University of South Carolina

Contracts Review Outline (NELSON)

Fall 2010

***Nelson Approved***

• Policy
• Freedom to contract – Freedom to enter into contracts. (In Re Baby M – surrogacy
case)
• Freedom not to contract – Freedom not to enter into contracts. Court does not want to
enforce contracts that parties did not mean to be bound to.
• A doctor and his patient can bargain and contract for a particular result, which, if
not achieved can be the basis for an action for breach of contract. (Shaheen v.
Knight (vasectomy case)
• Expectations- purpose of contract law is to fulfill parties’ expectations.
• Void as against public policy - Contracts not void unless so obviously against public
health, morals, etc. that there is virtual unanimity of opinion regarding it. In Re Baby
“M”(surrogacy case)
• Encourage commercial transactions
• Sources of Authority
• Restatement
• Restatement Second of Contracts governs contracts for land and services.
Restatement codifies the common law.
• Uniform Commercial Code Articles 1 & 2
• Uniform Commercial Code governs contracts for goods.
• Goods defined - Under the UCC, a "good" is any tangible thing that is
moveable. UCC § 2-105(1)
• The term "goods" does not encompass:
• intangible rights such as intellectual property
• Hybrid Goods/Services Contracts
• Types of contracts
• Bilateral – exchange of promises
• Unilateral – is a performance
• Option – A promise to keep the offer open for a specified period of
time with no possibility of revocation until after time specified.
• Hybrid goods contracts- i.e. a contract that includes both services and
goods. It must be determined what the main purpose of the contract is
and that determines if the Restatement versus the UCC governs.
• Dominant Purpose Test
• Dominant purpose - Determine what main focus of the contract was
at the time of formation; what the parties intent was at that time; goods
versus services
• Expectation policy – adhering to expectations created at contract
formation.
• Source of Complaint Test
• Source of complaint – Determine what the parties intent is at time of
breach; look for where the contract went wrong; goods v. service. (Not
widely used because the policy is for parties to be bound to contracts
 that they manifested their intent to be bound to at the time of contract
formation.)
• Mutual Assent
• Mutual assent of parties determined by objective manifestations of intent, not
subjective thoughts. Embry v. Hargadine, McKittrick Dry Goods Co. (employment
extension contract)
• Reaching An Agreement
• Objective Theory of Assent
• Meeting of the minds – To constitute a contract, it must appear that the two
minds were at one at the same moment of time as objectively manifested.
Subjective intent not taken into account if not objectively expressed.
• The mental assent of the parties is not requisite for the formation of a contract; if
the words or other acts of one of the parties have but one reasonable meaning.
Undisclosed intentions are not a part of the contract. Lucy v. Zehmer(sale of land
in which Zehmer claimed he was joking)
• Reasonable person standard: objective + standard – what a reasonable person
would do under similar circumstances.
• Policy: Wanting to enforce contracts that parties want to be bound to and
invalidate the ones not intended to be bound to
• Offer
• Policy: Enforce the expectations of the parties.
• Defined (Restatement § 24)
• Offer defined – 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 is
invited and will conclude it. (Rest. § 24)
• Preliminary Negotiations (Restatement § 26)
• Preliminary Negotiations
• 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 not intend to conclude a bargain until he has
made a further manifestation of assent. Rest.§ 26
• Formation of a contract requires two basic elements:
• The mutual assent of the parties and
• Some showing that this assent is the kind that the law will enforce
• Advertisements
• Communications that do not constitute offers:
• Invitations to deal or submit bids
• preliminary negotiations
• Generally, ads, catalogs, mass mailings not offers (PepsiCo; Nebraska
Seed)
• Generally, letters of intent not binding, usually just memorialize
negotiations.
• Completeness (Restatement § 33, UCC § 2-204)
• Indefiniteness –
• Under Restatement, contract with open terms can fail for
indefiniteness (Rest. § 33). Terms need to be specified before contract
is deemed valid because mutual assent is not reached between both
 parties and the terms will help determine if a breach exists and to
provide appropriate remedy.
• Under UCC, open terms does not negate creation of contract (UCC §
2-204(3)). The UCC will fill in the missing terms.
• Policy: Enforce the expectations of the parties.
• Written Memorial
• Manifestations of assent that are in themselves sufficient to conclude a
contract will not be prevented from so operating by the fact that the
parties also manifest an intention to prepare and adopt a written
memorial thereof; but the circumstances may show that the agreements
are preliminary negotiations. Rest §27 p.322
• Neither party has the right to walk away.
• Letters of intent are preliminary documents informally written
that includes the general agreed upon terms that will later be
included in the formal contract.
• If the formal contract was to be nothing but a memorial of an
agreement already reached, the letter of intent would be
enforceable.
• If letter of intent includes language that such as ‘subject to” or
language that implies that each side retains the right to make and
stand on additional demands, the letter of intent is not
enforceable. Empro v. Ball-Co.
• Policy: Enforcing contracts parties intended to enter
• Revocation (Restatement §§ 42, 43)
• Generally an offer can be revoked until accepted.
