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Final Contracts Outline

Final Contracts Outline

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Published by: blondimofo on Mar 30, 2010
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I. What is a Contract? A. A contract is an enforceable agreement between 2 or more parties, containing duties which must be performed. If one party does not perform, the other party is entitled to a legal or equitable remedy under law i. A contract is formed when two or more entities consent to the same terms at the same time, through the process of offer and acceptance, with valid consideration B. 5 purposes of a contract: enforces impt promises, declares unenforceable certain promises, economic efficiency and commercial enterprise, promote fairness (i.e. consideration), try to protect the weak C. Tensions in contract law i. freedom of contract vs. paternalism ii. people have the right to enter into contracts but there’s always an overseeing governing law that protects those parties Consideration – The Essential Element of a Contract A. Implied Contracts i. 2 types of implied contracts a. Implied in fact 1. not all the terms have been articulated in writing or orally 2. created by the conduct of the parties 3. i.e.: $1 Pens – implied that you pay $1 for a Pen b. Implied in law – quasi contracts (they are not contracts!) 1. P confers benefit on D 2. D appreciates the benefit 3. it would be inequitable or unjust for the D to retain the benefit without paying for it 4. Officious meddler i. Helps people without justification 5. used to avoid unjust enrichment of a person who has received and retained valuable goods or services of another ii. Bailey v. West: Lame Horse Case – Issue: Was there an implied in fact contract for the horse’s care? a. you need to find that there was intent to contract and intent to be bound b. Implied-in-fact contracts have same effect as expressed contracts a. The only difference between them is the means by which the parties manifest their agreement and their intent. i. In an express contract, agreement is manifested by their words, written or spoken. ii. In an IiF, the agreement is inferred from their conduct 1. must still have discernable terms, and both parties must exhibit objectively mutual expressions of agreement iii. objective vs. subjective intent a. objective: what a reasonable person would assume as intent by a person’s conduct b. subjective: what a person is actually thinking or intending c. both parties need to have intent iv. Bolin Farms v. American Cotton: forward contract to buy cotton at a certain price; cotton prices increase; farmers locked into selling at low price; court upholds contract’s validity a. “freedom of contract” – you have the right to enter into a bad contract as long as it’s valid 1


b. an otherwise valid contract is enforceable despite questions of fairness 1. subsequent changes may render it unexpectedly burdensome, but does not invalidate the contract B. Gratuitous Promises i. under common law, a promise by itself is not enforceable – 4 things are needed a. consideration – makes a contract ENFORCEABLE 1. actual transfer or promise to exchange something of value 2. a legal detriment 3. the reliance of one party on the promise of another b. moral obligation – a minority approach c. promissory estoppel (consideration substitute) d. a formalism – not used anymore – i.e. a seal etc. ii. §71 of the restatement – “to constitute consideration, a performance or a return promise must be bargained for” iii. Consideration exists if there is a benefit to the promisor or a detriment to the promisee that was bargained for or induced a. Must be of value in the eyes of the law; emotions don’t count 1. the benefit doesn’t need to flow from promisee to promisor i. but it is necessary that the consideration proffered by each party be in exchange for the other’s 2. the promise must cause the benefit or the detriment b. promisor = person making the promise c. promisee = accepting the benefits of the promise d. “bargained for” – was the promise made to receive a benefit or did the promise induce detriment? iv. Kirksey v. Kirksey: sister-in-law moved in with her brother-in-law (who sent letter asking her to) after her husband died a. Just a mere gratuitous promise – a promise without consideration which is not legally enforceable 1. no benefit was conferred to the promisor; therefore, no bargained for element 2. no consideration for his promise because there was no benefit to him and he did not give promise to cause her detriment b. a promise needs to have consideration in order to be legally enforceable v. Hamer v. Sidway: uncle promises nephew money if he abstains from drinking, smoking, etc.; uncle dies, estate doesn’t enforce promise a. a detriment to nephew 1. forewent his legal rights to drink, smoke, gamble etc 2. a legal detriment even though it was a physical benefit to his health b. detriment was bargained for – therefore it is consideration 1. the promise induced the forbearance 2. we have valid consideration in the sense of the law 3. promise is legally enforceable because there’s consideration c. “a valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other” 1. forbearance of a legal right is still a detriment even if it benefits the forbearer in some way (i.e. giving up drinking) vi. Langer v. Superior Steel: employee promised $100/mo for life at his retirement, pending he remained unemployed (no competitive employment) 2

a. Ds claim gratuitous promise b. P claims detriment b/c he refrained from a right which benefitted the promisor c. “bargained for” in the sense that benefit/detriment conferred was in exchange for the promise d. inducement – does benefit/detriment induce or cause the promise; does the detriment benefit the promisor? 1. if so, it’s a good chance it’s bargained for, and therefore consideration e. reinforces the rule of Hamer f. inducement as a bargained for element 1. benefit to promisor counts as inducement/bargained for element 2. “the bargained for” element of consideration is met through inducement g. consideration = a benefit to the promisor or a detriment to the promisee that was bargained for or induced vii. Jara v. Suprema Meats, Inc.: father and son meat business case; agreed (in writing) that salary increases have to be approved by all shareholders –Issue: is there consideration for the salary increase provision? a. *writing is NOT a substitute for consideration* b. no consideration - nothing was bargained for and nothing was induced 1. unsolicited promise 2. fear of a loss of money = subjective mindset/feelings 3. need to go on the objective view of actions and there wasn’t anything said to induce a response action or similar promise 4. an acquiescence to good-will or “warm fuzzy feelings” is NOT valid consideration for a contract c. evidence of actual bargained for consideration is needed d. all courts will demand some objective evidence to prove bargained for elements 1. need an obvious benefit to promisor 2. can’t be subjective concerns or fears without objective evidence of valid consideration C. Mixed Motives i. Thomas v. Thomas: wife  will  100£ or house as long as she stays a widow  owned quite a few houses  husband died before it was entered into will a. a respect for the wishes of the deceased does not move in any way from the P b. consideration does exist here 1. bargained for the 1£, not able to remarry, and upkeep of the house 2. 1£ is valuable as consideration in the “eyes of the law” c. §81 of Restatement – “a) the fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise –b) the fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise” 1. motives behind the promise don’t matter as long as consideration CAN be found ii. doctrine of mixed motives a. the motivation behind a promise doesn’t matter as long as you have consideration for that promise 1. if you can find consideration for that promise, it is legally enforceable 2. you’re looking at the objective and ignoring the subjective b. mixed motivation does not defeat consideration as long as consideration is found iii. d “sham consideration” a. Exception to mixed motives doctrine 3

b. if both parties are aware of inducement, that it’s not a real contract, courts won’t enforce it because if both parties are “in on it” it removes objectivity of the contract c. consideration is removed by the knowledge of fake consideration D. Nominal Consideration i. to be consideration, it should be something of non-trivial value a. “laugh at rule” – if it’s something you would laugh at, chances are it’s nominal b. if subjectively speaking, the parties don’t view it as nominal, it has consideration (i.e. the Madonna handkerchief) 1. subjectivity can count here 2. if it’s not nominal subjectively to the party, then the court won’t count it as nominal ii. “nominal consideration” is not allowed by the Restatement – “a mere pretense of bargain does not suffice, as where the purported consideration is merely nominal… in such cases there is no consideration” E. Adequacy i. Apfel v. Prudential: purchase and sale of electronic book system idea a. argue that the consideration is nominal because an idea wasn’t novel/new 1. they thought it had value at time of entering contract b. consideration that seems objectively novel can still have consideration if it has subjective value to one of the parties 1. it just has to be break the barrier of nominality c. determination of value occurs at signing and entering of contract 1. time can’t change consideration 2. you have to look at the value when contract was signed and entered into ii. Jones v. Star Credit Corp.: welfare freezer sale case a. adequacy of consideration b. consideration has to be more than nominal, but doesn’t HAVE to be adequate (fair & reasonable) 1. inadequate consideration is still consideration just as long as it’s not NOMINAL c. adequacy of consideration is irrelevant – nominality matters, not adequacy d. unconsciability 1. so entirely unfair as to be unenforceable as a contract 2. depends on consideration and trickery or the intelligence and comprehension of those involved in the contract 3. public policy argument must be strong enough to defeat contract e. if consideration is inadequate, it can be a red flag indicating that contract may be potentially unconsciable 1. don’t apply inadequacy by itself 2. adequacy is irrelevant to a contract’s enforceability F. Foreborn Claims i. Can count as consideration so long as claim is being asserted in good faith or is an objectively reasonable claim (non-sanctionable claim) ii. In Re Green: “ho after the dough”- married man, affair, etc. a. no consideration because there’s no sacrifice of a legal right if there are no claims to actually bring 1. imaginary law suits are not valuable consideration b. merely saying that there is consideration or a contract doesn’t create one c. No legit claims or liability here for consideration to be based on 1. no detriment of the legal rights, because there are none! 4

