CONTRACTS 

THE BASIC FIRST‐YEAR COURSE 
PART ONE 

Ross E. Davies 
Professor of Law  George Mason University School of Law 

Copyright © 2007 Ross E. Davies, except where otherwise indicated and for original U.S. governmental works.

 

 

CONTENTS 
Introduction......................................................................................................... 1  How to Read a Judicial Opinion, by Orin S. Kerr ......................................... 2 

CHAPTER 1 

GETTING STARTED 
Rest. 2d §§ 1, 2, 3, 4, 5, 203, 204, 205, 219, 220, 221, 222, 223 & Introductory  Note to Ch. 1; UCC §§ 1‐103, 1‐201, 1‐205, 2‐102, 2‐103, 2‐104, 2‐105, 2‐106,  2‐107, 2‐108, 2‐208  The Reasonable, Objective Person  Leonard v. PepsiCo, Inc................................................................................. 15  Eymard v. Terrebonne................................................................................... 43  The Promise  Hamer v. Sidway........................................................................................... 47  Kirksey v. Kirksey ......................................................................................... 58  Ricketts v. Scothorn ...................................................................................... 60  The Applicable Law  Gulash v. Stylarama, Inc............................................................................... 65  Riffe v. Black ................................................................................................. 73  Cohen v. Cowles Media Co............................................................................ 76 

CHAPTER 2 

PARTIES & CAPACITY 
Rest. 2d §§ 7, 8, 9, 10, 12, 13, 14, 15, 16  Infancy  Halbman v. Lemke......................................................................................... 91  Intoxication  Lucy v. Zehmer ............................................................................................. 99  State of Ohio v. Berry.................................................................................. 109  Williamson v. Matthews ............................................................................. 112  Mental Illness  Faber v. Sweet Style Manufacturing Corp.................................................. 118 

Contents 

CHAPTER 3 

CONSIDERATION 
Rest. 2d §§ 71, 72, 73, 74, 75, 79, 81, 85, 86, 87, 88, 90, 95 & Introductory  Note to Topic 2; UCC §§ 2‐203, 2‐205, 2‐304, 2‐305  Mutuality & Adequacy  Batsakis v. Demotsis ....................................................................................125  Schnell v. Nell..............................................................................................129  In re Greene..................................................................................................132  Weavertown Transport Leasing, Inc. v. Moran...........................................137  Past Consideration & Moral Obligation  Mills v. Wyman ...........................................................................................145  Webb v. McGowin .......................................................................................151  Cotnam v. Wisdom.......................................................................................158  Promissory Estoppel  Feinberg v. Pfeiffer Co..................................................................................164  Hayes v. Plantation Steel .............................................................................173  In re Estate of Schmidt.................................................................................181  Congregation Kadimah Toras‐Moshe v. DeLeo............................................187  Shoemaker v. Commonwealth Bank .............................................................191  Firm Offers & Options  Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc. .........................................199 

CHAPTER 4 

MUTUAL ASSENT 
Rest. 2d §§ 17, 18, 19, 20, 22 through 30, 32, 33, 35 through 46, 48, 50, 51, 52,  53, 54, 55, 56, 58 through 70, 89, 273, 277 & Introductory Note to Ch. 12;  UCC §§ 2‐204, 2‐206, 2‐207, 2‐209, 2‐306  Offer  Cobaugh v. Klick‐Lewis, Inc. .......................................................................221  Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories ...............229  Acceptance  Ever‐Tite Roofing Corp. v. Green ................................................................239 

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CONTRACTS 

Contents 
Ciaramella v. Reader’s Digest Ass’n, Inc.................................................... 244  The Mailbox Rule  University Emergency Med. Foundation v. Rapier Investments, Ltd. ....... 255  Invitation to Deal & Preliminary Negotiation  Brazil v. Fedex Ground Package System, Inc.............................................. 265  Paloukos v. Intermountain Chevrolet Co. ................................................... 272  Coley v. Lang .............................................................................................. 280  Hoffman v. Red Owl Stores, Inc. ................................................................ 287  Counteroffer & The Battle of the Forms  Gardner Zemke Co. v. Dunham Bush, Inc.................................................. 302  Step‐Saver Data Systems, Inc. v. Wyse Technology ................................... 315  Hill v. Gateway 2000, Inc. .......................................................................... 342  Options  2949, Inc. v. McCorkle................................................................................ 348  Certainty  Corthell v. Summit Thread Co. ................................................................... 355  Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher.................................. 361  Outputs, Requirements, and Exclusive Dealings  Wood v. Lucy, Lady Duff‐Gordon............................................................... 366  Eastern Air Lines, Inc. v. Gulf Oil Corp..................................................... 369  Modification & Discharge  Alaska Packers’ Ass’n v. Domenico ............................................................ 390  Angel v. Murray ......................................................................................... 399  Wisconsin Knife Works v. National Metal Crafters.................................... 410 

CHAPTER 5 

STATUTE OF FRAUDS 
Rest. 2d §§ 110, 124, 130 through 137, 139, 148; UCC § 2‐201  The Writing  Crabtree v. Elizabeth Arden Sales Corp. ..................................................... 433  Cohn v. Fisher ............................................................................................. 440  The One‐Year Term  Mercer v. C.A. Roberts Co. ......................................................................... 449 

CONTENTS 

iii 

Contents 
Judicial Reluctance & Part Performance  McIntosh v. Murphy....................................................................................460  Sedmak v. Charlie’s Chevrolet, Inc. .............................................................469 

CHAPTER 6 

MISTAKE 
Rest. 2d §§ 151 through 158 & Introductory Note to Ch. 6; UCC § 2‐303  Mutual Mistake  Sherwood v. Walker .....................................................................................479  Raffles v. Wichelhaus ...................................................................................493  Wood v. Boynton..........................................................................................495  Harbor Insurance Co. v. Stokes....................................................................500  Unilateral Mistake  Anderson Bros. Corp. v. O’Meara ...............................................................506  M.F. Kemper Construction Co. v. City of Los Angeles................................514 

CODA 

CONTRACTS AT WORK 
Rest. 2d § 188  Competition  Business Records Corp. v. Lueth..................................................................527  Termination  Wagenseller v. Scottsdale Memorial Hospital..............................................534   

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CONTRACTS 

 

INTRODUCTION 
This casebook and the supplement containing the Restatement (Second) of Contracts and Articles 1 and 2 of the Uniform Commercial Code are tools for learning two things:
1. contract law (or, more accurately, some of the basics of contract law), and 2. how to think and act like a lawyer (or, more accurately, a little bit about some important parts of thinking and acting like a lawyer: how to read, analyze, and apply various sources of law, especially statutes and judicial opinions).

There is too much contract law – and too much commentary on and theorizing about that law – for you to get through more than the basics in a first-year course. The idea is to give you an opportunity to learn enough about the subject to be able to pursue the finer points in advanced courses and on your own, as your interests and professional needs may move you. Most “casebooks” consist of (a) edited excerpts of judicial opinions, surrounded by (b) “notes” about other cases, various scholarly studies of and theories about contract law, and anything else that the casebook author thinks might be useful, accompanied by (c) other interstitial material written or edited by the casebook author. Such books are worthy tools, and most law professors assign and teach from them when they conduct first-year courses. This casebook is designed for a slightly different approach. Not easier or more difficult, just different. Other than the introduction you are reading now, it contains nothing except a few dozen complete, largely unedited judicial opinions. Instead of puzzling over excerpts, notes, and their interstices in a conventional casebook, you should spend your time puzzling over the cases collected here – and over the associated material in the Restatement/UCC supplement. You will find that for the most part judges do quite a good job of addressing in their opinions just the sorts of things that casebook authors tend to put into their notes and interstitial commentary. And the authors of the Restatement and the UCC are able commenta1 

Introduction  tors and theorists as well. We will draw out those “notes”-type aspects of the law of contracts in the course of our classroom discussions. In addition, studying this subject via unedited judicial opinions has independent value: the ability to read and analyze judicial opinions will probably be much more useful in your professional life than the ability to read and analyze casebook notes.

A WORD ABOUT WORDS 
Do not try to read opinions without a dictionary by your side. In fact, you should have two dictionaries with you at all times: one of Bryan Garner’s editions of Black’s Law Dictionary for technical terms, and a good general dictionary for everything else. Words are a lawyer’s stock in trade. (Don’t know what “stock in trade” means? Look it up!) And nowhere in the practice of law is the use of the right word more important than it is in the practice of contract law. It is, after all, words (and in some circumstances deeds) that bind the promisor and the promisee. (Don’t know what “promisor” and “promisee” mean? Look them up!) And now a few pearly words of wisdom on reading cases, from Professor Orin S. Kerr:

HOW TO READ A JUDICIAL OPINION 
A GUIDE FOR NEW LAW STUDENTS 
Professor Orin S. Kerr* George Washington University Law School Washington, DC Version 2.0 (August 2005) This essay is designed to help entering law students understand how to read cases for class. It explains what judicial opinions are, how they are structured, and what you should look for when you read them. Part I explains the various ingredients found in a typical
*

Professor Kerr, who created this work and surely holds whatever property rights are available, has granted permission to reproduce it here. 2  CONTRACTS 

Orin S. Kerr: How to Read a Judicial Opinion  judicial opinion, and is the most essential section of the essay. Part II discusses what you should look for when you read an opinion for class. Part III concludes with a brief discussion of why law schools use the case method. I. WHAT’S IN A JUDICIAL OPINION? Judicial opinions (also known as legal opinions, legal decisions, or cases) are written decisions authored by judges explaining how they resolved a particular legal dispute and explaining their reasoning. An opinion tells the story of the case: what the case is about, how the court is resolving the case, and why. Most legal opinions follow a simple formula that will seem odd to you at first, but will quickly become second nature. In this section, I’ll take you through the basic formula. Let’s start with the preliminary stuff before the body of the opinion. This part isn’t very important in most cases, but it’s helpful to know anyway. The Caption The caption is the title of the case, such as Brown v. Board of Education, or Miranda v. Arizona. In most cases, the caption reflects the last names of the two parties to the dispute, and it tells you who was involved in the case. If Ms. Smith sues Mr. Jones, the case caption may be Smith v. Jones (or, depending on the court, Jones v. Smith). In a criminal case, the government brings the case, and the government itself is listed as a party. If the federal government charges Sam Jones with a crime, for example, the case caption would be United States v. Jones. The Case Citation Underneath the case name, you will find a legal citation that tells you the name of the court that decided the case, the law book in which the opinion was published (and therefore can be found), and also the year in which the court decided the case. For example, “U.S. Supreme Court, 485 U.S. 759 (1988)” refers to a U.S. Supreme Court case decided in 1988 that appears in Volume 485 of the United States Reports, starting at page 759.
INTRODUCTION  3 

Introduction  The Author of the Opinion The next bit of information is the name of the judge who authored the opinion. In most cases, the opinion will simply state a last name, followed by the initial “J.” No, judges don’t all have the first initial “J”; the letter stands for “Judge” or “Justice,” depending on the court. For example, “Hand, J.” refers to Judge Hand, and “Holmes, J.” is Justice Holmes. In those jurisdictions where the judges are not called “judges,” you may see a different initial. For example, some courts call their judges “Chancellors,” so the initial will be a “C” instead of a “J.” You will also see variations like “C.J.” for Chief Judge, “V.C.” for Vice Chancellor, etc. On occasion, the opinion will have the Latin phrase per curiam in place of the judge’s name. This phrase means “by the court,” and generally means that the opinion reflects a common view held by all of the court’s judges, rather than the writings of a single judge. Okay, enough of the preliminary stuff. Let’s get to the body of the opinion. The Facts of the Case The first part of the body of the opinion is usually devoted to presenting the facts of the case. In other words, what happened? Surprisingly, there are no particular rules for what a judge must include in this section. Sometimes the fact sections are long, and other times they are short; sometimes they are clear and accurate, and other times they are vague or incomplete. Typically, the facts tell you the judge’s understanding of the case and what the judge thought was an important aspect of the case that helped the judge reach the decision. The “facts” of a case consist mostly of the events that occurred before the legal case was filed in court, and that led to the filing of the case. For example, the facts might be that A pulled out a gun and shot B, or that A agreed to give B $100 and then changed her mind. However, most opinions also include a section on the procedural history of the case: that is, what happened in the case after the case was filed in court. The procedural history usually consists of various motions, hearings, trials, and proceedings that went on in
4  CONTRACTS 

Orin S. Kerr: How to Read a Judicial Opinion  the case before the court that is writing the opinion was asked to resolve the dispute at issue. You should pay very close attention to the procedural history when you read cases for your civil procedure class (note the word “procedure”); generally speaking, it is less important when you read a case for your other classes. Some opinions may make your life a bit difficult by calling the parties to a case by special legal names, such as appellant, appellee, petitioner, respondent, plaintiff, defendant, and the like. You will get used to this eventually. For now, however, it may help to keep in mind a few simple guidelines. First of all, when parties first appear in court they are labeled using a pretty simple convention: in civil cases, where someone is bringing a lawsuit, the person bringing the lawsuit is known as the plaintiff,1 and the person sued is the defendant. In criminal cases, where a criminal charge is filed by the government, the person who has been charged is still known as the defendant. There are no plaintiffs in criminal cases, however; the cases are brought by the government, which is referred to as “the state,” “the prosecution,” or simply “the government.” After the original court has resolved the case, the losing party may wish to seek review of that decision by filing an appeal before a higher court. An appeal is a legal proceeding before the higher court to review the decision of the original court. The original court is known as the trial court (because that’s where the trial occurs, if there is one), and the higher court is known as the appellate or appeals court. A single judge presides over the trial court proceedings; however, appellate cases are decided by panels of several judges.
1

Plaintiff is a French word, and its use in American law is a holdover from the Norman conquest of the Saxons in 1066 in what is today England. The Normans spoke French: the Saxons spoke Old English. For several centuries after the French-speaking Normans took over England, lawyers and judges in English courts spoke mostly in law French. When the American colonies inherited the English legal system, we also inherited this French tradition. Many of the distinctive legal words you will learn in your first year of law school are French in origin. Examples include: plaintiff, defendant, tort, contract, crime, suit, judge, attorney, court, verdict, allegation, party, plead, damages, appeal, assault, felony, larceny, counsel, evidence, arrest, and jury. So, if you don’t like legalese, blame it on William the Conqueror. INTRODUCTION  5 

in the Federal court system. where cases are decided by panels of three judges known as Circuit Court judges. it will then discuss the law. the party that lost before the lower court is called the petitioner. In many cases. cases can then be appealed from the Court of Appeals to the U. the Court of Appeals. Some older opinions may refer to the appellant as the “plaintiff in error” and the appellee as the “defendant in error. In these cases. This section of the opinion describes the legal principles that the judge will use to decide the case and reach a particular outcome. the law is presented in two stages: first the opinion will discuss the general principles of law that are relevant to the case given its facts.” and require the losing party to petition the higher court for relief. the party that lost at the original court ordinarily is called the appellant – that is. the one who appears before the higher court to respond to the losing party’s petition). and cases can then be appealed to the next higher court. but you’ll get used to it in time. you should think about what source of law the court is using to resolve the dispute before it. and the party that won before the lower court is called the respondent (that is. Supreme Court. by the way) – the party whose victory has been appealed. It’s all somewhat confusing. Some cases interpret the Constitution. and next the court will apply the law to the facts and reach the court’s outcome. The Law of the Case After the opinion has presented the facts. the judges are called Justices. Supreme Court– label an appeal as a “petition. the founding charter of the government. 6  CONTRACTS  . During the proceedings before the higher court. which is a fancy name for written laws passed by legislative bodies such as Congress. Finally.” Finally. where cases are decided by nine judges.S. Other cases interpret statutes. a single trial judge known as a District Court judge oversees the trial stage. some courts– including the U. At the Supreme Court. the one bringing the appeal – and the party that won is known as the appellee (accent on the last syllable. not Judges.Introduction  For example.S. for historical reasons. As you read the law section of the opinion.

courts may conclude that a result is required because that is what the legislature’s statute says.Orin S. an abbreviation of a Latin phrase meaning “That which has been already decided should remain settled. Cases that you read in criminal law mostly will be interpreting the common law or statutes.” The “common law” was announced in judicial opinions. Kerr: How to Read a Judicial Opinion  Still other cases interpret the common law. you will sometimes hear the phrase “common law” used to refer to areas of judge-made law as opposed to legislatively-made law. the word “common” in the phrase “common law” means common in the sense of “shared by all. the source of the court’s authority can help determine the significance of the court’s opinion.” not common in the sense of “not very special. and property law will mostly be interpreting the common law. When a case is governed by a statute. For example. You should also look out for the method (or methods) of reasoning that the court offers to justify its decision. This is an application of the judicial practice of stare decisis. contracts. a court may conclude that it is required to reach a particular result because it is bound by the past precedents. for example. courts may justify their decision on grounds of public policy. or notions of justice to justify their decisions. Thus. cases that you read in torts. As a result.2 The source of the law can be quite important because Constitutional rules trump statutory (statute-based) rules. which is a term that usually refers to the body of prior case decisions (known as precedents) that derive ultimately from pre-1776 English law that the Colonists brought over from England. As a result. when past courts have already answered similar questions before. cases that you read in civil procedure will mostly interpret statutory law and the Constitution. Courts may also justify their decisions based on the court’s understanding of the narrow function of the judiciary. INTRODUCTION  7  . and statutory rules trump common law rules. 2 The phrase “common law” started being used about a thousand years ago to refer to laws that were common to all English citizens. Finally. In your first year. no matter what the court thinks would be the best rule.” Other courts will rely on morality. fairness. This is particularly likely in common law cases: the idea here is that the court believes that the legal rule it adopts is a good rule because it will lead to better results than any other rule. Similarly.

Concurring and/or Dissenting Opinions Concurring and dissenting opinions (a. (I’ll talk more about holdings of cases later on in the essay. or it may reverse the decision. For now. or. overturning it. to use the more common plural form. but for a different reason. and tells you what action the court is taking with the case. relying on several or even all of these justifications. Words like reverse. if not in reasoning).Introduction  Many courts will mix and match. the court’s resolution of the key legal dispute that it faced. upholding it. remand. you will often hear lawyers try to minimize the importance of language in past decisions by characterizing that language as “merely dicta. a concurring opinion is an opinion by a judge who would have reached the same result as the majority. as well as any dicta the opinion may contain.) At the opposite end of the spectrum from the holding of the case is dictum. Dictum is an abbreviation of the Latin phrase “obiter dictum. It is the conclusion that the case stands for. an appeals court may affirm the lower court decision.” which means “a remark by the way. Dissenting 8  CONTRACTS  . if there is one. In general.k.a. Two important ingredients you should be looking for in the legal section of the opinion are the holding of the case. dicta. The holding is the core legal principle that the case represents. The distinction between the holding and dicta can be important because the holding of a case is more important than dicta. “concurrences” and “dissents”) are opinions by judges who did not see entirely eye-toeye with the other judges of the court. you should keep in mind that when a higher court affirms it means that the lower court had it right (in result. and wish to express a slightly or even dramatically different view of the case. For example. and vacate means that the higher court though the lower court had it wrong.” Dicta are statements in an opinion that are not actually required to resolve the case before it.” The Disposition The disposition usually appears at the end of the main opinion. In fact. sending it back to the lower court for further proceedings. and remand the case.

not just what happened in this one case. In fact. you’re not quite sure whether what you learned is what your professor wanted you to learn. it means that they offer some valuable insights and raised important arguments. Many students think. When they are included. you will have the experience of walking in to class believing that you understand an assigned opinion one hundred percent. In most cases. dissenting opinions try to persuade the reader that the majority’s decision was simply incorrect. You probably won’t believe me at first. Here are the primary goals you should have when you read a legal opinion for class: 1. only to walk out of class an hour later shaking your head and wondering how you could have misunderstood the case so completely. your professor will ordinarily begin by asking you to state the facts of a particuINTRODUCTION  9  . a strong dissent that points out a fatal flaw in the majority’s reasoning sometimes will influence later courts and convince them to decide the same question differently. I want to know what the law is. concurrences and dissents usually are edited out by casebook authors just to keep the case from being too long. You have to read much more carefully. “I’m in law school. You need to read them carefully. but concurrences and dissents are very important.” There are two problems with this line of thought. At the same time. II. First. not fact school. Sometimes your professor will believe that the concurrence or dissent is the opinion that had the better argument. A careful understanding of the facts Most law students underestimate the importance of the facts when they read a case. when you are called on in class to discuss a case. Law school professors like to assign cases with concurrences and dissents because they often frame the issues better than unanimous decisions. When they’re not important.Orin S. If you’re like most law students. You think you understand it. so you’ve just read a case for class. Kerr: How to Read a Judicial Opinion  opinions are opinions by judges who disagree with the majority’s result entirely. WHAT TO LOOK FOR WHEN YOU READ A CASE Okay. You’ll quickly learn that reading a case for law school is different from other reading you have done for other classes.

and judges only issue written opinions about the law when two parties to a dispute disagree on a particular legal question. when judges do write about a legal question. Doing well on an issue-spotter (and thus doing well on law school exams) requires developing a careful and nuanced understanding of the importance of the facts. which is a fancy way of saying that the proper legal outcome depends on the very specific facts of what happened. If you don’t know the facts. law professors often ask about the facts precisely because they are often important to the law. not on writing a treatise on whatever issues they may see in the case. If you don’t know the facts. In an appeal. It turns out that the most common form of law school examination question presents a long description of a very particular set of facts. in a criminal trial. Similarly. (If you wondered why people pay 10  CONTRACTS  . 2. Second. not the judges. it is largely up to the defendant’s lawyer to raise problems with the prosecution’s case. you can’t truly understand the case and can’t understand the law. and to articulate reasons why the prosecution’s case is flawed. and then asks the student to “spot” and then analyze the legal issues presented by those facts. the lawyer for the appellant must articulate specific ways in which the lower court was wrong: the appellate court then looks at the lawyer’s arguments and either agrees or disagrees. The best way to prepare for that is to start reading the fact sections of the cases you are assigned with great care. Such questions are known as “issue spotters. the facts of the case are usually legally important: many areas of law are highly fact-sensitive. take the lead role in framing the issues raised by a case. (You will be happy to know that these two problems are really one. they generally focus on resolving the parties’ particular dispute.Introduction  lar case.) If you’re unconvinced of the importance of facts. As a result. This means that the lawyers. take a look at a few law school exams. for example. An understanding of the arguments that each party argued to the court Lawsuits are disputes.” as the key skill they evaluate is the student’s ability to understand the facts and spot the legal issues the facts raise. you will be unprepared.

A rule might look good in one situation. the facts will be a bit different: should the outcome be the same? During class. as well as the reasoning of any concurring and/or dissenting opinions Your emphasis here should be on understanding the reasoning offered by the judges for the conclusions they make.” which means a new case may be governed by an older case INTRODUCTION  11  . and Anglo-American law is often judge-made.) Because the lawyers take a lead role in framing the issues in a case. 3. it’s hard to understand the impact of a legal rule unless you think about how it might apply to specific situations. An understanding of the result and reasoning of the majority opinion. Think to yourself. what would you have done if you were the judge? 4. silly. You simply can’t understand the court’s opinion unless you first understand the dispute that the parties wanted resolved. law professors like to change the facts around and ask you whether the change in facts would change the outcome. You can think of this as taking the court’s rule “out for a spin. and how did it try to solve it? What sources of law did they rely on for their ruling? The most important point you should remember about understanding a court’s legal reasoning is that you absolutely must think critically about the court’s reasoning. and what rules and explanations are weak. wrongheaded. The possible effect and scope of the court’s decision You should also spend a moment thinking about what the effect of the court’s opinion is likely to be on future cases. but reveal a big problem in another. Learning to “think like a lawyer” often means learning to think like a judge. First. that should give you a good idea. or confused. Second. you need to understand when you read a case exactly what arguments the two parties were making. Law is man-made. Kerr: How to Read a Judicial Opinion  big bucks for top lawyers. judges often reason by “analogy.Orin S. and you need to think independently about what a judge says. which means learning how to evaluate what rules and explanations are strong.” and it’s important for a few reasons. In the next case. Courts occasionally say things that are unconvincing. Why did the court do what it did? How did the court frame the problem before it.

and you’re trying to learn about the law by picking up bits and pieces of it from what the cases tell you. College classes are pretty different from law school classes. You’re reading about actual cases. WHY DO LAW SCHOOLS USE THE CASE METHOD? I’ll conclude by taking a somewhat broader look at legal education. 12  CONTRACTS  . You’ll look for the “holding” of the case. Why the difference. and it’s very different. Even weirder. safe in your cocoon. The best students are the ones who recognize and identify these unsettled issues without pretending that they are easy. and the role of cases in that education. This raises the question. PART III. and that forces us to try to figure out what the opinion means. one historical and the other practical.Introduction  when the legally relevant facts of the new case are similar to those of the old case. Indeed. Rather than trying to fill in the ambiguity with false certainty. you may be wondering? Why do law schools use the case method at all? I think there are two primary reasons. we intentionally touch on unsettled or unresolved issues. and the professor stood at the podium and droned on for awhile about broad themes and interpretations while you sat back in your chair. and others are written in a narrow way so that there is no clear holding. your professors are asking you questions about those cases. When we professors write law school exams. In college you had to read a bunch of books. It’s not your fault. One of the skills of topflight lawyers is that they know what they don’t know: they know when the law is unclear. Sometimes a court won’t explain its reasoning very well. but you’ll get frustrated because you can’t find one. getting everyone to join in a discussion about them. try embracing the ambiguity instead. this skill of identifying when a problem is easy and when it is hard (in the sense of being unsettled or unresolved by the courts) is one of the keys to doing very well in law school. some opinions are just poorly reasoned or written. You’re now starting law school. Finally. which are the legally relevant facts for this particular rule? The best way to evaluate this is to consider new fact patterns. you should accept that some opinions are ambiguous and vague. real life disputes.

The judges have made the law what it is through their written opinions. In short. imagine you go to a public park and see a sign that says “No vehicles in the park. but what about bicycles. In a very practical sense. In our system of government. wheelchairs. the courts have no power to decide issues unless the issues are presented by actual cases and controversies before the court). To look at the law the way that judges do. you will find that specific facts can expose weaknesses in the rule that you hadn’t thought of before. just like the judges. Often you will think of a legal rule that sounds good at first. toy automobiles? What about airplanes? Ambulances? Are these “vehicles” for the purpose of the rule or not?) You need to understand real-life applications of a rule before you can understand what the rule really means. To understand that law. The Practical Reason A second reason we use the case method is that it can be hard to understand a particular legal rule. we need to study the actual decisions that the judges have written. Law professors like to pose hypotheticals (imaginary fact patterns) to get you to see that a INTRODUCTION  13  . Kerr: How to Read a Judicial Opinion  The Historical Reason The legal system that we have inherited from England is largely judge-focused. (For example. If you try applying your rule to different facts. we need to learn to look at law the way that judges look at law. It is also hard to assess the merits of a rule as a matter of policy without specific examples. the applications are part of and help define the rule. It can be hard to understand the rule because the English language is quite ambiguous: even a legal rule that sounds definite and clear in the abstract may prove murky in application. judges can only announce the law when deciding real disputes: they can’t just have a press conference and announce a set of legal rules (this is sometimes referred to as the “case and controversy” requirement. however. we need to study actual cases and controversies. we study real cases and disputes because real cases and disputes historically have been the primary source of law.Orin S. and its merits as a matter of policy. Further. without applying the rule in the real world.” That plainly forbids an automobile.

and then think of how different fact patterns that tests the rule. you’ll be able to think of a rule. By studying cases. you should be able to do this yourself. The goal is to get you to see the strengths and weaknesses of different rules in a more sophisticated way.Introduction  given rule may not be as good as you first think. We can then use that skill to devise better rules. Good luck! 14  CONTRACTS  . After a semester of law school. we can help train our brains to think of specific factual situations that reveal the strengths and weaknesses of a particular rule.