• Offeree must have actual or constructive notice of revocation. Revocation of an
offer is effective when communicated, directly or indirectly, to the offeree.
(Dickinson v. Dodds.)
• For unilateral K, traditional rule is offer can be revoked until completion of
performance. (Petterson v. Pattberg)
• Invitation of Promise or Performance - In case of doubt an offer is
interpreted as inviting the offeree to accept either by promising to
perform what the offer requests or by rendering the performance, as
the offeree chooses. Rest. §32
• An offer is irrevocable where:
• there is an option contract in which the offeree gave consideration for
an irrevocable offer for some period of time;
• 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;
• the offeree relied to his detriment upon the offer itself if the such
detrimental reliance was reasonably foreseeable by the offeror
Restatement § 87(2)
• Policy: Courts want parties to be bound to contracts they intended to
be bound to.
• Termination of an offer - In general, an offer terminates and cannot be accepted
after:
• (1) the offer lapses because the passage of time;
 • (2) the offer has been revoked by the offeror;
• (3) the offer has been rejected by the offeree, or
• (4) the offeror has died.
• Option Contract (Restatement §§ 25, 45)
• Option Contract Created by Part Performance or Tender. Rest. §45
• Where an offer invites an offeree to accept by rendering a performance
and does not invite a promissory acceptance, an option contract is
created when the offeree tenders or begins the invited performance.
Preparing to perform does not constitute performing and offer can still
be revoked in that stage.
• The offeror’s duty of performance under any option contract so created
is conditional on completion or tender of the invited performance in
accordance with the terms of the offer.
• Modern rule, offer irrevocable once performance has started (Rest. § 45)
• In the case of a unilateral contract, the offeree began performance of the promised
act to any extent Restatement § 45 – Upon commencement of performance, the
offeror must give the offeree the amount 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. White v. Corlies & Tifft (carpenter
purchasing wood to fulfill the contract)
• Firm Offer (UCC § 2-205)
• In goods contracts, a merchant indicates in a signed writing that an offer to buy or
sell goods will be held open for the stated time or a reasonable time if no time is
specified, not to exceed three months, if no consideration if given UCC § 2-205
• Acceptance
• Traditional Rule - 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.
• Acceptance by return promise; Bilateral contracts - 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.
• Modern Approach - Under the modern approach, an offer invites acceptance by
any means reasonable under the circumstances, unless otherwise indicated by
language or circumstances. UCC § 2-206; Restatement § 30(2) This approach
reflects the fact that many 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:
• the offeree begins to perform, in lieu of making the required promise;
and
• the offeror learns of the commencement of performance and
acquiesces to such manner of acceptance.
• Mirror Image Rule (Restatement §§ 59, 61)
• With varying terms – Under Common Law, offer not binding unless offeror
accepts the changes, acceptance seen as a counteroffer. Mirror Image Rule (Rest.
59). Agreement seen as a negotiation until same terms accepted by both parties.
 • Battle of Forms (UCC § 2-207(1))
• 1. Different rules under UCC §2-207. (compared to MIR)
• Mailbox Rule (Restatement §§ 63, 66)
• Mailbox Rule – Under the common law, an offer becomes binding upon the time
that the acceptance is dispatched. Same for rejections except rejections to option
contracts.
• Acceptance by Performance (Unilateral K) (Restatement §§ 50, 54)
• Acceptance by performance; Unilateral Contracts - In a unilateral contract, the
offer empowers the offeree to only accept by complete performance of the
promise. The offeree's failure to perform does not constitute a breach since no
contract is formed until the offeree renders full performance. Rest. §45
• If an offer invites acceptance by the rendering of a complete
performance, acceptance does not occur unless and until the offeree
completely performs. .(Carbolic Smoke Ball Co;White) Brooklyn
Bridge hypothetical
• An offeree may accept by making a promise to render complete
performance either expressly with words or implicitly through some
sort of conduct. The most common way to make an implicit promise to
render complete performance by conduct is to start performing. (White
v. Corlies & Tift)
• Acceptance by Silence (Restatement § 69)
• By silence –
• The offeree's silence cannot be an acceptance, except in a few special
cases, such as when the parties' course of dealing makes silence a
proper method of acceptance. (Hobbs v. Massasoit Whip Co.)
• If an offeree fails to reply to an offer, his silence and inaction operate
as an acceptance in the following cases only:
• Expectation of compensation known
• Reasonable expectations of offeree. Ex. Of case of wine on
doorstep. Not reasonable to believe that someone would
leave a whole case of wine without the expectation of
compensation.
