable

contract between the two because there was no consideration but that Pennsy had recd a

conditional gift and that there was no avoidance of the disposal costs in the bargain.

Consideration consists of a benefit to the promisor or a detriment to the promisee and must

actually be bargained for as the exchange for the promise.

The promise must induce the detriment and the detriment must induce the promise.did they

seek the detriment in exchange for the promise?

American Ashs promise to supply Aggrite free induced Pennsy to assume the detriment (of

collecting and taking title to the material), which is what induced AA to make the promise to

provide the Aggrite for free.

There was no discussion of avoidance of disposal costsPennsy didnt even know it was a

hazmat. Pennsy didnt bargain for disposal costs of the defective material.

Applying the Consideration Doctrine

i. Dougherty v. Saltthe death of formalism Gift could have given the money outright put it in atrust or put it in a will. No consideration altruistic pleasure not sufficient

ii. The Lawyers Role in Counseling for Legal Effect

iii. Batsakis v. Demotsis Mere inadequacy of consideration will not void a contract.

Court does not weigh the consideration does not have to be fair or even exchange.

Rstmt 79 Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of a gain to the

promisor or a loss to the promisee; equivalence in the values exchanged; or mutuality of

obligation.


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Plowman v. Indian Refining pension plan

Case where employees were on the payroll but only to get pensions and the company was

sold the pensions were not authorized by a proper agent and the only thing the past

employees had to do was show up weekly for their checks this was a condition imposed

on them to obtain a gratuitous pension and not consideration. Court found that there

were detriments to the defendants and not benefits this was not consideration.

Rstmt 86 promise for benefit received - can make a promise enforceable to prevent past

injustice but not this case

Rstmt 81 consideration as motive or inducing cause

Gratuitous arrangement without consideration voids a contract past consideration is

nonbinding there was no proper agency relationship between the company rep and the

retirees.

Does the alleged party have the authority to make the agreements? No.

Power of Agents to Bind Their Principals: Agent must have actual authority designated, implied and

necessary or incidental to achieve the prinicipals objectives.

Consideration

To be fully enforceable from the moment of formation an executory bilateral contract must have

valuable consideration on both sides of the bargain. Consideration is a benefit received by the promisor

or a detriment incurred by the promisee.

There are two elements of consideration:

- A bargained-for exchange

- The thing exchanged must have a legal value

Bargained for exchange: a promise that induces a detriment and a detriment that induces a promise;

unless both these elements are present, the bargained-for-exchange element of consideration is notpresent.

Gifts do not constitute a bargained for exchange.

i. There must be a detriment to the promisee that will benefit the promisor. There may

be a detriment to the promisee, but unless it was the promisors motive to induce that

detriment when he made the offer of the gift, there is not bargained for exchange

(e.g., you can have my old sofa if you will come by my apartment to pick it up here

there is a detriment to the promisee, but it is doubtful that the promisor was

bargaining for that detriment).

ii. The benefit to the promisor does not have to be of economical value (e.g., husband

tells his wife, if you lose thirty pounds Ill give you a one carat diamond ring for ouranniversary this would not be a gift because there is a bargained for exchange)

Past or moral consideration

i. The general rule is that a promise based on past or moral consideration is

unenforceable (e.g., since you found my lost dog last week, I am going to give you

$500.00 here there would not be a detriment to the promisee).

ii. Exceptions to this general rule:


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1. If there is a past obligation barred by a technical defense (e.g., statute oflimitations), a new promise to pay is enforceable without new consideration if

the new promise is in writing or has been partially performed (e.g., part

payment has been made based on a new promise).

2. The modern view is that If the past consideration was performed by thepromisee at the promisors request a new promise by the promisor will be

enforceable without consideration (e.g., since you stopped smoking as I asked

you to, I am going to give you $500.00).

3. The Second Restatement will enforce the promise to pay for past consideration,if the act was rendered during an emergency, even if the act was not requested

(e.g., someone promises to give you $500.00 for pulling them from a burning

building).