 2‐208  _________________________________________________  THE REASONABLE.  223 & Introductory Note to Ch. specific performance of an alleged offer of a Harrier Jet. 2. 1  UCC §§ 1‐103. Plaintiff brought this action seeking. 203. For the reasons stated below. 1‐201. defendant’s motion is granted. Supp.Y. 4. 222. Wood. 1999) Kimba M. 219. PepsiCo. Defendant has moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. Inc. I.1 Statement (“Def.’s Rule 56. OBJECTIVE PERSON  _________________________________________________  Leonard v.2d 116 (S. 2‐103.  2‐106. among other things. District Court for the Southern District of New York 88 F. The 15  . the producer and distributor of the soft drinks Pepsi and Diet Pepsi. 2d §§ 1.  U.1. (See PepsiCo Inc. BACKGROUND This case arises out of a promotional campaign conducted by defendant. 2‐102. 205. 2‐108.” encouraged consumers 1 The Court’s recitation of the facts of this case is drawn from the statements of uncontested facts submitted by the parties pursuant to Local Civil Rule 56. 2‐107. District Judge.N. entitled “Pepsi Stuff. 5. 1‐205.S. 2‐105. 204. Stat. 3.D.  CHAPTER ONE  GETTING STARTED  Rest. featured in a television advertisement for defendant’s “Pepsi Stuff” promotion. 221. 220. 2‐104.)1 The promotion.”) ¶ 2.

where the chirping of birds in sun-dappled trees welcomes a paperboy on his morning route. the recitation of facts herein should be considered definitive. the teenager strides down the hallway wearing a leather jacket. In an Order dated November 24. ¶ 7. 8. 16  CONTRACTS  . suburban morning.” The stirring strains of a martial air mark the appearance of a well-coiffed teenager preparing to leave for school. Objective Person  to collect “Pepsi Points” from specially marked packages of Pepsi or Diet Pepsi and redeem these points for merchandise featuring the Pepsi logo.) Before introducing the promotion nationally. (See id. (See id. the Court will describe the commercial in detail. plaintiff saw the Pepsi Stuff commercial (see id. (See id. including Washington State. in a related case (96 Civ.) While living in Seattle. The drumroll sounds again.”). (See id. Stat.) A Pepsi Stuff catalog was distributed to consumers in the test market. “MONDAY 7:58 AM. Washington. defendant conducted a test of the promotion in the Pacific Northwest from October 1995 to March 1996. the military drumroll again sounds as the subtitle “T-SHIRT 75 PEPSI POINTS” scrolls across the screen. 1997. dressed in a shirt emblazoned with the Pepsi logo. (See Plaintiff Leonard’s Response to PepsiCo’s Rule 56.) Plaintiff’s disagreement with certain of defendant’s statements is noted in the text. as the subtitle majority of citations are to defendant’s statement of facts because plaintiff does not contest many of defendant’s factual assertions. Because the parties have had additional discovery since that Order and have crafted Local Civil Rule 56. THE ALLEGED OFFER Because whether the television commercial constituted an offer is the central question in this case. ¶ 3. a red-white-and-blue ball. As the newspaper hits the stoop of a conventional two-story house.1 Statements and Counterstatements. ¶¶ 4. ¶ 22) that he contends constituted an offer of a Harrier Jet. ¶¶ 5-6. A.1 Statement (“Pl. the tattoo of a military drum introduces the subtitle. the Court set forth an initial account of the facts of this case. Bursting from his room.) Plaintiff is a resident of Seattle. 5320).The Reasonable. While the teenager confidently preens. The commercial opens upon an idyllic.

“[L]ooking very pleased with himself. While the faculty member is being deprived of his dignity. See details on specially marked packages. The boy in the middle is intent on his Pepsi Stuff Catalog.) the teenager exclaims.” The teenager opens the cockpit of the fighter and can be seen.000. PepsiCo.)2 The scene then shifts to three young boys sitting in front of a high school building. at 3.” CHAPTER ONE: GETTING STARTED  17  . Inspired by this commercial. and the notion of obtaining a Harrier Jet appealed to him enormously.. “Introducing the new Pepsi Stuff catalog. “Sure beats the bus. The teenager opens the door of his house and. the following message appears at the bottom of the screen: “Offer not available in all areas. Several students run for cover. as the military march builds to a crescendo. Inc. at 3.Leonard v.” (Pl. next to a bicycle rack. (See Defendant’s Local Rule 56. The three boys gaze in awe at an object rushing overhead.” as the camera focuses on the cover of the catalog. but the observer senses the presence of a mighty plane as the extreme winds generated by its flight create a paper maelstrom in a classroom devoted to an otherwise dull physics lesson. and the velocity of the wind strips one hapless faculty member down to his underwear. has an adventurous spirit.  “LEATHER JACKET 1450 PEPSI POINTS” appears. Mem. the Harrier Jet swings into view and lands by the side of the school building.” With that message. the following appears in more stylized script: “Drink Pepsi-Get Stuff. helmetless. the voiceover announces: “Now the more Pepsi you drink. puts on a pair of sunglasses. Plaintiff explains that he is “typical of the ‘Pepsi Generation’ … he is young. plaintiff set out to obtain a Harrier Jet.” A voiceover then intones. A (the “Catalog”). The military drumroll sounds a final time. while the boys on either side are each drinking Pepsi. as the following words appear: “HARRIER FIGHTER 7. The Harrier Jet is not yet visible. The drumroll then accompanies the subtitle “SHADES 175 PEPSI POINTS. the music and the commercial end with a triumphant flourish.” and chortles.000 PEPSI POINTS. Exh. holding a Pepsi. Mem. unfazed by the glare of the early morning sunshine.) Plaintiff 2 At this point.” A few seconds later.1 Stat. Finally.” (Pl. the more great stuff you’re gonna get.

Conspicuously absent from the Order Form is any entry or description of a Harrier Jet.) The Catalog includes an Order Form which lists. (See Catalog.The Reasonable. plaintiff ultimately raised about $700. The Catalog features youths dressed in Pepsi Stuff regalia or enjoying Pepsi Stuff accessories.”). Get in ’em. All-terrain. on one side. not your arm. The Catalog specifies the number of Pepsi Points required to obtain promotional merchandise. plaintiff “focused for the first time on the packaging materials in the Pepsi Stuff promotion.R. additional Pepsi Points may be purchased for ten cents each.. Stat.000. at rear foldout pages. 1999 (“Leonard Aff. it was unavailable.) 18  CONTRACTS  . Objective Person  consulted the Pepsi Stuff Catalog. (See Catalog. (See id.) Although plaintiff initially set out to collect 7.) These directions note that merchandise may be ordered “only” with the original Order Form. 29. It should be noted that plaintiff objects to the implication that because an item was not shown in the Catalog. it soon became clear to him that he “would not be able to buy (let alone drink) enough Pepsi to collect the necessary Pepsi Points fast enough. at rear foldout pages. “Pepsi Tees” (“Live in ’em.000.) and realized that buying Pepsi Points would be a more promising option. Leonard. (See id. (See id. however. Exclusively for Pepsi.000 Pepsi Points by consuming Pepsi products.”). (See id. One bag. ¶ 6.”)) to 3300 (for a “Fila Mountain Bike” (“Rugged. fifty-three items of Pepsi Stuff merchandise redeemable for Pepsi Points (see id. at least fifteen original Pepsi Points must accompany each order.) The amount of Pepsi Points required to obtain the listed merchandise ranges from 15 (for a “Jacket Tattoo” (“Sew ’em on your jacket. No rules.) Through acquaintances. (the “Order Form”)).” (Affidavit of John D. such as “Blue Shades” (“As if you need another reason to look forward to sunny days. “Bag of Balls” (“Three balls. ¶¶ 23-26. 30.”).) The rear foldout pages of the Catalog contain directions for redeeming Pepsi Points for merchandise. (See id.” (id.”)).) The Catalog notes that in the event that a consumer lacks enough Pepsi Points to obtain a desired item. (See Pl. Laugh in ’em.”). ¶ 5. Mar. and “Pepsi Phone Card” (“Call your mom!”).) Reevaluating his strategy.

Exh.) At the bottom of the Order Form. fifteen original Pepsi Points. (See id. If we do not receive transfer instructions within ten (10) business days of the date of this letter you will leave us no choice but to file an appropriate action against Pepsi … . explaining that: The item that you have requested is not part of the Pepsi Stuff collection.) Plaintiff’s previous counsel responded on or about May 14. B (first). 1996. We have reviewed the video tape of the Pepsi Stuff commercial … and it clearly offers the new Harrier jet for 7.000. 1996 is totally unacceptable. PLAINTIFF’S EFFORTS TO REDEEM THE ALLEGED OFFER On or about March 27. CHAPTER ONE: GETTING STARTED  19  .) Plaintiff appears to have been represented by counsel at the time he mailed his check. 18. the check is drawn on an account of plaintiff’s first set of attorneys. Stat. B (second). ¶ 36.50. The Harrier jet in the Pepsi commercial is fanciful and is simply included to create a humorous and entertaining ad.”). and only catalogue merchandise can be redeemed under this program. defendant’s fulfillment house rejected plaintiff’s submission and returned the check. 1996.008. A. PepsiCo. (See Def. plaintiff wrote in “1 Harrier Jet” in the “Item” column and “7. and a check for $700. We apologize for any misunderstanding or confusion that you may have experienced and are enclosing some free product coupons for your use. Exh. 1996.  B. (See Defendant’s Notice of Motion. It is not included in the catalogue or on the order form. plaintiff stated that the check was to purchase additional Pepsi Points “expressly for obtaining a new Harrier jet as advertised in your Pepsi Stuff commercial. … This is a formal demand that you honor your commitment and make immediate arrangements to transfer the new Harrier jet to our client.” (See Declaration of David Wynn.000” in the “Total Points” column.) On or about May 7.) In a letter accompanying his submission. (Wynn Aff.Leonard v. Mar. Inc. Exh. Our client followed your rules explicitly. as follows: Your letter of May 7. 1999 (“Wynn Dec.000 Pepsi Points. plaintiff submitted an Order Form.000.

for its discussion of the procedural history of this litigation. the Court will refer to the parties as “Leonard” and “PepsiCo. 1996. 6. (Wynn Aff. Fla. D. seeking a declaratory judgment stating that it had no obligation to furnish plaintiff with a Harrier Jet. § 1404(a). at 1 (S.) This letter was apparently sent onward to the advertising company responsible for the actual commercial. Not only was this assertion irrelevant. C. 1996.King. McGovern. but it later proved to be false. Leonard brought suit in Florida state court on August 6. Exh. In my opinion.) On or about June 17.D. 1996. (See Wynn Aff. Exh. and the second an action brought by Leonard in Florida state court (the “Florida action”). although this case had nothing to do with Florida. PepsiCo. See Leonard v. 1996) (“The only connection this case has to this forum is that Plaintiff’s lawyer is in the Southern District of Florida. In response to PepsiCo’s suit in New York.S.4 That suit was removed to the Southern District of Florida in September 1996.3 PepsiCo brought suit in this Court on July 18. BBDO Vice President Raymond E. 1996. In a letter dated May 30.. plaintiff mailed a similar demand letter to defendant. 20  CONTRACTS  . The use of the Jet was clearly a joke that was meant to make the Commercial more humorous and entertaining.The Reasonable. no reasonable person would agree with your analysis of the Commercial. in that plaintiff had not actually seen the commercial in Florida.-King. 3 4 Because Leonard and PepsiCo were each plaintiff in one action and defendant in the other. 1996. A. The Florida suit alleged that the commercial had been shown in Florida.” Leonard v. 96-2555 Civ. United States District Judge James Lawrence King found that.” rather than plaintiff and defendant. 96-2555 Civ. explained to plaintiff that: I find it hard to believe that you are of the opinion that the Pepsi Stuff commercial (“Commercial”) really offers a new Harrier Jet. Objective Person  (Wynn Aff. the first a declaratory judgment action brought by PepsiCo in this district (the “declaratory judgment action”). In an Order dated November 6. PepsiCo.”). “Obviously this case has been filed in a form that has no meaningful relationship to the controversy and warrants a transfer pursuant to 28 U. 5320.C.) Litigation of this case initially involved two lawsuits. That case was filed under docket number 96 Civ.. Nov. Exh. Jr. BBDO New York (“BBDO”)..

On February 22. the Court granted the motion to dismiss for lack of personal jurisdiction in case 96 Civ. and continue litigation before this Court.3d 136 (2d Cir. The Florida suit was transferred to this Court on December 2. Leonard also moved to voluntarily dismiss the Florida action. at 3.) Rather than pay the attorneys’ fees. (See Order at 3. 6.) Accordingly. Leonard moved to dismiss the declaratory judgment action for lack of personal jurisdiction. 9069. Those stipulations noted that Leonard had consented to the jurisdiction of this Court and that PepsiCo agreed not to seek enforcement of the attorneys’ fees award. the Court ordered Leonard either to pay the amount due or withdraw his voluntary dismissal.  at 1 (S. Defaria. Nov. In an Order dated October 1. In an Order dated January 5. the Court granted Leonard’s motion to voluntarily dismiss this case without prejudice.’” (Order at 2 (quoting Palmieri v. 1996. as well as his appeals therefrom. 1999. Wood. In an Order dated November 24. Kimba M. Dec. from which PepsiCo appealed. 5320. While the Court indicated that the motion was proper.1996)).D.162 in attorneys’ fees within thirty days. 1997. 1999. Inc. With these issues having been waived. but did so on condition that Leonard pay certain attorneys’ fees. Fla. 88 F. the Second Circuit endorsed the parties’ stipulations to the dismissal of any appeals taken thus far in this case. Once the Florida action had been transferred. Leonard elected to proceed with litigation. 1997. yet sought nonetheless to appeal from his voluntary dismissal and the imposition of fees. Leonard failed to do so. it noted that PepsiCo was entitled to some compensation for the costs of litigating this case in Florida. PepsiCo. the Court ordered Leonard to pay $88. (See Transcript of Proceedings Before Hon. CHAPTER ONE: GETTING STARTED  21  .Leonard v. the Court noted that Leonard’s strategy was “‘clearly an endrun around the final judgment rule. 1997. The present motion thus follows three years of jurisdictional and procedural wrangling. 1996). 1998.) In an Order dated December 15. and assigned the docket number 96 Civ. a forum that had no meaningful relationship to the case. and shortly thereafter retained present counsel. PepsiCo moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. 9.

N. no rational fact-finder could find in the non-movant’s favor. 927 F.S. 586 (1986). See Fed. Celotex Corp. 477 U. Liberty Lobby.2d 707.” which includes identifying the materials in the record that “it believes demonstrate the absence of a genuine issue of material fact. v. The party seeking summary judgment “bears the initial responsibility of informing the district court of the basis for its motion. Marine Midland Bank. 572 (2d Cir. 477 U. See Anderson v. and summary judgment is appropriate.1987) (citations and internal quotation marks omitted). See Anderson.” Celotex Corp. 477 U..The Reasonable. Catrett.S. based on the submissions to the court. see Consarc Corp. Although a court considering a motion for summary judgment must view all evidence in the light most favorable to the non-moving party. 251-52 (1986).1991).A. 242. 710 (2d Cir.. STANDARD FOR SUMMARY JUDGMENT On a motion for summary judgment. If. P. a court “cannot try issues of fact. Citizens Bank v. Objective Person  II. 475 U. 574. Indus. of Fire Comm’rs. 477 U. R. and must draw all reasonable inferences in that party’s favor..” Donahue v. the non-moving party must set forth specific facts that show that there is a genuine issue to be tried. at 323. and that he or she is entitled to judgment as a matter of law. the moving party therefore must show that there are no such genuine issues of material fact to be tried. Co. at 250. v. the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts. 322 (1986). DISCUSSION A. Once a motion for summary judgment is made and supported. 56(c).1993).S.2d 568. To prevail on a motion for summary judgment. Windsor Locks Bd. Hunt. v. 317.S.S. Civ. 58 (2d Cir.” Matsushita Elec. The question of whether or not a contract was formed is appropriate for resolution on summary judgment. Zenith Radio Corp. “Summary judgment is proper when the ‘words and actions that allegedly formed a contract [are] so clear them22  CONTRACTS  . it can only determine whether there are issues to be tried. THE LEGAL FRAMEWORK 1. Inc. 996 F.2d 54.. As the Second Circuit has recently noted. 834 F. there is no genuine issue of material fact.

. Ct. Summary judgment is appropriate in such cases because there is “sometimes no genuine issue as to whether the parties’ conduct implied a ‘contractual understanding. Under Florida law.’” Krumme v. 500-01 (Fla. Inc. v. v.” Jemco. just as he decides any factual issue in respect to which reasonable people cannot differ.2d 499.2d 117.  selves that reasonable people could not differ over their meaning. apply.2d 5. Inc.. the choice of law in a contract case is determined by the place “where the last act necessary to complete the contract is done.’ … . 8 (1st Cir.1985) (summary judgment is appropriate in contract case where interpretation urged by non-moving party is not “fairly reasonable”).. Stamford Ridgeway Assocs. Because this action was transferred from Florida. The parties disagree as to whether the contract could have been completed by plaintiff’s filling out the Order Form to request a Harrier Jet. or by defendant’s acceptance of the Order Form. John Deere Co. 768 F. see also Shapiro v. CHOICE OF LAW The parties disagree concerning whether the Court should apply the law of the state of New York or of some other state in evaluating whether defendant’s promotional campaign constituted an offer.3d at 708 (quoting Boston Five Cents Sav. If the commercial constituted an offer. 1990). 761 F.. 494 U. Inc. the transferor state. FDIC.2d 1116. Westpoint Stevens..1985)). see also Wards Co. the choice of law rules of Florida. 1981). PepsiCo. See Ferens v. Co. 400 So. Associated Int’l Ins. United Parcel Serv. 42 F. 2.. 120 (2d Cir. in the state of Washington. Bank v. then the last act necessary to complete the contract would be defendant’s acceptance of plaintiff’s Order Form.Leonard v. 523-33 (1990). In such cases. 708 (1st Cir. If the commercial constituted a solicitation to receive offers.’” Bourque. 83 (2d Cir. therefore. 516. Inc. The choice of law question cannot. 1119 (11th Cir. 899 F.1998) (quoting Bourque v.S. in the state of New York. 143 F.1994)) (further citations omitted)..3d 71. ‘the judge must decide the issue himself.3d 704. Dist. 42 F. be resolved until after the Court determines whether the commercial CHAPTER ONE: GETTING STARTED  23  . then the last act necessary to complete the contract would be plaintiff’s acceptance. Secretary of Dep’t of Housing & Urban Dev. App.

a leading treatise notes that: It is quite possible to make a definite and operative offer to buy or sell goods by advertisement. radio or television are not ordinarily intended or understood as offers to sell. Mem. sign. It is of course possible to make an offer by an advertisement directed to the general public (see § 29). Restatement (Second) of Contracts § 26 cmt. As plaintiff suggests. 1 Samuel Williston & Richard A. A Treatise on the Law of Contracts § 4:7. 1 Arthur Linton Corbin & Joseph M. a catalog or circular or on a placard in a store window. even though the terms of suggested bargains may be stated in some detail. Objective Person  was an offer or not. The same is true of catalogues. DEFENDANT’S ADVERTISEMENT WAS NOT AN OFFER 1. price lists and circulars. It is not customary to do this.4. The Restatement (Second) of Contracts explains that: Advertisements of goods by display.1990). Most of the cases cited by the parties are not from New York courts. handbill.) B. by a handbill. at 239 (2d ed.” (Pl. Allan Farnsworth. Perillo. Corbin on Contracts § 2. at 116-17 (rev. at 8. at 286-87 (4th ed. however. in a newspaper. the questions presented by this case implicate questions of contract law “deeply ingrained in the common law of England and the States of the Union. The Court agrees with both parties that resolution of this issue requires consideration of principles of contract law that are not limited to the law of any one state.The Reasonable.1998). Similarly. and the presumption is the other way. ADVERTISEMENTS AS OFFERS The general rule is that an advertisement does not constitute an offer.10. … Such advertisements are understood to be mere requests to consider and examine and negotiate. Lord. ed. newspaper. b (1979). Farnsworth on Contracts § 3. but there must ordinarily be some language of commitment or some invitation to take action without further communication.1993) (emphasis added). New York courts adhere 24  CONTRACTS  . see also 1 E. and no one can reasonably regard them as otherwise unless the circumstances are exceptional and the words used are very plain and clear.

Cir. See id.2d 1034.Leonard v. Mun. 1952) (because an “[a]dvertisement does not constitute an offer of sale but is solely an invitation to customers to make an offer to purchase. the plaintiffs sued the United States Mint for failure to deliver a number of Statue of Liberty commemorative coins that they had ordered..” Id.1983) (“The weight of authority is that purchase orders such as those at issue here are not enforceable contracts until they are accepted by the seller. at 1580.2d 534. 703 F. 943 (1997). aff’d. see also Foremost Pro Color.2d 1576 (Fed. 1041 (9th Cir.S. Frederick Loeser & Co. 657 (9th Cir. See Chroma Lighting v. Gimbel Bros. 543 (1990).5 Restatement (Second) of Contracts § 26 (“A manifestation of willingness to enter 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. Inc. CHAPTER ONE: GETTING STARTED  25  . 538-39 (9th Cir. 111 F. denied sub nom. among other means. 202 Misc. see also Geismar v. Dist.S. Texaco.  to this general principle. GTE Products Corp. See Lovett v. When demand for the coins proved unexpectedly robust. 124 Misc.. completion of an order form. In Mesaros v. a number of individuals who had sent in their orders in a timely fashion were left empty-handed.3d 653.”).”). cert. 1988).” defendant not guilty of selling property on Sunday)..1997). 522 U.1987). for example. Von der Ahe. United States. Inc. An advertisement is not transformed into an enforceable offer merely by a potential offeree’s expression of willingness to accept the offer through. The court began by noting the “well-established” rule that advertisements and order forms are “mere notices and solicitations for offers which create no power of acceptance in the recipient. Osram Sylvania Products. Inc. 109 Misc. Eastman Kodak Co.. v. The spurned coin collectors could not maintain a breach of contract action because no contract would be formed until the advertiser ac5 Foremost Pro was overruled on other grounds by Hasbrouck v. Inc.Y. Sp. Abraham & Strauss. PepsiCo. and is not an offer which may be turned into a contract by a person who signifies his intention to purchase some of the articles mentioned in the advertisement”). People v. at 1578-80.. 229 (N.Y. 1924) (noting that an “advertisement is nothing but an invitation to enter into negotiations. 845 F. 496 U. v. 842 F.Y.. 81 (N. 1981) (reiterating Lovett rule).2d 495 (N.

1996. and explicit. 1955) (finding that newspaper advertisement was sufficiently certain and definite to constitute an offer). and leaves nothing open for negotiation. Chang v. in which consumers were to redeem teddy bear proof-of-purchase symbols for catalog merchandise)..” Lefkowitz v. with the Order Form and the appropriate number of Pepsi Points. The present case is distinguishable from Lefkowitz. “it constitutes an offer.” 26  CONTRACTS  . Capital City Ford Co. Objective Person  cepted the order form and processed payment.6 The commercial itself made no mention of 6 It also communicated additional words of reservation: “Offer not available in all areas. There would be no enforceable contract until defendant accepted the Order Form and cashed the check. Morris Lefkowitz arrived at the store. acceptance of which will complete the contract.The Reasonable.. 251 Minn. App. the commercial cannot be regarded in itself as sufficiently definite. 242 Va. see also Alligood v. See details on specially marked packages. First. Mr. 85 So.” in that circumstance. 3 Brand New Fur Coats. defendant had published a newspaper announcement stating: “Saturday 9 AM Sharp. Great Minneapolis Surplus Store.” Id. 72 Ohio App. See id. Under these principles. constituted the offer. definite. First Colonial Savings Bank. The court ruled that because plaintiff had fulfilled all of the terms of the advertisement and the advertisement was specific and left nothing open for negotiation. Procter & Gamble. 388 (1991) (newspaper advertisement for bank settled the terms of the offer once bank accepted plaintiffs’ deposit. because it specifically reserved the details of the offer to a separate writing. See id. but was informed that under defendant’s “house rules. 79 (La. notwithstanding bank’s subsequent effort to amend the terms of the offer). at 1581. First Come First Served $1 Each. a contract had been formed. dollar in hand. Ct.” the offer was open to ladies.2d 75.00. In Lefkowitz. See id. 188 (1957). the Catalog. see also Johnson v. plaintiff’s letter of March 27. The exception to the rule that advertisements do not create any power of acceptance in potential offerees is where the advertisement is “clear. but not gentlemen. at 690.3d 309 (1991) (finding that no offer was made in promotional campaign for baby diapers. Worth to $100.

  the steps a potential offeree would be required to take to accept the alleged offer of a Harrier Jet.. at 242.000 round-trip tickets to a local beach. even if the Catalog had included a Harrier Jet among the items that could be obtained by redemption of Pepsi Points. 139 (S. Braunstein. at 848. 137. at 239 (“The fact that a proposal is very detailed suggests that it is an offer. the absence of any words of limitation such as “first come. See generally United States v. Inc.” Corbin. 1947) (“Greater precision of expression may be required. 845 F. owing to the limitation “first come. supra.Y. the advertisement of a Harrier Jet by both television commercial and catalog would still not constitute an offer. in sum. at 119.7 Second. 75 F.1916). plaintiff largely relies on a different species of unilateral offer.Y.” The Court finds.N. Lautz Bros.” renders the alleged offer sufficiently indefinite that no contract could be formed. that the Harrier Jet commercial was merely an advertisement.”). As the Mesaros court explained. a soap company. when the parties are merely at the threshold of a contract. and less help from the court given.” Farnsworth. See Mesaros. PepsiCo. involving public offers of a reward 7 The reservation of the details of the offer in this case distinguishes it from Payne v. “identified the person who could accept. first served. 2.Leonard v. noting that the advertisements were “absolutely unrestricted. supra. 844 (N. in contrast. REWARDS AS OFFERS In opposing the present motion. § 2.2d at 1581. supra. and tried to redeem them for 4. The advertisement in Lefkowitz. Supp. There was no such danger in Lefkowitz. first served. In Payne. It contained no reference whatever to any of its previous advertising of any form. City Ct. Farnsworth. The court ruled for plaintiff.” Id.S. & Co. In the present case.Y. 166 N.”). The Court now turns to the line of cases upon which plaintiff rests much of his argument.4. CHAPTER ONE: GETTING STARTED  27  .D. while omission of many terms suggests that it is not. by contrast. the commercial explicitly reserved the details of the offer to the Catalog. a stamp and coupon broker purchased massive quantities of coupons produced by defendant. “A customer would not usually have reason to believe that the shopkeeper intended exposure to the risk of a multitude of acceptances resulting in a number of contracts exceeding the shopkeeper’s inventory.

The Reasonable. 1 Q. Al Packer Ford. 256 (Court of Appeal. shewing our sincerity in the matter. but also to its role in developing the law of unilateral offers. colds. Quackery and Contract Law: Carlill v.). “On the faith of this adver28  CONTRACTS  .. see Simpson. the extravagance of the promises is no reason in law why he should not be bound by them. Carlill saw. read as follows: 100£ reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza. appeared solicitations for the Carbolic Smoke Ball. and Epp’s Glycerine Jube-Jubes.B. and in no ascertained case was the disease contracted by those using the carbolic smoke ball. During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease. 1 Q. Towle’s Pennyroyal and Steel Pills for Females.B.” Carbolic Smoke Ball. Carbolic Smoke Ball owes its fame not merely to “the comic and slightly mysterious object involved. Carbolic Smoke Ball. at 256-57. and.W. The case arose during the London influenza epidemic of the 1890s. Among other advertisements of the time. 1000 £ is deposited with the Alliance Bank. for Clarke’s World Famous Blood Mixture.” A. The most venerable of these precedents is the case of Carlill v. 281 (1995). 36 Md. supra. App. Sequah’s Prairie Flower. Carbolic Smoke Ball Company (1893). The specific advertisement that Mrs. at 268 (Bowen. Because these cases generally involve public declarations regarding the efficacy or trustworthiness of specific products. after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 349 (1977). one court has aptly characterized these authorities as “prove me wrong” cases. or any diseases caused by taking cold. Regent Street. if he has made them.B. See Rosenthal v. Brian Simpson. Carbolic Smoke Ball Co. and relied upon. 1 Q. Long a staple of law school curricula. L. Objective Person  for performance of a specified act. a quote from which heads plaintiff’s memorandum of law: “[I]f a person chooses to make extravagant promises … he probably does so because it pays him to make them. 1892). at 267. in Leading Cases in the Common Law 259.J.

Carlill had complied with the terms of the offer.J. In Barnes v. but contracted influenza nevertheless. See id. she was entitled to £100. Carbolic Smoke Ball includes a classic formulation of this principle: “If I advertise to the world that my dog is lost. 437 (1976).). at 268 (Bowen. the historical record reveals it to have been a compressible hollow ball. Defendant. The advertisement was construed as offering a reward because it sought to induce performance. As Lord Justice Lindley explained.” Id. When the ball was squeezed. after reiterating that the of8 9 Although the Court of Appeals’s opinion is silent as to exactly what a carbolic smoke ball was. supra. Mrs. are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write a note saying that they have accepted my proposal?” Carbolic Smoke Ball. the decisions relied upon by plaintiff involve offers of reward. at 257. unlike an invitation to negotiate. for example. heard of the offer and located two crooked punchboards. yet contracted influenza. the powder would be forced through the opening as a small cloud of smoke. Affirming the lower court’s decision. If they find it. at 261. App. Like Carbolic Smoke Ball. at 1154. carbolic acid was considered fatal if consumed in more than small amounts. asserted that.’” Id. Plaintiff. a former bartender. at 264. which seeks a reciprocal promise.9 Because Mrs. L.” id. and that anybody who brings the dog to a particular place will be paid some money. 1 Q. the vice-president of a punchboard distributor. See Simpson. L. about the size of an apple or orange. at 262. PepsiCo.Leonard v. Inc. CHAPTER ONE: GETTING STARTED  29  . 15 Wash.B.). see also id. with a small opening covered by some porous material such as silk or gauze.J. “advertisements offering rewards … are offers to anybody who performs the conditions named in the advertisement.8 The lower court held that she was entitled to recover the promised reward. Treece.  tisement. at 270 (Bowen. The ball was partially filled with carbolic acid in powder form. See id. “‘I’ll put a hundred thousand dollars to anyone to find a crooked board. At the time. I’ll pay it. Carlill purchased the smoke ball and used it as directed. at 26263. and anybody who does perform the condition accepts the offer. in the course of hearings before the Washington State Gambling Commission. Lord Justice Lindley began by noting that the advertisement was an express promise to pay £100 in the event that a consumer of the Carbolic Smoke Ball was stricken with influenza.