• Offeror has stated or given the offeree reason to understand
• Previous dealings
• Rest §69
• E-Commerce
• Discerning the Agreement
• Interpreting the Meaning of the Terms
• Ambiguous Terms (Restatement § 201)
• Ambiguous terms - When a contract is created and there are terms that
ambiguous(different meanings) need to be interpreted. (Peerless case)
• When any terms to express an agreement is ambivalent, and the parties
understand it in different ways, there cannot be a contract unless one
of them should have been aware of the other’s understanding. (Raffles
v. Wichelhaus; Oswald v. Allen)
• In interpreting a contract consider dictionary/ terms of art; pattern of
practice; trade usage; trade custom; legislation. (Frigalment Importing
Co. v. BNS International Sales Corp)
 • Course of dealings(interactions between parties in prior dealings),
course of performance(how parties have behaved in the course of the
contract), usage of trade(industry trade standards)
• Vague Terms (Restatement § 201)
• Vague terms - When a contract is created and there are terms that are vague(how
far does it extend) and needs to be filled in. (Chicken case)
• Filling in the gaps
• Interpreting terms expressly manifested between the parties.
• Supplying terms when contracts are silent on a particular issue.
Sometimes called gap filling.
• Implied in fact – terms that the court will deduce from the
behavior of the parties and wording of the contract. Is there
an implicit term that has been agreed upon by the parties
that can settle ambiguous meaning of disputed terms.
• Implied in law – terms that courts have to supply that are
deemed to be automatically included in contracts if they
haven’t been contracted around. Exs. UCC default rules §2-
204, 2-206, 2-305, 2-308, 2-309, 2-310.
• The terms of a contract must be reasonably enforceable in order
to form a contract. Support for filling gaps: Contra perferentum:
interpreting ambiguity against one who writes the contract. (Sun
Printing & Publishing Assn. v. Remington Paper & Power Co.)
• See Restatement 34, 204 page 433-434. See UCC 2-204(3);
enforce contract if reasonably certain formula for remedy.
• Filling Gaps in the Terms (UCC §§ 2-305, 2-308)
• Indefiniteness – even though one or more terms are left open a contract for sale
does not fail for indefiniteness if the parties have intended to make a contract and
there is a reasonably certain basis for giving an appropriate remedy. UCC 2-
204(3)
• Good faith
• In requirements contracts, such output or requirements are allowed as
may occur in good faith, except that no quantity unreasonably
disproportionate to any stated estimate or in the absence of a stated
estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded. (Eastern Air Lines, Inc. v.
Gulf Oil Corp.)
• Reasonableness
• Illusory Promises
• Illusory Promises - When the parties create a contract that leaves the
performance (entering into the contract or not) up to the complete discretion of
one party.
• Requirements Contracts (UCC § 2-306(1))
• Requirements/Output Contracts
• Requirements = buyer agreeing to purchase requirements from seller
• Output = seller agreeing to sell outputs. (N.Y. Central Iron Works-
Radiator case)
• Mutuality of obligation – bilateral exchange of promises, both parties
binding themselves to something. Courts look for:
 • Good faith
• Reasonableness
• Best efforts
• Exclusive Dealing Contracts (UCC § 2-306(2))
• Some court imply exclusivity between buyer and seller, belief that exclusivity is
inherent in requirement/output contracts.
• Parties can contract around this by specifying which part of
requirements/outputs would go to the other party.
• Contract can still be enforceable as long as the demands are reasonable
and in good faith, a court will fill the terms. (NY Iron Works – radiator
cases)
• If one party does not bind themselves to anything, the other party in
turn is not bound.
• A promise may be lacking, and yet the whole writing may be instinct with an
obligation, imperfectly expressed in order to form a contract. Obligation is
implied in the dealings of both parties.
• In order for Wood to be paid, there must be performance. Obligation
of means – use reasonable means to make money. (Wood v. Lucy,
Lady Duff-Gordon)
• Identifying the Terms of the Agreement
• Form Contracts & “Contracts of Adhesion”
• Form Contracts (Contracts of Adhesion)
• Characteristics of
• Terms are already set. Pre-printed standardized forms.
• Usually written by one party
• Liability of making Carnival liable in all states where they
advertise is against public policy. (Carnival Cruise v. Shute)
• Benefits:
• Economic advantage for the company (no bargaining over
individual terms)
• Lower costs for the consumer
• Lower judicial costs
• Contracts of adhesion have negative connotations. Terms are
forced upon consumer; take it or leave it. Have no choice but to
agree with the terms or consumer will not be able to acquire
product or service.
• Disadvantages:
• Possible bad faith actors/balance of power
tipped in favor of companies
• Lack of notice
• Restatement §211 Standardized agreements p.455
• Scarce and costly time and skill can be devoted to a class of
transactions rather than to details of individual transactions.
• Apart from regulation, standard terms imposed by one
party are enforced. But standard terms may be superseded
by separately negotiated or added terms.
• Last Shot Rule
 • Which terms were agreed to? – when the terms of an acceptance vary from those
of an offer, it becomes necessary to determine which, if either, should constitute
the terms of agreement once performance has begun.
• Under Restatement an acceptance that changes the terms of the offer
or adds to the offer generally will not be deemed to be a valid
acceptance of the offer, Mirror Image Rule. Last shot rule is also under
the Restatement.
• Last shot rule (common law)- whomever sent the last form and then performance
began, the terms of the last form controlled. Step-Saver v. Wyse Technology
• Not valid because it does not take into account both parties intent and
expectations.
• Parties go ahead with contract usually because they don’t expect any
problems.