4. Even if an exception applies, most courts will only enforce the new promiseaccording to its terms and not the terms of any prior agreement

Restatements Regarding Consideration

The Requirement of Consideration:

71: Requirement of Exchange; Types of Exchange

1. To constitute consideration, a performance or a return promise must be bargained for

2. A performance or return promise is bargained for if it is sought by the promisor in exchange for

his promise and is given by the promisee in exchange for that promise

3. The performance may consist of: an act other than a promise, a forbearance, the creation,

modification, or destruction of e legal relation

4. The performance or return promise may be given to the promisor or to some other person. It

may be given by the promisee or by some other person.

77: Illusory and Alternative Promises

A promise or apparent promise is not consideration if by its terms the promisor or purported promisor

reserves a choice of alternative performances unless;

a. Each of the alternative performances would have been consideration if it alone had been

bargained for; or

b. One of the alternative performances would have been consideration and there is or appears to

the parties to be a substantial possibility that before the promisor exercises his choice events

may eliminate the alternatives which would not have been consideration

79: Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of

a. A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the

promisee; or

b. Equivalence in the values exchanged; or

c. "mutuality of obligation"

Contracts Without Consideration:


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82: Promise to Pay Indebtedness; Effect on the Statute of Limitations

1. A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness

owed by the promisor is binding if the indebtedness is still enforceable or would be except for

the effect of a statute of limitations.

2. The following facts operate as such a promise unless other facts indicate a different intention:

a. A voluntary acknowledgment to the obligee, admitting the present existence of theantecedent indebtedness; or

b. A voluntary transfer of money, a negotiable instrument, or other thing by the obligor to

the obligee, made as interest on or part payment of or collateral security for the

antecedent indebtedness; or

c. A statement to the obligee that the statute of limitations will not be pleaded as a

defense.

83: Promise to Pay Indebtedness Discharged in Bankruptcy

An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in

bankruptcy proceedings begun before the promise is made, is binding.

86: Promise for Benefit Received

1. A promise made in recognition of a benefit previously received by the promisor from the

promisee is binding to the extent necessary to prevent injustice.

2. A promise is not binding under Subsection (1)

a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not

been unjustly enriched b) to the extent that its value is disproportionate to the benefit.

Hamer v. Sidway a waiver of any legal right at the request of another party is a

sufficient consideration for a promise.FACTS: William E. Story and his nephew, William

E. Story II, agreed that the uncle would pay his nephew $5000 if the nephew wouldrefrain from drinking, using tobacco, swearing, and playing cards and billiards for

money until he turned 21. When the nephew turned 21 his uncle sent him a letter that

indicated that the nephew had earned the $5000 and that he would hold the money

with interest until the nephew became capable of taking care of it responsibly. The

nephew accepted the terms. The uncle died twelve years later without having

transferred the funds to his nephew.The nephew assigned the funds to Louisa Hamer

(P) who brought suit against the executor of the uncles estate, Franklin Sidway (D). At

trial judgment was entered in Hamers favor which was reversed on appeal in

Sidways favor. Hamer appealed.ISSUE: Is forbearance from permissible legal conduct

sufficient consideration to create a valid and enforceable contract? RULE: Yes. The

mere abstention from a permissible legal conduct is sufficient consideration to make a

promise based on that forbearance a valid contract. Consideration is not measured as

a benefit to the promisor. When an offer is ambiguous regarding whether acceptance

shall be in the form of performance or an exchange of promises, determining if the

offeror was indifferent to whether acceptance be by performance or promise is

accomplished by interpreting the language of the offer under the circumstances in

which it was made. The court held that in this case, the language of the offer made it

clear that the uncle sought acceptance by performance and not by a promise to

perform.


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NOTE: Under Restatement 2nd 32 if an offer is ambiguous it can be accepted by a promise or actual

performance. If acceptance is through performance the contract is unilateral, if through promise the

contract is bilateral.