See id. who successfully shot a hole-in-one).. The widow of the outlaw’s son demonstrated. Schiff.2d 757 (Mo. as portrayed in song and legend.000 to plaintiff. The court ruled that the offer was valid and that plaintiff was entitled to his reward. On appeal. 25 (1961) (awarding $5. at 466-67. Charbonneau Buick-Pontiac. Frank Dalton” at the “Jesse James Museum” operated by none other than defendant. 1985). “If anybody calls this show … and cites any section of the code that says an individual is required to file a tax return. at 465.D.3d 1118. and promises of reward. 77 Nev. at 762. who successfully shot a hole-in-one). See id.W. at 758-59. in which the alleged offer is merely an invitation to negotiate for purchase of commercial goods. nevertheless repudiated the offer. Other “reward” cases underscore the distinction between typical advertisements. at trial. the Fifth Circuit held that a tax protestor’s assertion that. See id. 91 F.” See id.” would have been an enforceable offer had the plaintiff called the television show to claim the reward while the tax protestor was appearing. 1996) (plaintiff entitled to cost of two Mercedes as reward for coining slogan for insurance company). The court noted that. Inc. that the outlaw had in fact been killed in 1882. 30  CONTRACTS  . but had lived under the alias “J. In Newman v. like Carbolic Smoke Ball.The Reasonable. the court held that defendant should be liable to pay the amount offered. The plaintiff in this case also cites cases involving prizes for skill (or luck) in the game of golf.2d 460 (8th Cir. providing plaintiff with a receipt for the punchboard on company stationery. Turilli.” Id. I’ll pay them $100. See Las Vegas Hacienda v.000. James v. App. 1122-23 (8th Cir. often for noncommercial reasons. the case “concerns a special type of offer: an offer for a reward. 778 F. Gibson. and assuring plaintiff that the reward was being held in escrow. See id. Nationwide Mutual Ins. 473 S.W. Objective Person  fer was serious. 1971).2d 853 (N. see also Mears v. at 1154. for example. in which the alleged offer is intended to induce a potential offeree to perform a specific action. 240 N. at 1155.. Ct. arose from a boast by defendant that the “notorious Missouri desperado” Jesse James had not been killed in 1882. Co. Defendant offered $10.000 “to anyone who could prove me wrong. 1976) (awarding automobile to plaintiff. see also Grove v.

The commercial sought a reciprocal promise. which are merely offers to negotiate.) Plaintiff simply ignores the remainder of the release. and compliance with. the terms of the Order Form. … It is not like cases in which you offer to negotiate. expressed through acceptance of. such as Carbolic Smoke Ball). Such advertisements are offers to negotiate-offers to receive offers-offers to chaffer. Because the alleged offer in this case was. before it is retracted.” (See Leonard Aff. at 756 (distinguishing advertisements. or you issue advertisements that you have got a stock of books to sell. as. or houses to let. 10 In his affidavit.000 Pepsi Points on the Fourth of July would receive a Harrier Jet. see also Lovett. the Catalog contains no mention of the Harrier Jet. from offers of reward made in advertisements. the commercial urged consumers to accumulate Pepsi Points and to refer to the Catalog to determine how they could redeem their Pepsi Points.  In the present case. as invitation to offer.Y. in which case there is no offer to be bound by any contract. some learned judge in one of the cases has said.Leonard v.B.000.10 Carbolic Smoke Ball itself draws a distinction between the offer of reward in that case. at 4. Plaintiff states that he “noted that the Harrier Jet was not among the items described in the catalog.S. the Harrier Jet commercial did not direct that anyone who appeared at Pepsi headquarters with 7. 1 Q. but this did not affect [his] understanding of the offer. and typical advertisements. plaintiff places great emphasis on a press release written by defendant. As Lord Justice Bowen explains: It is an offer to become liable to any one who. at most. Inc. I think. PepsiCo. Carbolic Smoke Ball. ¶ 13. Instead.) It should have.” (Pl. Mem. CHAPTER ONE: GETTING STARTED  31  . which characterizes the Harrier Jet as “the ultimate Pepsi Stuff award. which makes no mention of the Harrier Jet even as it sets forth in detail the number of points needed to redeem other merchandise. As noted previously. plaintiff cannot show that there was an offer made in the circumstances of this case. an advertisement to receive offers rather than an offer of reward. 207 N. performs the condition. at 268.

An obvious joke. OBJECTIVE REASONABLE PERSON STANDARD In evaluating the commercial.Y. we are talking about the objective principles of contract law. e. 1994) (“[W]e are not concerned with what was going through the heads of the parties at the time [of the alleged contract]. See Kay-R Elec. Stone & Webster Constr. § 4:7 at 296-97. Objective Person  C. the Court must not consider defendant’s subjective intent in making the commercial. Graves v. 900 (1940) (dismissing claim to 32  CONTRACTS  . Co. Williston. supra.”). v.2d at 1581 (“A basic rule of contracts holds that whether an offer has been made depends on the objective reasonableness of the alleged offeree’s belief that the advertisement or solicitation was intended as an offer. 260 A. then no offer has been made: What kind of act creates a power of acceptance and is therefore an offer? It must be an expression of will or intention. Northern N. of course.g. at 237. See. would not give rise to a contract. § 3. REASONABLE PERSON WOULD NOT HAVE CONSIDERED THE COMMERCIAL AN OFFER Plaintiff’s understanding of the commercial as an offer must also be rejected because the Court finds that no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier Jet. Corbin on Contracts. 845 F. but what an objective.. It is on this ground that we must exclude invitations to deal or acts of mere preliminary negotiation.10. AN OBJECTIVE.3d 55.D. If it is clear that an offer was not serious. Pub. This applies to the content of the power as well as to the fact of its existence. 1.”). 23 F. supra. Mesaros. Corp.11 at 30 (emphasis added). Rather.The Reasonable. or plaintiff’s subjective view of what the commercial offered. It must be an act that leads the offeree reasonably to conclude that a power to create a contract is conferred. and acts evidently done in jest or without intent to create legal relations. § 1. Farnsworth. reasonable person would have understood the commercial to convey.. Co.. 57 (2d Cir.

to any person who could provide a commonly available phone number). 139 F. since he was ‘a bachelor for the evening.  offer of $1000. 1998).3d at 344. 139 F.2d at 1155 (“[I]f the jest is not apparent and a reasonable hearer would believe that an offer was being made. subCHAPTER ONE: GETTING STARTED  33  . at 342. willing to do the unconventional. See Barnes.” and “invited her to help him feed the ducks in the pond. inter alia. told her that “she brought out feelings that he had not had since he was sixteen. NECESSITY OF A JURY DETERMINATION Plaintiff also contends that summary judgment is improper because the question of whether the commercial conveyed a sincere offer can be answered only by a jury. as plaintiff puts it. ¶ 2. members of the “Pepsi Generation. Zehmer. The court concluded that a jury determination was particularly appropriate because a federal judge lacked “the current real-life experience required in interpreting subtle sexual dynamics of the workplace based on nuances. open to adventure.” and that an objective. 549 P.Leonard v.” Plaintiff’s argument that his claim must be put to a jury is without merit.’” Gallagher. 2. Relying on dictum from Gallagher v. Inc. On the other hand. plaintiff argues that a federal judge comes from a “narrow segment of the enormously broad American socio-economic spectrum. thus.” who are. then there may be a valid offer. see also Lucy v. PepsiCo. Delaney.) Plaintiff essentially argues that a federal judge would view his claim differently than fellow members of the “Pepsi Generation.3d 338 (2d Cir. 196 Va. “young.”). if there is no indication that the offer is “evidently in jest. which appeared in the “joke column” of the newspaper. that the question whether the commercial constituted a serious offer must be decided by a jury composed of. then the speaker risks the formation of a contract which was not intended.” (See Leonard Aff. 493 (1954) (ordering specific performance of a contract to purchase a farm despite defendant’s protestation that the transaction was done in jest as “‘just a bunch of two doggoned drunks bluffing’”). gave her inappropriate Valentine’s Day gifts. reasonable person would find that the offer was serious. Gallagher involved a claim of sexual harassment in which the defendant allegedly invited plaintiff to sit on his lap. and.” id.

presents a question of whether there was an offer to enter into a contract.” Id. Hubbard v. objective person would have understood defendant’s commercial.” (Def. desirable.2d at 120. as well as the use of subtitles in a Courier font that scroll terse messages across the screen.. General Motors Corp. the commercial suggests. 207 N. The commercial in this case thus makes the exaggerated claims similar to those of many television advertisements: that by consuming the featured clothing. but the thing dies in the process.Y. and refrain from interpreting 11 Quoted in Gerald R. Lovett.” was mere puffery. 143 F. Such an inquiry is commonly performed by courts on a motion for summary judgment. 761 F. 3. …”11 The commercial is the embodiment of what defendant appropriately characterizes as “zany humor. one will become attractive.) First. or potato chips. see.S. at 756.. requiring the Court to determine how a reasonable. 34  CONTRACTS  .D. “Humor can be dissected. and admired by all.The Reasonable. 95 Civ. car. and implicit communications. 4362(AGS). as commercials often do.g. Explaining why a joke is funny is a daunting task. in contrast. stylish. at 342. at 18. that use of the advertised product will transform what. such as “MONDAY 7:58 AM. 1996 WL 274018. 42 F. Mem. Objective Person  tle perceptions..N. not a warranty of quality). Wards Co. for most youth. beer. Ford.Y. can be a fairly routine and ordinary experience. White has remarked.3d at 708. See Krumme.3d at 83. as a frog can. e. 1996) (advertisement describing automobile as “Like a Rock. not as statements of fact. Humor and the Presidency 23 (1987). WHETHER THE COMMERCIAL WAS “EVIDENTLY DONE IN JEST” Plaintiff’s insistence that the commercial appears to be a serious offer requires the Court to explain why the commercial is funny. This case. A reasonable viewer would understand such advertisements as mere puffery. The implication of the commercial is that Pepsi Stuff merchandise will inject drama and moment into hitherto unexceptional lives.B. The military tattoo and stirring martial music. Bourque.” evoke military and espionage thrillers. at *6 (S. May 22. as the essayist E.

the Harrier Jet played a significant role in the air offensive of Operation Desert Storm in 1991. The youth’s concern for his coiffure appears to extend to his flying without a helmet. the teenager spends his precious preflight minutes preening. 1995) <http://www. Second. of course. See id. CHAPTER ONE: GETTING STARTED  35  . much less the prize aircraft of the United States Marine Corps. Finally. or condone the disruption the jet’s use would cause. as opposed to taking public transportation. including the Duchess of Sutherland. the fantasy is underscored by how the teenager’s schoolmates gape in admiration. Sir Henry Acland. The jet is 12 In this respect. Inc. the physician to the Prince of Wales. the notion of traveling to school in a Harrier Jet is an exaggerated adolescent fantasy. the Marchionesses of Bath and Conyngham.  the promises of the commercial as being literally true. sergeant surgeon to Queen Victoria. ignoring their physics lesson.hqmc. the callow youth featured in the commercial is a highly improbable pilot. the Jet lands next to a plebeian bike rack. the Earls of Wharncliffe. Fourth. and Sir James Paget.12 Third. This fantasy is. Pembroke.mil/factfile. The force of the wind generated by the Harrier Jet blows off one teacher’s clothes. PepsiCo. is to “attack and destroy surface targets under day and night visual conditions.Leonard v. the teenager’s comment that flying a Harrier Jet to school “sure beats the bus” evinces an improbably insouciant attitude toward the relative difficulty and danger of piloting a fighter plane in a residential area. according to the United States Marine Corps.nsf>. 5. Factfile: AV-8B Harrier II (last modified Dec. Rather than checking the fuel gauges on his aircraft. and Leitrim. supra. at 265. In this commercial. Cadogan. Manufactured by McDonnell Douglas. See Simpson. As if to emphasize the fantastic quality of having a Harrier Jet arrive at school. the Countesses Dudley. No school would provide landing space for a student’s fighter jet. literally defrocking an authority figure. the teenager of the advertisement contrasts with the distinguished figures who testified to the effectiveness of the Carbolic Smoke Ball. extremely unrealistic. one who could barely be trusted with the keys to his parents’ car. and Aberdeen. the primary mission of a Harrier Jet. Westmoreland.usmc.” United States Marine Corps.

” (See Leonard Aff. at 6. Exh. at 257.000 is a deal too good to be true.200 pounds of bombs and missiles. conduct. 1997.2d at 1154. the advertisers of the Carbolic Smoke Ball emphasized their earnestness.000. (See Affidavit of Michael E. not. armed reconnaissance and air interdiction. as plaintiff contends. Marines Rely on Harrier Jet. at a “gambling convention. News & Observer (Raleigh). stating in the advertisement that “£ 1. To amass that number of points. in Barnes. was made in the serious forum of hearings before a state commission.000 is deposited with the Alliance Bank. the number of Pepsi Points the commercial mentions as required to “purchase” the jet is 7. Objective Person  designed to carry a considerable armament load. as defendant states. and the circumstances show an intent to lead any hearer to believe the statements were made seriously. 1 Q. or one would have to purchase approximately $700. Despite Critics. the Harrier can float like a butterfly and sting like a bee-albeit a roaring 14-ton butterfly and a bee with 9.) Even if an objective.” Compare Barnes. reasonable person were not aware of this fact. the defendant’s “subsequent statements.The Reasonable. 36  CONTRACTS  . Reply Mem.000. As one news report has noted. 5320. shewing our sincerity in the matter.” Carbolic Smoke Ball. 96 Civ.B.” Jerry Allegood. Aug. moreover. with Def.000. ¶ 20. 6 (Leonard Business Plan). the jet is capable of being acquired “in a form that eliminates [its] potential for military use.) Fifth. he would conclude that purchasing a fighter plane for $700. 14. at C1. 549 P. 549 P.13 Plaintiff argues that a reasonable. 1990. 4. objective person would have understood the commercial to make a serious offer of a Harrier Jet 13 In contrast. depiction of such a jet as a way to get to school in the morning is clearly not serious even if. including Sidewinder and Maverick missiles. Similarly. The offer in Barnes. “Fully loaded. a fact of which plaintiff was aware when he set out to gather the amount he believed necessary to accept the alleged offer. and offensive and defensive anti-aircraft warfare.000 worth of Pepsi Points. one would have to drink 7. In light of the Harrier Jet’s well-documented function in attacking and destroying surface and air targets.” Barnes. McCabe. The cost of a Harrier Jet is roughly $23 million dollars.000 Pepsis (or roughly 190 Pepsis a day for the next hundred years-an unlikely possibility).2d at 1155. See id. Nov.

” (Leonard Aff.” Murphy v.000.000 amount and add “(Just Kidding). at 5. In light of the obvious absurdity of the commercial. 483 (1929). and then again to amend the commercial to state the 700. the first time to increase the number of Pepsi Points required to purchase a Harrier Jet to 700. C (700 Million). Stat.. 250 N. D (700 Million-Just Kidding). Wood.  because there was “absolutely no distinction in the manner” (Pl. 1999. Inc. PepsiCo. Mem. (See Pl. based on test-marketing the commercial or on their own opinions.) These arguments suggest merely that the humor of the promotional campaign was tongue in cheek. plaintiff argues that additional discovery is necessary on the issues of whether and how defendant reacted to plaintiff’s “acceptance” of their “offer”. Plaintiff also relies upon a press release highlighting the promotional campaign. at 1-2. or anything of the sort.) The record does not suggest that the change in the amount of points is probative of the seriousness of the offer. in which “[n]o mention is made by [defendant] of humor.) Plaintiff argues that additional discovery is necessary as to how defendant reacted to his “acceptance. and how other individuals actually responded to the commercial when it was aired.” (Id. Exh. issued by defendant. Kimba M. 479. Mem.) Plaintiff concludes that.) in which the items in the commercial were presented.” suggesting that it is significant that defendant twice changed the commercial.” (See Pl. PLAINTIFF’S DEMANDS FOR ADDITIONAL DISCOVERY In his Memorandum of Law. this change would have been totally unnecessary and superfluous. Nachman to the Hon. Apr. if PepsiCo truly believed that no one could take seriously the offer contained in the original ad that I saw. 4. ¶ 14. and in letters to the Court. at 13. 5.Y. and Exh. Steeplechase Amusement Co. Humor is not limited to what Justice Cardozo called “[t]he rough and boisterous joke … [that] evokes its own guffaws. how defendant and its employees understood the commercial would be viewed. Letter of David E.000. The increase in the number of points needed to acquire a Harrier Jet may have been prompted less by the fear that reasonable CHAPTER ONE: GETTING STARTED  37  .Leonard v.000. the Court rejects plaintiff’s argument that the commercial was not clearly in jest. “Obviously.

See Kay-R Elec.3d at 57 (“[W]e are not concerned with what was going through the heads of the parties at the time [of the alleged contract].D. That discovery would not change the basic principle that an advertisement is not an offer. Plaintiff’s demands for discovery relating to how defendant itself understood the offer are also unavailing. Mesaros.14 14 Even if plaintiff were allowed discovery on all of these issues.. Objective Person  people would demand Harrier Jets and more by the concern that unreasonable people would threaten frivolous litigation. supra. plaintiff repeatedly argues that defendant’s subjective intent is irrelevant. 8. as set forth in Section II. Indeed. the Court concludes that summary judgment is appropriate on the ground that no reasonable.B of this Order and Opinion. Mem. Further discovery is unnecessary on the question of when and how the commercials changed because the question before the Court is whether the commercial that plaintiff saw and relied upon was an offer. objective person would have understood the commercial to be an offer. (See Pl. The alleged offer must be evaluated on its own terms. not that any other commercial constituted an offer. Corp. such discovery would be relevant only to the second basis for the Court’s opinion. reasonable person would have understood the commercial to be an offer. nor would it affect the conclusion that the alleged offer failed to comply with the Statute of Frauds.”).11 at 30. 23 F.) Finally. Such discovery would serve only to cast light on defendant’s subjective intent in making the alleged offer. 38  CONTRACTS  .The Reasonable. The possibility that there were other people who interpreted the commercial as an “offer” of a Harrier Jet does not render that belief any more or less reasonable. § 1. as set forth in Section II. plaintiff’s assertion that he should be afforded an opportunity to determine whether other individuals also tried to accumulate enough Pepsi Points to “purchase” a Harrier Jet is unavailing. at 5.2d at 1581. 13. 845 F. Having made the evaluation. infra. which is irrelevant to the question of whether an objective. that no reasonable person would have understood the commercial to be an offer. Corbin on Contracts.

Ricoh Elecs.U. THE ALLEGED CONTRACT DOES NOT SATISFY THE STATUTE OF FRAUDS The absence of any writing setting forth the alleged contract in this case provides an entirely separate reason for granting summary judgment. 1989) (“The adequacy of a writing for Statute of Frauds purposes ‘must be determined from the documents themselves.. v.2. and perhaps other agreements signed by defendant which plaintiff has not yet seen. a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. 118 (1989)). See Hilord Chem.. see also. 92 Civ. at *4 (S. Yet the Second Circuit emphasized in Horn & Hardart Co. plaintiff relies on Crabtree v.Y. Corp. 875 F. See supra Section II.A. Inc. 73 N. Inc. Mast Indus. Thus the Court must apply New York law on the statute of frauds issue. v. 1994 WL 652510. “provided that they clearly refer to the same subject matter or transaction. plaintiff’s completed Order Form. as a matter of law. Mem.g.C.. at 55. at 11. 305 N.2d 8 (2d Cir. 6211(LMM). at 18-19.2d 113.2d 32.” Id. e.” Id.. plaintiff’s claim must fail as a matter of law.. the signed writing relied upon must by itself establish “‘a con15 Having determined that defendant’s advertisement was not an offer.. § 2-201(1). the last act necessary to complete the contract would be defendant’s acceptance in New York of plaintiff’s Order Form. 1994).C. Under the New York15 Statute of Frauds.Y.N. Nov. Inc.) For the latter claim.Y. 17. Crabtree held that a combination of signed and unsigned writings would satisfy the Statute of Frauds. Without such a writing. (See Pl. 48 (1953). should suffice for Statute of Frauds purposes.  D. Plaintiff argues that the commercial. Pillsbury Co.Y. CHAPTER ONE: GETTING STARTED  39  . 1989).Leonard v. Elizabeth Arden Sales Corp. PepsiCo. 888 F. First. v. either singly or taken together.’”) (quoting Bazak Int’l.D.. There is simply no writing between the parties that evidences any transaction. 36-37 (2d Cir. that this rule “contains two strict threshold requirements. N. Corp. v. Philips Medizin Systeme. AFP Imaging Corp.

The Reasonable, Objective Person  tractual relationship between the parties.’” Id. (quoting Crabtree, 305 N.Y. at 56); see also O’Keeffe v. Bry, 456 F. Supp. 822, 829 (S.D.N.Y. 1978) (“To the extent that Crabtree permits the use of a ‘confluence of memoranda,’ the minimum condition for such use is the existence of one [signed] document establishing the basic, underlying contractual commitment.”). The second threshold requirement is that the unsigned writing must “‘on its face refer to the same transaction as that set forth in the one that was signed.’” Horn & Hardart, 888 F.2d at 11 (quoting Crabtree, 305 N.Y. at 56); see also Bruce Realty Co. of Florida v. Berger, 327 F. Supp. 507, 510 (S.D.N.Y. 1971). None of the material relied upon by plaintiff meets either threshold requirement. The commercial is not a writing; plaintiff’s completed order form does not bear the signature of defendant, or an agent thereof; and to the extent that plaintiff seeks discovery of any contracts between defendant and its advertisers, such discovery would be unavailing: plaintiff is not a party to, or a beneficiary of, any such contracts. Because the alleged contract does not meet the requirements of the Statute of Frauds, plaintiff has no claim for breach of contract or specific performance. E. PLAINTIFF’S FRAUD CLAIM In addition to moving for summary judgment on plaintiff’s claim for breach of contract, defendant has also moved for summary judgment on plaintiff’s fraud claim. The elements of a cause of action for fraud are “‘representation of a material existing fact, falsity, scienter, deception and injury.’” New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308 (1995) (quoting Channel Master Corp. v. Aluminum Ltd. Sales, Inc., 4 N.Y.2d 403, 407 (1958)). To properly state a claim for fraud, “plaintiff must allege a misrepresentation or material omission by defendant, on which it relied, that induced plaintiff” to perform an act. See NYU, 639 N.Y.S.2d at 289. “General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the claim.” See id. (citing Rocanova v. Equitable Life Assur. Soc’y, 83 N.Y.2d 603 (1994)); see also Grappo v. Alitalia Linee Aeree
40  CONTRACTS 

Leonard v. PepsiCo, Inc.  Italiane, S.p.A., 56 F.3d 427, 434 (2d Cir. 1995) (“A cause of action does not generally lie where the plaintiff alleges only that the defendant entered into a contract with no intention of performing it”). Instead, the plaintiff must show the misrepresentation was collateral, or served as an inducement, to a separate agreement between the parties. See Bridgestone/Firestone v. Recovery Credit, 98 F.3d 13, 20 (2d Cir. 1996) (allowing a fraud claim where plaintiff “‘demonstrate[s] a fraudulent misrepresentation collateral or extraneous to the contract’”) (quoting Deerfield Communications Corp. v. ChesebroughPonds, Inc., 68 N.Y.2d 954 (1986)). For example, in Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir. 1992), the Second Circuit ruled that plaintiff had properly stated a claim for fraud. In the course of plaintiff’s negotiations for employment with defendant, a law firm, defendant represented to plaintiff not only that plaintiff would be hired (which she was), but also that the firm had secured a large environmental law client, that it was in the process of establishing an environmental law department, and that plaintiff would head the environmental law department. See id. at 89-90. The Second Circuit concluded that these misrepresentations gave rise to a fraud claim, because they consisted of misrepresentations of present fact, rather than future promises. Plaintiff in this case does not allege that he was induced to enter into a contract by some collateral misrepresentation, but rather that defendant never had any intention of making good on its “offer” of a Harrier Jet. (See Pl. Mem. at 23.) Because this claim “alleges only that the defendant entered into a contract with no intention of performing it,” Grappo, 56 F.3d at 434, judgment on this claim should enter for defendant. III. CONCLUSION In sum, there are three reasons why plaintiff’s demand cannot prevail as a matter of law. First, the commercial was merely an advertisement, not a unilateral offer. Second, the tongue-in-cheek attitude of the commercial would not cause a reasonable person to conclude that a soft drink company would be giving away fighter planes as part of a promotion. Third, there is no writing between the parties sufficient to satisfy the Statute of Frauds.
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The Reasonable, Objective Person  For the reasons stated above, the Court grants defendant’s motion for summary judgment. The Clerk of Court is instructed to close these cases. Any pending motions are moot.