• Battle of Forms (UCC § 2-207(2), (3))
• UCC 2-207 p.467
• (1) Determines the existence of as contract – An acceptance that
includes additional or different terms still qualifies as an acceptance so
as to form a contract(it is presumed to constitute an acceptance) unless
• Proviso clause - The acceptance is conditional on the offeror’s
acceptance of the additional or different terms. Shows
unwillingness to contract unless offeror agrees to the additional
or different terms. There can be no ambiguity or the court will
deem acceptance as a normal acceptance of the terms.
• Ex. I will not contract with you unless you agree to my additional
or different terms.
• (2) Tells us if there is a contract when there are writings and
terms. Tells us how to determine what the terms of the contract are.
• If contract not between merchants, the additional different terms
are mere proposals and the other party must agree. (If not
between merchants don’t talk about the exceptions i.e.
material alterations, etc)
• Between merchants additional terms become part of the contract
unless
• The offer expressly limits acceptance to the terms of the
offer (mirror image rule)
• They materially alter it
• Notification of objection to them has already been given or
is given within a reasonable time after notice of them is
received.
• Definition of a merchant- someone in the business of buying or
selling goods of that kind. UCC§ 2-104(1)
• Ex. Carmax selling a jetski – Carmax not a merchant seller
of jetskis; therefore additional terms are proposals
• Ex. Carmax selling to Joe public- contract not between
merchants hence additional terms considered proposals.
• Ex. Carmax buying from BMW- additional/different terms
deemed to be part of the contract unless one of the
exceptions met.
 • 2-207(2)(b)- a material alteration
• is considered to be terms that change the contract.
• Surprise/hardship test- Terms that cause surprise or
hardship that a reasonable person would expect that
someone would want to negotiate for. Now known only as
the surprise test. 7th circuit threw out the hardship
component as hardship is a consequence.
• underlying policy, not wanting to bind parties to contracts that
they did not mean to be bound to.
• (3) Tells us if there is a contract when there is conduct and terms.
• No contract based on writings between parties.
• If parties act on contract although no express acceptance,
contract considered valid and binding.
• Some cases hold that conduct does not equal assent to the
proviso clause but does show that there is a valid contract in
general, the terms of the proviso clause will be decided under 2-
207(3).
• 2-207(3) looks at terms agreed to by both parties (those
terms included in the contract) terms not agreed to are
knocked out of contract. Gap filler rule then fills in missing
terms.
• Knockout rule – where parties do not agree those terms
are knocked out.
• Contract either falls under subsection (2) or (3) not both!!!
• It is okay to have only one form in dispute.
• Later Arriving Terms
• Terms that follow later - Acceptance of Terms on Packaging and in Shrinkwrap
and Clickwrap : Standard terms presented on or within product packaging present
special problems with respect to contract formation.
• Shrinkwrapped Warranties
• Cases are divided on whether a purchaser is bound by an
arbitration clause contained in a limited warranty that is packed
within the product box and shrinkwrapped at the factory where
the purchaser is unaware of such clause. Hill v. Gateway
2000(arbitration clause upheld); Klocek v. Gateway(arbitration
clause not binding on the purchaser).
• Similarly, when a shrinkwrap package containing a software
program contains a printed warning to the effect that unwrapping
the package constitutes consent to the terms of the license
contained therein, jurisdictions are split as to the binding effect
of such license terms on the purchaser. ProCD v. Zeidenberg
(license terms upheld); Novell v. Network Trade Ctr.(terms not
upheld).
• Box-Top Licenses
• At least one court has held that if a purchaser is unaware of
license terms printed on the box because the transaction was
conducted over the telephone, with no mention by the seller's
representative of the license terms, such terms were not binding
 on the purchaser. Step-Saver Data Systems v. Wyse Technologies.
Reversing the trial court finding that a box-top license was
intended as the final expression of the parties' agreement, the
court noted that "[w]hen a disclaimer is not expressed until after
the contract is formed, UCC § 2-207 governs the interpretation of
the contract, and, between merchants, such disclaimers, to the
extent they materially alter the parties' agreement, are not
incorporated into the parties agreement."
• Clickwrap
• Where software is downloaded from the internet, with the
licensee being required to click on the "I agree" button indicating
agreement to the licensor's terms, such conduct is deemed to be a
binding acceptance of the licensor's offer. E.g., Specht v.
Netscape
• Written Manifestation of Assent
• Interpreting a Writing – The Parol Evidence Rule (Restatement §§ 209 - 210,
214, UCC § 2-202)
• Parol Evidence Rule – Interpreting a Writing (Created by someone arguing that
we also agreed on X but it didn’t make it into the written contract)
• Defined - The parol evidence rule operates in situations where there is
a writing that represents the final embodiment of the contract or some
of its terms. The rule governs whether parties may introduce evidence
of extrinsic agreements to prove the existence of additional or
modified terms not included in the contract.