CONSIDERATION

As a general rule, a contract will not be enforceable unless it is supplied with consideration.

Detriment: the promisee gives up something of value, or circumcises his liberty in some way.

Exchange: The promise is given as part of a bargain, that is, the promisor makes his promise in exchange

for the promisee's giving of value of circumscription of liberty. 71

This rule excludes two types of contracts which lack consideration:

1. Promises to make gifts (does not satisfy the bargain element) and2. In business situations in which one party has not really promised to do something or

given anything up.

The Bargain Elements:

17 Requirement of a Bargain: The formation of a contract requires a bargain in which

there is a manifestation of mutual assent to the exchange and consideration.

Gifts: a promise to make a gift is usually not enforceable, because it lacks the

bargain element.

Existence of a Condition: Even if the person promising to make a gift requires the

promisee to meet certain conditions in order to receive the gift, there will be no

substantial consideration if the meeting of these conditions is not really bargained

for by the promisor.

Occurrence of Condition as a Benefit: If the promisor imposes a condition, and the

occurrence of this condition is of benefit to him, the bargain is present.

(a) Altruism not sufficient.Sham and Nominal Consideration: Even though a deal looks on its face to be supported by

consideration, it could be excluded if it is a sham or nominal.

Nominal: If the consideration paid is a very small amount, then there is no bargain,

and therefore, no consideration

Adequacy is irrelevant: If the consideration paid is a large amount, but not adequate, consideration is

still found.

Payment not Made: if consideration was recited but not actually given courts will hold that there was no

consideration

Past consideration does not count.


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Bargain Theory of Consideration

Pensey Supply v. American Ash: One company gave another some material to be used

in building a driveway. Material ended up bad and had to be paid for, expensively to

be removed. If the promissor made the promise to for the purpose of introducing the

detriment, the detriment induced the promise. The bargain theory of consideration

does not require that the parties bargain over the terms of the agreement. Relief of a

manufacturer's legal obligation to dispose of a material classified as hazardous waste,

such that the manufacturer avoids the costs of disposal, constitutes sufficient

consideration to ground contract and warranty claims brought by the disposer.

Daugherty v. Salt: Aunt writes note promising nephew $3000 at her death. Court held

that there was no contract as there was no consideration. P gave up nothing - there

was no condition. Intent of grantor is not enforceable. A note that is not supported by

consideration is unenforceable


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Issues in applying the Concept of Mutual Assent

Limiting the Offerors Power to Revoke: The Effect of Pre-acceptance Reliance

Baird v. Gimbel Bros. (US 1933) sub protected, general not classical

Linoleum case where the sub aggressively sought the job and made a big mistakewhen they measured the area underestimating the amount required by about 1/2.

Told everyone about the mistake as soon as possible but general had already

submitted its overall bid. The general used this low bid in his bid for the project and

claimed that they relied on the subcontractors bid. Judge held promissory estoppel

did not apply because there was no binding promise that the general did not

guarantee the job to the sub and the generals rarely acted in reliance that way

they would submit bids and then go back out and shop for the lowest price again

there was no consideration. This was not an option contract. There was a mistake

in bid by the subcontractor.

If an offer is withdrawn before accepted, the acceptance is too late

Drennan v. Star Paving - to protect general contractor: reliance interest Detrimental reliance -

In Drennan, used Rstmt 90 about reliance makes a promise binding promissory

estoppel is a substitute for consideration reasonable reliance is the consideration

needed to make the offer binding.

Star Paving made a mistake and refused to do work at price given.

Pltf claimed he relied to his detriment and in this case the contractor actually used

the bid and the subs name in the bid. When he went to tell the guy, the Star paving

dude said there was a mistake and they couldnt do it for that amount. The judge

entered a judgment for the difference between the Ds bid and what it cost to have

someone else do it plus costs.