d. intent to create a contract is, by itself, insufficient  there must be CONSIDERATION with that intent e. public policy prevents certain exchanges (i.e. killing, sex) from being used as consideration iii. Fiege v. Boehm: forebearance of a woman bringing bastardy proceedings a. Forebearance of legal right (bastardy proceedings) in exchange for money b. Argument that there was no consideration 1. promise of not suing has no value cause he’s not even father 2. at time of contract, must have a reasonable enough belief in claims to enter into the promise i. believed it was a good faith claim and objectively reasonable evidenced objectively by signing the agreement ii. today it has changed from “and” to “or” a. reasonable on its face OR b. reasonable to parties involved – made on “good faith” c. Today’s Rule: a foreborn claim can constitute consideration if the claim has some merit in fact or law that isn’t utterly groundless (aka it’s reasonable) or that assertion of claim is done in good faith – “objectively reasonable or in good faith” G. Pre-Existing Legal Duty Rule – CONTRACT MODIFICATION i. performance or promise to perform a pre-existing legal duty under contract is NOT consideration a. preventing “the hold-up game” – removes extortion element (the painter hypo – wants to increase an already contracted paint job from $1000 to $1200 – there’s no consideration for that increase) b. modification of an already enacted contract has no consideration because of a preexisting duty 1. you already have consideration for that promise to which you are contractually bound by its terms ii. Levine v. Blumenthal: lease of retail space – plaintiff agreed to maintain lower rent for foreseeable future – argues that change isn’t binding, no consideration a. no consideration to satisfy modification b. General rule – pre-existing duty 1. any change to a contract is unenforceable unless there’s separate consideration (which can’t be nominal) for that change 2. Exceptions i. “bona fide” dispute over original contract – it can lose its original enforceability and modifications would have consideration ii. “debt or demand is unliquidated” – claim or debt has no assigned monetary value, and no consideration iii. neither party has performed yet – a court will allow modification because the contracted performance has not yet begun c. modification of a contract requires independent consideration to be a binding change iii. Alaska Packers: superintendent modifies fishermen’s existing contract a. previously contracted for services – any modification requires new consideration b. a promise to pay a man more for that which he is already contractually bound to do for a lower price is w/o consideration, unless consideration is intentionally given to the new pay modification iv. Angel v. Murray: garbage collection, increase in superintendents pay, tax payer 5

a. consideration was found because of the unexpected increase of additional units that needed collecting - “unexpected or unanticipated” circumstances b. exception to the rule of the pre-existing legal duty 1. Exception to the need of consideration for modifications i. promise modifying the contract was made before the contract was performed on either side ii. the underlying circumstances which prompted the modification were unanticipated/unexpected by the parties – unanticipated change before contract is fully performed iii. the modification is fair and equitable iv. both sides have to agree to the modification v. §89 of Restatement – Modification of Executory Contract c. courts will allow contractual modification without consideration when there are unanticipated circumstances in course of the contract d. courts will deny modification if good faith is lacking v. if under the law you’re obliged to do something, you can’t turn around and charge someone for that legal obligation unless the law so permits (i.e. firefighters) H. Mutuality of Obligation i. Rehm-Zeiher v. F.G. Walker Company: Whiskey buying contract case, RZ  “unforeseeable reason” can walk away – D argues that contract is not enforceable due to lack of consideration a. no consideration because of discretionary interpretation of the term “unforeseen reasons”  it’s basically an easy out clause b. the difference between a requirement contract and discretionary contract– they can walk at any time c. if you can walk away from a contract at your own discretion, the promise of that contract is illusory because you don’t intend to remain bound to it 1. one party can walk away, and is therefore not bound i. there is no consideration for that contract – it’s discretionary 2. is each side truly bound? You have to ask yourself this d. contracts which do not bind each of their parties are not enforceable 1. they lack mutuality of obligation, and therefore lack consideration e. a requirement contract often enforces some obligation on each of the parties and is therefore upheld and enforceable as opposed to a discretionary contract ii. McMichael v. Price: sand seller case, P-Price agreed to purchase sand from D. D claims contract is unenforceable calling it a “mere revocable offer” and lacking consideration. Urged that Pwas not bound to sell sand a. reasonableness b. In determining discretionary limits, one should use a reasonableness element and apply it c. A requirement contract usually satisfies the needs of consideration d. Lack of mutuality of obligation = a lack of consideration e. When consideration is an agreement to buy and sell, the obligation must be mutual for contract to be binding. If one party can escape future liability (“free way out”) there is no mutuality and no consideration iii. Wood v. Lucy Lady Duff: “a creator of fashions” Duff awarded Wood exclusive rights to use her name on products, and then Lucy sells products not sold by Wood. D claims P does not bind himself to anything – he promises nothing in return according to her; but he does promise her ½ of profits  there’s no minimum sale requirement – this argument is rejected by Cardozo 6

a. A promise was found – “I’ll try my best” – binds him to use his best efforts to sell 1. obligation to use best efforts if contract is exclusive b. §2-306 of UCC – dealing with exclusive dealings, output, and requirements – best efforts obligation constitutes sufficient consideration to make contract enforceable c. Both parties must intend that it should have implied promise to do best efforts iv. Omni Group v. Seattle First National Bank: Omni agreed to buy land from Clarks; examine property for satisfaction prior to purchase. Contingent contract on report’s satisfaction. a. Claimed promise was illusory due to discretionary aspect of satisfaction of report 1. Transaction does not require report, but allows option to not get report – he can still decide after report to not go ahead b. Contract contingent on obtaining report and its satisfaction to P’s 1. it’s a trend in real estate to get reports of this sort 2. assumption of good faith intention to get the report – no real discretion 3. satisfaction of report is claimed to be discretionary i. it is not discretionary according to the court because it is a fact if one is satisfied ii. they are required to let them know of their state of satisfaction iii. reasonable person test – if a reasonable person would be satisfied under these circumstances c. unilateral power to cancel a contract does not undermine consideration if the power can be exercised under occurrence of only certain conditions d. seemingly discretionary terms such as satisfaction won’t be seen as such because of a good faith requirement and objectively reasonable person standard 1. you need to be bound SOMEHOW in someway III. Moral Obligation – Past Consideration A. Majority Rule vs. Minority Rule i. moral obligation = action first, then promise in return a. morally obligated to return the favor b. there is no bargained for element, and therefore no consideration c. the idea of moral obligation is no longer in use today ii. there are 2 forms of moral obligation around today (as part of the minority rule) a. a past legal obligation – repromising a promise 1. i.e. paying someone money you already owed, but they can’t collect because of some legal obstacle 2. a subsequent promise is enforceable – it’s reopening the original contract so to speak b. material benefit conferred that is significant (i.e. saving someone’s life) iii. differentiated from QC because there actually is a promise with MO that needs to be found enforceable iv. Mills v. Wyman: P took care of D’s sick son, D wrote that he would compensate P for care of son, then changed his mind a. No consideration – no bargained element, no promise induced – appreciation (warm fuzzy feelings) can’t be enough for consideration b. Action without expectation to be repaid c. Fulfillment of a promise w/o consideration is left to the conscience of he who is making the promise d. A moral obligation by itself does not make a promise enforceable! e. Express promises founded on a past legal obligation are enforceable – 1st prong of legally permissible moral obligations 7