• The parol evidence rule does not bar extrinsic evidence offered for the
following purposes:
• to aid in the interpretation of existing terms
• to show that a writing is or is not an integration
• to establish that an integration is complete or partial
• to establish subsequent agreements or modifications between the
parties
• to show that terms were the product of illegality, fraud, duress,
mistake, lack of consideration or other invalidating cause
• Finality of Writing - The more formal and complete a writing is, the
more likely it is that it represents the final embodiment of the
agreement. Nevertheless, the writing need not be signed or complete in
order to be deemed final. Any relevant evidence may be admitted to
demonstrate that the writing was not intended to be final.
• Writing as Integration - A written document that serves as a final
embodiment of the agreement may be either a:
• complete integration – an expression of the parties' agreement in
its entirety; or
• partial integration – an expression of only a portion of the
agreement.
• Complete Integration - If a writing is found to be a complete
integration, the parol evidence rule precludes evidence of prior or
contemporaneous agreements to contradict or supplement the contract.
However, evidence of course of dealing, course of performance or
 trade usage that supplies a consistent additional term is permitted.
UCC § 2-202(1)
• Partial Integration - If a writing is found to be a partial integration, the
parol evidence rule precludes the following types of extrinsic
evidence:
• prior agreements (whether written or oral) that contradict a term
in the contract
• contemporaneous oral agreements
• Consistent additional terms to a partial integration may be
established by evidence of:
• contemporaneous writing(s)
• course of dealing, course of performance or trade usage
[Restatement §§ 214-216; UCC § 2-202]
• Determining Whether a Writing is a Complete or Partial Integration
(Tests)
• There are several approaches to determining whether a writing is
a complete or partial integration:
• "four corners" or "plain meaning" rule – If the writing
appears complete and final on its face, the writing is
conclusively presumed to be a complete integration. Libbey
case
• "collateral contract" concept – All final writings are
deemed to be partial integrations because most contracts
are not sophisticated enough to include all possible terms.
• "reasonable person" approach – If a writing appears to be a
complete expression of the parties' agreement, it is a
complete integration unless the additional terms are such
that it would be natural to enter a separate agreement as to
such terms, in which case the writing is a partial
integration. This is the majority approach.
• "intention of the parties" approach (Pacific Gas) – This
approach allows all relevant evidence on the issue of intent,
including evidence of prior negotiations. There is
increasing acceptance of this approach, as it has been
incorporated into the UCC and the Restatement Second.
(Restatement § 210, comment b; UCC § 2-202)
• Judge Kozinski believed that subjective intentions were
being given too much weight in making decisions and
determining the intent of both parties. (Trident Center v.
Connecticut General Life Insurance Co.)
• Merger Clauses - A merger clause is a statement with which both
parties establish that the writing is intended to be the complete and
exhaustive expression of the agreement between the parties. Such
clauses are generally conclusive on the issue of integration and will be
enforced absent proof of fraud, mistake or other defense such as one
party stating that they didn’t intend for this to be a completely
integrated document. A merger clause contained in a contract of
 adhesion, however, may be given less weight than such clauses in non-
adhesion contracts
• To get around one party claiming it was not their intent to enter
into a completely integrated document, a place for initials can be
added next to the clause to give other party notice.
• Whether oral or written negotiations can be added to a contract.
Questions to ask.
• Decide if there is an integrated document.
• Decide whether document is partially or completely integrated.
• Use tests
• Four corners
• Four corners + surrounding circumstances
• If partially integrated any terms
• that contradict or are inconsistent with the writing are out.
• That are consistent additional terms are in
• Usage of trade; course of dealings; course of
performance are in
• Contemporaneous writings
• If writing is silent use test of what should
naturally be in the contract.
• Under UCC if terms are so important that had it
really been agreed to, someone would have
made sure the terms were in the writing.
• Counterargument – term was an add on to
entice the completion of the deal. Up to
jury to decide which party they believe.
• Counterargument – contract always
handled in a specific way during previous
dealings, thus it was assumed that the
specific term did not have to be in the
writing.
• If completely integrated any terms
• That contradict are out
• That are consistent additional terms are out
• Usage of trade; course of dealings; course of performance
are in.
• Policy – courts do not want to over or under enforce contracts.
• Requiring a Writing – The Statute of Frauds (Restatement §§ 110, 131, UCC §
2-201)
• Statute of frauds – Requiring a Writing
• The Statute
• Contracts Within the Statute of Frauds - The following types of
agreements fall within the statute of frauds (Rest. §110):
• Agreements that by its terms cannot be performed within a
year from the making of the contract – The statute of frauds
only applies if the contract specifically precludes
performance within one year, not merely if performance
would appear impossible to complete within one year of the
 making of the contract. Ex. Provide bus services from
Jan.1, 2009 to Jan. 1, 2011.