DID PLAINTIFFS RELIANCE MAKE THE DEFENDANTS BID IRREVOCABLE? Yes - 90

relied on the bid

After this case, drafters wrote RST 87(2) option contract to avoid injustice to

avoid inequitable conduct which may occur if generals rely on promissory estoppel :

is found when a GC is bid shopping or bid chopping

Promissory Estoppel not limited to reliance

iv. Contract Law and Business Practice


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Pre-Acceptance Reliance & Postponed Bargaining

A promise which the promisor should reasonably expect to induce action or forbearance on the part of

the promisee or a third person, and which does induce such action or forbearance, is binding if injustice

can be avoided only by enforcement of the promise.

Pre-Acceptance Reliance

When there is no option contract present in order to keep an offer open for a specified

period of time, the offeree may take action in reliance on the offer only to have the offer

revoked before the offeree actually accepted

The offeree's pre-acceptance conduct can have an effect on the offeror's power to withdraw

his offer at will

Cases re Pre-Acceptance Reliance

James Baird Co. v. Gimbel Bros., Inc: Facts: Defendant sent an employee to a

contractor who had the specifications of the job and had the employee calculate the

amount of linoleum needed for the job. The employee miscalculated and came awaywith a figure equal to only half of the amount of linoleum that would actually be

needed. On Dec. 24 defendant sent a letter to roughly 20 or 30 contractors an offer to

supply all of the linoleum for the job. The offers included statements that guaranteed

the contract and prompt acceptance after the general contract was awarded. Plaintiff,

a contractor in Washington received one of these letters on the 28 th, the same day on

which the defendant learned of the mistake made by his employee upon which he

telegraphed all of the contractors informing them that the offer was withdrawn and

new one would be submitted shortly. The withdrawal did not reach the plaintiff until

he had already put his bid on the job with the numbers provided in the first offer sent

out by defendant. On Dec. 30th the plaintiff was awarded the job and on the 31 st

plaintiff received a letter confirming the withdrawal of the first contract. Plaintiffaccepted the offer on Jan. 2nd. The defendant persisted in declining to recognize the

existence of a contract which resulted in plaintiff filing suit for breach of contract.

Rule: promissory estoppel cannot be applied to an agreement in which there is no

binding promise of an irrevocable offer and no consideration for such a promise.

Where an offer is withdrawn before it is accepted, and the offer language does not

indicate a contrary intention, a contract is not formed. (2) The doctrine of promissory

estoppel is not applicable where an offer is made for an exchanged act or promise and

no consideration has been received by the offeror.

Drennan v. Star Paving Co. Facts: In order to prepare a bid, plaintiff was taking bids

from sub-contractors all day for different parts of the job. Defendant placed a bid for

the paving work at the job and stated his bid as $7131.60. Plaintiff used this bid for

the paving as it was the lowest bid for this part of the job. Plaintiffs overall bid was

accepted and he was given the school job on July 28 th. Defendant told plaintiff that

there had been a mistake and that they could not do the job for any less than $15,000.

Plaintiff replied by telling defendant that he expected them to carry through on their

bid because he had used it in forming his overall bid and would have to follow that bid

exactly. Defendant still refused and plaintiff had to search for someone else to do the

job. He eventually contracted L&H Paving Co. for the job at a cost of $10,948.60.Rule:


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A promise which the promisor should reasonably expect to induce action on the part

of the promisee and which does induce such action is binding if injustice can be

avoided only by enforcement of the promise.Reasonable reliance on a promise binds

an offeror even if there is no other consideration.