Manwill v. Oyler: D owed money to P – statute of limitations had run; D promised to pay again, even though no longer legally enforceable a. In order for promise to be legally recognized by the court, it must be in writing and signed b. Some courts will recognize moral obligation as long as certain strings are attached, especially in revival of past debt – i.e. must be in writing and signed vi. *New York Law* - Moral Obligation (General Obligations Law) a. Promise must be made in writing b. Signed by promisor c. Past material benefit must be set forth in the writing d. Material benefit would have to constitute consideration itself – can’t be nominal vii. Webb v. McGowin: lumber company, block falls, injures self to save boss a. When promise helps out promisor without his request it is sufficient consideration for a subsequent payment of the service because of type of material benefit conferred (his LIFE) – it was substantial b. Receipt of substantial material benefit out of moral obligations constitutes a valid substitution for consideration – past material benefit was received 1. monetary value can be conferred on a human life outside of sentiment viii. Harrington v. Taylor: “stopped the axe” case – injury to hand, saved the wife, was promised payment, never received it a. no consideration for the action because it was not bargained for or induced – the action came first, then the promise b. The minority rule of moral obligation was NOT adopted in this case 1. some courts will acknowledge it, some won’t ix. Restatement §86 – leaves a lot open in terms of moral obligation or “promise for benefit received” – a promise is binding to the extend necessary to prevent injustice, but is not binding when: a. The benefit conferred was a gift or the promisor is not unjustly enriched by the benefit b. Its value is disproportionate to the benefit received Lack of Consideration, Consideration Substitutes, and Promissory Estoppel A. Reliance Remedy i. Moral Obligation a. a promise that comes before the action, so it is not induced or bargained for, and is therefore, without consideration b. sometimes held enforceable but not recognized in most jurisdictions – 2 types 1. Ultra minority – one party bestows a benefit to another party and in doing so they incurred some harm themselves, and receives a promise in return for that benefit (very small minority recognizes this promise as binding as moral obligation) i. NY recognizes this version in writing that spells out the exact terms of the promise 2. Majority minority rule – more recognizable – you have an obligation that was originally backed by consideration, and the time period lapsed, and you still promise to return the promise i. ½ courts will recognize this as a binding promise ii. Resurrecting the obligation – there’s no consideration for the follow-up promise cause legally it can’t be collected from you anymore B. Promissory Estoppel– Rest. 2d. §90 i. Four Elements under a reasonable person standard 8


a. b. c. d. ii. iii.




A promise Reasonably expected to induce an act or forbearance Which does induce that act/forbearance Where the only way to avoid injustice would be to enforce that promise Charitable donations exception written into restatement §90(2) a. any promise to charity is enforceable no matter the reasonableness because it’s assumed it’s relied upon – automatically stopped from reneging on that promise “terminable at will” employment offers a. courts are split on the reasonableness of relying on at will employment 1. Unreasonable to rely on promise because it’s at will 2. Other courts will apply employment law, an understanding that you need a good-faith basis to fire the person Ricketts v. Scothorn: grandfather doesn’t want granddaughter to work and pays $2000; she surrendered her employment; gets a new job, grandfather dies, promise not in will; she sues for money a. no consideration for the note 1. promise didn’t require the returned action – it was optional i. no mutuality of obligation here b. notion of promissory estoppel 1. gave money (promise)  reasonably expected to quit work/stop working  she DID quit her job  she lost her job and income based on the promise and it should be enforced to avoid injustice on her behalf 2. she reasonably relied on it for a year then went back to work c. damages in PE are always limited to “reliance damages” which restores you to the situation you’d be in if you never heard of or relied on promise made vs. “expectation damages” which is what you would expect the loss to be 1. reliance damages in this case would be the money she would’ve gotten had she not stopped working for a year, she may not have taken that year off if she didn’t rely on the promise d. a plaintiff can recover under promissory estoppel in reliance on a promise that lacked consideration – aka an unenforceable promise Allegheny College v. County Bank: Mary Johnston wants to donate money to university and wants it to be known as the “MYJ Memorial Fund” as a provision of this donation. Pays $1000 down, retracts promise, then dies. a. Consideration is found in the promise 1. obligation was placed on the promise – a promise for a return promise or induced act 2. partial performance of the agreement 3. “bilateral agreement” b. accepting the money is an acknowledgement of the terms of the promise c. 4 step test of PE 1. under PE there would be no retribution because they aren’t unjustifiably detrimented by not keeping the promise – no real actions were taken by the university d. Rest 2d §90 (2) Promise Reasonably Inducing Action or Forbearance 1. Public policy in favor of upholding charitable donations Congregation Kadimah v. DeLeo: DeLeo promised congregation $25,000, dies, the promise is not in his will and he is survived by his wife. Synagogue sues for the money and loses a. no consideration for the promise, so default to one of its substitutes, PE 9

b. PE isn’t valid here because there is no injustice rendered, no induced act or forbearance on behalf of the synagogue c. Allocation of the money into budget in writing is insufficient in finding reliance or an enforceable obligation 1. it was a gift, a mere gratuitous pledge 2. their plans to name the library after him were not consideration or part of the terms of the original promise to donate the money i. merely thanks for the money ii. not a condition or an inducement d. discretionary nature of equitable remedies vii. Blinn v. Community Hospital: at will employment contract at current job; drafted a letter of resignation, wanted a guarantee that he could work at current job until he retired, was assured by his boss. He is then forced to resign, while other job offer guaranteed employment until retirement. a. Sues for breach of contract and promissory estoppel b. modifications to contracts require consideration of their own no consideration i. not even really a promise per se, there wasn’t even a real modification for consideration to be considered mustshow offer tomodifycontractandan acceptance ofthatoffer default to PE cause consideration can’t be found for a non-modification to a not real contract 2. if it’s not good enough to be considered an offer, can it be considered a promise?  judged on different standards 3. didn’t exactly promise employment, but what they said was sufficient to support a promise, even though it didn’t support an OFFER 4. 4 step promissory estoppel test a contract needs a valid offer and valid acceptance to be binding a sufficiently definitive statement that manifests offeror’s intent to be bound c. Promissory Estoppel in NY slightly more strict you need a clear and unambiguous promise the injustice incurred would be such that it would be an unconcsiable injury PromissoryEstoppel isagoodbackupplan–apromiseisalwaysmade–it’swhat’sbeingcontested d. But! You will only get reliance damages e. You’re at the mercy of the court anyway to find if the promise falls within the scope of PE f. A substitute for consideration when consideration can’t be found, PE allows for recovery under a promise that was relied upon V. §139 –PE under SoF – courts will scrutinize more harshly to get around the lack of a writing Statute of Frauds In addition to consideration/one of its substitutes, some contracts need to have additional requirements as per the Statute of Frauds i. Certain categories of contracts will not be enforceable unless they are in writing A writing requirement (not necessarily IN writing, but a component) A promise has consideration but can’t be enforced because it has an extra requirement under the SoF Exceptions  1 promise for 1 promise  1 falls under SoF, one does not ( both are linked and the entire transaction will fall under the SoF (i.e. a car plus a service plan) ii. Once you determine that there is in fact a valid contract, you have to determine if it then falls within the statute of frauds iii. Certain contracts have to meet a writing requirement to be enforceable fully Signed by the person who would seek to leave the contract 10