Leonard v. PepsiCo, Inc. 
U.S. Court of Appeals for the Second Circuit 210 F.3d 88 (2d. Cir. 2000) Per Curiam. In 1995, defendant-appellee PepsiCo, Inc. conducted a promotion in which it offered merchandise in exchange for “points” earned by purchasing Pepsi Cola. A television commercial aired by PepsiCo depicted a teenager gloating over various items of merchandise earned by Pepsi points, and culminated in the teenager arriving at high school in a Harrier Jet, a fighter aircraft of the United States Marine Corps. For each item of merchandise sported by the teenager (a T shirt, a jacket, sunglasses), the ad noted the number of Pepsi points needed to get it. When the teenager is shown in the jet, the ad prices it as 7 million points. Plaintiff-appellant John D.R. Leonard alleges that the ad was an offer, that he accepted the offer by tendering the equivalent of 7 million points, and that PepsiCo has breached its contract to deliver the Harrier jet. PepsiCo characterizes the use of the Harrier jet in the ad as a hyperbolic joke (“zany humor”), cites the ad's reference to offering details contained in the promotional catalog (which contains no Harrier fighter plane), and argues that no objective person would construe the ad as an offer for the Harrier jet. The United States District Court for the Southern District of New York (Wood, J.) agreed with PepsiCo and granted its motion for summary judgment on the grounds (1) that the commercial did not amount to an offer of goods; (2) that no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier Jet; and (3) that the alleged contract could not satisfy the New York statute of frauds. We affirm for substantially the reasons stated in Judge Wood's opinion. See 88 F. Supp.2d 116 (S.D.N.Y. 1999).
42  CONTRACTS 

Eymard v. Terrebonne 

Eymard v. Terrebonne 
Court of Appeal of Louisiana, First Circuit 560 So.2d 887 (1990) Shortess, Judge. Terri Ann Eymard, natural tutrix of the minor child, Kelsey Matthews Eymard (plaintiff), brought suit against Mary Jane Terrebonne (defendant), curatrix of Chris M. Terrebonne (Chris), alleging that Chris had signed a formal acknowledgment of paternity of Kelsey on November 21, 1978. Plaintiff further alleged that Chris had signed an “Agreement to Pay Support” at the same time. She prayed for judgment declaring Chris to be the father of the minor child. Plaintiff later amended her petition to ask only for child support, medical payments, and reasonable visitation rights. Defendant answered, alleging as a defense that Chris’ signatures on the documents were either forgeries or obtained through duress. At trial, without objection, defendant also argued that although the Acknowledgment of Paternity was in authentic form, it was not executed in strict compliance with the requirements of Civil Code article 1833 and was invalid. The trial court rendered judgment for plaintiff. It held that the burden of proof was on defendant to prove duress, and it found no credible evidence which would constitute proof of same. It also found that defendant failed to carry her burden of proof to rebut the presumption of validity of the Acknowledgment of Paternity. Defendant has appealed. Defendant argues that the presumption of validity of the Acknowledgment of Paternity was rebutted at trial and that the burden then shifted to plaintiff to prove its validity. She further argues, in support of the duress defense, that because of Chris’ subjective characteristics, certain threats made to him allegedly by members of plaintiff’s family constituted duress sufficient to vitiate his consent to the acknowledgment. Chris was eighteen years old when he signed the documents in question. Terri Ann Eymard was sixteen years old. Chris had previously spent time at Louisiana Training Institute in Baker, Louisiana,
CHAPTER ONE: GETTING STARTED  43 

The Reasonable, Objective Person  for theft of a boat; he had a seventh grade education, and he had rarely left the bayou where he lived, working primarily in the fishing industry with his father and uncles. On March 22, 1979, some four months after Kelsey’s birth, Chris was the victim of a catastrophic automobile accident which left him in a comatose state from which he has never emerged. His mother was confirmed as his provisional curatrix in 1981, and she administers his estate, consisting of $300,000.00 received as compensation for injuries received in the automobile accident. He requires around-the-clock care and lives at home with his parents. Defendant presented testimony at trial from Bobby Cantrelle, a witness on both documents and a friend of Chris’, and from Darlene Allemand, Chris’ sister. Cantrelle testified that Chris received a phone call at his apartment; that Chris asked him for a ride to the Lafourche Parish courthouse; that when they arrived at the courthouse Chris went into the sheriff’s office while he waited outside; that Chris came out and told him he needed a witness, so he went into the sheriff’s office and signed a paper at a desk where Chris and one other man were sitting; that he saw nobody else sign the paper, either before or after he signed. After they left the courthouse, Cantrelle testified that Chris told him he was getting “a bunch of flak from the other end,” meaning Terri’s parents; that they were “threatening to get him locked up and put back in jail”; and that Terri’s mother told him that she wanted him to acknowledge paternity and that she could have him put in jail because her daughter was under age. Defendant also called Harold Soignet as a witness. Soignet’s name appeared in the documents at issue as notary public. He testified that in November 1978 he was an In-Take Officer with the Department of Health and Human Resources; that he handled the case of Kelsey Eymard and Chris; that according to his file, his office received a call from Kelsey’s grandmother, who came in with her daughter Terri Eymard; that after he questioned them, he was satisfied that Chris was the father; that he wrote Chris asking him to come to the office on November 21, 1978; that he recalled no conversations that took place between him and Chris or anyone else at
44  CONTRACTS 

Eymard v. Terrebonne  the time the documents were executed, nor how he handled this acknowledgment particularly, but that in every case it was his practice to go outside and get two witnesses to witness a signature. We agree with the trial court that defendant did not carry her burden of proving that the signature of Chris Terrebonne on the Acknowledgment of Paternity was a forgery or obtained through duress. We also agree that insufficient evidence was adduced to attack the authentic act, which is facially valid. Civil Code article 203 requires that the acknowledgment of an illegitimate child be made before two witnesses and a notary public. Similarly, this is the definition of an authentic act under Civil Code article 1833. Civil Code article 1835 provides that an authentic act constitutes full proof of the agreement it contains, as against the parties, their heirs, and successors by universal or particular title. In the absence of convincing proof to the contrary, the validity of the instrument as an authentic act is sustained. Pierre v. Donaldsonville Motor Co, 22 So.2d 291 (La. App. Orl. Cir. 1945). Either attack on the instrument, that the signature of Chris was a forgery or obtained through duress, or that the instrument was not executed before a notary and two witnesses, must be supported by convincing proof because the instrument is presumed to be valid. The burden of proof is on defendant as the party attacking the authenticity of the signature. Eschete v. Kraemer, 129 So.2d 475 (La. App. 1961). Here, the only proof of duress was offered by Allemand and Cantrelle who testified that Chris said he was getting “flak” from Terri Eymard’s family and that he was told he would have to go back to jail if he did not acknowledge paternity. Soignet testified that he made no threats to Chris, and Mrs. Beverly Eymard, called as a rebuttal witness by plaintiff, likewise testified that she made no threats to Chris. We also note that Civil Code article 1962 provides that a threat of doing a lawful act, or a threat of exercising a right, does not constitute duress. Defendant alleged that Chris was afraid he might be sent to prison; however, the Eymards had the legal right to charge him either with criminal neglect of family or carnal knowledge of a juvenile, and thus any fear based on threats of prison would not conCHAPTER ONE: GETTING STARTED  45 

The Reasonable, Objective Person  stitute duress sufficient to invalidate Chris’ consent. We acknowledge defendant’s argument that duress is to be considered in light of subjective characteristics of the person whose consent is challenged; however, according to Civil Code article 1959, the fear must be “reasonable” and of “unjust” injury. Thus, there is an objective as well as a subjective component of duress. Lewis v. Lewis, 387 So.2d 1206 (La. App. 1st Cir. 1980). In any event, there is insufficient evidence in the record of any threats made to Chris to conclude that he was induced to sign an acknowledgment of paternity against his will.1 As to defendant’s attack on the authenticity of the Act of Acknowledgment,2 we also agree with the trial court that defendant failed to carry her burden of proof. The only evidence defendant produced in support of this argument was the testimony of Cantrelle that he signed as a witness in the presence of one unidentified man and Chris. Soignet, on the other hand, testified that it was his practice always to obtain two witnesses before notarizing a signature. The trial court in its reasons for judgment stated that even if it gave equal weight to both witnesses, defendant’s evidence only concerned one document, and thus failed to rebut the presumption that both documents were valid because executed before a notary and two witnesses. The judgment of the trial court granting child support in the amount of $200.00 per month is not clearly wrong and is affirmed. Costs of this appeal are taxed to defendant.
1

2

The plaintiff’s amended petition effectively deletes any claim for a declaration as to the paternity of Chris Terrebonne. Defendant argues on appeal that the trial court erroneously considered testimony that Chris never denied paternity in its decision that no duress was present. We consider this argument to be without merit because it is clear from the trial court’s reasons for judgment that Chris’ failure to deny paternity was only one factor it relied upon in reaching its decision. Cantrelle testified only as to the circumstances surrounding his signature on one document, although he acknowledged his signature on both the Acknowledgment of Paternity and the Agreement to Pay Child Support. This defense was only raised at trial, and it is unclear whether only one document, or both, is challenged as to authenticity. 46  CONTRACTS 

Hamer v. Sidway  _________________________________________________ 

THE PROMISE 
_________________________________________________ 

Hamer v. Sidway 
Court of Appeals of New York. 124 N.Y. 538 (1891) This action was brought upon an alleged contract. The plaintiff presented a claim to the executor of William E. Story, Sr., for $5,000 and interest from the 6th day of February, 1875. She acquired it through several mesne assignments from William E. Story, 2d. The claim being rejected by the executor, this action was brought. It appears that William E. Story, Sr., was the uncle of William E. Story, 2d; that at the celebration of the golden wedding of Samuel Story and wife, father and mother of William E. Story, Sr., on the 20th day of March, 1869, in the presence of the family and invited guests he promised his nephew that if he would refrain from drinking, using tobacco, swearing and playing cards or billiards for money until he became twenty-one years of age he would pay him a sum of $5,000. The nephew assented thereto and fully performed the conditions inducing the promise. When the nephew arrived at the age of twenty-one years and on the 31st day of January, 1875, he wrote to his uncle informing him that he had performed his part of the agreement and had thereby become entitled to the sum of $5,000. The uncle received the letter and a few days later and on the sixth of February, he wrote and mailed to his nephew the following letter:
“BUFFALO, Feb. 6, 1875. “W. E. STORY, Jr.: “DEAR NEPHEW – Your letter of the 31st ult. came to hand all right, saying that you had lived up to the promise made to me several years ago. I have no doubt but you

CHAPTER ONE: GETTING STARTED 

47 

The Promise 
have, for which you shall have five thousand dollars as I promised you. I had the money in the bank the day you was 21 years old that I intend for you, and you shall have the money certain. Now, Willie I do not intend to interfere with this money in any way till I think you are capable of taking care of it and the sooner that time comes the better it will please me. I would hate very much to have you start out in some adventure that you thought all right and lose this money in one year. The first five thousand dollars that I got together cost me a heap of hard work. You would hardly believe me when I tell you that to obtain this I shoved a jackplane many a day, butchered three or four years, then came to this city, and after three months’ perseverence I obtained a situation in a grocery store. I opened this store early, closed late, slept in the fourth story of the building in a room 30 by 40 feet and not a human being in the building but myself. All this I done to live as cheap as I could to save something. I don’t want you to take up with this kind of fare. I was here in the cholera season ‘49 and ‘52 and the deaths averaged 80 to 125 daily and plenty of small-pox. I wanted to go home, but Mr. Fisk, the gentleman I was working for, told me if I left then, after it got healthy he probably would not want me. I stayed. All the money I have saved I know just how I got it. It did not come to me in any mysterious way, and the reason I speak of this is that money got in this way stops longer with a fellow that gets it with hard knocks than it does when he finds it. Willie, you are 21 and you have many a thing to learn yet. This money you have earned much easier than I did besides acquiring good habits at the same time and you are quite welcome to the money; hope you will make good use of it. I was ten long years getting this together after I was your age. Now, hoping this will be satisfactory, I stop. One thing more. Twenty-one years ago I bought you 15 sheep. These sheep were put out to double every four years. I kept track of them the first eight years; I have not heard much about them since. Your father and grandfather promised me that they would look after them till you were of age. Have they done so? I hope they have. By this time you have between
48  CONTRACTS 

Hamer v. Sidway 
five and six hundred sheep, worth a nice little income this spring. Willie, I have said much more than I expected to; hope you can make out what I have written. To-day is the seventeenth day that I have not been out of my room, and have had the doctor as many days. Am a little better to-day; think I will get out next week. You need not mention to father, as he always worries about small matters. Truly Yours, “W. E. STORY. “P.S. – You can consider this money on interest.”

The nephew received the letter and thereafter consented that the money should remain with his uncle in accordance with the terms and conditions of the letters. The uncle died on the 29th day of January, 1887, without having paid over to his nephew any portion of the said $5,000 and interest. H.J. Swift for appellant. The letter coupled with the assent of the nephew that the money should remain in the uncle’s hands on interest, made defendant’s testator a depositary or a trustee of an established trust. If there was a sufficient consideration for the original contract between plaintiff’s assignor and defendant’s testator, then the promises in the letter were in settlement of a legal obligation, are founded upon sufficient consideration and are binding. (1 Pars. on Cont. 443, 447; Freeman v. Freeman, 43 N.Y. 34; Haden v. Buddensick, 4 Hun, 649; Miller v. Drake, 1 Caines, 45; Chitty on Cont. 52; Crosbie v. Ponsonby, 73 El. & Bl. 872; Nixon v. Porter, 1 Hilt. 318; Johnson v. Titus, 2 Hill, 606; Bentley v. Morse, 14 Johns. 468-478; Scouton v. Eislord, 7 id. 36; Cameron v. Fowler, 5 Hill, 306; Goulding v. Davidson, 26 N.Y. 604; Sternberg v. Provoost, 13 Barb. 365; Proseus v. McIntyre, 5 id. 424; Comstock v. Smith, 7 Johns. 86; Early v. Mahon, 19 id. 147; Hamilton v. Gridley, 54 Barb. 542; Jones v. Hay, 52 id. 501; 1 Addison on Cont. 2; 2 Kent’s Comm. 465; Haigh v. Brooks, 4 P.&D. 288; Smith v. Smith, 13 C.B. 429; Westlake v. Adams, 5 C.B. 247; Wilkinson v. Oliver, 1 Scott, 461; Farmer v. Stewart, 2 N.H. 97; Harlan v. Harlan, 20 Penn. St. 303; Perry v. Blackman, 33 Vt. 7.) The letter interpreted by surrounding circumstances established a trust and made the uncle self-appointed trustee of the
CHAPTER ONE: GETTING STARTED  49 

The Promise  $5,000. (Gray v. Barton, 55 N.Y. 68; Day v. Roth, 18 id. 448; Fulton v. Fulton, 48 Barb. 581; Taylor v. Kelley, 5 Hun, 115; White v. Hoyt, 73 N.Y. 505; In re Collyer, 4 Dem. 25-28; Martin v. Funk, 75 N.Y. 134; Mabie v. Bailey, 95 id. 206.) If the uncle did not constitute himself a trustee by the letter he certainly made himself a depositary of the money which belonged to the nephew, and if this is so the plaintiff is just as much entitled to recover as though the uncle had made himself a trustee, for the only bearing which the trusteeship has upon the question is as to whether the Statute of Limitations applies or not. (Payne v. Gardiner, 29 N.Y. 146, 152, 153, 172; In re Waldron, 28 Hun, 481; Bank of B.N.A. v. M.N. Bank, 91 N.Y. 106; Sweet v. Irish, 36 Barb. 467; Merritt v. Todd, 23 N.Y. 28; Boughton v. Flint, 74 id. 476; Howell v. Adams, 68 id. 314; Munger v. A.C.N. Bank, 85 id. 580; Smiley v. Fay, 100 id. 262.) The claim that inasmuch as the assignment from the nephew to his wife is declared void under the Bankrupt Act, therefore the plaintiff cannot maintain this action, is unsound. (Hatch v. Brewster, 53 Barb. 276; More v. M. Bank, 55 N.Y. 41; Pell v. Treadwell, 5 Wend. 661; Alvord v. Latham, 31 Barb. 294; Hone v. Henriquez, 13 Wend. 240.) Adelbert Moot for respondent. The court should have decided with the defendant upon the facts. (Finch v. Parker, 49 N.Y. 1, 8; Code Civ. Pro. § 1317; Smith v. Ins. Co., 5 Lans. 552; Parsons v. Brown, 5 Hun, 112; Greenleaf v. People, 13 id. 246; Wheeler v. Macy, 30 N.Y. 231; Godfroy v. Mosher, 66 id. 251; Moran v. McLarty, 75 id. 25.) There is no consideration to support the promise to pay the nephew $5,000. If the nephew was required to do something that would injure him, or something that would benefit the uncle, and did so with the assent of his father, then there would be a consideration for the payment of the $5,000. Simply failing to play cards or billiards for money, or drink liquor, or use tobacco, would not benefit the uncle; would not, and did not, injure the nephew. (Laws of 1889, chap. 170; Nash v. Russell, 5 Barb. 556; Porterfield v. Butler, 47 Miss. 165; Duvoll v. Wilson, 9 Barb. 487; Venderbilt v. Schreyer, 91 N.Y. 392; Whitaker v. Whitaker, 52 id. 368; Coleman v. Burr, 25 Hun, 239; Wilbur v. Warren, 104 id. 192; Mallory v. Gillett, 21 id. 412; Belnapp v. Bender, 75 id. 446; Berry v. Brown, 107 id. 659; Oddy v. James,
50  CONTRACTS 

354. 13 id. 14 How.) As plaintiff’s claim rests upon contract. 64 N. Barry v.Y.L. 128. 124. 247. 33 Hun. Butler v. 2d. DePeyster. is whether by virtue of a contract defendant’s testator William E. 517. Story. 76 Ga. 7 Johns. 576. 662. Smith. Kent v. Wisewall. 243. therefore. and there was no consideration flowing to him from William E. The question which provoked the most discussion by counsel on this appeal. 80-86. 111 N. Bliss v. 442. Ely. 674. 1. 134. Funk. Ch. 322-332. Jemison. 134. Brumm v. Mills v.Y. 40-53. Pro. 587. Fry. Funk. Wilbur v.Y.. Warren. Smiley v. Jewett. 629. 768. 115 id. Lawrence. (Code Civ. Hovey v. 348. Davis. Bd. Smith v. Jr. Steere v. Vanderbilt v. § 382. 246. Story did not hold these moneys in trust for William E. 26 N. McCurdy v. Miller v.&E. Ins. Blackwell v. Wood v. Pr. Heightower. 91 id. 54. 257-260. nor any other person. 103 N. 112 id. 675. Slimmon. 116 id. Sr. Kenyon. Crosby v. and which lies at the foundation of plaintiff’s asserted right of recovery. Embrey v. 147.Y. 13 Ves. Shuder v.) Neither William E. 420. 421. 9. In re Crawford. Ch. 131 U. 95 id. J. Willio. Head v. 51 N. 11 A.) Parker. Zabriskie v. 4 Daly. Adney. 672.. N. Bluett.Y. (Lammle v. Beaver. §§ 262-271. Kane v. 59 Wis. 2d. Co. 204.. to support a trust. Klinck. 122. 4 Sandf. 103 N. 83 Ala. Stoddard. 259. 36.Y. Eadie v. Mills v.&P. Suprs. Wood. E. 93. Ch.000 in trust for William E. CHAPTER ONE: GETTING STARTED  51  . (Martin v. 94 U.Y. §§ 71-79. Clark. Wennall v. 75 N. Mills.J. 109. 5 Johns. Baldwin. 119 id. 45. 50 Hun. Robinson v. Getman.) William E. plaintiff cannot recover this action.. Story.Y. Hone v. Roberts v. Suprs. 1. Story became indebted to his nephew William E. 192. Sidway  48 id. ever held this $5. Pierson.H. 262. it is barred by the Statute of Limitations. Story. Presb. Elliott.. Pollock on Cont. 520. Storm v. Story. Bd. McDoual. S. 118 id. Schreyer. 116 N. 117 N. id. 20 Johns. Coster. Steere. 3 id.. Eastwood v. Ex. 85 Tenn. 113 id. Martin v. 58 N. Society.Y. 89. U. Young v. Mendenhall v. Schuett. 392. 113 id. Murray v. Beaver v. Rand.Hamer v. 560. 399. Hayes v. Andrew v. 336. In re Neilley. 3 B. Hare on Cont.S. 438. 113 id. White v. Langdell on Cont. Johnson. 100 id. Newby. 58 id. Cooper. Strough v.Y. Harris v. 53 L.B. Lacy v. v. 156. Young. Bloodgood. 75 N. 80 id.S. 261. 104 id.Y.

and. that if he would refrain from drinking liquor.” The defendant contends that the contract was without consideration to support it. that that which he did was best for him to do independently of his uncle’s promise. or suspension. 63. A contention. interest. defined consideration as follows: “A valuable consideration in the sense of the law may consist either in some right. 2d. Story agreed to and with William E. or some forbearance. using tobacco. profit or benefit accruing to the one party. or forbearance of a right will be 52  CONTRACTS  . and is without foundation in the law. of such benefit to him as to leave no consideration to support the enforcement of the promisor’s agreement. in 1875.The Promise  Story.000 for such refraining. would at that time pay him. Story.) “In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise. invalid. The Exchequer Chamber. The trial court found as a fact that “on the 20th day of March. swearing. 2d. 1869. or is of any substantial value to anyone. would seem to leave open for controversy in many cases whether that which the promisee did or omitted to do was. Story. which if well founded. to which the said William E.” (Anson’s Prin. on his twenty-first birthday in the sum of five thousand dollars. the sum of $5.) “Any damage. Such a rule could not be tolerated. and playing cards or billiards for money until he should become 21 years of age then he.” and that he “in all things fully performed his part of said agreement. Story. of Con. suffered or undertaken by the other. 2d. therefore. Story. loss or responsibility given. It is enough that something is promised. the contract was without consideration. 444. detriment. agreed.” Courts “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party. He asserts that the promisee by refraining from the use of liquor and tobacco was not harmed but benefited. done. forborne or suffered by the party to whom the promise is made as consideration for the promise made to him. … William E.” (Parsons on Contracts. and insists that it follows that unless the promisor was benefited. the said William E. 2d. the said William E. in fact.

“CHARLES SHADWELL. CHAPTER ONE: GETTING STARTED  53  . we see nothing in this record that would permit a determination that the uncle was not benefited in a legal sense. That right he abandoned for a period of years upon the strength of the promise of the testator that for such forbearance he would give him $5. I am happy to tell you that I will pay to you 150 pounds yearly during my life and until your annual income derived from your profession of a chancery barrister shall amount to 600 guineas.” It was held that the promise was binding and made upon good consideration.000. Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first. and the court will not inquire into it.” Now. occasionally drank liquor. Shadwell (9 C. page 166. says: “The second branch of this judicial description is really the most important one. In Shadwell v. of which your own admission will be the only evidence that I shall require.Hamer v. Sidway  sufficient to sustain a promise. but such as have been support the position we have taken. and as I promised to assist you at starting. an uncle wrote to his nephew as follows: “MY DEAR LANCEY – I am so glad to hear of your intended marriage with Ellen Nicholl. 12th ed. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement. We need not speculate on the effort which may have been required to give up the use of those stimulants. B. 465. in his work on contracts. applying this rule to the facts before us. “Your affectionate uncle. and he had a legal right to do so. vol.) Pollock. it is of no moment whether such performance actually proved a benefit to the promisor. the promisee used tobacco.” (Kent. 159). Few cases have been found which may be said to be precisely in point. after citing the definition given by the Exchequer Chamber already quoted. but were it a proper subject of inquiry. 2. and now having fully performed the conditions imposed.

Butler (47 Miss.. Newton. nevertheless. Stemmons demurred to the complaint on the ground that the agreement was not based on a sufficient consideration. and demanded judgment therefor. $500 at my death. the promise was in contravention of that provision of the Statute of Frauds. In Talbott v. Mass. 165). Talbott.C. 446).” Abstinence from the use of intoxicating liquors was held to furnish a good consideration for a promissory note in Lindell v. among others. and Berry v.The Promise  In Lakota v. Belknap v. the surrender of that right caused the promise. In the opinion of the court it is said that “the right to use and enjoy the use of tobacco was a right that belonged to the plaintiff and not forbidden by law. and Porterfield v. In Beaumont v. The demurrer was overruled. The cases cited by the defendant on this question are not in point. the complaint averred defendant’s promise that “if you (meaning plaintiff) will leave off drinking for a year I will give you $100. Albert R. and having the right to contract with reference to the subject-matter. the abandonment of the use was a sufficient consideration to uphold the promise. 659). Bender (75 id. Stemmons (a Kentucky case not yet reported). Defendant demurred on the ground. the step-grandmother of the plaintiff made with him the following agreement: “I do promise and bind myself to give my grandson.” The executor of Mrs. that the plaintiff’s declaration did not allege a valid and sufficient consideration for the agreement of the defendant. which declares void all promises to answer for the debts of third persons unless reduced to writing. an unreported case in the Superior Court of Worcester. and if he breaks this pledge he is to refund double the amount to his mother. Rokes (60 Mo. Brown (107 id. the question was whether a moral obligation furnishes sufficient consideration to uphold a subsequent ex54  CONTRACTS  .” plaintiff’s assent thereto. The demurrer was sustained and an appeal taken therefrom to the Court of Appeals. performance of the condition by him. In Mallory v. where the decision of the court below was reversed.Y. if he will never take another chew of tobacco or smoke another cigar during my life from this date up to my death. The abandonment of its use may have saved him money or contributed to his health. Reeve (Shirley’s L. 412). 249). Gillett (21 N. 6).

Wilson (9 Barb. 192). and his letter and oral statements subsequent to the date of final performance on the part of the promisee must be held to amount to a waiver. according to agreement. Story. the proposition involved was whether an executory covenant against incumbrances in a deed given in consideration of natural love and affection could be enforced. the statute could not now be invoked in aid of the defendant. 392). defendant’s testator was indebted to William E.Y.Y.000.) This was not done. and In re Wilber v. 1875. it must be deemed established for the purposes of this appeal.000. and I believe. that there is due me $5. 40). the court simply held that “The performance of an act which the party is under a legal obligation to perform cannot constitute a consideration for a new contract. then. 94 N. but on that date the nephew wrote to his uncle as follows: “DEAR UNCLE – I am now 21 years old to-day. 450. and I am now my own boss. agreeing to accept in part payment therefor a specific bond and mortgage.Hamer v. Wormser. Warren (104 N.” CHAPTER ONE: GETTING STARTED  55  . which was done. It was held that the guarantee could not be enforced for want of consideration. (Porter v.Y. and if this action were founded on that contract it would be barred by the Statute of Limitations which has been pleaded. Were it otherwise. therefore. because not to be performed within a year. In further consideration of the questions presented.” It will be observed that the agreement which we have been considering was within the condemnation of the Statute of Frauds. 2d. It does not appear on the face of the complaint that the agreement is one prohibited by the Statute of Frauds. Sidway  press promise. Schreyer (91 N. and not in writing. I have lived up to the contract to the letter in every sense of the word. 487). Jewett (116 N. In Vanderbilt v. And in Robinson v. and. For in building the house the plaintiff only did that which he had contracted to do. that on the 31st day of January. 431. But this defense the promisor could waive. such defense could not be made available unless set up in the answer. the plaintiff contracted with defendant to build a house. In Duvoll v. in the sum of $5.Y. Afterwards he refused to finish his contract unless the defendant would guarantee its payment.

or that of trustee and cestui que trust? If the former. who thereafter consented that said money should remain with the said William E. Story. he duly sold. 55. 1877. Now. transferred and assigned the same to the plaintiff in this action.S. I had the money in the bank the day you was 21 years old that I intended for you. I have no doubt but you have. If the latter.000 as I promised you. came to hand all right saying that you had lived up to the promise made to me several years ago. on the first day of March. title and interest in and to said sum of $5. Story in accordance with the terms and conditions of said letter. No particular expressions are necessary to create a trust. transferred and assigned all his right. and.The Promise  A few days later.) 56  CONTRACTS  . who thereafter duly sold. for which you shall have $5. and you shall have the money certain. with the knowledge and consent of his said uncle. “That afterwards. the reply is as follows: “DEAR NEPHEW – Your letter of the 31st ult.000 to his wife Libbie H. I would hate very much to have you start out in some adventure that you thought all right and lose this money in one year. Were the relations of the parties thereafter that of debtor and creditor simply. “P.” We must now consider the effect of the letter.E. besides acquiring good habits at the same time. Willie. and the nephew’s assent thereto.” And further. because barred by lapse of time. and on February sixth. Hope you will make good use of it. so far as it is material to this controversy. (Lewin on Trusts.” The trial court found as a fact that “said letter was received by said William E. then this action is not maintainable. 2d. – You can consider this money on interest. and you are quite welcome to the money. … This money you have earned much easier than I did. the uncle replied. Story. and the sooner that time comes the better it will please me. Any language clearly showing the settler’s intention is sufficient if the property and disposition of it are definitely stated. STORY. the result must be otherwise. … “W. I don’t intend to interfere with this money in any way until I think you are capable of taking care of it.