Berryman v. Kmoch: Facts: Berryman was a landowner in Kansas. Kmoch was a real

estate broker in Colorado. Goertz, a third party, was a Nebraska agricultural

consultant. Goertz learned that Berryman was interested in selling land and talked to

Berryman about obtaining an option on the land for Kmoch. Goertz talked to Kmoch

who then prepared the option contract. A meeting was then held between the three

parties at which the agreement was signed by Berryman. The agreement recited the

option was granted for $10.00 and other valuable consideration but the $10.00 was

not paid at this time. Later, Berryman asked to be released from the option agreement

and sold the property. Kmoch decided to exercise the option in August and continued

to attempt to exercise his option which resulted in Berryman bringing the action to

have the option declared null and void. Kmoch argues that promissory estoppel

should have been applied in place of consideration. Rule: Where an offer is for the

sale of land, if the offeror, after making the offer, sells the interest to another person

and the offeree acquires reliable information regarding that fact before he hasexercised his option, the offer is revoked. An agreement which lacks consideration

may be enforceable based on promissory estoppel when: (1) the promisor reasonably

expected the promisee to rely on the promise; (2) the promisee reasonably relied on

the promise; and (3) a failure to enforce the promise would result in perpetuation of

fraud or result in other injustice.

Pop's Cones, Inc. v. Resorts International Hotel, Inc: Brenda Taube (president of Pops)

had several discussions with Marlon Phoenix (executive director of business

development and sales for Resorts) regarding the possible relocation of Pops to space

owned by Resorts. Taube spoke with Phoenix about the status of the proposal and

Phoenix told her to not renew her old lease and to pack up the Margate store and planon moving. Relying on this advice, Taube, in late September 1994, notified the current

landlord that Pops would not be renewing its lease. Taube then commenced a

number of new site preparations including sending designs for the new store to TCBY

and retaining an attorney to represent Pops when finalizing the deal with Resorts. On

January 30, 1995, Taubes attorney received a letter from Resorts stating that their

offer was withdrawn. Pops filed the complaint on July 17, 1995 seeking damages.

RULE: A promise which the promisor should reasonably expect to induce action by the

promisee is binding if injustice can be avoided only by enforcing the promise.

This approach has taken the place of finding a "clear and definite promise" to justify application of

promissory estoppel.

In order for promissory estoppel to be invoked as a substitute for consideration evidence must show:

a. The promise was made under such circumstances that the promisor reasonably expected

the promisee to act in reliance of that promise

b. The promisee acted as could be reasonably expected in relying on the promise

c. A refusal by the court to enforce the promise must be virtually to sanction the perpetration

of fraud or must result in other injustice


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Postponed Bargaining and Agreeing to Agree

A. When parties appear to have reached an agreement and there are no conflicting terms

to contend with, their agreement may still be incomplete either because some matters

usually dealt with in such agreements have not been explicitly covered or because the

parties have designated certain matters for postponed decision

B. These types of incomplete bargains can pose serious problems when determining the

validity of a contract

Cases re Agreeing to Agree

1. Walker v. Keith-agreement to agree

Facts: Defendant leased a small lot to plaintiff for a ten year term at $100 per

month. The contract included an option to extend the lease for another ten years

under the same terms and conditions except as to rent. The renewal option stated

that rent would be fixed at an amount agreed upon by both parties and would be

fixed on the comparative basis of rental values as of the date of the renewal with

rental at this time reflected by the business conditions of the two periods. Plaintiff

gave proper notice to renew the lease but the two parties could not agree uponthe new rent amount.

Rule: Where essential terms such as price are not contained in an option contract

and no standards are included whereby it may be judicially determined, no

contract exists. Where something in the future is to contracted foressential

terms and leave nothing to be agreed upon by future negotiations or some

definitive method of getting to that term. RSTMNT 23(e)

Where essential terms such as price are not contained in an option contract, and no standards are

included whereby such terms may be judicially determined, no contract exists.

10. Protection of Promisee Reliance: The Doctrine of Promissory Estoppel

RST 87(1) Standard option contract

RST 87(2) detrimental reliance in bilateral contract

RST 45 partial performance under a unilateral contract

Liability in the Absence of Bargained-for Exchange: Promissory Estoppel & Restitution

Rstmt 90 Promise Reasonably Inducing Definite and Substantial Action

A promise which the promisor should reasonably expect to induce action or forebearance of a

definite and substantial character on the part of the promisee and which does induce such

action or forebearance is binding if injustice can be avoided only by enforcement of the promise.