If the P fails to satisfy the SoF, the D may have a legal excuse to not perform, but the D must bring up that defense in a timely manner B. if a contract falls within the SoF and fails to comply with the writing requirement, it is not void until someone uses the statute of frauds defense VI. Requirements of Statute of Frauds a. Rest 2d. §131 and UCC §2-201 and 2-205 (regarding goods) UCC governs the sale of goods greater than $500 1. goods = moveable items b. Restatement governs all other transactions ii. Any writing – signed by person who would want to leave/exit contract Does not have to be a formal writing – notes, letters, etc. Signature does not have to be formal – could be a printed letterhead or rubber stamp 1. Essential terms identification of subject matter 2. the parties the price 3. the time for performance the entirecontractdoesnothavetobeinwriting it’s more about authentication rather than a real actual signature UCC requirements for sale of goods are much more lenient – do not require the correct terms Don’tneedallessentialterms 4. Only term which must appear is the quantity term, which need not be accurately stated, but recovery is limited to amount stated (i.e. even if the sale were for 500, if the stated terms are for 50, recovery can only be sought for 50 units) 5. UCC §2-201(2)– only for merchants (defined in §2-104) i. See the UCC for commentary on merchants B. What types of contracts will fall within the statute of frauds? i. MYLEGS (marriage, year, land/real estate, executor assumption of will, goods, surretyship) ii. NYS requirements a. Promise to pay discharged debts must be in writing b. Assignment of an insurance policy c. Commission/finder’s fee contract – outside context of attorneys d. Auctioneers or real estate brokers are the exceptions C. Sale of goods under the Statute of Frauds i. Prevention of fraud/limitation of fraud ii. Contracts that are in specified categories are the ones that are considered of higher value, yet are at the highest risk of manipulation and fraud iii. Price of goods > $500 iv. UCC §2-201 governs the sale of goods a. everything else under statute of frauds is governed by the Restatement v. Service contracts versus the sale of goods a. Predominant factor test 1. What’s the major thing going on – i.e. buying a roof 2. Or you could divide it into two categories – a contract for service and a contract for the sale of goods vi. UCC § 2-201 (3) – exceptions to the rule, don’t need writing when… a. Goods that are specially manufactured and customized are within the exception to the statute 11

1. In theory, statute protects against fraud, so if something is being manufactured just for you, it’s reasonably assumed that contract is valid b. Testimony/pleading of promisee admitting to a contract and confirming the amount in question of a contract does not fall within the statute c. Payment has been made and goods received and accepted will not fall within the statute of frauds D. One Year Contracts i. A contract is subject to the Statute of Frauds and, therefore, needs to be in writing, if, BY ITS OWN TERMS, it can’t be completed within one year a. Legal terms of the contract – 40th birthday haircut example – a 38 year old man is promised a haircut on his 40th birthday – despite the fact that the haircut will take 20 minutes, it can’t be completed within the year b. Falls within statute if its own terms state that it can’t be completed within one year (i.e when you graduate from law school can’t be completed in one year, but as long as you’re in law school can, because it is possible you will leave within one year – so the first example would come under the statute of frauds) 1. Lifetime contracts – you COULD die within a year of the contract, so it could be completed within a year by its own terms and therefore would not fall within the statute of frauds, and therefore does not require a writing component i. Unless, you state “I will shampoo your carpet in the next 24 months” – that’s a time-limit – “life” is not a term of the contract here – there is a specific time term 2. In NY – minority rule- if a contract mentions life-time, assumption it cannot be completed within 12 months ii. Distinction between fully performing and termination a. i.e. if you die in 3 months, and the contract specifies 5 years, it’s terminated, and not completed and not within the statute of frauds b. however, if it just says “For the duration of your life” and you die within three months, the contract has been fully performed because your life was 3 months in duration – no specified time E. Professional Bull Riders v. AutoZone: AZ sponsored events for PBR, AZ terminated sponsorship, PBR continued to use AZ trademark, PBR then sued AZ for Breach of Contract – it was an oral sponsorship agreement that provided for termination after one year on request of AZ i. termination of a contract does not mean it’s been fulfilled ii. Is it possible to complete contract within one year a. termination of the contract within one year usually does not equal full performance 1. However, because termination was a material element of the contract, by invoking a termination, it could signal a full completion of the contract 2. contract could be completed within one year, and is not under the SoF b. Courts will find many excuses to avoid the SoF, such as a narrow interpretation iii. An example of the rule regarding alternative means of performance as laid out in the contract iv. Shows the difficulty in how to treat a termination provision in a contract F. Crabtree v. Elizabeth Arden: payment change, 2 year contract, initialed payroll card, 2 separate documents stating one whole term of the contract i. writing requirement satisfied via 2 separate documents a. Terms have to be explicit and have to be signed by promisee ii. Claim of no contract, but… a. it does seem to meet all the requirements 12


b. First copy wasn’t signed, but the 2nd payroll card WAS initialed c. The 2 payroll cards read together contain all essential elements of the contract iii. Signed and unsigned writings can be read together permitting that they obviously refer to same subject/transaction in order to satisfy the SoF iv. The contract is well stated, for more than a year, in writing, and therefore, falls within the SoF v. There was a contract that satisfied the statute of frauds a. Writing may not have been signed, but the pages together refer to same transaction/subject and regarding how one of them was signed, it is sufficient when both documents are read together vi. Some courts will use multiple documents to satisfy the writing requirement, if they’re obviously linked by other testimony or evidence G. D.F. Activities v. Brown: chair case, really awesome chair, phone conversation for chair, Briggs writes letter to confirm sale, etc. i. UCC application for the sale of goods > $500 ii. A letter has to be between merchants (see UCC) a. Exception is not applicable b. Merchants are not going to sit on a letter, they’ll acknowledge it right away iii. If you raise a SoF defense, it generally forecloses litigation over whether the issue of a contract exists or does not exist (because by invoking statute of frauds, you kind of admit there was a contract) H. Promissory Estoppel under the SoF i. If the D promised to reduce the contract to writing and breached that promise as well as the oral promise, some courts have held that other party may assert reliance under PE ii. Rest. §139 – a middle course a. The promisor should have expected the promise to induce reliance on the part of promisee b. There has been such a reliance c. Injustice can’t be avoided except by enforcement of the promise iii. Main difference is that it is harder to satisfy §139 a. Need much more reliance, reasonableness etc. b. A much more strict standard iv. Under the UCC, there is no discussion of PE in regards to SoF at all v. Courts are split a. Some will apply the restatement b. But UCC doesn’t want to acknowledge PE at all because if you don’t satisfy 2201, you can’t say you relied on it to your detriment I. If something is within SoF and it wasn’t properly put into writing, the contract is still enforceable until someone elects to raise it as a defense – only makes a contract voidable at the will of the protected party i. Timely assertion a. If the D does not raise a SoF defense in a timely manner, he waives it J. Someone raises a SoF defense – 2 counter arguments i. PE – Rest. 139 ii. Complete or part performance Offers A. General Principles – Where the Contract Begins – Before Consideration i. You need a valid offer and a valid acceptance for there to be a contract a. A meeting of the minds (a common law standard) b. What it objectively looked like it intended to a reasonable person 13

Embry v. Hargadine: P wanted new contract for employment or would quit – “you’re all right, get your men out.” Keeps working, fired, sues breach of contract a. 2 isses – legal and factual 1. factual issue: what was actually said? i. words matter because it’s how a RP would interpret those words in that situation ii. lower court says it doesn’t matter  meeting of the minds, president didn’t INTEND for there to be a contract iii. it’s not what you meant to say, but what you actually did say (the objective content of the words) – reasonable person test 2. legal issue: are these words a valid offer? i. what would a reasonable person infer from these words b. in assessing whether offer and acceptance exists you must look at how a reasonably objective person would look at words and actions to gather intent c. subjective standard is not applicable 1. no longer a “meeting of the minds” standard – you have to look at the objective example of intent 2. a reasonable person’s interpretation of facts and circumstances iii. Lucy v. Zehmer: selling the farm, lots of drinks, “high as a Georgia pine,” agreement was signed by both, with $5 down; Zehmer claims whole thing was a joke – no intent to enter into a contract to sell a. Subjective intent doesn’t matter, what matters is what is objectively said and done b. Once a contract has been accepted, it doesn’t matter if you say “I was kidding” because objectively you had the intent to sell – reasonable person standard 1. exception to rule: if both parties are in on the joke, there is no intention on either side, despite any objective actions. i. There is no valid contract ii. However, if one is aware and one is not, then you apply the reasonable person test c. it was put in writing, both parties signed the contract 1. intent was formally shown 2. offer (sale of land) + acceptance (agreement to buy land) + consideration (the $5) = a valid contract 3. the offer, despite subjectively being a joke, was, on its face, a valid offer, and was validly accepted 4. the timing of when you say “it’s a joke” matters i. if it’s after the joke offer has been accepted, then you’ve lost that right to say it’s a joke d. a party may enter into an enforceable contract even if offer is made in jest if: 1. it would be understood by a reasonable person as an intent to enter into a contract 2. other party is not aware of the fact that it may be a joke offer e. courts differ with regard as to whether they look at words alone, versus words and context 1. latter is the more common view – words and context f. if neither party intends to be bound, then a binding contract will not be found despite the objective content of words 1. one of the parties must have the intent to be bound B. What is an Offer? i. Objectively expressed intent that allows other party to reasonably believe that you have the intent to contract 14