§ 972. or in his own CHAPTER ONE: GETTING STARTED  57  . Story.Y. we are also to observe the rule that the language of the promisor is to be interpreted in the sense in which he had reason to suppose it was understood by the promisee. no longer controls.” or use language that would indicate that the relation of debtor and creditor would continue. Hoyt. 511. 505.) It is essential that the letter interpreted in the light of surrounding circumstances must show an intention on the part of the uncle to become a trustee before he will be held to have become such. but in an effort to ascertain the construction which should be given to it. 448.” That he had set apart the money is further evidenced by the next sentence: “Now. whatever it may have been.) If before a declaration of trust a party be a mere debtor. and payment had been requested. he did not use the word “trust.Hamer v. 18 N.) At the time the uncle wrote the letter he was indebted to his nephew in the sum of $5. He did not say “I will pay you at some other time. I don’t intend to interfere with this money in any way until I think you are capable of taking care of it. (White v. 2d. He said: “I had the money in the bank the day you were 21 years old that I intended for you and you shall have the money certain. On the contrary. True. wrote the nephew that he would keep the money until he deemed him capable of taking care of it.” or state that the money was deposited in the name of William E.” Certainly. His antecedent relation to the subject. a subsequent agreement recognizing the fund as already in his hands and stipulating for its investment on the creditor’s account will have the effect to create a trust. Roth.000. his language indicated that he had set apart the money the nephew had “earned” for him so that when he should be capable of taking care of it he should receive it with interest. the uncle must have intended that his nephew should understand that the promise not “to interfere with this money” referred to the money in the bank which he declared was not only there when the nephew became 21 years old. Willie. Sidway  A person in the legal possession of money or property acknowledging a trust with the assent of the cestui que trust. (Day v. (2 Story’s Eq. 73 N. but was intended for him.Y. The uncle recognizing the indebtedness. becomes from that time a trustee if the acknowledgment be founded on a valuable consideration.

and to that declaration the nephew assented.” In this declaration there is not lacking a single element necessary for the creation of a valid trust. Kirksey  Supreme Court of Alabama 8 Ala. and was comfortably settled. Order reversed and judgment of Special Term affirmed. The question is presented in this Court. or seventy miles off. and would have attempted to secure the land she lived on. The order appealed from should be reversed and the judgment of the Special Term affirmed. In 1840. she had held over. and had several children. we must assume the facts to be as found by the trial court. 58  CONTRACTS  . but the language used must have been intended to assure the nephew that his money had been set apart for him. under a contract of lease. seems to have taken the view that the trust was executed during the life-time of defendant’s testator by payment to the nephew. to be kept without interference until he should be capable of taking care of it. for the uncle said in substance and in effect: “This money you have earned much easier than I did … you are quite welcome to.The Promise  name in trust for him. but as it does not appear from the order that the judgment was reversed on the facts. the plaintiff resided on public land. The defendant resided in Talladega county. with costs payable out of the estate. against the plaintiff in error. upon a case agreed. On the 10th October. 131 (1845) Error to the Circuit Court of Talladega. I had it in the bank the day you were 21 years old and don’t intend to interfere with it in any way until I think you are capable of taking care of it and the sooner that time comes the better it will please me. and those facts support its judgment. Assumpsit by the defendant. The learned judge who wrote the opinion of the General Term. some sixty. Kirksey v. but had for some time been a widow. All concur. which shows the following facts: The plaintiff was the wife of defendant’s brother.

not comfortable. the plaintiff abandoned her possession. Chilton and Porter. 4 Maun.Kirksey v. Ormond. for defendant in error. to furnish her with a house. which the plaintiff sustained in breaking up. 216. cited 1 Kinne’s Law Com. 6 Litt. 142. 218. A verdict being found for the plaintiff. otherwise it is to be reversed. 2 Peters. and sell the land and quit the country. 18 Johns. 47.” Within a month or two after the receipt of this letter. and difficulty. a distance of sixty miles. Story on Con. 6 Id. is. at the end of which time he notified her to remove. and I know society is very bad. 58. 2 Cowen. and put her in a house. I know that your situation is one of grief. 246. that the loss and inconvenience. and that of your family. W. 200. the above facts were agreed. and gave her land to cultivate for two years. 1 Mar. You had a bad chance before. 337. for two hundred dollars. … I do not know whether you have a preference on the place you live on. he wrote to her the following letter: “Dear sister Antillico – Much to my mortification. Rice. Chitty on Con. 139. 8 Mass. I feel like I want you and the children to do well. 535. J. or not. which he afterwards required her to leave. and if they will sustain the action. for plaintiff in error. 5 Cranch. I should like to come and see you. is a sufficient consideration to support the promise. that brother Henry was dead. and land to cultiCHAPTER ONE: GETTING STARTED  59  . the judgment is to be affirmed. who put her in comfortable houses. and one of his children. in the woods. The inclination of my mind. cited 4 Johns. I heard. 101. I will let you have a place to raise your family. without disposing of it. If you had.P. I would advise you to obtain your preference. If you will come down and see me. 1 Caine’s. 235. 115. and I have more open land than I can tend. as I understand it is very unhealthy. and removed with her family. 182. 1 Conn. and moving to the defendant’s. 29. 519. 10 id. but a great deal worse now. Kirksey  1840. 63. but cannot with convenience at present. and on the account of your situation. to the residence of the defendant.

be enforced by action. Scothorn  Supreme Court of Nebraska 77 N. pursuant to the agreement of the parties. is without consideration. Judge. deceased. There was a judgment for 60  CONTRACTS  .C. whereupon she abandoned the occupation in which she was engaged. until she could raise her family. executor of the will of J. and remained idle for more than a year. Ricketts. that the promise on the part of the defendant. but without any condition being imposed. or promise exacted. and cannot. and has taken such action in accordance with the expectation of the maker. Action by Katie Scothorn against Andrew D. Held. A promissory note given by the maker to the payee to enable the latter to cease work.W. The judgment of the Court below must therefore be reversed. is without consideration.The Promise  vate. 2. 3. Holmes. 4. My brothers. The note in suit was executed to the plaintiff by a relative to enable her to live without working. Lancaster county. and may be repudiated. Error to district court. A nonnegotiable note given to the payee thereof as a gratuity. Ricketts v. in the absence of circumstances creating an equitable estoppel. that want of consideration could not be alleged as defense. being nothing more than a promise by the payor to make a gift in the future of the sum of money therein mentioned. neither the latter nor his legal representatives will be permitted to resist payment on the ground that there was no consideration for the promise. This action on her part was contemplated by the relative as the probable consequence of the execution of the note. however think. Ricketts. 365 (1898) SYLLABUS BY THE COURT 1. and that an action will not lie for its breach. was a mere gratuity. But where the payee of such an obligation has been induced to abandon a lucrative occupation in reliance on the note being paid. except under special circumstances.

relying on it. What transpired between them is thus described by Mr. and testified that she had a conversation with her father. but early in the morning. The mother of the plaintiff was a witness.” In the petition the plaintiff alleges that the consideration for the execution of the note was that she should surrender her employment as bookkeeper for Mayer Bros. that is the way it looked to me. Ricketts. Ricketts. They are as follows: John C. ‘I have fixed out something that you have not got to work any more. one of the plaintiff’s witnesses: “A. Ricketts. I promise to pay to Katie Scothorn on demand. Affirmed. Where was she? A. she gave up the employment in which she was then engaged. that none of his grandCHAPTER ONE: GETTING STARTED  61  . and you don’t have to. shortly after the note was executed. She also alleges that the note was given to induce her to abandon her occupation. Ricketts. and that. recovered judgment against the defendant.. and cease to work for a living. and defendant brings error. probably a little before or a little after. She took the piece of paper and kissed him.Ricketts v. the old gentleman came in there one morning about nine o’clock. $2. Early in May--presumably on the day the note bears date--he called on her at the store where she was working. Andrew D. as executor of the last will and testament of John C. and that she did soon after abandon her occupation. Mr. The action was based upon a promissory note. was the grandfather of the plaintiff. J.C. Katie Scothorn.000. as a means of support.” It seems Miss Scothorn immediately notified her employer of her intention to quit work.’ He says. the maker of the note. Q. and he unbuttoned his vest. per annum. and he says to Miss Scothorn. Flodene. Well. none of my grandchildren work. and on the annual interest. to be at 6 per cent. Ricketts. and commenced to cry. Sullivan. Scothorn  plaintiff. of which the following is a copy: “May the first. and kissed the old gentleman. deceased. In the district court of Lancaster county the plaintiff. These allegations of the petition are denied by the administrator. in which he informed her that he had given the note to the plaintiff to enable her to quit work. J. and took out a piece of paper in the shape of a note. 1891. The material facts are undisputed.

Mrs. Scothorn. Ordinarily. He gave the note as a gratuity.The Promise  children worked. Griest. or agreeing to pursue. and he did not think she ought to. was nothing more than a promise to make a gift in the future of the sum of money therein named. or refrain from doing. it was his purpose to place the plaintiff in a position of independence. anything. Funke & Ogden. she secured a position as bookkeeper with Messrs. 1892. He exacted no quid pro quo. Mr. and future abstention from like service. Scothorn. being given without any valuable consideration. as she might choose. 28 Barb. college. We quite agree with counsel for the defendant that upon this evidence there was nothing to submit to the jury. Fink v. He at no time repudiated the obligation. and that a verdict should have been directed peremptorily for one of the parties. taken together. or other like institution. conclusively establishes the fact that the note was not given in consideration of the plaintiff pursuing. It was not an act done in fulfillment of any contract obligation assumed when she accepted the note. But it has often been held that an action on a note given to a church. and a short time before his death expressed regret that he had not been able to pay the balance. Her right to the money promised in the note was not made to depend upon an abandonment of her employment with Mayer Bros. For something more than a year the plaintiff was without an occupation. Kirkpatrick v. requirement. 145. The abandonment of Miss Scothorn of her position as bookkeeper was altogether voluntary. or request. There was no promise on the part of the plaintiff to do. but in September. On June 8. upon the faith of which money has been expended or obligations in62  CONTRACTS  . The instrument in suit. Ricketts died. that if he could sell his farm in Ohio he would pay the note out of the proceeds. 207. Ricketts made no condition. 121. and by his assistance.. any particular line of conduct. Cox. with the consent of her grandfather. Phelps. 18 Johns. Phelps v. such promises are not enforceable. The testimony of Flodene and Mrs. 1894. 85 Ind. where she could work or remain idle. In the summer or fall of 1892 he stated to his daughter. 43 Ill. Mr. and looked for nothing in return. Taylor. Johnston v. He had paid one year’s interest on the note. So far as the evidence discloses. even when put in the form of a promissory note. 503.

to deny the consideration. will not support an action. 33 Pa. Irwin v. Scothorn  curred. 84 E. Philomath College v. 114.” And in the case of Reimensnyder v. which was an action on a note given as a donation to a charitable object. Tuttle. under the doctrine of estoppel. or made expenditures based on such promise. the donor would be estopped from pleading want of consideration. It seems to us that the true reason is the preclusion of the defendant. In this class of cases the note in suit is nearly always spoken of as a gift or donation. 53 Ill. St. 56 Ohio St. St. is there an equitable estoppel which ought to preclude the defendant from alleging that the note in controversy is lacking in one of the essential elements of a valid contract? We think there is. 356. but the decision is generally put on the ground that the expenditure of money or assumption of liability by the donee on the faith of the promise constitutes a valuable and sufficient consideration. 158. 17. 110 Pa. 40 Ill. but without any contract binding him to serve. where Rothrock. 18. 71 Iowa 596. 379. entered into engagements. so that he must suffer loss or injury if the note is not paid. 9. Board. could not be successfully defended on the ground of a want of consideration. But when the payee changes his position to his disadvantage in reliance on the promise. 709. however. Wilson. 12 N. a contract of the kind here involved is enforceable rather by way of estoppel than on the ground of consideration in the original undertaking.Y. it may still be open to this defense [want of consideration]. Thompson v.” It has been held that a note given in expectation of the payee performing certain services.. Such seems to be the view of the matter taken by the supreme court of Iowa in the case of Simpson Centenary College v. after allowing the donee to incur obligations on the faith that the note would be paid. Barnes v. speaking for the court. McClure v. Hartless. Gans. unless it shall appear that the donee has.L. Perine. is based on a promise to give for the support of the objects referred to. J. Lombard University.C. This is based on the equitable principle that. prior to any revocation. An estoppel in pais is defined to CHAPTER ONE: GETTING STARTED  63  . as we may see from the case of Ryerss v. 401. Trustees. a right of action does arise. Hulse v. the court said: “The fact is that. said: “Where a note.Ricketts v. Trustees v. Hulse. 6 Or. Under the circumstances of this case. Garvey. 43 Ill.

gave her the note. as shown by the record before us.” 2 Pom. If errors intervened at the trial. and the evidence conclusively establishes them. Pomeroy has formulated the following definition: “Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded. either of property. desiring to put her in a position of independence. A verdict for the defendant would be unwarranted. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due. it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. have otherwise existed. as against another person who in good faith relied upon such conduct. and that she would not be obliged to work any longer. whether he did or not. either of property. and is affirmed. and rely in the future upon the bounty which he promised.” Mr. 804. from asserting rights which might. the plaintiff was a working girl. accompanying it with the remark that his other grandchildren did not work. holding a position in which she earned a salary of $10 per week. or of remedy. The judgment is right. admissions. According to the undisputed proof. Jur. and who on his part acquires some corresponding right.The Promise  be “a right arising from acts. or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged. of contract. 64  CONTRACTS  . he suggested that she might abandon her employment. to resist payment on the ground that the promise was given without consideration. and has been led thereby to change his position for the worse. The petition charges the elements of an equitable estoppel. it would be grossly inequitable to permit the maker. Her grandfather. He doubtless desired that she should give up her occupation. or his executor. of contract. or of remedy. perhaps. but. they could not have been prejudicial. Eq. both at law and in equity. In effect.

(e) there was inadequate support under the plywood deck. 1975) Norton Levine. reside in the city of Shelton. Fairfield County 364 A. 1969. husband and wife. They brought this action against two related corporations. Inc. (h) the sides of the pool were bowing out. resulting in the deck being uneven.  Court of Common Pleas of Connecticut. in that had the following defects: (a) the vinyl liner was improperly installed. unsteady. who were engaged in the business of selling and installing swimming pools. (d) there were multiple wrinkles and folds in the liner. and the 24 wooden supports were rotted. (g) the “hopper” portion of the deep end of the pool was improperly located and constructed. that the pool was not of merchantable quality. The plaintiffs. and was in breach of the defendant's implied warranty of merchantability. Stylarama. (c) all four corners of the liner were wrinkled and folded. (f) there were multiple surface “bubbles” on the plywood decking. dated February 17.  _________________________________________________  THE APPLICABLE LAW  _________________________________________________  Gulash v. twisted and misaligned. hereinafter sometimes collectively referred to as the defendant. Pl. (i) the plywood panels of the deck and of the sides of the pool. and dangerous to persons using the pool. Com. Stylarama. for the sale and installation of a Stylarama “Wavecrest” aboveground swimming pool.2d 1221 (Conn. 1969. I The first count of the complaint claims that the pool was installed by the defendant in May. Inc. and CHAPTER ONE: GETTING STARTED  65  . at the plaintiffs' home in Shelton. (b) there were six or more large “flaps” in the liner. for the price of $3690. Their claims arise out of a contract between the plaintiffs and the defendant.Gulash v. Judge.

based on the Uniform Commercial Code. II The initial question is whether the plaintiffs have any cause of action whatsoever. The defendant filed three special defenses. or otherwise. 1971. 1973. replacement parts. the plaintiffs rely on the defendant's breach of “implied warranty of merchantability. the pool was not “feasibly repairable. and that the defendant breached the agreement in that it failed to remedy the defects named in the oral contract. The second count asserts that in or about October. whereby the defendant was to remedy “all of the defects in that pool” in consideration of the plaintiffs' paying the defendant $300. The first states that any damages sustained by the plaintiffs were the result of their own carelessness and negligence in that they failed to paint the pool in accordance with the contract terms. at the plaintiffs' expense. The first count further states that. The plaintiffs allege that. they paid $200 in advance to the defendant. in that they failed to make reasonable inspection of the pool. failed to properly maintain the same. The plaintiffs claimed that on May 3. hereinafter referred to as the UCC. as a result. for breach of implied warranty. the pool was not in usable condition and that the plaintiffs lost the use thereof for a long period of time.The Applicable Law  the wooden members and sills supporting those panels. and (k) the entire swimming pool was not level. the plaintiffs and the defendant entered into an oral contract. and commercially supplied water. 1972.” as contained in § 42a-2-314(1) of the General Statutes. (j) the workmanship of the installation of the 2 4 members supporting the deck was defective. The third special defense alleges that any damages sustained were the result of the plaintiffs' carelessness and negligence. In particular.” and was dismantled and disposed of in May. The second special defense contends that any claimed damages occurred following the expiration of any applicable warranty period. and allowed the pool to deteriorate without taking appropriate precautionary action. were rotted and defective. The plaintiffs contend that they were thereby obligated to expend substantial sums of money for repairs. as a consequence. 66  CONTRACTS  . under the first count.

 Inc. The defendants counterclaimed for rescission. The court. Thus. see Vernali v. Complete with built in fence and stairs. the court stated (p. Ventre. In Epstein. 481. the principal items were not only the materials and equipment but also the labor and services necessary to install and complete the pool. 25 Conn. In the relevant case of Ben Construction Corporation v. The UCC defines “goods” to be “all things. It does not label the arrangement as a “sale” of the pool.” (Citing numerous cases.” or a sale of “goods. Epstein v. Centrella. 109 (beauty parlor treatments). Sup. the contractor sued for the balance due. The initial terms of the contract between the plaintiffs and the defendant provided merely that the defendant would “furnish all labor and materials.” General Statutes § 42a-2-105(1). Sup.” kit does not fall within the warranty or other provisions of the UCC. plus the evidence.” General Statutes § 42a-2-102. for a total of $3690. 28 Conn. and for damages under the New York Personal Property Law § 150 (McKinney 1962). thus.S.  The UCC article on sales applies solely to “transactions in goods. which are movable at the time of identification to the contract for sale … . There was no allocation. 476. and the materials are only incidental to the main purpose of the agreement. that the contract describes the transaction as a furnishing of labor and materials. or price breakdown.” It is important to note. 257 N. description of Goods and Services below … and to construct pool … furnish and install swimming pool with vinyl liner. in a split CHAPTER ONE: GETTING STARTED  67  . It is clear that where the contract is basically one for the rendition of services.Y. Based on the terms of the agreement herein. the contract is not one for the sale of goods under the UCC.2d 988.) In accord.113) as follows: “Building and construction transactions which include materials to be incorporated into the structure are not agreements of sale. under a contract for installation of a swimming pool on the defendants' property. Stylarama.Gulash v. if the present agreement is not one which could be called a “transaction in goods. in the contract between the labor and material involved in the completed installation. Giannattasio. including specially manufactured goods. seeking a return of sums paid on account.

and followed in Schenectady Steel Co. The two component parts do not readily permit that cleavage. 100). It stated (p.” The Ben case was cited with approval. in essence. to effect a separation of the labor or services from the material and equipment. involving an action by a seller of steel against a buyer. 4 Conn. who had canceled the contract.Y.920) the plaintiff to “furnish and erect structural steel. Chamberlain v. It was concluded that the UCC did not apply to the agreement in question. Accordingly. 350 N. Cir.. since the transaction basically did not involve a sale of property.Y. and not a sale … .2d 920. or extremely difficult. Also the obvious objective of the defendant was to have a usable installed swimming pool and this is what they contracted for. Inc. obligated (p. The plaintiffs had the burden of proof to establish the existence of a warranty under the UCC. In the present case it is obviously impossible. The court therefore held that this was a contract for the rendition of services.989): “In our view the Personal Property Law does not apply to this case. rather than a contract for the sale of goods. This is a contract for work. labor and materials contract. or a 68  CONTRACTS  .The Applicable Law  decision. Trimpoli Construction Co. Bob Matick Chevrolet. and they failed to do so.S. 308 N. labor and services.” The majority of the court found that the defendant was not merely contracting for steel beams but. 685. held that the personal property law was inapplicable. The crucial contract provisions (in general. v.. for the services or labor involved in their erection and installation and that the transfer of title to the steel was a mere incident of the overall transaction. it is found that the 1969 agreement herein was not a “transaction in goods. Here the written contract itself was for the installation of a swimming pool. Beth David Hospital. or a work. The plaintiffs did not offer any adequate evidence on the apportionment issue at trial. For this law to apply the transaction must be one for the sale of property as distinguished from the rendition of services (Perlmutter v. similar to those in the present case). In determining whether a contract is for sale of property or services the main objective sought to be accomplished by the contracting parties must be looked for. Ct. 692.” within the meaning of § 42a-2-102.

1970 and 1971. Stylarama. if the plaintiffs had not been persuaded that the one-year provision barred any further action for alleged defects. it is the one-year express warranty and that any claims based thereon. The warranty certificate did not specify a definite commencement or termination date. when asserted in 1971 or 1972. …” Moreover. the logical conclusion is that it took effect on the plaintiffs' delivery of the completion certificate in June. It also stated that the vinyl liner carried a ten-year warranty. and the duration thereof. were barred by the one-year limitation contained therein. 1971. however. The plaintiffs' claim under the first count cannot be sustained.  sale of “goods. and the filter was subject to a one-year warranty. Inc. III The conclusion reached in part II hereinabove is fully dispositive of the first count. pursuant to the warranties offered by the original manufacturers on those items. The warranty covered the material and workmanship for a period of one year. $The court agrees with the defendant that. CHAPTER ONE: GETTING STARTED  69  . Some additional comments seem appropriate. The plaintiffs themselves recognized the validity of the relevant limitation. 1969. The most substantial dispute pertained to the existence of an applicable warranty. during the summers of 1969. and was used and enjoyed by the plaintiffs. arguendo. he referred to implied warranties. Nevertheless. in view of the remaining issues litigated by the parties. if any warranty is applicable in this case. When the plaintiff George Gulash wrote a letter to the defendant dated September 8. he expressly admitted: “I realize that the one year warranty on construction in the State of Connecticut has expired. as contained in a written document delivered by the defendant to the plaintiffs at the time that the plaintiffs executed a completion certificate in or about June.” under § 42a-2-105(1). The defendant urges that the only controlling provision is the one-year express warranty.Gulash v. However. The blunt fact is that the pool was in satisfactory condition for use. 1969. The major complaints relative thereto arose about two and one-half or three years after final installation.

Beach. however. The initial pitfall is that. is a substantial factor in the interpretation of the contract. Taft Realty Corporation v. the statutory 70  CONTRACTS  . of Seymour. Inc. in a real sense. 1973. thereby ratifying their original understanding and agreement that the only basic warranty which was applicable. The plaintiffs were. the plaintiffs urge that it was not binding on them. Beach v. That contention provokes a number of responses. Perhaps a technical defect in the late delivery of the warranty might have been originally asserted. The meaning of the terms of a contract. It is also true. In an effort to circumvent the one-year warranty. 146 Conn. for additional repairs to be performed by the defendant and for which they agreed to pay an additional $300. Yorkhaven Enterprises.The Applicable Law  it is highly unlikely that they would have negotiated. They cite § 42a-2-313(1)(a) of the General Statutes. for construction of an in-ground pool. the plaintiffs did not press any claims based on the express ten-year manufacturers' warranties of the filter and the liner.. The plaintiffs offered as an exhibit a new contract dated April 3. and that it was applicable to their dispute. 1972. 1969. was one year and no more. 591. for the total sum of $4500. 338. as shown by the conduct of the parties with respect to those terms. since it was received by them some four months following February 17. and placement of the coping. with A&M Swimming Pool. 141 Conn. because they admitted that the one-year warranty had binding force and effect. It is significant that the A&M contract contained a warranty that it would remedy any defect in workmanship of which it received notice within one year after connection of the filter. IV As stated hereinabove. 583. by standard trade usage in pool installations. as pointed out in part II. that the plaintiffs waived that defect. Inc. At trial. 343. whether by the defendant or by any other contractor. the plaintiffs' most vigorous argument is based on the implied warranty described in § 42a-2-314 of the General Statutes. pursuant to their letter of March 22.. the date of execution of the contract.

See part III. the plaintiffs did encounter a number of difficulties in the use of the pool. v. in their brief. compel the conclusion that any implied warranty was finally excluded “by course of dealing or course of performance or usage of trade.). 430 F. however. V There remains for disposition the plaintiffs' claim for damages based on the oral contract for repairs. p.286. 1969. including the $300 agreement for repairs in 1972. That failure of proof. The plaintiffs themselves concede.  warranties of the UCC are not applicable to this transaction. the parties' actual negotiations. whether express or implied. cannot be charged with liability therefor.2d 1394. even if they had been applicable. Co. Next.Gulash v. the result of the plaintiffs' own failure to paint and maintain the pool in the months following completion and acceptance. is a fatal defect in this case.” For a pertinent case in which the court concluded that there was a limitation of implied warranties due to the course of performance or course of dealing. which were vexing and frustrating. that the “goods” were not merchantable at the time of sale. that they lacked direct evidence that the claimed defects they observed in 1971 and 1972 existed at the time of the original agreement in February. Commencing in 1971. Stylarama. Section 42a-2-208(1) of the General Statutes provides that “(w)here the contract … involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other. Inc. White & Summers. in the final disposition of their claims. inter alia. Allis-Chalmers Mfg. Inc. any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. supra. 1397 (6th Cir. Those problems were. under § 42a-2314. in the main. see Country Clubs. the plaintiffs must prove. Equally as important..” General Statutes § 42a-2316(3)(c). there was no satisfactory proof that the defendant had in fact breached any warranties to the plaintiffs. The defendant. Uniform Commercial Code (1972). as described in the second CHAPTER ONE: GETTING STARTED  71  . It is settled that to establish a breach of implied warranty of merchantability under § 42a-2-314.

which was a $40 item. Disputes developed between the parties as to the speedy progress of the work and as to claims of defective workmanship. VI The plaintiffs have called the court's attention to the recent case of Johnson v. New Haven Hotel Co. If it is true that the defendant did not complete the $40 work item. 491. for a consideration of $300 the defendant was to provide steel reinforced concrete footings. or. except for installation of some wood on the deck. In other words. Daly & Sons v. it is obvious that all of the plaintiffs' complaints about the pool. 291. 91 Conn. representing the return of their down payment as damages under the first count. as of the spring of 1972. repair and/or replace portions of the deck and supporting structures. 1972. if recovery is allowed on the first count. 280. could have been adjusted by the completion of repairs in the comparatively minor sum of $300. Flammia. The court is persuaded that the defendant substantially performed its obligations under the oral contract. There was testimony that the plaintiff George Gulash stated that he was weary of the upkeep from an above-ground pool and that he was checking into the possibility of installing an in-ground pool. the pool was ultimately dismantled and junked in 1973 by A&M Swimming Pool. The plaintiffs paid $200 on account to the defendant in May.89 as a recovery on the second count. 169 Conn. $200. As previously noted. As the court understands it. The case sustained a claim for 72  CONTRACTS  . Inc. 1972. rake and reinforce the sand bottom.The Applicable Law  count. if they should not prevail on the first count. the obstacle to final completion was unjustifiably interposed by the plaintiffs.. The defendant claimed that it was willing and able to finish the $300 repair job but that the plaintiffs had prevented it from doing so. a total of $2352. As contained in a letter of the plaintiff George Gulash to the defendant dated March 22. It is concluded that the plaintiffs are not entitled to any recovery on the second count. The defendant contends that it completed all the repairs. and replace the vinyl liner with a new liner. the plaintiffs have attempted to claim.

Inc.Gulash v. Mr.2d 175 (Ky. Frank Riffe and the House of Aluminum. has been brought to contest the report of the special commissioner and the order entered confirming that report. The action was tried before a special commissioner who concluded that appellants. The opinion of the Supreme Court in the Johnson case does not refer to the UCC as material to the trial or disposition of the case. VII The trial of the present case was protracted and the testimony was in sharp conflict on many issues. stipulated that the findings of fact of the commissioner would be final. The parties. CHAPTER ONE: GETTING STARTED  73  . Black  Court of Appeals of Kentucky 548 S.324. and Mrs. There is no transcript of the proceedings because the parties agreed to proceed without a reporter.63 plus interest to the appellees. are taken from the findings of fact made by the special commissioner. 1972. On March 12. nothing in the Johnson case compels a conclusion contrary to the conclusions of this court hereinabove. however.. had not only breached certain warranties. The commissioner recommended judgment against appellants. In any event. and Mrs. The court finds that the more credible evidence supports the defendant's contentions. Riffe v. The following facts.  damages arising out of the installation of a swimming pool and was tried to a jury. Judgment may enter for the defendants on both counts. Judge. Black agreed to purchase a pool from Mr. Mr. This appeal. therefore. Thomas Black.W. Frank Riffe. but also had been negligent in the installation of this pool. Inc. Appellees. Riffe also was to install the pool and he selected the location where the pool was installed. This recommendation was confirmed by the circuit judge and appellants were ordered to pay $4. who is doing business as the House of Aluminum. therefore. Stylarama. brought suit in Boone Circuit Court to recover damages resulting from the installation of a pool at their home. App. 1977) Hayes.

This hole was located in the area of the wrinkle and allowed water to leak from the pool. Riffe again offered to repair the pool at a substantial cost to appellees but this offer was refused. with the result that Black has nothing for his money but an ugly hole in his 74  CONTRACTS  . Inc. Riffe advised Mr. Riffe could fix it in the spring. they discovered a hole in the liner. When the pool was filled. The liner was returned as not defective and there was no proof that any product was defective. however. His failure to appear again on May 10. The continuing pressure totally destroyed the pool by 1975. Sand was trowelled for the bottom of the pool and a vinyl liner was placed into this excavation. 1974. a wrinkle developed in the bottom. Fearing further defects in the liner. Riffe agreed to reseat the liner but failed to do so. was the proximate cause of the further damage to the liner and the collapse of the metal panels. however. many of the panels were damaged in this unsuccessful process. The rains caused the steel panels to bow. In the fall of 1973. appellees were preparing the pool for the winter. Black took the liner to Riffe. The walls of the pool were prefabricated steel which were set into the excavation site. did not appear as he had stated. as directed by Riffe. All of the subsequent problems relate back to Riffe’s failure to reseat the liner as he had promised to do. After being informed of the hole. Riffe. Black then refused attempts by Riffe to repair the liner and the liner was sent to Heldor for inspection. Mr. Black to remove the liner from the pool so that Mr. Mr.The Applicable Law  This pool was a product manufactured by Heldor Associates. Appellees attempted to ease this pressure by digging around the panels. Since the liner had been removed as requested by Riffe. the pool was subjected to greater pressure from the surrounding earth. In addition to these findings of fact the special commissioner made the following finding as to the proximate cause of the destruction of the pool: Your Commissioner believes that the first hole in the liner developed as a result of the initial wrinkle in the bottom which appeared when Riffe first seated the liner in the excavation and filled the pool.

KRS 355. The warranty provisions of KRS 355. however. A hole at the bottom of a pool caused by negligent installation renders that pool unfit for its ordinary purpose. There was. The commissioner in his findings stated that there was no proof of defective goods. Appellants contend that these conclusions of law are not supported by the facts.2-314 and KRS 355. Black  lawn and a few salvageable components of the swimming pool kit which are now useless to him. Based upon these findings of fact.Riffe v. reveals a situation similar to that expressed in Poor Richard’s Almanac in 1758.2-315 apply to services when the sale is primarily one of goods and the services are necessary to insure that those goods are merchantable and fit for the ordinary purpose. the findings of the commissioner are sufficient to support the conclusion that these warranties were breached.2-315 in the installation of this pool. Furthermore. the commissioner arrived at the following conclusions of law: (1) Appellants breached the implied warranty of merchantability as provided in KRS 355.2-315 are generally concerned with goods and their fitness and merchantability. The facts of the present case also reveal a situation CHAPTER ONE: GETTING STARTED  75  . It provides in part that “unless the context otherwise requires. this article applies to transactions in goods. proof of defective services performed in relation to the goods. (3) Appellants were negligent in installing the pool and in failing to provide reasonable service to correct defects caused by their negligent installation. under the heading.2-314 because they did not install the pool in a workmanlike manner using suitable materials. In addition. In that situation Benjamin Franklin discussed how the lack of a horseshoe nail eventually led to the downfall of a kingdom. (2) Appellants also breached the warranty of fitness for a particular purpose under KRS 355.2-314 and KRS 355. The examination of the facts which gave rise to the destruction of this pool. “A Little Neglect May Breed Great Mischief”.” (Emphasis added).2-102 sets out the scope of the sales provisions of the commercial code. This court disagrees and affirms the decision of the lower court. both KRS 355.