The essence the maker of a promise may be bound by that promise even if not supported by

consideration if the promisee relies upon the promise, to his detriment, and the promisor

should have foreseen this reliance. Reliance and foreseeability.

Being used by an increasing number of courts drafters looked at R2 90 as an exception to

consideration and perhaps mutual assent. Broadened by courts.

We have already seen the application of promissory estoppel to prevent revocation of an offer

when the offeree has detrimentally relied on the offer (Drennan)

Earliest legal role for un-bargained for reliance : as a substitute for consideration

Promises within the Family -


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Kirksey v. Kirksey(Alabama 1845) Historical case Classical approach gratuitous promise is

unenforceable

RULE: A gratuitous promise is unenforceable and reliance is insufficient to supply a basis for

enforcement.

ISSUE: Is there a contract formed when a family member has suffered a detriment based on a

promise from another family member, or is it merely a gift?

FACTS: Brother-in-law promised his brothers widow and her family a place to live. She had a

home she would likely try to secure except for the offer from her brother-in-law she gave up

her home and moved everything was ok for a couple of years then the brother-in-law told her

she had to move into a different less comfortable house then eventually ousted her

altogether.

FINDINGS: The promise on the part of the defendant was a mere gratuity and so there is no

cause of action. The widow was awarded $200.

DISSENT: Judge Ormand thought the loss and inconvenience the widow suffered from packing

up and leaving her home was sufficient consideration to support the promise : the promise

NOTES AND QUESTIONS: The plaintiff did suffer a detriment when she gave up her home and

possibly an opportunity to own it. The brother-in-law may have had a benefit from having his

land cultivated or the widows children help work the farm.

a. The court did not find this promise was supported by consideration : typical for

agreements in a family, which have different dynamics.

b. Compared to the Tramp hypothetical in Pennsy, which was used to distinguish a

conditional gift versus a contract : the trip was not enough to support consideration, itwas a condition of receiving the gift : uprooting a household and moving away from land

you might one day own is more than just a condition to receive a gift : it is detrimental

reliance.

Today, this would have been enforceable under promissory estoppel because she got rid of

her place the dissent said her loss and inconvenience was sufficient.

Greiner v. Greiner (Kansas 1930)reliance on a family members promise : moral obligation is

meaningless but : promissory estoppel in complex family setting emerges as a means to enforce a

promise

Maggie Greiner (mom) against Frank Greiner (her son)

RULE: In complex gamily settings, sometimes promissory estoppel emerges as a means to

enforce a promise

ISSUE: Is reliance on a family members promise a basis for enforcement of a promise?

FACTS: Maggie Greiner commenced an action of forcible detention against Frank. Frank said

his mom had given him an 80-acre tract of land and she should give him the deed. Court agreed

and plaintiff appealed.


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Dad died and left estate to his wife and some children others were disinherited (Frank,

Nicholas, Henry, Kate). Henry died and left his estate to their mom. She decided to place the

other 2 disinherited sons on equal footing by giving them about 90-acres of land each. Then for

some reason, she paid Nicholas $2000 instead per a written contract. Frank had moved to

another town and had homesteaded a quarter-section of land for the past 16-17 years.

Originally, about 5 years after Henry died, the mom had Nicholas write to Frank about making a

settlement she wanted to just pay them but Frank wanted a home and a little land, not

money. She told him ok and that she had a little house and land available.

A cashier at the bank prepared the contract between the mom and Nicholas : substance was she

brought Frank back and had plenty of land and she was gonna give him some between 92 and

97 acres.