a. Everything will be laid out specifically for the offeree to accept b. Invitation to negotiate vs. an invitation of offer 1. ask yourself if offeree would say “yes I accept,” i. an offer is when everything is said and done and ready to go forward if accepted – nothing is left to question ii. an invitation to negotiate is when things are still left open-ended and there are questions to be asked ii. Longergan v. Scolnick: D’s ad for land published in newspaper; D and P write letters back and forth, if P is interested P should act fast as D expected a buyer in the next week or so, property gets sold to third party a. Was there an offer? 1. close to being an offer, but still lacks the specificity needed to be an actual offer b. An ad is NOT an offer, but merely an invitation or request for an offer c. D displayed intent to sell to others 1. the letter was just answers to questions (preliminary negotiations)– never said “it’s yours” d. there’s a need for clear and explicit offers because you don’t want accidental contracts to be formed 1. we demand the high standard to prevent accidental formation of binding contracts e. Ad = is [usually] not an offer, but a solicitation for an offer! iii. DEFINITION OF OFFER a. An expression by party of contractual assent to certain DEFINITE terms b. Provided that other party to transaction is willing to express assent to the same terms c. All perceived from the same perspective of a reasonable person in the same circumstances C. Offers vs. Negotiations a. Lefkowitz v Great Minneapolis Surplus: the fur coat ads case 1. ads are usually not an offer i. however, they can be considered an offer when there is a performance promised in return for a requested action 1. i.e. “first come” is a specific person directed in the ad, and a specific action (requesting that you be the first) ii. an offer = definite, clear, explicit, nothing open to negotiation 2. it was a clear and valid offer accepted by a return performance 3. where the offer is clear, definite and explicit and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract – as long as there’s consideration i. “an advertiser has the right at any time before acceptance to modify his offer; he does not have the right, after acceptance, to impose new or arbitrary conditions not contained in the published offer” 4. most ads do not constitute an offer, but rather an invitation to negotiate i. however, a sufficiently definite ad will constitute an offer 1. clear and explicit terms are necessary (i.e. quantity, specified person, etc.) ii. Leonard v. Pepsi Co.: idiot kid who wanted a harrier jet from Pepsi’s “get stuff” a. An ad is not an offer – an offer must contain: 1. clear and explicit terms so that nothing is left open to negotiation 15



b. reasonable person standard  what should be taken seriously c. ad’s are not offers unless circumstances and words are very plain and clear 1. usually a general “blast” of information 2. words of limitation placed on ad can make it clear and explicit if you want it to be an offer i. an absence of words of limitation means that no formal contract can be found d. no application of SoF  not a valid contract because there is no valid offer e. ad’s are requests to consider, examine, negotiate and offer 1. an invitation to negotiate and make an offer f. an ad constitutes an offer when terms are clear, definite, explicit and leave nothing open for negotiation 1. should specify a clear and definite method of acceptance 2. passes a reasonable person test – appears as a legitimate offer to a reasonable person under those circumstances Southworth v. Oliver: D-Oliver approached Southworth to sell him some land - will contact you when I have a price quote. Sent a letter back outlining ranch sale prices; 9/10 times this is not an offer, but in this case it is a. Price quotation is not automatically an offer, unless the circumstances construe it as an offer b. definition of an offer 1. manifests an idea that a person has to accept it and then the deal is done, with no further negotiation a. (1) a reasonable person in those circumstances b. (2) the determination of the party to whom the purported offer has been addressed c. (3) the definiteness of the proposal itself  the more definite a proposal, the more reasonable it is to treat it as a commitment c. words of promise, undertaking and commitment = definiteness of the parties and the proposal itself create an objective contract d. an offer exists if under all the facts and circumstances, an offer can reasonably be construed (Rest §24) 1. what a reasonable man in the position of the offeree has been led to believe, the determination of the party or parties to whom the purported offer has been addressed, the definiteness of the proposal Bretz v. Portland General Electric (PGE): B wanted to buy a coal company from PGE, a series of letters go back and forth – no offer was made, but Bretz tried to accept it, sold coal company to a 3rd party anyway a. no offer was made and the acceptance is invalid/DNE; no valid contract 1. he had immediately sold company he had not yet full obtained – he claims he relied on conversation and contract – THAT SAME DAY he sent a letter confirming acceptance of offer b. not reasonable to rely on this contract at time of sale of coal because PGE had not yet received the paperwork required c. application of rule that an offer only exists if a reasonable person could believe there was an offer d. a solicitation for a new offer is NOT a new offer to be accepted 1. it’s an invitation to make an offer e. *an offeror is the master of his offer* 1. can place any conditions on the offer and how it is to be accepted 16


2. all provisions of the offer must be accepted and completed as laid out in the offer LaSalle National Bank v. Vega: Vega owns property, sold to LaSalle then Vega attempted to sell that real estate to Borg – did Vega actually sell property to LaSalle a. Is there a valid offer? 1. if there was an offer and it was adequately accepted, there was a contract to sell b. why is it not an offer 1. Vega didn’t have the right to accept it, by the terms of the offer 2. it was an invitation to negotiate – to make an offer, a solicitation of an offer c. when Vega signs it, that’s HIS returned offer to LaSalle’s solicitation for an offer – it is NOT an acceptance 1. Vega signs it, and there is still one more signature line for the bank trustee i. gives the bank the power to accept the offer made by Vega ii. bank trustee never signed it and it never became a valid contract 1. if the document would’ve been, by its own terms, completed upon Vega’s signature, w/o having to return it to the bank or trustee, it would’ve been a valid contract d. Vega had option to rewrite it, change conditions, edit it and then return it as his offer, and therefore he was the master of its terms despite it having been written for him 1. ultimately he was the one with the power to change the terms and therefore was the offeror, and not the offeree 2. did not have the power of acceptance e. An offer is a document that gives the offeree the power to make a contract by accepting it (power of acceptance) f. an offer must be accepted by its specific manner of terms or it is not a valid acceptance

D. Auctions i. ii.

auction with reserve is the default type of auction auctioneer is not making the offer, the person buying is the offeror a. auctioneering is soliciting the bid, which then has to be accepted 1. when the hammer goes down, that means the auctioneer has accepted the offer b. you can withdraw the offer any time before it has been accepted iii. exception – auction without reserve a. I agree to sell to whoever bids the highest 1. it’s no longer an invitation but is now an offer 2. specific terms = highest bid, highest bidder, and there are no questionable terms that people could differ over b. When you bid, it’s a contract if you’re the highest bidder and the seller is bound to sell to you E. Implied-in-fact i. Wrench LLC v. Taco Bell: taco bell Chihuahua case; psycho Chihuahua – a cartoon caricature liked by head of advertising at Taco Bell – vague communication a. P sues for breach of contract 1. no real crisp/clear offer via words or writing  just conversation 2. was there actually a contract? b. there was a contract – implied in fact 17