Paul Pioneer Press Dispatch (Pioneer Press) and the Minneapolis Star and Tribune (Star Tribune) and offered to provide documents relating to a candidate in the upcoming election. Judgment is affirmed. Appellants. During the closing days of the 1982 Minnesota gubernatorial race. an active Republican associated with Wheelock Whitney’s Independent-Republican gubernatorial campaign. Cohen made clear to the reporters that he would provide the information only if he was given a promise of confidentiality. The question before us is whether the First Amendment prohibits a plaintiff from recovering damages.S.  Supreme Court of the United States 501 U. Cohen v. Cowles Media Co.01. We hold that it does not. Reporters from both papers promised to keep Cohen’s identity 76  CONTRACTS  . approached reporters from the St. appellants contend that the conclusion that they were negligent is not supported by the facts. Instead. All concur. do not argue that this finding of fact was clearly erroneous or an abuse of discretion as provided in CR 52. Dan Cohen. 663 (1991) Justice White delivered the opinion of the Court. This argument is without merit since one of the facts found by the commissioner was that appellants’ failure to make reasonable repairs was the proximate cause of the destruction of the pool. for a newspaper’s breach of a promise of confidentiality given to the plaintiff in exchange for information. however. The commissioner found that the proximate cause of the destruction of this pool was the failure of appellants to reseat the liner after a wrinkle had developed when the pool was installed and their failure to repair the hole which developed later.The Applicable Law  where a little neglect did breed great mischief. under state promissory estoppel law. This fact alone is sufficient not only to sustain the commissioner’s conclusion that appellants were negligent but also to affirm the judgment against appellants.

Cohen was fired by his employer. Cowles Media Co.W. 445 N. reversed the award of punitive damages after concluding that Cohen had failed to establish a fraud claim. However. The same day the stories appeared. the unlawful assembly charges arose out of Johnson’s participation in a protest of an alleged failure to hire minority workers on municipal construction projects. indicated his connection to the Whitney campaign. As it turned out. The first record indicated that Johnson had been charged in 1969 with three counts of unlawful assembly. 457 N. 260 (1989). the publishers of the Pioneer Press and Star Tribune. the editorial staffs of the two newspapers independently decided to publish Cohen’s name as part of their stories concerning Johnson. and included denials by Whitney campaign officials of any role in the matter.W. A jury returned a verdict in Cohen’s favor. the Democratic-Farmer-Labor candidate for Lieutenant Governor. The Minnesota Court of Appeals. After affirming the Court CHAPTER ONE: GETTING STARTED  77  . In their stories. alleging fraudulent misrepresentation and breach of contract. The trial court rejected respondents’ argument that the First Amendment barred Cohen’s lawsuit. at 262. and the second that she had been convicted in 1970 of petit theft.Cohen v.  anonymous and Cohen turned over copies of two public court records concerning Marlene Johnson. in Minnesota state court. Both newspapers interviewed Johnson for her explanation and one reporter tracked down the person who had found the records for Cohen.000 in punitive damages. Cohen sued respondents.2d 248. Id.000 in compensatory damages and $500. the only claim which would support such an award. in a split decision.2d 199 (1990). and the charges were eventually dismissed. The incident apparently occurred at a time during which Johnson was emotionally distraught.000 compensatory damages award. and the conviction was later vacated. After consultation and debate.. awarding him $200. both papers identified Cohen as the source of the court records. the court upheld the finding of liability for breach of contract and the $200. A divided Minnesota Supreme Court reversed the compensatory damages award. The petit theft conviction was for leaving a store without paying for $6 worth of sewing materials.

After a brief discussion.” Id. 38. 274-275 (1979). v. Greenmoss Builders. it first arose during oral argument in the Minnesota Supreme Court when one of the justices asked a question about equitable estoppel. the court must necessarily weigh the same considerations that are weighed for whether the First Amendment has been violated. at 205.S. 78  CONTRACTS  . In deciding whether it would be unjust not to enforce the promise. 498 U. Maryland. Orr v.. the court concluded that “in this case enforcement of the promise of confidentiality under a promissory estoppel theory would violate defendants’ First Amendment rights.2d. The court must balance the constitutional rights of a free press against the common law interest in protecting a promise of anonymity. a promissory estoppel theory was never tried to the jury. the court considered his breach-ofcontract claim and concluded that “a contract cause of action is inappropriate for these particular circumstances. at 203. Apparently.S. 1011 (1990). 486 U. 367.2 (1985). See App. These contentions do not merit extended discussion.S. Inc. Inc. 754.S. The court then went on to address the question whether Cohen could establish a cause of action under Minnesota law on a promissory estoppel theory. Respondents initially contend that the Court should dismiss this case without reaching the merits because the promissory estoppel theory was not argued or presented in the courts below and because the Minnesota Supreme Court’s decision rests entirely on the interpretation of state law. Mills v. Orr.The Applicable Law  of Appeals’ determination that Cohen had not established a claim for fraudulent misrepresentation. It is irrelevant to this Court’s jurisdiction whether a party raised below and argued a federal-law issue that the state supreme court actually considered and decided.” 457 N. 440 U. In addressing the promissory estoppel question. We granted certiorari to consider the First Amendment implications of this case.W. nor briefed nor argued by the parties. 472 U.. The court stated: “Under a promissory estoppel analysis there can be no neutrality towards the First Amendment.” Ibid. 749. n. the court decided that the most problematic element in establishing such a cause of action here was whether injustice could be avoided only by enforcing the promise of confidentiality made to Cohen. Dun & Bradstreet. 268.

It can hardly be said that there is no First Amendment issue present in the case when respondents have defended against this suit all along by arguing that the First Amendment barred the enforcement of the reporters’ promises to Cohen. These legal obligations would be enforced through the official power of the Minnesota courts.S. Delaware. at 265. 438 U.3 (1988). Moreover.S.Cohen v. that the Minnesota Supreme Court rested its holding on federal law could not be made more clear than by its conclusion that “in this case enforcement of the promise of confidentiality under a promissory estoppel theory would violate defendants’ First Amendment rights. 777 (1986). For if it does not.” 457 N.2d.. a state-law doctrine which. 154. 916. NAACP v. Franks v. Cowles Media Co..g. Under our cases. absent a need to further a state interest of the CHAPTER ONE: GETTING STARTED  79  . then the First Amendment has no bearing on this case. Georgia. n.S. 475 U. Respondents rely on the proposition that “if a newspaper lawfully obtains truthful information about a matter of public significance then state officials may not constitutionally punish publication of the information. n. The rationale of our decision in New York Times Co. and subsequent cases compels the conclusion that there is state action here. We proceed to consider whether that Amendment bars a promissory estoppel cause of action against respondents.. 376 U.51 (1982). The initial question we face is whether a private cause of action for promissory estoppel involves “state action” within the meaning of the Fourteenth Amendment such that the protections of the First Amendment are triggered.S. Claiborne Hardware Co. 767. e. 153. v. Jenkins v. id. In this case. the Minnesota Supreme Court held that if Cohen could recover at all it would be on the theory of promissory estoppel.S.W. 254 (1964). See. Our cases teach that the application of state rules of law in state courts in a manner alleged to restrict First Amendment freedoms constitutes “state action” under the Fourteenth Amendment. Hepps.  371. Inc. 458 U. 418 U. 886. Philadelphia Newspapers. 157 (1974). creates obligations never explicitly assumed by the parties. v. at 205. Sullivan. that is enough to constitute “state action” for purposes of the Fourteenth Amendment. in the absence of a contract. 161-162 (1978).

665 (1972). It is.J. 575. He has no special privilege to invade the rights and liberties of others. may not publish copyrighted material without obeying the copyright laws. v. See Zacchini v. 192-193 (1946). 186. however. The press may not with impunity break and enter an office or dwelling to gather news. University of Pennsylvania v.S. the media must obey the National Labor Relations Act. Similarly..S. ScrippsHoward Broadcasting Co. 1 (1945). Virginia. This case. by the equally well-established line of decisions holding that generally applicable laws do not offend the First Amendment simply because their enforcement against the press has incidental effects on its ability to gather and report the news. 524 (1989). 139 (1969). 105.S. 576-579 (1977).. EEOC. NLRB. Branzburg v.S. Associated Press v. United States. 408 U. beyond dispute that “[t]he publisher of a newspaper has no special immunity from the application of general laws. 394 U. Daily Mail Publishing Co. 493 U. and the Fair Labor Standards Act. Smith v. 182. 80  CONTRACTS  . Minneapolis Star & Tribune Co.S. 103 (1937).S. v. may not restrain trade in violation of the antitrust laws. v.” Smith v. Pennsylvania.S. 460 U. 326 U.The Applicable Law  highest order. Minnesota Comm’r of Revenue. 97. As the cases relied on by respondents recognize. is not controlled by this line of cases but.g.S. 301 U. 433 U.” Associated Press v. Hayes. Cf. 562. Landmark Communications.F. and it has been applied in various cases that have found insufficient the asserted state interests in preventing publication of truthful. B. 435 U. 201-202 (1990).S. Florida Star v. 829 (1978). 319 U. That proposition is unexceptionable. Murdock v. 131. v. 103 (1979). like others interested in publishing. lawfully obtained information. rather. Neither does the First Amendment relieve a newspaper reporter of the obligation shared by all citizens to respond to a grand jury subpoena and answer questions relevant to a criminal investigation. United States. supra.. Walling. 443 U. therefore. The press. Inc.S. See. Associated Press v.S.S. e. NLRB. Daily Mail. 112 (1943). 491 U. even though the reporter might be required to reveal a confidential source. and must pay nondiscriminatory taxes. Citizen Publishing Co. the truthful information sought to be published must have been lawfully acquired. 327 U. Oklahoma Press Publishing Co. 581-583 (1983)..

supra. Moreover. determine the scope of their legal obligations. it would be perfectly clear that the payment to petitioner would represent a cost of acquiring newsworthy material to be published at a profit. Also. the characterization of the payment makes no difference for First Amendment purposes when the law being applied is a general law and does not single out the press.. as were the criminal sanctions at issue in Smith v. and any restrictions that may be placed on the publication of truthful information are self-imposed. by contrast. insofar as we are advised. at 132-133. This is not strictly accurate because compensatory damages are not a form of punishment. Justice Blackmun suggests that applying Minnesota promissory estoppel doctrine in this case will “punish” respondents for publishing truthful information that was lawfully obtained. In those cases. In any event. Rather. It does not target or single out the press. If the contract between the parties in this case had contained a liquidated damages provision.J. Daily Mail is misplaced.S. The payment of compensatory damages in this case is constitutionally indistinguishable from a generous bonus paid to a confidential news source. 301 U. the State itself defined the content of publications that would trigger liability. Post. Cowles Media Co. B. as in this case. as indicated above. at least for purposes of publishing it. The parties themselves.Cohen v.  supra. it is not at all clear that respondents obtained Cohen’s name “lawfully” in this case. Justice Blackmun’s reliance on cases like Florida Star v. Here. Minnesota law simply requires those making promises to keep them. The First Amendment does not forbid its application to the press. respondents CHAPTER ONE: GETTING STARTED  81  . and Smith v. Daily Mail. the doctrine is generally applicable to the daily transactions of all the citizens of Minnesota. where the rape victim’s name was obtained through lawful access to a police report. enforcement of such general laws against the press is not subject to stricter scrutiny than would be applied to enforcement against other persons or organizations. Accordingly.. Unlike the situation in Florida Star.F. There can be little doubt that the Minnesota doctrine of promissory estoppel is a law of general applicability. rather than a punishment imposed by the State. supra.

we reject Cohen’s request that in reversing the Minnesota Supreme Court’s judgment we reinstate the jury verdict awarding him $200. The First Amendment does not grant the press such limitless protection.W. The Minnesota Supreme Court’s incorrect conclusion that the First Amendment barred Cohen’s claim may well have truncated its consideration of whether a promissory estoppel claim had otherwise been established under Minnesota law and whether Cohen’s jury 82  CONTRACTS  .000 in compensatory damages. Although we conclude that the First Amendment does not confer on the press a constitutional right to disregard promises that would otherwise be enforced under state law. He sought damages in excess of $50.000 for breach of a promise that caused him to lose his job and lowered his earning capacity. As the Minnesota Supreme Court observed here. Respondents and amici argue that permitting Cohen to maintain a cause of action for promissory estoppel will inhibit truthful reporting because news organizations will have legal incentives not to disclose a confidential source’s identity even when that person’s identity is itself newsworthy. Thus. The dissenting opinions suggest that the press should not be subject to any law. and constitutionally insignificant. at 202. 485 U. it is no more than the incidental. this is not a case like Hustler Magazine. consequence of applying to the press a generally applicable law that requires those who make certain kinds of promises to keep them. including copyright law for example.The Applicable Law  obtained Cohen’s name only by making a promise that they did not honor. “Cohen could not sue for defamation because the information disclosed [his name] was true. Cohen is not seeking damages for injury to his reputation or his state of mind. where we held that the constitutional libel standards apply to a claim alleging that the publication of a parody was a state-law tort of intentional infliction of emotional distress. See Brief for Petitioner 31. v. Inc.” 457 N. Nor is Cohen attempting to use a promissory estoppel cause of action to avoid the strict requirements for establishing a libel or defamation claim. Justice Souter makes a similar argument.2d. 46 (1988). Falwell.S. which in any fashion or to any degree limits or restricts the press’ right to report truthful information. But if this is the case.

we are told. the judgment of the Minnesota Supreme Court is reversed.” that “the promise of anonymity arises in the classic First Amendment context CHAPTER ONE: GETTING STARTED  83  .S. that the use of that claim to penalize the reporting of truthful information regarding a political campaign does not violate the First Amendment. Hayes. 186.S. v. or immunity from.g. 665 (1972). Instead. the controlling precedent is “the equally well-established line of decisions holding that generally applicable laws do not offend the First Amendment simply because their enforcement against the press has incidental effects on its ability to gather and report the news. Or perhaps the State Constitution may be construed to shield the press from a promissory estoppel cause of action such as this one. with whom Justice Marshall and Justice Souter join. I agree with the Court that the decision of the Supreme Court of Minnesota rested on federal grounds and that the judicial enforcement of petitioner’s promissory estoppel claim constitutes state action under the Fourteenth Amendment. 460 U. The majority concludes that this case is not controlled by the decision in Smith v. Oklahoma Press Publishing Co. not on the identity of the speaker. truthful information “absent a need to further a state interest of the highest order. Accordingly. 327 U. I do not agree. the laws of that State for members of the press. 192-193 (1946). 443 U. and the case is remanded for further proceedings not inconsistent with this opinion. So ordered.S. See. Minneapolis Star & Tribune Co. the court’s decision is premised. e.  verdict could be upheld on a promissory estoppel basis. to the effect that a State may not punish the publication of lawfully obtained. Accordingly. Cowles Media Co.” Id.. In my view. 575.S. Justice Blackmun. Thus. These are matters for the Minnesota Supreme Court to address and resolve in the first instance on remand.. Daily Mail Publishing Co. v. at 103. 581-583 I do not read the decision of the Supreme Court of Minnesota to create any exception to.Cohen v. dissenting. the court found it to be of “critical significance. Walling. but on the speech itself. 408 U.. 97 (1979).” Ante. Minnesota Comm’r of Revenue. Branzburg v. I dissent. however.

Lovell v.’” ante.” Id. 444. 131. holds that a state may not adopt a state rule of law to impose impermissible restrictions on the federal constitutional freedoms of speech and press”). NLRB.18 (1945). see also id. Associated Press v. … [N]o penalty.6 (“New York Times v.W.. at 204. e. In short.” 457 N. and no express or implied command that the press publish what it prefers to withhold. n. 376 U..S.. 301 U. United States. 394 U.S. v. … The press in its historic connotation comprehends every sort of publication which affords a vehicle of information and opinion”). 326 U.” id. United States. a performer sued a news organization for appropriation of his “right to the publicity value of his performance. 303 U.. 133 (1937). at 681. See also Associated Press v.” 408 U. We made clear.. at 682. the First Amendment protection afforded respondents would be equally available to nonmedia defendants. 139 (1969). however. and its reliance on the cases that support that principle. “[t]he sole issue before us” in Branzburg was “the obligation of reporters to respond to grand jury subpoenas as other citizens do and to answer questions relevant to an investigation into the commission of crime. 433 U. that our holding did not extend to the reporting of information about an event of public interest. 1. are therefore misplaced.1 1 The only arguable exception is Zacchini v.. This Court held that the First Amendment did not bar the suit. Indeed.S. 20. n. We explained: “If … respondent had merely reported that petitioner was performing 84  CONTRACTS  . Griffin. at 565. Sullivan.S.S. Citizen Publishing Co. 205 (1990). Necessarily. 254 … (1964). See. for example. civil or criminal. Scripps-Howard Broadcasting Co. after it broadcast the entirety of his act on local television. 452 (1938) (“The liberty of the press is not confined to newspapers and periodicals.2d 199. no … restriction on what the press may publish. 103.The Applicable Law  of the quintessential public debate in our democratic society. this Court found it significant that “these cases involve no intrusions upon speech or assembly. The majority’s admonition that “‘[t]he publisher of a newspaper has no special immunity from the application of general laws. In Branzburg. In Zacchini.g. a political source involved in a political campaign. namely.S. these cases did not involve the imposition of liability based upon the content of speech.S. 562 (1977). related to the content of published material is at issue here.

that “public figures and public officials may not recover for the tort of intentional infliction of emotional distress by reason of publications such as the one here at issue without showing in addition that the publication contains a false statement of fact which was made with ‘actual malice. Certainly. The Virginia cause of action for intentional infliction of emotional distress at issue in Hustler provided for recovery where a plaintiff could demonstrate “that the defendant’s conduct (1) is intentional or reckless.3.  Contrary to the majority. In so doing. we rejected the argument that Virginia’s interest in protecting its citizens from emotional distress was sufficient to remove from First Amendment protection a “patently offensive” expression of opinion. the law was subject to the strictures of the First Amendment. our decision in Hustler recognized no such distinction. at 50. and (4) caused emotional distress that was severe. There.2 Nonetheless. we found that the use of a claim of intentional infliction of emotional distress to impose liability for the publication of a satirical critique violated the First Amendment. at 569. 485 U. id. 46 (1988). with or without showing his picture on television. Sullivan..S. when used to penalize the expression of opinion. Thus.” ante. CHAPTER ONE: GETTING STARTED  85  2 3 . 254 (1964). (3) is causally connected with the plaintiff’s emotional distress. In applying that principle.” 485 U.Cohen v. we concluded. a unanimous Court found that. at 50. Cowles Media Co. There was no doubt that Virginia’s tort of intentional infliction of emotional distress was “a law of general applicability” unrelated to the suppression of speech. I regard our decision in Hustler Magazine. to be precisely on point.’” as defined by New York Times Co.. Falwell.” Id. at 56. 485 U.S. Zacchini cannot support the majority’s conclusion that “a law of general applicability. I perceive no meaningful distinction between a statute that penalizes published speech in order to protect the individual’s psychological well being or reputational interest and one that exacts the same penalty in order to compensate the loss of employment or earning potential. (2) offends generally accepted standards of decency or morality. 376 U. v..3 at the fair and described or commented on his act.. v.S. n.” Ante. Inc. The majority attempts to distinguish Hustler on the ground that there the plaintiff sought damages for injury to his state of mind whereas the petitioner here sought damages “for a breach of a promise that caused him to lose his job and lowered his earning capacity. may not violate the First Amendment when employed to penalize the dissemination of truthful information or the expression of opinion.S. we would have a very different case.

it must be in furtherance of a state interest “of the highest order. v. Though they be civil. 376 U.S. 340 (1974) (“[P]unishment of error runs the risk of inducing a cautious and restrictive exercise of the constitutionally guaranteed freedoms of speech and press”) (emphasis added).. concurring) (“To punish the exercise of this right to discuss public affairs or to penalize it through libel judgments is to abridge or shut off discussion of the very kind most needed”) (emphasis added).W. the liability at issue here will not “punish” respondents in the strict sense of that word. 376. the sanctions we review in this case are no more justifiable as “a cost of acquiring newsworthy material.g. New York Times Co.. with whom Justice Marshall.” Smith.The Applicable Law  As in Hustler..2d. J. Daily Mail Publishing Co. Pittsburgh Comm’n on Human Relations. 97 (1979). v. Gertz v. 443 U. Justice Blackmun. See. Pittsburgh Press Co. 376 U. unlike the criminal sanctions we considered in Smith v. the operation of Minnesota’s doctrine of promissory estoppel in this case cannot be said to have a merely “incidental” burden on speech. Ante. than were the libel damages at issue in New York Times Co.. I respectfully dissent. dissenting. citing New York Times Co. Robert Welch. 418 U. 323. 86  CONTRACTS  . at 204-205. Sullivan. While this may be true. we have long held that the imposition of civil liability based on protected expression constitutes “punishment” of speech for First Amendment purposes. e. Thus. the publication of important political speech is the claimed violation. it is undisputed that the publication at issue was true... 279-280 (1964). see 457 N. 443 U. Inc.. as in Hustler. 4 The majority argues that. Because the Minnesota Supreme Court’s opinion makes clear that the State’s interest in enforcing its promissory estoppel doctrine in this case was far from compelling. Justice Souter. a permissible cost of disseminating newsworthy material. Cf.” ante. at 103. 413 U.S.S. I would affirm that court’s decision. and Justice O’Connor join. 386 (1973) (“In the context of a libelous advertisement … this Court has held that the First Amendment does not shield a newspaper from punishment for libel when with actual malice it publishes a falsely defamatory advertisement”) (emphasis added). To the extent that truthful speech may ever be sanctioned consistent with the First Amendment. the law may not be enforced to punish the expression of truthful information or opinion.S. 254.S. at 297 (Black.4 In the instant case..S.

562 (1977). v. Curtis Publishing Co.S. 51 (1961). Butts. are at issue. But freedom of the press is ultiCHAPTER ONE: GETTING STARTED  87  .S. 433 U. State Bar of California. Even such general laws as do entail effects on the content of speech. and such has been the Court’s recent practice in publication cases.g. Smith. with a value that may be measured without reference to the importance of the information to public discourse. 130.. as Justice Harlan observed. Because I do not believe the fact of general applicability to be dispositive. Falwell. for such laws may restrict First Amendment rights just as effectively as those directed specifically at speech itself. Zacchini v. the requirements for which have not been met here. 494 U. This suggests both the possibility of waiver. See Hustler Magazine.S. 36. v. like the one in question. See ante. 485 U. 872. but only. Thus. see. as well as a conception of First Amendment rights as those of the speaker alone.S. Cowles Media Co.” Employment Div. 366 U. Scripps-Howard Broadcasting Co. Dept. measure. e..S. 145 (1967). these constitutional protections are asserted against the exercise of valid governmental powers a reconciliation must be effected. and that perforce requires an appropriate weighing of the respective interests involved. “[t]here is nothing talismanic about neutral laws of general applicability. “when [such effects] have been found justified by subordinating valid governmental interests. Nor can I accept the majority’s position that we may dispense with balancing because the burden on publication is in a sense “selfimposed” by the newspaper’s voluntary promise of confidentiality.. of Human Resources of Ore. I find it necessary to articulate. 388 U. v. Whenever. may of course be found constitutional. concurring in judgment).Cohen v. See ante. and compare the competing interests involved in any given case to determine the legitimacy of burdening constitutional interests. in such a context. 46 (1988). Inc. J.” Konigsberg v. a prerequisite to constitutionality which has necessarily involved a weighing of the governmental interest involved … .  I agree with Justice Blackmun that this case does not fall within the line of authority holding the press to laws of general applicability where commercial activities and relationships. 901 (1990) (O’Connor.. not the content of publication.

See. 765.S..S.J. “‘[i]t is the right of the [public]. v.g. “[T]he First Amendment goes beyond protection of the press and the self-expression of individuals to prohibit government from limiting the stock of information from which members of the public may draw. which in turn could be taken to reflect on the character of the candidate who had retained him as an adviser. 390 (1969)). FCC. liability there might not be constitutionally prohibited.S. There can be no doubt that the fact of Cohen’s identity expanded the universe of information relevant to the choice faced by Minnesota voters in that State’s 1982 gubernatorial election. v. One can conceive of situations in which the injured party is a private individual. FCC. Eu v. 524. the publication of which was thus of the sort quintessentially subject to strict First Amendment protection. 214. 395 U. e. The propriety of his leak to respondents could be taken to reflect on his character. v. Inc. e.S. 278-279 (1964). This is not to say that the breach of such a promise of confidentiality could never give rise to liability.g. An election could turn on just such a factor. 534-535. 367.. 489 U. Cohn. 492 (1975). Florida Star v. although 88  CONTRACTS  . New York Times Co. 469. 448 U. whose identity is of less public concern than that of petitioner. see. v. 420 U. v. In this context.’” CBS..” First Nat. San Francisco Cty. 555. 491 U.The Applicable Law  mately founded on the value of enhancing such discourse for the sake of a citizenry better informed and thus more prudently selfgoverned. Inc. Nor do I mean to imply that the circumstances of acquisition are irrelevant to the balance. 435 U. Bellotti.8 (1989). B. for “[w]ithout the information provided by the press most of us and many of our representatives would be unable to vote intelligently or to register opinions on the administration of government generally. Bank of Boston v.S..S.” Cox Broadcasting Corp. Virginia. 376 U. which is paramount. 783 (1978). and n. if it should. Democratic Central Comm. 367. Sullivan. 453 U. not the right of the [media]. Richmond Newspapers. at least over the long run.S. I am ready to assume that it would be to the greater public good.F. 395 (1981) (emphasis omitted) (quoting Red Lion Broadcasting Co. 254. 573 (1980).S. The importance of this public interest is integral to the balance that should be struck in this case. 223 (1989). cf.

  they may go only to what balances against. the First Amendment value of any particular piece of information.Cohen v. CHAPTER ONE: GETTING STARTED  89  . Because I believe the State’s interest in enforcing a newspaper’s promise of confidentiality insufficient to outweigh the interest in unfettered publication of the information revealed in this case. Cowles Media Co. I respectfully dissent. and not to diminish.

  *** 90  .

affirmed the judgment in part. Jr. 14. Wisconsin. (Halbman). entered into an agreement with Michael Lemke (Lemke) whereby Lemke agreed to sell Halbman a 1968 Oldsmobile for the sum of $1. a minor. Lemke  Supreme Court of Wisconsin 99 Wis. Miech presiding. and Halbman was an employe at L & M. 8. On or about July 13. 15. 2d §§ 7. On this review we must decide whether a minor who disaffirms a contract for the purchase of a vehicle which is not a necessity must make restitution to the vendor for damage sustained by the vehicle prior to the time the contract was disaffirmed. At the time the agreement was made Halbman paid Lemke $1.2d 241 (1980) Callow. Lemke was the manager of L & M Standard Station in Greenfield. 1973. 12. Arrangements were made for Halbman to pay $25 per week until the balance was paid. the Honorable Robert J. and remanded the cause to the circuit court for Milwaukee County. About five weeks after the purchase 91  . I.000 cash and took possession of the car. reversed in part. 10. The court of appeals.250.2d 847. 9. Justice.  CHAPTER TWO  PARTIES & CAPACITY  Rest. James Halbman. 16  _________________________________________________  INFANCY  _________________________________________________  Halbman v. 13. 91 Wis. at which time title would be transferred. This matter was before the trial court upon stipulated facts.

Halbman declined the offer and in September took the vehicle to a garage where it was repaired at a cost of $637. On postjudgment motions. making it unsalvageable. in satisfaction of a garageman's lien for the outstanding amount. he need only offer to return the property remaining in his hands without making restitution for any use or depreciation. the garage elected to remove the vehicle's engine and transmission and then towed the vehicle to the residence of James Halbman.100 he had paid toward the purchase of the vehicle. claiming he was under no legal obligation to remove it. and Lemke counterclaimed for $150. the trial court granted judgment in favor of Halbman. 1973.Infancy  agreement. During the period when the vehicle was at the garage and then subsequently at the home of the plaintiff's father. the father of the plaintiff minor. Lemke. Halbman did not pay the repair bill. but he declined to do so. In the order granting judgment. In the spring of 1974. maintenance.100 of the purchase price. Lemke was asked several times to remove the vehicle from the senior Halbman's home. Based upon the uncontroverted facts. at his expense. the trial court also allowed interest to the plaintiff dating from the disaffirmance of the contract. On October 15. or use of the vehicle. and after Halbman had paid a total of $1. although the full purchase price had not been paid by Halbman. Halbman initiated this action seeking the return of the $1. Halbman returned the title to Lemke by letter which disaffirmed the purchase contract and demanded the return of all money theretofore paid by Halbman. in an effort to avoid any liability for the operation. it was subjected to vandalism. the amount still owing on the contract. Sr. Lemke did not return the money paid by Halbman.40. offered to assist Halbman in installing a used engine in the vehicle if Halbman.. a connecting rod on the vehicle's engine broke. could secure one. and the vehicle remained in the garage where the repairs had been made. the court amended its order for judgment to allow interest to the plaintiff from the date of 92  CONTRACTS  . concluding that when a minor disaffirms a contract for the purchase of an item. The repair bill remained unpaid. In October of 1973 Lemke endorsed the vehicle's title over to Halbman. while denying any obligation.