• Agreements for the sale of land and for an interest in land
• Contracts for the sale of goods for the price of $500 or
more UCC § 2-201
• Requirements of the Statute of Frauds (Rest)- Certain agreements
must satisfy the statute of frauds, which requires the agreement
to :
• be memorialized in a writing or record (formal contract not
needed, can be informally written in a memo or on a piece
of paper, as long contract is evidenced in that writing);
• the writing does not have to be sent to the other
party to make it enforceable. Rest. 133
• Group of writings can evidence a contract
• Subject matter evidences the fact that a contract has been
entered into between the parties;
• state with reasonable certainty the essential terms of the
unperformed promises, in the case of non-goods contracts
(Rest. 131);
• signed by or on behalf of the party against whom
enforcement is sought; usually the defendant

• Requirements of the Statute of Frauds (UCC) – Certain agreements must satisfy the statute of
frauds, which requires the agreement to :
• be memorialized in a writing or record (formal contract not needed, can be informally
written in a memo or on a piece of paper, as long contract is evidenced in that writing);
• subject matter evidences the fact that a contract has been entered into between the
parties;
• signed by or on behalf of the party against whom enforcement is sought; usually the
defendant
• specify the term of quantity, in the case of contracts for the sale of goods. UCC § 2-
201 specifically states that "a record is not insufficient because it omits or incorrectly
states a term agreed upon but the contract is not enforceable . . . beyond the quantity of
goods shown in the record." A contract worth $500 or more must be evidenced in a
writing.
• Policy – To prevent fraud and to avoid binding parties to contracts that there is no evidence
showing the agreed upon terms. Prevent under and over enforcement of contracts; not bind
parties they didn’t intend to be bound to and also to enforce contracts that they did intend to
be bound to.
• The Exceptions
• Under Restatement, a contract for services within the statute of frauds, an action may
be maintained to recover any benefit received by the defendant. (Boone v. Coe – family
moving from Kentucky to Texas to work land)
• Action in reliance (recover reliance damages)
• Under UCC there are exceptions for a contract for goods that fall within the statute of
frauds if:
 • Merchant confirmation memo – contract between merchants, one of those
merchants sends over a letter with terms required. If no written objection sent
within 10 days; Plaintiff can rely on memo it sent to get contract enforced.
• Specially manufactured goods
• Admission under oath – if one party testifies to
• Part-performance – to qualify goods must be sent AND accepted or payment
sent AND accepted.
• Even with part performance, if the contract is void under statute of
frauds, the unexecuted part of contract is still considered to be void.
(Riley v. Capital Airlines, Inc. - contract to provide methanol for
airline for 3 years, no written contract)
• Court trying to strike a balance between justice and rules by allowing
recovery for the loss of purchasing equipment under a good faith belief
of having a valid contract extending 3 years. (actual outlay)
• Court does not allow for recovery for loss of anticipated profits.
• Policy – there needs to be evidence of assent by other party.
• Satisfying the requirements of a writing
• The court did not find a valid contract because there was no writing to bind the
plaintiffs. (Schwedes v. Romain)
• Wrong application of the law
• writing should have to be signed by the defendants
• a mere promise to pay should be enough to show consideration.
• Policy – Assent policy; not binding parties to contracts not intended to be bound to.
• Satisfying the requirements of a signature
• The UCC does not require that the contract itself be in writing, only that there be
adequate documentary evidence of its existence and essential terms. (Cloud Corp v.
Hasbro)
• UCC §1-201(39) – signed includes any symbol executed or adopted by a party with
present intention to authenticate a writing. A memorialization of the contract on
company letterhead suffices as long as the parties are evident.
• Policy – Wanting to bound parties to only those contracts both parties intended to be
bound to.
• Generally, an agreement that falls within the statute of frauds must be signed by
or on behalf of the party against whom enforcement is sought. An agreement may
consist of several writings or records and only one need be signed if the
circumstances clearly indicate that the various writings relate to the same
transaction.
• Electronic signatures – are considered to be valid.
• Enforceability & Equitable Recovery
• Doctrine of Consideration
• Bargain Theory of Consideration (Restatement § 71)
• The Bargain Theory of Consideration:
• To constitute consideration, a performance or a return promise must be
bargained for. Consideration requires a bargained exchange in which
each party incurs a legal detriment.
• A performance or return performance 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.
 • Legal detriment - A legal detriment exists where the party:
• engages in an act that the party was not previously
obligated – whether statutorily or contractually – to
perform; or
• refrains from exercising a legal right
• Under the pre-existing duty rule, a promise regarding a pre-
existing obligation to the other party does not constitute a legal
detriment.
• Policy – Evidence contracts that are enforceable
• Distinguish Bargains form Gratuitous Promises:
• Gratuitous or gift promises are only effective upon actual delivery of
the thing that was promised unlike bargained for promises.
• A promise to pay an existing debt will not be sufficient consideration
as there was already an obligation to pay the debts. (Johnson v.
Otterbein University)
• A valuable consideration may consist either in some right, interest, or
benefit to the one party, or some forbearance, detriment, or loss
suffered by the other. A waiver of any legal right at the request of
another is sufficient consideration. The promise or performance given
by the plaintiff cannot be consideration, even though it was bargained
for, because it did not benefit the defendant or impose a detriment on
the plaintiff. (Hamer v. Sidway)
• The defendant's promise was a conditional promise to make a gift.
Although the plaintiff may have taken certain actions to satisfy the
condition, the defendant did not seek these actions in exchange for the
defendant's promise. (Kirksey v. Kirksey).