1. implication and proper deduction based on conduct of the parties or circumstances 2. acts and conduct that satisfy essential elements of an expressed contract 3. a concept was offered which was accepted by its use which constitutes a returned performance 4. a benefit was accepted for which a compensation is customary i. receipt, use, and acceptance of a valuable idea c. a P may support a claim of implied in fact contract by showing that the he disclosed an idea to the defendant at the D’s request and the D understood that the P expected compensation for the use of his ideas d. an implied contract like other contracts requires mutual assent AND consideration e. §2-204 of UCC – Formation in General 1. a contract may be implied in fact via implication or proper deduction from the conduct of the parties, language used, or things done by them or other pertinent circumstances attending the transaction F. E-Commerce Issues i. Specht v. Netscape: “communicator” and “smart download” programs from netscape – cookies, spyware etc. a. Additional term of arbitration requirement 1. communicator was d/l with the terms and conditions i. click “I accept” before you’re able to download 2. SD terms were not readily visible b. “inquiry notice” 1. a reasonable person alerted to terms and conditions would look for them and not do so at their own peril c. you have to manifest your acceptance to be binding 1. you have to know terms to which you’re accepting 2. “on notice”  reasonably prudent person standard G. Termination of Offers i. Dickinson v. Dodds: offer to sell land, offer is open til 6/12, learns of sale of land to the third party (revocation of the offer), and then tries to accept, “you are too late” a. Revocation of offer b. When one learns of revocation, the offer has officially been revoked 1. In finding out, it constitutes a revocation cause you know he’s no longer of the mind or intent to enter into a contract 2. no intent to be bound c. The agreement is not binding before a complete acceptance, the offeror has the power to revoke before there is a clear acceptance – Rest. §42 1. the offeror is the master of his offer 2. agreement is binding only after offer is completely and correctly accepted d. key fact is learning of the revocation of the offer which nulls and voids the original offer and removes the power of acceptance 1. reasonableness of information being received (who is telling, where you found out the offer has been revoked, etc.) 2. if there’s no notice received of the revocation, it’s a breach of contract e. rule: needs consideration to keep an offer open 1. offer was open until it was revoked 2. an offeror has the right to revoke the offer before acceptance at any time unless there has been a consideration given to keep the offer open f. the offer = “a mere gratuitous promise” 1. therefore promise of offer is not binding until it is accepted 18

2. can’t rely on offers unless there’s consideration g. an offeree’s knowledge of a revoked offer destroys his power of acceptance of that offer h. an offeror is not required to hold an offer open until a promised date unless there is consideration for that promise to keep the offer open i. Rest §43 1. unreliable source issue 2. action inconsistent as revocation with reliable notice (i.e. selling it to someone else) 3. determination of reasonableness is circumstantial j. option contract 1. you purchase (or give consideration) for the right to keep the offer open, or to close on contract until date set 2. bargained for the option to say yes up until the certain point 3. one way to create an OC is acceptance by performance only i. commencement gives rise to an option contract for a reasonable amount of time given to complete the performance ii. an option contract will bind only the promisor, not the promisee who has the option to walk away iii. compare with promise/performance contract where commencement of performance will give rise to a full contract where both sides are bound 4. offer to pay (in good and valuable consideration) in writing (which can’t be nominal) – you don’t even have to pay, but show the intent to pay i. §87 – a signed writing reciting consideration/purported 1. paying for consideration to keep the option open (anything before that is negotiation, even a rejection) ii. §45 – performance as a way to create an option contract k. Unilateral contract 1. You need to be aware of the contract to perform it (the case where the reward was tried to be claimed and the person didn’t know about it) l. Silence as acceptance 1. Not really allowed 2. Except when the opportunity is given to say no and you accept the benefit (the oil rig case) 3. Only really effective if you accept a benefit from them and you don’t speak up to reject H. Irrevocable Offers – Rest. §87 and UCC §2-205 i. Humble Oil v. Westside: P: Humble Oil wanted to buy land from Westside, bought an option for $50 to keep offer open, option contract; Humble oil sends acceptance to Westside with add’l terms attached, amending the original offer/contract a. Counter-offer, adding terms to the original offer b. Not falling under UCC 2-207 – sale of land (NOT goods) 1. when dealing with add’l terms in the sale of land you default to restatement c. we have an option contract created here 1. anything that occurs before the option closes is considered negotiation 2. nothing can kill the offer  you paid for the right to keep it open for a certain amount of time i. if you add add’l terms, it’s not a counter-offer or a rejection of the original offer, but rather negotiations 19



ii. creation of an OC binds promisor to keep that offer open d. if offer is rejected before expiration of the option contract, it’s still considered open 1. if offeror fails to keep offer open, it’s a breach of contract because that promise was paid for/had consideration (a mini-contract in and of itself) i. UNLESS the rejection itself had consideration 2. could argue promissory estoppel i. a rejection caused them to rely on it and to sell it to other people e. an offer may be made irrevocable if coupled with consideration (i.e. paying $50 to keep the offer open) f. under Rest §87, all that’s needed is signed writing containing purported or intended consideration g. under UCC §2-205, there is no need for writing, if you’re a merchant you just need a signed promise h. under Rest §45 – contract by performance as acceptance i. under Rest §37, an offer with consideration to be kept open, creating an option contract, cannot be revoked and cannot be destroyed by counter offers or rejection, except when rejection carries consideration or would be estopped Marchiondo v. Scheck: real estate case with the broker’s commission in promise for 6 days sale of house, offer revoked on 6th day, later sends acceptance because house was sold (performance) a. Receives revocation before – then accepts offer 1. USUALLY contract will be destroyed 2. option contract argument that– it exists because of the commencement of performance (acceptance by performance - §45) i. partial performance can create an option contract ii. you can create an option contract which prevents revocation of offer within reasonable amount of time by beginning performance or paying for the consideration of keeping it open b. was performance actually commenced? 1. performance has to begin before the revocation is received 2. have to actually start performing and not prepare to perform i. beginning to perform is when a benefit is conferred to the other side c. §45 of restatement  option contract created by partial performance or by consideration to keep the option open 1. offeree is not bound by the option contract, where as in the EVER-TITE case a legally bilaterally binding contract was created because it was acceptance by performance or return promise James Baird v. Gimbel Brothers: linoleum contract, D made mistake about quantity needed, had to withdraw offer, sent telegraph and written withdrawal, P had construction company, accepted offer after it was withdrawn and placed it in his overall price bid a. Baird was soliciting offers from numerous people – Gimbel offered linoleum sources for X amount 1. argues reliance – he used the quotes in his bids b. you can retract an offer before it’s validly accepted c. you don’t rely on offers – you rely on CONTRACTS 1. you can create the option contract if you’re concerned 2. reliance should be on the acceptance, NOT on the bid 20



d. P.E is not available to a party who has relied upon an unaccepted offer, not made irrevocable via the option contract e. P never promised to pay/take linoleum 1. offer was off the table and he no longer had the power of acceptance Drennan v. Star Paving Co.: similar fact pattern to Baird case; paving work offered by Star Paving, claims he made a mistake in original bid, and the company relied on the bid when making the overall contracting bid a. P.E. analysis was done b. If it was accepted before bid was revoked, a contract would’ve been formed 1. but revocation was uttered BEFORE acceptance 2. now we need a PE analysis c. §45 and §90 1. Analysis that offer created a promise that was relied upon d. Offer to be accepted by promise e. This is the exception to the rule – this case 1. There was no reason to assume bid was a mistake i. therefore it could reasonably be relied upon because when you make your bid you know that if you’re the lowest, you will get the job and that bid will be relied upon 2. §87 of Restatement i. loss resulting from mistakes should fall on the party who caused it ii. now an exception to the rule the bid induced action of a substantial and definite character on the part of the promise a. D reasonably expected his bid to be used by P if it was the lowest b. Reliance on the bid is the exception to the rule due to the nature of contracting – you can’t rely on an offer, just an acceptance