. but reversed on the question of prejudgment interest. having disaffirmed a contract for the purchase of an item which is not a necessity and having tendered the property back to the vendor. unresolved problems CHAPTER TWO: PARTIES & CAPACITY  93  . Kiefer v. Krienitz. v. at 23. Once there has been a disaffirmance. Fred Howe Motors. Neither party challenges the absolute right of a minor to disaffirm a contract for the purchase of items which are not necessities. 560 (1910). Thus it is settled law in this state that a contract of a minor for items which are not necessities is void or voidable at the minor's option. 52. must make restitution to the vendor for damage to the property prior to the disaffirmance. II. The appellate court affirmed the trial court with respect to the question of restitution for depreciation. That right. 24 (1968). Schoenung v. 86 Wis. July 26. 1978. 39 Wis. 1959). supra. Gallet. 206 Wis. at 560-61. Lemke argues that he should be entitled to recover for the damage to the vehicle up to the time of disaffirmance. 226 (3d ed.2d 20. Kaeppel.Jur. as in this case between a minor vendee and an adult vendor. 2 Williston. Contracts sec. 142 Wis.2d Infants sec. 42 Am. Krienitz. Lemke  the original order for judgment. remanding the cause for reimposition of interest dating from the date of disaffirmance.” is one of the oldest and most venerable of our common law traditions. 378. Grauman. The question of prejudgment interest is not before us on this review. 380 (1893). and Halbman crossappealed from the disallowance of prejudgment interest. 84 (1969). Id. Marx & Cline v. which he claims equals the amount of the repair bill. The sole issue before us is whether a minor. however. Inc. See: Grauman. Although the origins of the doctrine are somewhat obscure. Marx & Cline Co. variously known as the doctrine of incapacity or the “infancy doctrine. 556. Thormaehlen v. 142 Wis.Halbman v. 55 (1931). it is generally recognized that its purpose is the protection of minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace. Lemke appealed to the court of appeals.

142 Wis. See also: Nelson v. we have not heretofore resolved it. Co. at 380. Rev. Note. 1 Ga. Thormaehlen v.. 238.2d 873. at 57-58. 875-76 (Mo. inconsistency. Walter D. 1964). comment b. as disaffirmance is permitted even where such return cannot be made.2d 480. Olson v. Voidability of Minors' Contracts: A Feudal Doctrine in a Modern Economy. sec. The law regarding the rights and responsibilities of the parties relative to the consideration exchanged on a disaffirmed contract is characterized by confusion. Browning. at the time of disaffirmance. and the vendor seeks to recover the depreciation. 483 (La. 39-41. Restatement (Second) of Contracts. State Farm Mutual Auto. Gallet. supra. (1937). 62. supra.Infancy  arise regarding the rights and responsibilities of the parties relative to the disposition of the consideration exchanged on the contract. In this case we have a situation where the property cannot be returned to the vendor in its entirety because it has been damaged and therefore diminished in value. L. 18B. App.W. Rev. 391 S. at 560-61. The minor's right to disaffirm is not contingent upon the return of the property. Navin. Krienitz. 197 Wis. comment c. and a general lack of uniformity as jurisdictions attempt to reach a fair application of the infancy doctrine in today's marketplace. Rev.C. Ins. Boudreaux v. supra. 345 (1928). supra. however. Jr. Veum. 1. 517 (1972). (Tent. Wallace v.. 207-08 (1925). sec. As a general rule a minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction. See: Schoenung v. Newdale Furniture Co. L. 86 Wis. Schoenung v. Edge. 19 Hastings L. The return of property remaining in the hands of the minor is not the issue presented here. 205 (1967). 205. See: Robert G. Gallet. supra. 188 Wis. 1199 (1968). Although this court has been cognizant of this issue on previous occasions. The Contracts of Minors Viewed from the Perspective of Fair Exchange. See also: Restatement of Restitution. 385 So. Williston. Grauman. 52 Marq. In return the minor is expected to restore as much of the consideration as. 50 N. 1980). 206 Wis. Kaeppel. 342. See also: 94  CONTRACTS  . L.1965). Draft No. Restitution in Minors' Contracts in California. sec. 437 (1969). Marx & Cline v. remains in the minor's possession.. Rev.

holding that the contract of a minor for the purchase of items which are not necessities may be disaffirmed even when the minor cannot make restitution. See: Calamari and Perillo. finding there had been insufficient disaffirmance to sustain the plea of infancy.B. and the minor abandoned his interest in the material purchased by leaving it with his brother. is symptomatic of the problem. 12 A. Restitution of Benefits Conferred Under Minors' Contracts. purchased farm implements and materials. Lemke advances the thesis in the dissenting opinion CHAPTER TWO: PARTIES & CAPACITY  95  .3d 1174 (1967). seeks to disaffirm a contract and recover his consideration. The trial court ordered judgment for the plaintiff on the note.J.Halbman v. Lemke  John D.R. Lemke calls our attention to the following language in that decision: “To sustain the judgment below is to overlook the substantial distinction between a mere denial by an infant of contract liability where the other party is seeking to enforce it and those cases where he who was the minor not only disaffirms such contract but seeks the aid of the court to restore to him that with which he has parted at the making of the contract. an adult. Infant's Liability for Use or Depreciation of Subject Matter. From this Lemke infers that when a minor. sec. The Law of Contracts.” 197 Wis.L.. Prior to the maturity of the first note. The vendor initiated an action against the minor to recover on the note. in the other also as a sword. different rules should apply than if the minor is defending against an action on the contract by the other party. L. 126. That both parties rely on this court's decision in Olson v. Veum. 89 (1979). Annot. the brothers ceased their joint farming business. In the one case he is using his infancy merely as a shield. McCamus. N. treating separately the obligations of the infant as a plaintiff and the infant as a defendant. This theory is not without some support among scholars. In Olson a minor. in Action to Recover Purchase Price Upon His Disaffirmance of Contract to Purchase Goods. 28 U. 207-09 (Hornbook Series 1970). at 344. This court reversed. with his brother. and the minor (who had by then reached majority) disaffirmed. Additionally. as a plaintiff. supra. paying by signing notes payable at a future date.

and accordingly there is no question as to Halbman's ability to make restitution.1 The mi1 Although we are not presented with the question here.100. The principal problem is the use of the word “restitution” in Olson. When the contract is disaffirmed.g. 18B.” In this case Lemke argues that the Olson language excuses the minor only when restitution is not possible. that the infant cannot make restitution. that did not occur here and he may avoid the contract without making restitution notwithstanding his ability to do so. Draft No. but it is not to be used to bilk merchants out of property as well as proceeds of the sale. it is clear that. Halbman argues in response that. is under an enforceable duty to return to the vendor. Consequently. upon disaffirmance. at 345. For this proposition. as much of the consideration as remains in his possession. as we have stated. sometimes at the expense of an innocent vendor.Infancy  by court of appeals Judge Cannon. (Tent. 1. Restatement (Second) of Contracts. as it is here.. title to that part of the purchased property which is retained by the minor revests in the vendor. the following language in Olson v. comment c. See. the rule requiring the return of property does not apply. 1964). when the minor no longer possesses the property which was the subject matter of the contract. 197 Wis. we recognize there is considerable disagreement among the authorities on whether a minor who disposes of the property should be made to restore the vendor with something in its 96  CONTRACTS  . then his absolute right to disaffirm is not to be questioned. sec. arguing that a disaffirming minor's obligation to make restitution turns upon his ability to do so. The rationale for the rule is plain: a minor who disaffirms a purchase and recovers his purchase price should not also be permitted to profit by retaining the property purchased. A minor. it no longer belongs to the minor. while the “sword-shield” dichotomy may apply where the minor has misrepresented his age to induce the contract. e. is cited: “The authorities are clear that when it is shown. Here Lemke holds Halbman's $1. supra. The infancy doctrine is designed to protect the minor. Veum.

59 N. Lemke  nor will not be required to give up what he does not have.. Quality Motors v. 105 (1969). 52 Marq.H.C. adopting a “status quo” theory which requires the minor to restore the precontract status quo. e. The Law of Contracts. Porter v. the vendor may be able to recover damages in tort. at 97. 39-41. Inc. 300 Mass.. It seeks compensatory value for that which he cannot return. 1199. Here Lemke seeks restitution of the value of the depreciation by virtue of the damage to the vehicle prior to disaffirmance. secs. But see: Boyce v. CHAPTER TWO: PARTIES & CAPACITY  97  . Such a recovery would require Halbman to return more than that remaining in his possession. Super. 129. Browning. 42 Am.3d 757 (1976).’” Id. 240 (1971). Wilson. Fred Howe Motors. 215-16 (Hornbook Series 1970). See also: 19 Hastings L. supra.g. “‘or account for so much of its value as may have been invested in other property which he has in hand or owns and controls. See. 238.Halbman v. But absent these factors. supra. We do not agree with Lemke and the court of appeals' dissent that Olson requires a minor to make restitution for loss or damage to the property if he is capable of doing so. requiring the minor to restore only the property remaining in the hands of the minor. some attention is given to the “New Hampshire Rule” or benefits theory which requires the disaffirming minor to pay for the contract to the extent he benefited from it. 216 Ark. 281 (1938). at 875-76. 1205-08 (1968). Calhoun. Doyle. even if it means returning proceeds or other value. Williston. 37 Ill.J. 106 N. Finally. 270 (1965). 113 N. The cases upon which the petitioner relies for the proposition that a disaffirming minor must make restitution for loss and deprestead. Terrace Company v. Hall v.. 437 (1969). Curtiss-Wright Flying Service. We conclude that Olson does no more than set forth the foregoing rationale and that the word “restitution” as it is used in that opinion is limited to the return of the property to the vendor. See: Nelson v. App. Hays. as in the present case. Butterfield. Fisher v. Where there is misrepresentation by a minor or willful destruction of property. we believe that to require a disaffirming minor to make restitution for diminished value is. 249 N.2d Infants sec. sec. 617 (1959). Calamari and Perillo. Taylor Motor Co. Adamowski v.Jur. in effect. supra. The general rule appears to limit the minor's responsibility for restoration to specie only.H. to bind the minor to a part of the obligation which by law he is privileged to avoid. L. Kiefer v. Rev.J. 354 (1879). 264 (1949).

damage. 254 (1952). depreciation. 228 S.S. represent the proposition that a disaffirming minor must do equity in the form of restitution for loss or depreciation of the property returned.3d 862 (1978). a minor sought to disaffirm a contract for the purchase of a vehicle which developed engine trouble after its purchase. 1965). App. In Barber v. Clyde C. Until such changes are forthcoming. 912 (Tex. however. and Rose v.W. involved a minor seeking to disaffirm a contract for the purchase of a used car where the dealer claimed the minor had misrepresented his age. Netzley. a minor who disaffirms a contract for the purchase of an item which is not a necessity may recover his purchase price without liability for use.2d 251 (Tex..2d 615 (1957). 1950). Hughes. App. App.Y. 396 S. 74 S.W. we cannot follow them. The Texas court has also ruled. As we noted in Kiefer. we hold that. that upon disaffirmance and tender by a minor the vendor is obligated to take the property “as is.. Coleman. In Weisbrook v.. to make restitution for depreciation. App. 204 So. Sheehan Buick. In reversing summary judgment granted in favor of the minor. the South Dakota Supreme Court held that a minor could disaffirm a contract as a defense to an action by the merchant to enforce the contract but that the minor was obligated by a South Dakota statute.D. in a case where there was no issue of misrepresentation.” Rutherford v. 1967). Because these cases would at some point force the minor to bear the cost of the very improvidence from which the infancy doctrine is supposed to protect him. upon sufficient proof of loss by the plaintiff. Civ. absent misrepresentation or tortious damage to the property. the court recognized the minor's obligation to make restitution for the depreciation of the vehicle. Gross. Inc.2d 903 (Fla. In the minor's action the dealer counterclaimed for restitution for use and depre98  CONTRACTS  .2d 909. or other diminution in value. Talley Motors. Scalone v. modifications of the rules governing the capacity of infants to contract are best left to the legislature.Infancy  ciation serve to illustrate some of the ways other jurisdictions have approached this problem of balancing the needs of minors against the rights of innocent merchants. 58 Ill. Recently the Illinois Court of Appeals came to the same conclusion. 158 N. Inc. Civ. Inc. Cain v.

Lucy. Hughes.. 1954) Buchanan. Coleman. 1970). Fisher v. Lucy and J. at 1107. v.H. against A. 617 (1959). _________________________________________________  INTOXICATION  _________________________________________________  Lucy v. supra. informed defendant that he was 17 years old. See also: Johnson Motors. The decision of the court of appeals is affirmed. the minor plaintiff never misrepresented his age and. In these circumstances we believe the weight of authority would permit the minor plaintiff to disaffirm the voidable contract and that defendant-vendor would not be entitled to recoup any damages which he believes he suffered as a result thereof.2d 516 (Va. This suit was instituted by W. Inc.E. defendants. delivered the opinion of the court. his wife. in fact. J. of course. Zehmer  Supreme Court of Appeals of Virginia 84 S.. He borrowed the total purchase price and paid it to defendant carrying out the transaction fully at the time of taking delivery of the vehicle. with respect to the dealer's claim for restitution.C.2d 716 (Miss. Nor did plaintiff represent to defendant that his father was to be the owner or have any interest in the automobile. complainants. There is no evidence in the present case that plaintiff at the time of entering the contract with defendant intended anything more than to enjoy his new automobile. The court affirmed judgment for the minor and. 232 So.Halbman v. 249 N. Taylor Motor Co. We believe this result is consistent with the purpose of the infancy doctrine. Zehmer and Ida S.O. stated: “In the present case. Plaintiff sought to disaffirm the contract and the return of the purchase price only when defendant declined to make repairs to it. Lemke  ciation. Zehmer.” Id.C. Rutherford v. CHAPTER TWO: PARTIES & CAPACITY  99  .

H. Depositions were taken and the decree appealed from was entered holding that the complainants had failed to establish their right to specific performance. Seven or eight years ago he had offered Zehmer $20.O. to whom W. Lucy. Lucy transferred a half interest in his alleged purchase.C.H.000. he wrote out “the memorandum” quoted above and induced his wife to sign it.” and signed by the defendants. Zehmer.6 acres. 1952. which Zehmer refused to accept. Zehmer. Lucy.H. but the agreement was verbal and Zehmer backed out. attempted to offer Zehmer $5 to bind the bargain.000. title satisfactory to buyer. 1952.O. Zehmer in Dinwiddie county containing 471. thus testified in substance: He had known Zehmer for fifteen or twenty years and had been familiar with the Ferguson farm for ten years. and dismissing their bill. around eight o’clock. and both he and Lucy having had several drinks. Lucy. Lucy left the premises insisting that he had purchased the farm. that so thinking.O.000 for the farm which Zehmer had accepted. and realizing for the first time that Lucy was serious. filling station and motor court. read it. the other complainant.000 cash for the farm. While there he decided to see Zehmer and again try to buy the Ferguson 100  CONTRACTS  . Lucy the Ferguson Farm complete for $50. is a brother of W.O. he took an employee to McKenney. Zehmer on December 20.H. put it in his pocket. On the night of December 20. Zehmer admitted that at the time mentioned W.O. in these words: “We hereby agree to sell to W. but that he. for $50. that he did not deliver the memorandum to Lucy. a lumberman and farmer. The assignment of error is to this action of the court.Intoxication  to have specific performance of a contract by which it was alleged the Zehmers had sold to W. The answer of A. Lucy offered him $50. The instrument sought to be enforced was written by A. where Zehmer lived and operated a restaurant. more or less. Lucy a tract of land owned by A. considered that the offer was made in jest. W.00. known as the Ferguson farm. J.O. Zehmer and Ida S. but that Lucy picked it up. Zehmer assured him that he had no intention of selling the farm and that the whole matter was a joke. A.

saying. said Lucy. “You don’t need to give me any money. Lucy said that while he felt the drinks he took he was not intoxicated. “Yes.C. Zehmer  farm. Lucy and arranged with the latter to take a half interest in the purchase and pay half of the consideration.000 and signed it. Lucy said. mailed on January 13. Next day Lucy telephoned to J.000 complete. Zehmer replied by letter. you wouldn’t give fifty. that he was ready to pay the purchase price in cash and asking when Zehmer would be ready to close the deal. who was at the other end of the counter ten or twelve feet away. and from the way Zehmer handled the transaction he did not think he was either. “I bet you wouldn’t take $50.” Lucy said he would and told Zehmer to write up an agreement to that effect. Lucy the Ferguson Farm for $50. “I do hereby agree to sell to W.000. I would too.” and stated that all he had on the farm was three heifers. He asked Zehmer if he had sold the Ferguson farm. Zehmer brought it back and gave it to Lucy. to sign it. The attorney reported favorably on December 31 and on January 2 Lucy wrote Zehmer stating that the title was satisfactory. Zehmer said she would for $50.” Zehmer replied.00 for that place. you got the agreement there signed by both of us. December 20 was on Saturday. Zehmer. Zehmer until Zehmer came in. who offered him $5 which Zehmer refused. Zehmer replied that he had not. wrote the agreement quoted above and asked Mrs. On Monday he engaged an attorney to examine the title. lasted thirty or forty minutes. Lucy suggested the provision for having the title examined and Zehmer made the suggestion that he would sell it “complete. Lucy took a partly filled bottle of whiskey into the restaurant with him for the purpose of giving Zehmer a drink if he wanted it. asserting that he CHAPTER TWO: PARTIES & CAPACITY  101  . everything there. during which Zehmer seemed to doubt that Lucy could raise $50. Zehmer did.O. Zehmer took a restaurant check and wrote on the back of it.000. Zehmer then tore up what he had written. Zehmer would have to sign it too. He entered the restaurant and talked to Mrs.Lucy v.” The discussion leading to the signing of the agreement. Mrs. and he and Lucy had one or two drinks together.” Lucy told him he had better change it to “We” because Mrs.

00 for the farm. as he described it. “I bet you wouldn’t take $50. Zehmer testified in substance as follows: He bought this farm more than ten years ago for $11.Intoxication  had never agreed or intended to sell. When he entered the restaurant around eight-thirty Lucy was there and he could see that he was “pretty high. “Great balls of fire.000. including several from Lucy.000 and Lucy said yes. drinking. At that point in his testimony Zehmer asked to see what he had written to “see if I recognize my own handwriting. I don’t recognize that writing if I would see it. They argued “pro and con for a long time. “Boy. said Zehmer. “I was already high as a Georgia pine.” He. that he was not interested in selling it. I got ‘Firgerson’ for Ferguson. “scribbled this thing off.000.” Finally.” Zehmer asked him if he would give $50. ain’t you?” Lucy then offered him a drink.00 for it. “you sign that piece of paper here and say you will take $50.” After they had talked a while Lucy asked whether he still had the Ferguson farm. He took a good many drinks during the afternoon and had a pint of his own. Lucy told him if he didn’t believe he had $50. “You haven’t got $50. Zehmer were called by the complainants as adverse witnesses. to buy it. He replied that he had not sold it and Lucy said.000. more or less. He had given them all the same answer.” Zehmer walked over to where she was and she at first refused to sign but did so after he told her 102  CONTRACTS  . “Get your wife to sign it. Zehmer replied. “just grabbed the back off of a guest check there” and wrote on the back of it.” He examined the paper and exclaimed. wouldn’t know it was mine. Zehmer.” Lucy said. and didn’t have any more better sense than to pour another great big slug out and gulp it down. you got some good liquor. and Mrs.000.” After Zehmer had.000 in cash that he could put up right then and buy that farm. Mr. who had never offered any specific sum of money. On this Saturday night before Christmas it looked like everybody and his brother came by there to have a drink.” Lucy said he did and Zehmer replied that he did not believe it.” He said to Lucy. He had had twenty-five offers.” mainly about “whether he had $50.000 in cash. I have got satisfactory spelled wrong. and he took one too.

000. but she also said that when she read that part about “title satisfactory to buyer” she understood that if the title was good Lucy would pay $50. and when I looked back again he had it in his pocket and he dropped a five dollar bill over there. and he said. Zehmer  that he “was just needling him [Lucy]. Zehmer testified that when Lucy came into the restaurant he looked as if he had had a drink. “All right. “I agree to sell the Ferguson Place to W.” Lucy asked him if he would put it in writing that he would sell him this farm. she said she read what she signed and was then asked. I am not going to sell you the farm. Lucy for $50. She said that only one paper was written and it said: “I hereby agree to sell. I have told you that too many times before.000 but if the title was bad he would have a right to reject it.’” Mrs. and I reached over to get a drink. ‘Let me see it. and that that was her understanding at the CHAPTER TWO: PARTIES & CAPACITY  103  .” Zehmer then “took it back over there … and I was still looking at the dern thing.00 cash to pay me tonight. “I can get it. “You haven’t got $50. and Zehmer replied that he had not and did not want to sell it. She heard Lucy ask Zehmer if he had sold the Ferguson farm.” but the “I” had been changed to “We”.000 cash for that farm. that particular phrase?” She said she thought that was a cash sale that night. Zehmer then wrote on the back of a pad.” and she signed it. get your wife to sign it. However. When Zehmer came in he took a drink out of a bottle that Lucy handed him. Lucy said. that is beer and liquor talking.” Lucy said.O. She went back to help the waitress who was getting things ready for next day. Lucy.’ He reached and picked it up.” Zehmer came back to where she was standing and said. “I bet you wouldn’t take $50. Lucy and Zehmer were talking but she did not pay too much attention to what they were saying.” but he said in an undertone.’ what did you interpret that to mean. ‘Hell no.O.’ … I said.Lucy v. I had the drink right there by my hand.000 cash. that I was not selling the farm. ‘Here is five dollars payment on it.” and Zehmer replied. and he said. “You want to put your name to this?” She said “No. “It is nothing but a joke.” Zehmer said he might form a company and get it.” Lucy said. “but you haven’t got $50. and didn’t mean a thing in the world.000.00 cash. “When you read ‘We hereby agree to sell to W.

She was asked whether she saw Lucy offer Zehmer any money and replied. this is liquor talking. “You should have taken him home. On examination by her own counsel she said that her husband laid this piece of paper down after it was signed. said let me see it.’ He took it and put it in his pocket. She was some distance away and did not see either of them sign the paper. “I will give you so much for the farm. Lucy reached over and took it. Mr. “Well.” The waitress referred to by Mrs. I am just about as bad off as he is. “Oh. and wasn’t going to sell his farm. Her version was that Lucy kept raising his offer until it got 104  CONTRACTS  .000. I will give you that much. He paused at the door and said. Zehmer. “I will bring you $50.” before showing it to Mrs.” wheeled around and started for the door. she said.” Both of them appeared to be drinking right much. She repeated on cross-examination that she was busy and paying no attention to what was going on. This is all a joke. “He had five dollars laying up there. “Zehmer. put it in his pocket and in about a minute he left. took it. tomorrow is Sunday. I have told you that I want my son to have it.” She said you could tell definitely that he was drinking and she said to her husband.” Then “they jotted down something on paper … and Mr.” but he said. folded it and put it in his wallet.” She said Zehmer told Lucy he didn’t want his money “because he didn’t have enough money to pay for his property. then said to Zehmer. yes. “No.Intoxication  time she signed her name. ‘Let’s see it. She was asked whether she saw Zehmer put the agreement down on the table in front of Lucy. they didn’t take it.” but Zehmer said. … No.” He looked at it. “You haven’t got that much. you have sold your farm. She was sweeping and cleaning up for next day. “Let me give you $5.” When Zehmer came in they were laughing and joking and she thought they took a drink or two.00. She said she heard Lucy tell Zehmer.00 tomorrow. that Lucy said to let him see it.” Lucy then said at least twice. I don’t want to sell the farm. and her answer was this: “Time he got through writing whatever it was on the paper.” Lucy answered. Zehmer testified that when Lucy first came in “he was mouthy. Lucy reached over and said.” and Zehmer said. I will bring it to you Monday.

. The evidence is convincing also that Zehmer wrote two agreements. Zehmer said that what he wrote was “I hereby agree. Emery. Contracts.” and that the transaction “was just a bunch of two doggoned drunks bluffing to see who could talk the biggest and say the most.J. and rendered of no weight by the testimony of his wife that when Lucy left the restaurant she suggested that Zehmer drive him home. then that “I don’t think I wrote but one out. The defendants insist that the evidence was ample to support their contention that the writing sought to be enforced was prepared as a bluff or dare to force Lucy to admit that he did not have $50. When made to the writing admittedly prepared by one of the defendants and signed by both. if not bizarre. and he CHAPTER TWO: PARTIES & CAPACITY  105  . that the writing was not delivered to Lucy and no binding contract was ever made between the parties. Lucy’s objection to the first draft because it was written in the singular. 17 C. It was in fact conceded by defendants’ counsel in oral argument that under the evidence Zehmer was not too drunk to make a valid contract. Zehmer  to $50. It is an unusual. It is contradicted by other evidence as to the condition of both parties. and hence that instrument is not to be invalidated on that ground. the fact that it was under discussion for forty minutes or more before it was signed. p. In his testimony Zehmer claimed that he “was high as a Georgia pine. the first one beginning “I hereby agree to sell. Neither are the mistakes in spelling that Zehmer sought to point out readily apparent..Lucy v.” but that the “I” was changed to “We” after that night. The agreement that was written and signed is in the record and indicates no such change. 124 Va.” That claim is inconsistent with his attempt to testify in great detail as to what was said and what was done. Taliaferro v.000. defense. that the whole matter was a joke.000.483. The appearance of the contract.S. § 133 b.” Zehmer first said he could not remember about that. 674.” Mrs. clear evidence is required to sustain it. The record is convincing that Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the instrument he executed.

are facts which furnish persuasive evidence that the execution of the contract was a serious business transaction rather than a casual. nevertheless the evidence shows that Lucy did not so understand it but considered it to be a serious business transaction and the contract to be binding on the Zehmers as well as on himself.’” If it be assumed. Lucy said something to the effect that ‘I have been stuck before and I will go through with it. in fact I think you would get stuck at $50.00 would be a good price. Zehmer. there was a social gathering in a home in the town of McKenney at which there were general comments that the sale had been made.000. Zehmer to sign it also.00. including Lucy. the rewriting to meet that objection and the signing by Mrs. the provision for the examination of the title. because he thought he was too tight. Zehmer testified that on that occasion as she passed by a group of people. the taking possession of it by Lucy with no request or suggestion by either of the defendants that he give it back. If I had wanted to sell $50. That was cheap. to which Lucy replied that he was not too tight. with the high-price whiskey you were drinking last night you should have paid more.Intoxication  wanted Mrs.000. Lucy. the discussion of what was to be included in the sale. Zehmer’s version was that he said to Lucy: “I am not trying to claim it wasn’t a deal on account of the fact the price was too low. $50. didn’t know what he was doing. On Sunday. jesting matter as defendants now contend.” Lucy testified that at that time Zehmer told him that he did not want to “stick” him or hold him to the agreement because he. was too tight and didn’t know what he was doing. whereupon she stepped up and said. contrary to what we think the evidence shows. that he had been stuck before and was going through with it. that Zehmer was jesting about selling his farm to Lucy and that the transaction was intended by him to be a joke. the completeness of the instrument that was executed. Mrs. the day after the instrument was signed on Saturday night. The very next day he arranged 106  CONTRACTS  . who were talking about the transaction.000 was mentioned. “Well.” A disinterested witness testified that what Zehmer said to Lucy was that “he was going to let him up off the deal.

Lucy said.000 that night. Lucy testified that if there was any jesting it was about paying $50. The contract and the evidence show that he was not expected to pay the money that night. The day after that he employed an attorney to examine the title. 99.” After receiving the report from his attorney that the title was good he wrote to Zehmer that he was ready to close the deal. “We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. Not only did Lucy actually believe. “You know you sold that place fair and square. They had argued about it and discussed its terms. followed by the execution and apparent delivery of a written contract. he was back at Zehmer’s place and there Zehmer told him for the first time. Roanoke Oil Co. Zehmer said that after the writing was signed he laid it down on the counter in front of Lucy. as generally elsewhere. Tuesday. 114. that he wasn’t going to sell and he told Zehmer. If the words or other acts of one of the parties have CHAPTER TWO: PARTIES & CAPACITY  107  . for a long time. but the evidence shows he was warranted in believing.’” First Nat. was anything said or done to indicate that the matter was a joke. Zehmer  with his brother to put up half the money and take a half interest in the land. even under the defendants’ evidence. Not until then. as Zehmer admitted.. At no time prior to the execution of the contract had Zehmer indicated to Lucy by word or act that he was not in earnest about selling the farm. that the contract represented a serious business transaction and a good faith sale and purchase of the farm. Lucy said Zehmer handed it to him. ‘The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. Both said that Lucy put the writing in his pocket and then offered Zehmer $5 to seal the bargain. In the field of contracts. 169 Va. Both of the Zehmers testified that when Zehmer asked his wife to sign he whispered that it was a joke so Lucy wouldn’t hear and that it was not intended that he should hear.Lucy v. In any event there had been what appeared to be a good faith offer and a good faith acceptance. The next night. The mental assent of the parties is not requisite for the formation of a contract. Bank v.