• Restatement 71 – To constitute consideration a performance or
return promise must be bargained for
• Things that may be consideration in addition to a return
promise 71(1) performance (2) forbearance (3) giving up an
intangible right
• Restatement 81 – subjective intent doesn’t matter; what an
objective reasonable person would like of as “bargained for”
does matter.
• Past Consideration
• Past Consideration: a promise can’t induce you to do something you
have already done.
• Under bargain theory Moore did not induce Elmer to pay for the
mortgage because the readings had already taken place. (Moore
v. Elmer- clairvoyant readings in exchange for payment of
mortgage)
• No indication that Elmer was really going to pay the
mortgage.
• Restatements 71 and 86
• Restatement 86 elements (1) Promisor has been unjustly
enriched (2) Benefit was not given as a gift (3) Promisor
makes a promise in recognition of the benefit he has
received, not disproportionate
• Moral Consideration
• Moral Consideration:
• A moral consideration is not a valid consideration to make a contract
enforceable. The general position, that moral obligation is a sufficient
consideration for an express promise, is to be limited in its application,
to cases where at some time or other a good or valuable consideration
has existed. (Mills v. Wyman- sick son age 25, father voluntarily
promised to pay the expenses after the fact)
• Where the promisee cares for, improves, and preserves the promisor,
though done without his request, it is sufficient consideration for the
promisor subsequent agreement to pay for the service, both because of
the material benefit received. (Webb v. McGowan- Mill worker got
hurt trying to avoid dropping block on defendant)
• The person making the promise, received the benefit
• Benefit to the promisor or injury to the promisee is a sufficient
legal consideration for the promisor’s agreement to pay.
• Most courts have not followed this ruling because there is an
issue of whether the promisee was expecting payment before
completing the act.
• Debts
• If the promise is based on paying a previous debt that due to
some reason (i.e. statute of limitations) cannot be made to be
repaid
• If you voluntarily take on the previous debt that was discharged
because of statute of limitations that is sufficient as valid
consideration.
• Can be argued that the act is still not bargained for, hence still no
valid consideration.
• Policy – balance between under and over enforcement; tension
between justice and rules.
• Restatements
• Restatement 71 – To constitute consideration, a performance or a
return promise must be bargained for.
• Restatement 86 (limited recourse) – Promise for benefit received.
Can promise nevertheless be enforceable? Used when trying to
get a promise enforced when there is no consideration. Elements
needed in order for the promise to be enforceable:
• Promisee cannot have conferred benefit as a gift. Promisee
has reasonable expectation of payment. (surrounding
circumstances taken into account to determine if promise is
a gift)
• Promisor must be unjustly enriched. (Promisor should be
required to pay for the enrichment)
• The value of promise made has to be proportionate to the
benefit received. (Moore v. Elmer)
• Policy – to prevent injustice
 • Policy – Assent: Courts do not want to bind parties to contracts not
intended to be bound to. If contract is based on a gift, courts do not
want to bind party to provide the gift.
• Contract Modification and the Preexisting Duty Rule (Restatement § 89;
UCC § 2-209)
• Preexisting Duty Rule
• General rule – a contract modification under the common law has to be
supported by new or additional consideration in order to be binding.
Both parties have to be taking on additional duties.
• If a contract modification is based on a preexisting duty, it is not
enforceable because there is no consideration (Stilk v. Myrick –
sailors wanting more money for work already under a duty to
perform).
• A contract cannot be enforceable when the contract
modifications are agreed to under duress. The party who refuses
to perform, and thereby coerces a promise from the other party to
the contract to pay him an increased compensation for doing that
which he is legally bound to do, takes an unjustifiable advantage
of the necessities of the other party. The promise cannot be
legally enforced although the other party, although the other
party has completed the contract in reliance upon it. The doctrine
of promissory estoppel will not apply. (Alaska Packers’ Assn v.
Domenico- fishermen asking for more money once at the
cannery with no one else available to complete the work).
• Where the subsequent agreement imposes upon the one seeking
greater compensation, an additional obligation or burden not
previously assumed, the agreement, supported by consideration,
is valid and binding upon the parties. (Brian Construction and
Dev Co. v. Brighenti – Defendant contracted excavate the site
and there was more to do than expected)
• Promising to do what you are already obligated to do does not
constitute valid consideration.
• Restatement 89 – A promise modifying a duty under a contract not
fully performed on either side is binding
• If the modification is fair and equitable in view of circumstances
not anticipated by the parties when the contract was made; or
• To the extent provided by statute; or
• To the extent that justice requires enforcement in view of
material change of position in reliance on the promise.
• A contract modification must be supported by new and
additional consideration in order to be enforceable
• Under UCC §2-209 – eliminates the need for consideration for a
contract modification so long as the modification is made in good
faith.
• Adequacy of Consideration (Restatement § 79)
• Adequacy of Consideration
• The law does not require that consideration be adequate – that it be
commensurate with what the party accepting it is giving up.
 • The value of what I was given, was not what I thought it was going to
be; or I expected to get more from the bargain. One party argues that
the value of what he gave up exceeded the value of what he received.