VIII. Acceptance A. Methods of Acceptance – Terms of Acceptance i. Hendricks v. Behee: Hendricks needs an interpleader to figure out who money belongs to, he is an escrow agent – 2 parties were discussing land sale (SoF) – Smiths and Behees – need to figure out if there was a contract a. Ordinary rule: a contract for promise is not valid until the acceptance is communicated to the offeror and there is valid consideration b. *if someone is your agent, what they do is attributable to you – you are liable for their actions and you’re responsible for what your agent knows (and may fail to communicate) c. Promise contract = bilateral; performance contract = unilateral d. Communication of acceptance is necessary for a valid contract e. you are able to withdraw your offer before notification of its acceptance 1. unless the offer is supported by a promise with consideration to keep the offer open for a certain amount of time 2. need for a valid acceptance to make a valid contract i. “nudum pactum” – naked promise is worth nothing and is not enforceable f. “communication of acceptance to an agent of the offeree is not sufficient and does not bind the offeror” 1. it’s an agent of the offeree – if you communicate acceptance to your own agent/self, it’s not binding 2. communication of an acceptance needs to be made to the offeror! 21



i. however, if the agent took it upon himself to tell the offeror of the acceptance, THEN it would be binding because it would be as if you communicated the acceptance yourself g. an offer can be revoked any time prior to its valid acceptance 1. unless you have the exceptions stated above h. firm offers are the exception – UCC §2-205 i. acceptance of an offer must be communicated to the offeror in order to be valid unless: 1. the offer has specified communication is unnecessary 2. if you’re dealing with a contract for performance only instead of a promise i. communication of performance when necessary ii. acceptance by performance creates an option contract Ever-Tite Roofing v. Green: Roofing case, could be accepted by promise in writing or performance; did Ever-Tite accept by commencement of performance? a. When work commences is debatable b. General rule of law – before performance (aka acceptance) you can withdraw the offer 1. but what constitutes performance - §45 of restatement c. an offer proposed may be revoked before its valid acceptance, removing the power of acceptance 1. Methods of Revocation – governed by Rest. §36 d. “reasonable time” 1. the allowed time to retain the power to create a contract by acceptance e. If contract is not clear about its terms of acceptance, it can be accepted by promise or performance by default (§32) 1. If acceptance by performance is permitted, you must distinguish preparation for performance (which is not an acceptance) and beginning to perform (which confers a benefit to the other side with your work) f. Even when you can accept by performance it can still be revoked if proper notification is not given of that performance (§54) g. UCC § 2-206 – what’s reasonable under the given circumstances 1. inviting acceptance by making an offer looking at the circumstances Carlill v. Carbolic Smoke Ball: advertisement – an invitation to make an offer in most circumstances, except this case, where the ad was a clear and express offer – giving up other forms of prevention to your detriment a. targeted, specific, action inducing advertisement = an offer b. accepts the conditions of the offer 1. accepts by performances as exactly laid out in the ad/offer 2. notice of acceptance is completely unexpected and totally unreasonable as required in §54 c. the reward is offered to a specific person (who contracts the epidemic or other disease within a reasonable time after using the ball) – concept of reasonableness 1. an express promise - not just a mere gratuitous promise – there is ample consideration for the promise 2. induced by the promise to a detriment (or perhaps benefit to the promisor) d. offers regarding unilateral contracts (performance) can be accepted by conduct e. an ad is USUALLY an invitation to make an offer, unless the terms are so specific as to constitute a valid offer f. when dealing with ads, a performance is akin to acceptance and there is no need of notification of acceptance 22



Glover v. Jewish War Veterans: Reward for info leading to arrest of a murderer; Glover gave info because she was questioned by police, and learned of the reward after she gave the info a. performance was not induced by the reward to give the information 1. you cannot accept an offer/reward without knowing about it i. you can’t assent to an offer and its terms if you don’t know them ii. if you don’t know about the offer you can’t accept it even if you commit actions that by their nature would constitute an acceptance b. if you have a legal duty to find something, it’s not an acceptance of an offer because you’re obligated/induced by means outside of the offer c. “missing cat” hypothetical 1. if you find out there’s a reward while looking for a cat it does not bar acceptance of reward because you accept the reward by FINDING the cat, and you still keep working to find the cat after you discover the reward 2. finding the cat is acceptance by performance 3. compare with Ever-Tite where acceptance was done by COMMENCEMENT versus this case where acceptance is through a completed performance i. Ever-Tite created a binding contract ii. In a case of “acceptance by performance” creates an option contract which only binds the offeror and not the offeree 4 methods of invited acceptance Invited Form of Acceptance Return promise only Performance only Effect of Promise Valid contract No contract Effect of Performance No contract Option contract (benefit to other side – offeree can walk away without penalty, but payment is dependant on completion) Valid contract (it’s considered a promise to continue services – EverTite – both sides are bound to the contract) Valid Contract Rest. §50(1) §45

Promise OR performance – explicitly stated

Valid contract



Terms are unclear – Valid §32 default to anything contract reasonable within promise or performance (an invite to do either) 1. objective test to show promise induced action/acceptance 2. subjective analysis versus an objective analysis i. if the court can find an objective acceptance or rejection despite the subjective state of the person, that’s what counts Russel v. Texas Co.: lease, silence, accept the lease rents if you remain silent and continue to use the land 23

a. Acceptance via silence is not allowed UNLESS it’s custom between the two parties 1. the exception – a continued action happened and benefits were received b. Your continued use of these things will constitute your acceptance of this permit 1. silent but continued to act and reap the benefits of the oil on the land 2. argues no contract because silence can’t constitute acceptance and they never intended to accept the contract c. Rest. §69(b) 1. 3 exceptions to the rule of “silence can’t be an acceptance” i. Both parties want it to ii. past custom, there is a practice of acceptance via silence iii. received benefit of offered services d. acceptance existed because benefits and actions were still being commissioned 1. a reasonable opportunity to reject was given 2. they could’ve stopped an action to show non-acceptance 3. by continuing to use the land it constituted a continued acceptance and continued receipt of the benefits of the land e. receipt of a benefit which would reasonably lead an offeror to believe that offeree has accepted an offer, constitutes a valid acceptance vii. Ammons v Wilson & Co.: shortening order form case – booking an order is not accepting an offer  it’s soliciting an offer to go back to the company who can reject it; silence always customarily been an acceptance, no history of rejection, a. This is an exception to the rule that silence can’t constitute an acceptance, because there was a history of silence being an acceptance b. Rest §69 (1) 1. reasonability of silence as an acceptance because of prior history of dealings c. an order form is a solicitation for an offer that you submit and that the company can reject B. Mailbox Rule i. different contractual acts are effective at different times ii. everything EXCEPT for an acceptance is effective when received a. offer – valid when received (§51) b. acceptance – valid when SENT (§63) –it’s out of your control at that point c. counter-offer – valid when received (§40) d. revocation – valid when received (§42) e. rejection – valid when received (§40) iii. Adams v. Lindsell: wool dealers case – misdirected letter which lead to late acceptance a. Offers are effective when they’re received b. Acceptances are effective when they’re sent c. Offer was never revoked by Lindsell but he sells it to a 3rd party 1. a revocation wouldn’t have been effective because the offer was accepted when mailed d. application of the mailbox rule 1. an acceptance is effective when sent 2. it puts the acceptance out of your control and into the control of a 3rd party – date of postmark e. any behavior reasonably suggestive of rejection can constitute rejection 1. selling wool to 3rd party would be appropriate if he found Lindsell did not accept by terms of the offer – a counteroffer/rejection of original offer 24

2. method of acceptance has to be reasonable 3. §40 – exception i. Sending a counter-offer/rejection then you send an acceptance on same day 1. Under traditional principles, the acceptance is valid 2. However what matters is what gets there first under §40 C. Mirror Image Rule i. common law – acceptance had to be mirror image of the offer – no variation on terms of offer in your acceptance a. it would be considered a counter-offer which is a rejection of the original offer and a new offer in and of itself ii. Minneapolis Railway v. Colombus: buying of steel rails, series of letters, asking for price quotes, 2000-5000 tons, give specific terms (not just a price quote), P orders 1200 which is not within the terms of the offer so it’s not an acceptance but a counter offer, D rejects the order, and P tries to accept the original offer a. If an offer is killed via rejection or counter offer, the offer can’t be resurrected unless offeror chooses to offer it again b. You’re allowed to ask for more info without it constituting a counter-offer but the line is vague c. “grumbling acceptance” – you accept but toss in a complaint or two D. Additional Terms/Counter-Offers, UCC §2-207 i. DTE Energy: construction project, Briggs is the subcontractor, e-mail was sent instead of “I accept”, forum selection clause as an additional term a. does DTE accept offer? Under 2-207 it did “battle of the forms” b. *general rule* if someone makes an offer and reasonable acceptance is made, there is a contract 1. additional terms must be accepted on their own, but the original terms, if accepted, will form a contract 2. there is reasonable acceptance with additional terms 3. if you’re not both merchants, then these additional terms are not part of the contract i. just proposals for inclusion ii. up to original offeror to accept those proposals as part of the original contract which has been accepted c. knockout rule 1. conflicting terms cancel each other out d. if you are merchants, additional terms are usually accepted unless: 1. they’re essential material terms 2. they’re explicitly rejected 3. the offer explicitly limits acceptance to the terms of the offer ii. Textile Unlimited: TU submits purchase order to BMH with date, item #, quantity, price etc. arbitration agreement included in terms attached to order, order is placed, receive order acknowledgement with additional terms a. UCC and common law apply the same here 1. when acceptance has additional terms that are material terms to the original contract, the UCC = common law 2. additional terms on a contract have to be inconsequential to the original contract – non-essential terms 3. if the offer comes back as a counter-offer (is not accepted) and it so varies the terms as to make it completely different, then the counter-offer kills the original offer under UCC §2-207 25