Another son, Louis, had heard several times that his mother was going to give Frank the land he

was living on. The mom had the available house moved to the 80-acre tract for Frank to live in

and planned to make it his in her will and set a date to have the will drawn up.

Another favored son, Gustie, came home and told the mom if she made the will like that, the

other kids would put her off her place so she decided to just let Frank have it the way it was

without a will.

Moms attorney argued that there were lots of future contentions but no contract. However

there was a promise and an action on Franks part - Frank relied on his mothers promise. At

that point unenforceable because it was indefinite - the particular land and a specific time were

not stated. But then a specific piece of land was segregated out for Frank.

Plaintiff said there was no consideration

Court found Rstmt 90 applied Frank gave up his homestead, moved, and established his

family there he made improvements and there were other expenditures, all relying on hismothers promise.

Court ordered the mom to execute a deed.


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PROMISSORY ESTOPPEL: PROTECTION ON PROMISEE RELIANCE

The consideration doctrine is designed to enforce promises which are bargained for. There are some

promises which, although the promisor makes them without bargaining for anything in return,

nonetheless induce the promisee to rely to his detriment. The doctrine of promissory estoppel is used to

enforce such promises which, although not supported by consideration, induce detrimental reliance bythe promisee.

An equitable doctrine declaring that a promise which the promisor should reasonably expect will

induce action or forbearance on the part of the promisee or a third person and which does induce such

action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

The promisor, having induced reliance is said to be estopped from denying the existence of a contract,

even though in fact one has not been made.

When a promisee foreseeably relies to his detriment on the promisor's promise, even in the absence of

an enforceable contract, the doctrine of promissory estoppel may be invoked to make such promisebinding in order to prevent injustice. The remedy in such cases is based on the extent of the promisee's

reliance, not his expectation. The Restatement, Second, eliminated the requirement from the

Restatement, First, that the detriment be "substantial."90(1)

Examples of situations in which promissory estoppel may be applied include:

1) intra-family promises

2) Philanthropic subscriptions made to educational, charitable or religious organizations

3) Promises to make a gift of land where the promisee takes possession of the land and makes

improvements upon it, with the knowledge and assent of the promisor

4) Promises made by a bailee relating to bailed goods and on which the bailor relies

5) Offers that become irrevocable by virtue of the reasonably foreseeable inducement of an action

or forbearance of a substantial character on the part of the offeree before acceptance 87(2)

e.g., where a general contractor receives bids from a subcontractor and relies on such bid in

preparing its own bid for a project

6) Contract modifications where one party materially changed position based on it 89(c)

7) Preliminary contract negotiations where one party encourages the other to engage in activities

that would facilitate entering into a contract but which would be detrimental to such party if the

transaction is not in fact consummated (relocation, purchase of property, or borrowing money)

8) Extensive contract negotiations in which one party gradually increasingly commits itself in

reliance on the negotiations resulting in a binding contract, the other party negotiates through a

low ranking representative who lacks full authority to seal the agreement

9) Indefinite contracts that are too vague to be enforced but for which the courts may awardreliance damages

10)Letters of intent upon which one party justifiably relies in the belief that the transaction will

occur but it does not when the other party abandons the negotiations


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The doctrine of promissory estoppel is often applied in the following situations:

Unbargained-for Reliance: the doctrine covers certain commercial situations in which the parties

engage in preliminary negotiations, one party gives assurance to the other that they will be able

to reach a binding agreement, the other relies on the assurance to his detriment, and then the

contract falls through.

Actual Reliance: The promisee must actually rely on the promise. So if the claimed reliance is an

affirmative act, the promisee must show that he would not have taken the act except for the

promise, that there was a cause and effect relationship between the promise and the act. And if

the claimed reliance is a forbearance from doing something, the promisee must show that he

could have and would have done the act but for the promise.

Foreseeability of Reliance: The promisee's reliance must also have been reasonably foreseeable

to the promisor.