• Consideration is present but it is not sufficient to sustain the
contract, thus the promisee argues that the contract should not be
enforceable.
• The courts will find an enforceable contract
• The courts will not enter into a dispute based on the value
of consideration because there is no objective measure of
value.
• Taking something of value and exchanging it for something
worthless means there is no consideration. (Newman & Snell’s
State Bank v. Hunter- exchange of bank notes)
• Although the courts will not inquire into the validity of a claim
which was compromised on good faith, there must be generally
be reasonable grounds for a belief in order for the court to be
convinced that the belief was honestly entertained by the person
that asserted it. (Dyer v. National By-Products, Inc. – employee
said he wouldn’t sue in exchange for lifelong employment)
• Policy – court does not want to step in and rewrite the contract.
Freedom of contract.
• Nominal Consideration (Restatement § 79, comment d)
• Failure/Want of consideration
• 1. A contract that fails for consideration is one that one party does
not have anything to give; nothing contracted for is really being
exchanged at all.
• Courts will not find these contracts to be enforceable
• 2. Nominal consideration – contracts in which the promise is only in
name; or a
• mere formality or pretense. Not normally held as valid consideration.
• Courts will consider adequacy of the consideration to determine
if there is a bargained for exchange or if it is a sham.
Surrounding circumstances taken into account and objective
standards used to determine if it is inadequate consideration
versus nominal consideration.
• Exception – Restatement 87 – Option contracts
• Option contracts need to be supported by consideration.
Nominal consideration is sufficient to support an option
contract.
• Under UCC 2-205 – nominal consideration not needed for
option contracts as long as there is evidence that the
contract was really made.
• Policy – Courts have decided to accept the bargained for theory
(quid pro quo) to evidence a contract has been entered into to
protect against overenforcement of fraudulent promises.
• Material Benefit Rule/Promissory Restitution (Restatement § 86)
• Restatement 86 (limited recourse) – Promise for benefit received. Can promise
nevertheless be enforceable? Used when trying to get a promise enforced when
 there is no consideration. Elements needed in order for the promise to be
enforceable:
• Promisee cannot have conferred benefit as a gift. Promisee has
reasonable expectation of payment. (surrounding circumstances taken
into account to determine if promise is a gift)
• Promisor must be unjustly enriched. (Promisor should be required to
pay for the enrichment)
• The value of promise made has to be proportionate to the benefit
received. (Moore v. Elmer)
• Policy – to prevent injustice
• Action in Reliance (Restatement § 139)
• Restatements 86 and 139 similar to promissory estoppel. Both equitable remedies.
• Promissory Estoppel (Restatement § 90)
• Elements
• rule elements
• Promise
• Promisor’s reasonable expectation that the promisee is going to
rely on that promise
• Promisee’s reasonable actual detrimental reliance
• Enforcement necessary to prevent injustice
• All rule elements must be met to assert promissory estoppel
theory
• Restatements 86 and 139 similar to promissory estoppel.
Both equitable remedies.
• As a substitute for Consideration
• Remedies
• 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 promise binding
in order to prevent injustice. The remedy in such cases is based on the
extent of the promisee's reliance, not his expectation.
• Equitable estoppel is the effect of the voluntary conduct of a party
whereby he is absolutely precluded both at law and in equity, from
asserting rights, which might perhaps otherwise existed, against
another person who in good faith relied upon such conduct and has
been led to change his position for the worse.
• Ways to view estoppels theories
• Promissory estoppel – relying on a promise. Plaintiff using
against the defendant as a sword to try to get enforcement and
remedy.
• Equitable estoppel – someone has made a misrepresentation of
facts to you. Told you something that turns out not to be the case.
Plaintiff uses as a shield to defend against something. Uses to
stop the other party from seeking relief against you. Prevent a
valid defense that can be made against you that would prevent
recovery.
• Promissory Estoppel as a Substitute for Consideration
 • 1.Blatt v. USC – “even if it be assumed that the doctrine of promissory
estoppel were applicable, we note that the plaintiff has not pleaded
breach of contract.” – looked at as a consideration substitute – can’t
have Promissory Estoppel because you couldn’t sustain breach of
contract.
• Promissory Estoppel as an Alternative Theory of Relief
A. Element of promise for Promissory Estoppel
1.Blatt v. USC – “even if it be assumed that the doctrine of promissory estoppel were
applicable, we note that the plaintiff has not pleaded breach of contract.” – looked at
as a consideration substitute – can’t have Promissory Estoppel because you couldn’t
sustain breach of contract.
2. Spooner v. Reserve Life Insurance Co. – court won’t find Promissory Estoppel
based on this promise for raises because the promise itself was illusory.
1. Ypsilanti v. GM – appellate court found that GM never expressed the intention to
be bound as found by the lower court.
A. Reasonable Reliance under Promissory Estoppel
1.Whether a reasonable person, in the promisee’s position, would so acted, or
refrained from acting as a result of the promise.
2.Battling policies – there has to be some limit to reliance because we don’t want to
bind parties that don’t want to be bound versus justice of someone who detrimentally
relied