b. “all additional terms must be accepted” c. There is no contract on paper by looking 1. offer and then rejection, but yarn is shipped and accepted 2. court scrutinizes documents and syncs up the terms that match to determine terms of the contract 3. by accepting delivery you accept terms in full (UCC §2-207(3)) i. usually silence does not equal acceptance, but they argue it should be because it was a written and appropriate way of acceptance with previous dealings 1. offeree accepts a benefit by receiving the yarn and fulfills the exception to “silence by acceptance” rule d. court says no silent acceptance 1. textile didn’t give specific and unequivocal assent to additional conditions i. under UCC a material additional term requires the specific assent and acceptance e. no clear and unequivocal acceptance, therefore no acceptance, therefore no contract, if it’s a material additional term 1. if not material, silence can be an acceptance f. if no contract is found on paper, but in conduct, you look to all the papers and find terms that are agreed upon and drop out the terms that don’t confer agreement 1. “fill in the gaps” vii. Hill v. Gateway 2000: Hills order computer from Gateway, a list of terms is included with new computer (terms and conditions), if you don’t return comp in 30 days, you accept those terms a. Additional terms become part of contract by acceptance with additional terms and original offeror must accept them a. If material terms, they must be expressly accepted b. Otherwise, if not, can be accepted by silence b. were terms conditional? No c. material add’l terms  not expressly agreed upon  no contract and vice versa d. we care about materiality because we need to accept them expressly if they’re material a. this is acceptance as silence contract but we have to determine if the add’l terms included are material b. add’l terms were not expressly agreed to or material, but UCC doesn’t apply 1. offer  acceptance with terms  followed by acceptance again 2. only one set of documents therefore §2-207 doesn’t apply 3. §2-207 is for the “battle of the forms” e. some courts will hold 2-207 inapplicable if there are no competing forms f. an example of judges looking to commercial realities to help decide their cases a. i.e. not keeping customers on phone for 10 minutes going over terms and conditions viii. Klocek v. Gateway: same facts as Hill…except they had 5 days a. Reasonable time question comes into play b. Court here looks to 2-207 despite not having a battle of the forms c. Written confirmation with additional terms which have to be accepted a. Material terms have to be expressly accepted d. shows courts are split over “shrinkwrap” agreement a. divided agreement on how to treat them b. Klocek is not a merchant for which there are different rules under 2-207 Defective Formation 26

A. Misunderstanding i. 4 terms with special meanings in contract law a. Misunderstandings/ambiguity: on its face, the contract appears clear, but each of the parties attributes a different meaning to material terms of the contract – more of a subjective concept b. Indefiniteness/vagueness: not clear terms of contract on its face (i.e. “I will sell you my stuff” – what is stuff?) c. Incompleteness: gaping holes, missing info from the contract, terms aren’t fully laid out d. Mistake ii. Raffles v. Wichelhaus: the great ship Peerless a. no meeting of the minds cause each party had different intent, therefore no contract (intent to be bound to the same thing) 1. if you’re thinking the same thing, you have a meeting of the minds, the intents match, and the same things will be contracted for (McDonalds/Burger King example) – a contract will exist and the SoF will come into play b. Even objectively, you know there are 2 ships with the same name and you can’t tell on the face of the contract which ship is the material term meant c. When 2 parties have different meanings and a misunderstanding of material fact, each assigns different meanings to that term and there is no contract d. rest. §20 1. misunderstanding can render a contract void 2. ambiguous terms  multiple meanings are present 3. ambiguous is a term of art 4. unaware on both parties’ accounts or fully aware on both parties’ accounts iii. Konic Int’l v Spokane Computer Services: surge protector case - $5620 vs. $56.20 a. No contract was even formed because 2 separate meanings were applied to the price which was a material element of the contract b. Peerless Doctrine 1. applies only when the parties have different understandings of their expression of agreement 2. does not apply when one party’s understanding, because of that party’s fault, is less reasonable than the other party’s 3. parol evidence is admissible to est. the facts necessary to apply the rule c. even though the parties manifest mutual assent to the same words of agreement, there may be no contract because of a material difference of understanding as to the material terms of the exchange B. Lack of Definiteness/Vagueness i. Varney v. Ditmars: architect told by employer “a better future than anyone else,” please stay and work here  “a fair share of the profits”  election day sick stay home fired  no fair share received a. there is an offer and acceptance but… 1. no clear terms 2. vague and indefinite – not a complete negotiation b. where a contract is too vague, it can’t and won’t be enforced c. vagueness on a material term will make a contract unenforceable d. higher standard for determining indefiniteness


1. §33 – certainty – intent for contract must be found within its terms – if there’s intent, there should be a sufficient amount of certainty in those terms e. there is no contract if any essential or material term is open to negotiation 1. §2-305 of UCC – open price terms ii. for the validity of a contract, the promise, or the agreement, of the parties to it must be certain and explicit, and that their full intention may be ascertained to a reasonable degree of certainty – courts will find a contract when they can a. need a clear intent b. clear enough to look like parties intended for there to be a contract and for the court to be able to fashion a remedy for its breach if they can C. Lack of Completeness i. MGM v. Scheider: actor agrees to star in film and tv pilot as well (no start date) a. all essential elements were nailed down 1. thing left open for negotiation was not a material term of the contract 2. it’s good enough for the court 3. most essential terms were met and there is a coloring of the intent to contract despite some vagueness – “enough to get by” b. if parties have entered into contract, the courts will fill in gaps to make an enforceable contract 1. even if certain elements are left open for future negotiation i. just as long as they’re not material terms 2. as long as there’s an objective method of determination independent of parties’ wishes and desires c. definiteness of certain terms shows the intent of parties to enter into contract because you got to that point of specificity, despite some terms being left open for negotiation – as long as they’re not material terms of the contract! 1. Intent to contract + certain amount of concrete terms for court to find a contract and find a remedy for its breach ii. Joseph Martin Jr. Deli v. Schumacher: case of rental space for 5 years @ $500/month, renew with annual rentals (price) “to be agreed on” later a. the intent to agree is too ambiguous to determine 1. it can go both ways  saying “we’ll talk later” or “we agree now” 2. didn’t agree on pricing which is an essential term of the supposed contract i. standard for determining pricing – market value ii. §2-204 3. there is no price term – lack of completeness i. need an assent first before you seek enforcement b. a mere agreement to agree in which a material term is left for future negotiations is unenforceable 1. no room for legal construction or resolution of ambiguity 2. void for vagueness (this is the minority rule) c. most courts will now be able to fill in gaps due to market value as a standard for fairness in determination 1. majority rule  incomplete term that court will try to fill in 2. imputing a reasonable value for the missing price term 3. it’s tougher to figure out a quantity term because there’s no real comparable standard d. compare with Varney – can’t determine a market value for fair share of profits, so it would probably be decided the same today 28


168th and Dodge v. Rave Cinemas: parties don’t yet have a contract but have a letter of intent (a precontractual paper)  ultimately where we want to go a. Letter of intent is super detailed b. LoI is not a contract, no matter how detailed and complete it may be c. courts will only supply terms if there is a contract – not a letter of intent 1. if it’s clear there’s no contract, there’s nothing to save 2. the letter of intent clearly states that it’s not a contract 3. you have to convince the court that it’s a contract before the court can attempt to even enforce it d. a statement of opinion or future intent is insufficient to give rise to a promise


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