Kirksey v. Kirksey Facts: Brother-in-law writes to sister-in-law, promising that if she

came to where he was with her family, he would give her some land. Considerationwas found to be lacking because there was a lack of the brother making a promise in

order to induce something from his sister-in-law, it seemed more like he was making

the promise from the goodness of his heart. Rule: Restatement 90 applies - A

bargained for exchange requires consideration on both sides. A one-sided exchange is

more of a gratuitous promise.

Greiner v. Greiner Facts: Plaintiffs husband died and left some of his children out of

his will. Plaintiff inherited land from one of her children upon his death and planned

to give two sons that were left out of the original will some of the property. Plaintiff

decided to give defendant the property in question to come back and live on because

he had since moved away. Eventually, plaintiff informed defendant that she was goingto give him a deed to the land to make the conveyance legally binding. Suddenly,

plaintiff decided not to create the deed for the land and give it to defendant.Rule:

Restatement 90 applies.

Wright v. Newman Facts: Newman brought suit against Wright to recover child

support for her daughter and her son. Although it was found that Wright was not the

father of Newmans son, the trial court ordered Wright to pay child support for both

children. They claimed that by having himself listed as the father on the childs birth

certificate, giving the child his surname, and establishing a parent-child relationship,

Wright had met the requirements of promissory estoppel in the state of Georgia.

Supreme Court granted Wrights application for appeal so as to review the trial courtsorder requiring that he pay child support for Newmans son.Rule: A party may enter

into a contract invalid and unenforceable, and by reason of the covenants therein

contained and promises made in connection with the same, wrongfully cause the

opposite party to forego a valuable legal right to her detriment, and in this manner by

his conduct waive the right to repudiate the contract and become estopped to deny

the opposite party any benefits that may accrue to him under the terms of the

agreement.


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Charitable Subscriptions

Evidence of an enforceable charitable pledge an oral or written promise to do certain acts or to give

real or personal property to a charity or for a charitable purpose : promise must be supported by

consideration or reliance

if bargain theory of consideration has as a principal function to distinguish exchanges from gifts, then

charitable contributions will generally fall towards unenforcement.

King v. Boston University

ISSUE: Were the papers left at BU a charitable pledge made by Dr. King? Was there

consideration or reliance? (Both) Is donative intent established?

Does the letter dated 7/16/64 set forth a promise to transfer ownership of the papers?

Did BU take action in reliance on that promise or was it supported by consideration?

FINDINGS: After MLKs death, Mrs. King wanted letters and documents left in the care of BU

returned to her said they were basically on loan and had been housed there because it was

safer at the time than the undergrad institute where he really wanted them. However, BU took

extraordinary care of the papers. Dr. Kings letter : he legally retained ownership but intended to

make a portion of the papers outright gifts each year until all had been given : unless he died

and then all materials on deposit there would become the absolute property of BU.

Donative intent is important as is the Bailor bailee relationship

Bailment : delivery of personal property for some particular purpose or on mere deposit upon

a contract expressed or implied, that after the purpose has been fulfilled shall be redelivered

to the person who delivered it, or otherwise dealt with according to his directions, or he

reclaims it.

By accepting delivery, BU assumed the duty of care as bailee : scrupulous care : in fact, BU

indexed all the papers and provided special care beyond what would be expected.

The bailment of Dr. Kings papers provided sufficient evidence of donative intent so the

question became, was there consideration or reliance on that promise.

Jury decided that Dr. King made a promise in a letter and that the letter was not a contract. It

was however enforceable as a charitable pledge. There was both consideration (the care

surrounding the papers) and reliance (because?). University wins based on the care it gave toand the reliance and Dr. Kings letter.

Rstmt 90(2) does not apply to oral promises only those that are written promise to a charity

(charitable subscriptions are written promises to charities)-


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Promises in Commercial Context

Katz v. Danny Dare- promissory estoppel in the commerci

Yes - Outline k

Documents

Transcript of Yes - Outline k