Whether the writing signed by the defendants and now sought to be enforced by the complainants was the result of a serious offer by Lucy and a serious acceptance by the defendants. 4 ed.. So a person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement. There was no fraud. however.4. I. There is in fact present in this case none of the grounds usually urged against specific performance.. The purchase price was $50.. They disclose some drinking by the two parties but not to an extent that they were unable to understand fully what they were doing.J..S. An agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. 108  CONTRACTS  . Defendants contend further. therefore. If his words and acts. 17 C. 12 Am.J. p.74. The farm had been bought for $11.361. “… The law. in either event it constituted a binding contract of sale between the parties. Jur.” Clark on Contracts. judges of an agreement between two persons exclusively from those expressions of their intentions which are communicated between them. § 71. Restatement of the Law of Contracts. … . § 3. Zehmer admitted that it was a good price. Contracts. Vol.390. or was a serious offer by Lucy and an acceptance in secret jest by the defendants. equity should decline to enforce it under the circumstances. Clark on Contracts. § 47. no sharp practice and no dealing between unequal parties. p. § 32. his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party. no misrepresentation. Contracts. These circumstances have been set forth in detail above. § 27.. p.S.000. that even though a contract was made. 4 ed. it is immaterial what may be the real but unexpressed state of his mind.54. Contracts. § 19.000 and was assessed for taxation at $6. manifest an intention to agree.300. judged by a reasonable standard. p. at p.Intoxication  but one reasonable meaning. 17 C. p.515.

19. R. 1. Reversed and remanded. Zehmer  Specific performance. 4511. 4511. but one which is controlled by the established doctrines and settled principles of equity. P. Guernsey County 1980 WL 354257 (Ohio App. SEC. UNITED STATES CONSTITUTION. The complainants are entitled to have specific performance of the contracts sued on.Lucy v. 4511. Bond v.C. 5 Dist. but is addressed to the reasonable and sound discretion of the court. AND THIS DENIAL IS ANALOGOUS TO A SUPPRESSION OF EVIDENCE AND VIOLATED THE DEFENDANT'S DUE PROCESS RIGHTS UNDER THE FEDERAL AND OHIO CONSTITUTIONS. State of Ohio v.19 WAS EFFECTIVELY DENIED BY THE ACTIONS OF THE LAW ENFORCEMENT OFFICIALS BY DENYING BAIL. it is true. Roanoke Oil Co. R. ART. Fifth District. at p. is as follows: DEFENDANT'S RIGHT TO A SCIENTIFIC TEST IN ADDITION TO THE ONE GIVEN HIM BY THE STATE UNDER R. generally. Crawford. and. The decree appealed from is therefore reversed and the cause is remanded for the entry of a proper decree requiring the defendants to perform the contract in accordance with the prayer of the bill. FOURTEENTH AMENDMENT.116.. it is as much a matter of course for courts of equity to decree a specific performance of it as it is for a court of law to give damages for a breach of it.C. Bank v. supra. 437. But it is likewise true that the discretion which may be exercised is not an arbitrary or capricious one. OHIO CRIMINAL RULE 46.C.J. The sole Assignment of Error in this appeal from a conviction of driving under the influence of alcohol. CHAPTER TWO: PARTIES & CAPACITY  109  .19. 444. Berry  Court of Appeals of Ohio. is not a matter of absolute or arbitrary right. 16. 169 Va. where a contract is in its nature and circumstances unobjectionable.) Putman. 193 Va. First Nat. OHIO CONSTITUTION.

and the same right as preserved by the Ohio Constitution Art. 4511. The question of admissibility of the chemical test in support of the state's prosecution is not raised in this appeal. para. I. B. Our Supreme Court. 26 Ohio St. or other person 110  CONTRACTS  .C. No claim was made that the breathalyzer test of the state received in evidence was improperly received. (See Criminal Rule 12(B)(3)). 96. We move now to the claim of state action denying the accused his federal right to due process under the Fourteenth Amendment of the United States Constitution. We first take note that this case does not involve the question or the validity of the breathalyzer test under R.Intoxication  We overrule the Assignment of Error and affirm the conviction. We disagree. Myers (1971). and it appears that his release into the temporary custody of a responsible relative. 2d 190. pursuant to Article IV. When a person is not released because of his physical. There was no pre-trial motion to suppress the evidence of the breathalyzer test on the ground that it was “illegally obtained”. mental. has adopted Ohio Criminal Rule 46 dealing with the subject of bail. Our reasons follow. Paragraph D of that section deals with pre-trial release in misdemeanor cases. mental. or emotional condition appears to be such that he may pose a danger to himself or others if released immediately. Sec. friend. or emotional condition. It reads in pertinent part: A person need not be released on his own recognizance or upon the execution of an unsecured appearance bond if he has a history of failure to appear when required in judicial proceedings.19. and no further discussion of the applicability of the rule of State v. It is claimed by the accused that he was irreparably damaged in his opportunity to secure evidence in his defense when the police refused to promptly release him on bail following his arrest for driving under the influence when his father appeared at the jail with sufficient money to post bail. is called for. or if his physical. Section 5.

or upon the execution of an unsecured appearance bond. Berry  will obviate the danger to himself or others. by rule. or (3) he shall be given a hearing without unnecessary delay before a judge who shall determine the conditions of his release pursuant to subdivision (C). he shall be released into such temporary custody on his making bail under subsection (D)(1). The third step is to apply it. The lynch-pin of our position is that the right to release upon bail is dependent upon the prisoner's competence to contract. either specifically. There is no blanket right to release without strings. (2). or by type. The right to bail historically presupposes the accused is competent to bind himself by a contract of recognizance. establish a method whereby a person may make bail under subsection (D) (1) or (3) by the use of a credit card. or by potential penalty. Each court shall. The issue of obtaining a surety for that contract of the accused is separate. A police officer (R-14) who observed the accused testified that he was so intoxicated that he should not be immediately released even in the custody of his own father. during the critical short time immediately following his arrest. The second step is we observe both houses of the legislature agreed. The point is that upon this record the trial court could properly conclude that the accused was. or pursuant to subsection (D) (1). No credit card transaction shall be permitted when a service charge is made against the court or clerk. Criminal Rule 46 adopts this requirement. (2). The court could have believed this and upon review we must presume the court did believe it. If a person is not released on his own recognizance. by the accused. The constitutional right is to release upon making. Such rule shall permit only credit cards of recognized and established issuers. too intoxicated to bind himself by conCHAPTER TWO: PARTIES & CAPACITY  111  . a contract of recognizance. The first step in our analysis is that we presume the Supreme Court found that provision to be constitutional. Each court shall establish a bail schedule covering all misdemeanors including traffic offenses. or (3).State of Ohio v. or by some other reasonable method of classification.

in State v. 798: “It is almost universally held that constitutional guarantees must yield to the enforcement of statutes and ordinances designed to promote the public health as a part of the police power of the state. There was some evidence to the effect that Williamson wanted to get enough equity to 112  CONTRACTS  .. J. Nobley..E. the sole assigned error is overruled and the judgment of the Cambridge Municipal Court is affirmed.C. Her mortgage was in default. Bail & Recognizance. State v. This cause is remanded to that court for execution of sentence. Sec. We have been shown no authority for the proposition that the right to bail includes a right to immediate release notwithstanding the accused is so intoxicated as to be a danger to himself and others.2d 1245 (Ala. and Dowd. Pillow. Hutchinson. On the contrary. 2d 100 (N. 66 S. 488 (1944). State v. 24. there was held to be no violation of the defendant's constitutional or statutory rights to bail. 2d 657 (N. in a situation identical to this case. In an analogous situation. Williamson v.C. 1980) Per Curiam This is an appeal from an order denying appellant Williamson injunctive relief seeking to cancel a deed and to set aside a sale of property from Williamson to the Matthews. 246 Ala. to grant release on bail to persons thus isolated and detained for treatment of disease would render quarantine lines and regulations nugatory and of no avail. Jur. 2d.Intoxication  tract. As stated in 8 Am. 1951). Pg. overr'd on other gnds. Rutherford.E. The Matthews learned from members of their family that Williamson wanted to sell her home. it has been held that provisions for bail do not apply to persons suspected of being infected with a communicable disease. Matthews  Supreme Court of Alabama 379 So.” For the foregoing reasons. J. and the mortgagee was threatening foreclosure. 1954). 83 S. We reverse and remand. concur.

Williamson moved for and was granted a rehearing and further testimony was taken on the issue of Williamson’s alleged mental weakness. at attorney Larry Keener’s office to sign the deed and to close a loan from appellee Family Savings Federal Credit Union to the Matthews so that the Matthews could buy the property from Williamson. the parties went to attorney Arthur J. Two days later. Williamson filed a petition for injunctive relief alleging inadequate consideration and mental weakness. the court denied Williamson the relief she requested. The Matthews contend that Williamson offered to sell her equity for $1.700. This Court was advised at oral argument that further disbursement of funds has been held up pending final disposition of this appeal. When they went to Williamson’s house to inquire about it. Cook’s office to execute a contract for the sale of the property. Williamson became concerned that she had not received her full consideration and consulted an attorney. Immediately after the sale. Keener disbursed part of the loan proceeds to Williamson. Williamson told the Matthews to come back the next day. and that the Matthews agreed to pay off the mortgage. The contract of sale stated the purchase price to be $1. Attorney Cook testified that he read the terms of the sale to both parties. and Williamson contends that she offered to sell her equity for $17.000.Williamson v. It is at this point that the parties are in disagreement. Williamson showed the Matthews through the house. Williamson signed the deed to the property. 1978. Appellee The Brooklyn Savings Bank was about to foreclose the mortgage on Williamson’s property. but at a full hearing on the petition for injunctive relief.800 ($100 increase reflecting an agreement between the parties concerning some of the furniture in the home) plus the unpaid balance of the mortgage. The trial court granted Williamson a temporary restraining order preventing the sale from being completed. Bobby Matthews asked Williamson how much she wanted for it. It is undisputed that on September 27. The parties then met on October 10. on October 12. the CHAPTER TWO: PARTIES & CAPACITY  113  . 1978. Matthews  help her finance a mobile home. 1978. Following the rehearing.

over 128 years ago. again denying Williamson injunctive relief. There must be something else besides the mere inadequacy of consideration or inequality in the bargain. the exercise of undue influence. she should have been paid $11. cannot be a ground for setting aside a contract.300 to $15. to superinduce the belief that there had been either a suppression of the truth. Williamson should receive $15.500).Intoxication  court issued a final order. by employing other means than those named. this Court stated that: “… [I]nadequacy of price within itself.500.300. Using this figure and deducting the existing mortgage of approximately $6. perhaps no court ought to say. Wilkins. Accepting this figure. will venture to say. There was also evidence that the credit union appraised the property for $19. and disconnected from all other facts. a violation of duty arising out of some fiduciary relation between the parties. accepting the second contention.000.300 more. abuse of confidence. lest the wary and cunning. $8. I. the suggestion of falsehood. in connection with the inadequacy of consideration.$23. In other words. Williamson’s equity would amount to $10. 765.500 (adding the mortgage of $6. the Matthews should have paid her $8. in Judge v.500.300 more.000 for her equity. This would reflect an equity of $13.300 more than the $1. accepting Williamson’s first contention. that it ought. or affording relief against it. which would result in the property being valued at. to justify a court in granting relief by setting aside the contract. Thus. the claim of inadequacy of consideration (and it would seem to be well established) varied from $8.000. Williamson contends that she was due $17. What this something else besides the inadequacy should be. or the taking of an unjust and inequitable advantage of one whose 114  CONTRACTS  .500. 19 Ala.700 she was paid.300 more. by itself. This appeal followed. however. a sufficient ground to set aside a contract for the sale of land. should escape with their fraudulent gains. Although it is a fundamental principle of law that inadequacy of consideration is not. 772 (1851). Williamson’s contention of inadequacy of consideration is based upon evidence which she introduced at trial showing a property appraisal of $16.

CHAPTER TWO: PARTIES & CAPACITY  115  . to set aside a contract. the contracts of an insane person are absolutely void. Matthews  peculiar situation at the time would be calculated to render him an easy prey to the cunning and the artful. at 772. then relief cannot be afforded. which coupled with inadequacy of consideration requires the setting aside of the transaction. but rather is contending that she had a mental incapacity. overreaching. presentation of falsehood. or that some fiduciary relation existed between the parties. can authorize no court. or that he has suggested some falsehood. Even a total failure of consideration is an insufficient ground for the cancellation of an otherwise valid deed. free from fraud or undue influence. that the party against whom relief is sought has suppressed some fact that he ought to have disclosed. or at the time of the trade was in a condition. for inadequacy of consideration. Our rule in such a case is that a party cannot avoid. But if no one of these appears. Williamson. From any cause. is not contending that she was insane at the time of the contract. Standing alone and unsupported by any thing else. Horn. either due to some form of permanent mental incapacity or due to intoxication. or if no fact is proved that will lead the mind to the conclusion. unless it be shown that the incapacity was of such a character that. however. or that the party complaining was under his influence. 142 Ala. the person had no reasonable perception or understanding of the nature and terms of the contract. Walker v. fiduciary relationship between the parties.Williamson v. 560. at the time of execution. Williamson contends that the “something else” in the case at bar is mental weakness. that would render him an easy victim to the unconscientious. a contract on the ground of mental incapacity. the Court in Judge did not limit “this something else” besides mere inadequacy of consideration to these factors alone. Ingram v. Of course. abuse of confidence. governed by the rules of the English law. Winn. Although in the case at bar there is no proof of suppression of fact. 353 (1975). or undue influence. 564 (1904). 294 Ala. …” 19 Ala. or abused in some manner the confidence reposed in him.

160 (1934). by clear and convincing evidence. 157. of executing the contract for sale and of executing the deed. A Mrs. Scott. incapable of exercising judgment. 97. supra. and to render the contract voidable. 182 Ala. and that her ability to transact business had been impaired. Proof merely that the party was drunk on the day the sale was executed does not per se. under the facts of this case. Scott. supra. provided lengthy testimony about her daughter’s past aberrations. it appears to us that Williamson was not. we nevertheless hold that. Scott. that she had emotional problems. Williamson’s mother. He stated that she showed signs of an early organic brain syndrome due to her excessive drinking. show that he was without contractual capacity. Williamson’s contention that she was intoxicated supports this holding. Fredric Feist provided expert testimony regarding Williamson at the rehearing. there must be some evidence of a resultant condition indicative of that extreme impairment of the faculties which amounts to contractual incapacity. Logan. that she still had the problem at 116  CONTRACTS  . capable of fully and completely understanding the nature and terms of the contract and of the deed. The drunkenness of a party at the time of making a contract may render the contract voidable. Carothers.Intoxication  Weaver v. Our rule regarding incapacity due to intoxication is much the same. 228 Ala. it must be made to appear that the party was intoxicated to such a degree that he was. The testimony elicited at trial by Williamson’s attorney charted a history of aberrative behavior. Testimony was admitted from various witnesses to the effect that Williamson had a history of drinking. Maxwell. at the time of execution. The burden was therefore cast on Williamson to show. that she was incapable. 263 Ala. and of knowing what he was about when he entered into the contract sought to be avoided. Dr. Snead v. but it does not render it void. We hold that Williamson met this burden. 509 (1955). Indulging the usual presumption due the trial court. at the time of the contracting. 104 (1913). Snead v. Snead v. that he thought that some of her brain cells were destroyed. Cross v. Additionally. at the time of execution. understanding the proposed engagement.

368 So. the factors which prompt us to require a reversal of this case. Faulkner. CHAPTER TWO: PARTIES & CAPACITY  117  . These factors are combined with a gross inadequacy of consideration. nor were they aware of. No hardship is worked upon any party. this Court will not ordinarily reverse that judgment unless there is a showing of plain and palpable error or manifest injustice (Terry v.Williamson v.J. and that she had in fact taken a couple of drinks before leaving for the meeting in attorney Arthur Cook’s office. concur. and Embry. Moreover. and that she had an apparent weakened will because she was pressured by the possibility of an impending foreclosure. No right of any intervening third party is involved. Reversed and remanded. J. numerous factors combine to warrant the conclusion that she was operating under diminished capacity. C. They are in no wise responsible for. Further disbursement of the loan proceeds has been frozen until final disposition of this appeal.J. However. Torbert. Although the evidence was presented before the trial court ore tenus..2d 859. We do not hold that Williamson was so intoxicated as to render her incapable of contracting. We recognize that two able and conscientious attorneys handled parts of the transaction. No mitigating factors exist to the contrary. Williamson made complaint to an attorney only hours after the transaction. and in such a case where there is evidence to support the trial court’s judgment. Almon. and Bloodworth.. Testimony showed that Williamson’s capacity to transact business was impaired. that she had a history of drinking. Matthews  the time she executed the contract. Buttram. we consider that the record supports a finding in this case of such manifest injustice as to require a reversal of the judgment. 860 (Ala.1979)). that she had been drinking the day she conducted negotiations.

began to drive at high speeds. and to discuss the purchase of land in Brentwood for the erection of houses. to take his wife out to dinner.2d 212 (1963) Bernard S. Though under care of Dr. to be sexually more active and to discuss his prowess with others.Mental Illness  _________________________________________________  MENTAL ILLNESS  _________________________________________________  Faber v. The instant case presents yet a third aspect of the same basic problem: that involving the law of contract. he became more expansive beginning in August. 8. Previously frugal and cautious. against the advice of his 118  CONTRACTS  . plaintiff was in the depressed phase of a manic-depressive psychosis and that from August until the end of October he was in the manic stage. Meyer. a psychiatrist. began to discuss converting his Long Beach bathhouse and garage property into a twelve story cooperative and put up a sign to that effect. beginning June 8th for his depression. Supreme Court. pp. 37 Misc. Sweet Style Manufacturing Corp. Part VII 40 Misc. The evidence demonstrates that from April until July 1961. This court had reason to touch upon the relationship of psychiatry to matrimonial law in Anonymous v. In a short period of time. Defendant counterclaims for specific performance. his son and his daughter.2d 773. Doc. The relationship of psychiatry to the criminal law has been the subject of study and recommendation by the Temporary Commission on Revision of the Penal Law and Criminal Code (Leg. Nassau County. Justice. he cancelled his August 8th appointment and refused to see the Doctor further. Anonymous. he purchased three expensive cars for himself. Plaintiff herein seeks rescission of a contract for the purchase of vacant land in Long Beach on the ground that he was not at the time the contract was entered into of sufficient mental competence. New York Trial Term. In September. [1963] No.16-26). Levine.

when the broker agreed to take $1. caused a sign to be erected on the premises stating that “Faber Drug Company” and a “merCHAPTER TWO: PARTIES & CAPACITY  119  . Plaintiff returned to that conference with his lawyer (who is also his brotherin-law) who approved the contract as to form but asked plaintiff how he would finance it and also demanded that the contract include as a condition that a nearby vacant property would be occupied by Bohack.  lawyer. Sweet Style Manufacturing Corp.500 commission. Kass obtained the services of attorney Nathan Suskin who drew the contract prior to the 2 P. price and his brother-in-law’s address and phone number and asking that search be completed within one week. plaintiff and Kass met at the office of defendant’s real estate broker. Kass. plaintiff offered $50. a former employee. he went to Jamaica and arranged with a title abstract company for the necessary search and policy. 1961. On the following Monday morning.150 deposit paid by check on plaintiff’s checking account in a Rockaway bank. During the following week Kass advised plaintiff that defendant would sell.500 and plaintiff accepted. he persuaded Leonard Cohen.000. On September 16. On the morning of Saturday. plaintiff’s lawyer withdrew. Between September 23rd when the contract was signed and October 8th when plaintiff was sent to a mental institution.000 and talked about erecting a 400 room hotel with marina and golf course on the land. It was agreed the parties would meet for contract that afternoon.Faber v. No mention was made of plaintiff’s illness. When Suskin refused to consider such a condition. The contract was signed in the absence of plaintiff’s lawyer and the $5. Kass offered to sell for $51. conference. to join in the building enterprise promising him a salary of $150 a week and a Lincoln Continental when the project was complete. he discussed with Mr. he contracted for land at White Lake in the Catskills costing $11. plaintiff transferred funds from his Long Beach bank account to cover the check. the price of which was $41. the purchase of the property involved in this litigation for the erection of a discount drug store and merchandise mart.M.000. September 23. defendant’s president. giving correct details concerning the property.500 and gave a $500 deposit on acreage. On the same day. Kass asked $55.

Sutton.Y. Levine testified that on September 23rd plaintiff was incapable of reasoned judgment.Y.. that she was stopping him from doing what he wanted to.Y. however. Merritt.Y. If the status quo cannot be restored and the other party to the contract was ignorant of the incompetence and the transaction was fair and reasonable. 164 N. hired laborers to begin digging (though title was not to close until October 20th). American Tract Society. 120  CONTRACTS  . Merritt v.S. the burden of proving lack of knowledge and fairness is upon the party asking that the transaction be enforced. Dr. 543. 84 N. his insight lacking and his judgment defective. Schwarz. The contract of a mental incompetent is voidable at the election of the incompetent. Dr. 59 N. Krinsky found plaintiff’s knowledge good. Levine. Dr. Dr. that his judgment on September 23rd was intact.Mental Illness  chandise mart” were coming soon. hired an architect. based on the hospital record and testimony of plaintiff’s wife and Dr. rescission will. Hunt. was that plaintiff was subject to mood swings.Y. but once incompetence has been shown. Schlaffer. The burden of proving incompetence is upon the party alleging it. 200 N. and hospitalized on October 8th after he had purchased a hunting gun. Aikens v. his memory and comprehension fair. who appeared for defendant. 545. the hospital record shows that on October 9th.S. Levine as a result of plaintiff’s complaint that his wife needed help. October 2nd and October 8th. Verstandig v. see Church v. 337. 358. see Riggs v. and the hospital all agree in a diagnosis of manic-depressive psychosis. 357. filed plans with city officials and when told by them that State Labor Department approval was required. Dreier. Roberts. be denied notwithstanding incompetence. On September 25th plaintiff saw Dr. 177 N. He was seen again on September 26th and 28th. but that there was no abnormality in his thinking. Sutton’s opinion. 252 and if the other party can be restored to status quo rescission will be decreed upon a showing of incompetence without more.Y. 502. Levine. initiated a mortgage application giving correct details as to price and property dimensions. 79 N. Co. 62. 296 N. 330. Dr.S. Mutual Life Ins. v. 541. Blinn v. insisted on driving to Albany with the architect and Leonard Cohen to obtain the necessary approval. Sup.Y.

-”A contract may be avoided only if a party is so affected as to be unable to see things in their true relations and to form correct conclusions in regard thereto. 39 N.o. The standards by which competence to contract is measured were.504. “such mental capacity at the time of the execution of the deed that he could collect in his mind without prompting all the elements of the transaction. (Lovell v. Supp.S.2d 288. Keller. Miller... Beale v. 248 N. 85.Faber v.S. at p...Y. recognize stages of incompetence other than total lack of understanding. Bailey.C. D. 261 N. Gibaud. Morse v.2d 815. 144 N. for manic-depressive psychosis affects motivation rather than ability to understand.Y.S.  n. Roberts.Y. 164 N.S. n. therefore.Y. supra). 546. “so deprived of his mental faculties as to be wholly. Martin v. and completely unable to understand or comprehend the nature of the transaction. Primarily they are concerned with capacity to understand: Aldrich v. 1020. Matter of Martin’s Will. 178.r.. Gibaud. 594. n. 87-88. and to form a rational judgment in regard to them. The law does. supra. National Biscuit Co.Y. 95. 544. Sweet Style Manufacturing Corp.. 133 N. entitled to rescission if the condition described meets the legal test of incompetence.S. cf.Y. In the instant case the contract concerns vacant land and is executory and though plaintiff caused some digging to be done on the premises.2d 593. the manic must be held competent. the proof shows that the land has been levelled again.r. 93. 1028. Sup. Matter of Martin’s Will. however. and retain them for a sufficient length of time to perceive their obvious relations to each other.Y. Clearly. 818. absolutely. apparently.o.” Matter of Delinousha v. supra. 15 F. Teachers’ Retirement Board of City of New York.r. 47 N. Thus it will invalidate a transaction when a contracting party is suffering from delusions if there is “some such connection between the insane delusions and the making of the deed as will compel the inference that the insanity induced the grantor to perform an act the purport and effect of which he CHAPTER TWO: PARTIES & CAPACITY  121  . developed without relation to the effects of particular mental diseases or disorders and prior to recognition of manic-depressive psychosis as a distinct form of mental illness.” See also Aikens v.o. Beale v.Y. aff’d Re Catteau’s Estate. Sup. If cognitive capacity is the sole criterion used. 174. 70 N.” Paine v. 557.Y. Aldrich. the status quo can be restored and plaintiff is. 132 N.S.

Testimony of the claimed incompetent often is not available. 580. Proof of Mental Incompetency and the Unexpressed Major Premise. Mutual Benefit Life Ins. 6 Mo.” Moritz v. 169. 299-305). 564).2d 411. 271.Y. aff’d 300 N. Co.Y. and is working largely with the same evidence presented to the court by the other witnesses in the action (Leifer. L. Van Zandt v. 580. The Competence of the Psychiatrist to Assist In the Determination of Incompetency.Y. capacity to understand is not. 141). and in any event is subject to the weakness of his mental disorder. in fact. Incompetence to contract also exists when a contract is entered into under the compulsion of a mental disease or disorder but for which the contract would not have been made. in the great majority of cases psychiatrists of equal qualification and experience will reach diametrically opposed conclusions on the same behavioral evidence. 55 N. in final analysis.S. Judicial Tests of Mental Incompetency. it holds that understanding of the physical nature and consequences of an act of suicide does not render the suicide voluntary within the meaning of a life insurance contract if the insured “acted under the control of an insane impulse caused by disease.R. 127. aff’d 211 N. evaluating factual information rather than medical data. 53 Yale L. New York City Employees’ Retirement System. on the one hand. and of his self interest on the other. 124. see Beisman v. 122  CONTRACTS  . (2) testimony of psychiatrists. The psychiatrist in presenting his opinion is. 429. 14 Syracuse L. Moritz. Moreover.” Newton v.Y. supra.S.R..” Thus. including whether by usual business standards the transaction is normal or fair (Green. 76 N. Aldrich.Y.. Moreover. 88 N.Y. and which he would not have performed if thoroughly sane. and derangement of his intellect. Paine v.Mental Illness  could not understand. the sole criterion. 426. and the Delinousha case consider not only ability to understand but also capacity to form “a rational judgment” or “correct conclusions. Co. and (3) the behavior of the claimed incompetent as detailed in the testimony of others (Green. which deprived him of the capacity of governing his own conduct in accordance with reason. Mutual Benefit Life Ins. 138 N. Whether under the latter test a manic will be held incompetent to enter into a particular contract will depend upon an evaluation of (1) testimony of the claimed incompetent. Finally.J.

therefore. plaintiff did not testify at the trial. with respect to the White Lake properties. therefore. Plaintiff’s evidence concerning the location of the property and the nature of the business he proposed to carry on there fell short of establishing irrationality. Sutton. Defendant argues. hire laborers. detailed above. Viewing those acts in the context of his actions. are abnormal acts. but his examination before trial was read into the record. But the rapidity with which plaintiff moved to obtain an architect and plans. That conclusion is contrary to the opinion expressed by Dr.000 and that it was free and clear. It shows that he understood the transaction in which he was engaged.. was not part of his case) so the court has no basis for comparison in that respect. Green. even if the two earlier White Lake dealings are considered.Q. and his complaint to Dr.Faber v. but the court concludes that Doctors Levine and Krinsky as treating physicians had the better basis for the opinions they expressed. Plaintiff introduced no evidence concerning the rationality or fairness of the transaction (in the apparent belief that Merritt v. tended to give less weight to expert testimony than to objective behavioral evidence. “Civil Insanity”: The New York Treatment of the Issue of Mental Incapacity in Non-Criminal Cases. all prior to title closing. in view of the testimony of plaintiff and his wife that the Long Beach bathhouse property was worth $200. Halpern. Levine on September 25th that his wife was in need of help because she was trying to hold him back.J. but throws no light on his motivation. supra. however. at 306. 76. 44 Cornell L. the court is convinced that the contract in question was entered into under the compulsion of plaintiff’s psychosis. In any event their opinions are but confirmatory of the conclusion reached by the court on the basis of the evidence above detailed. and his journey to Albany to obtain building approval. that the contract was ratified by the acts of plaintiff’s attorney in forwarding a title objection sheet to CHAPTER TWO: PARTIES & CAPACITY  123  .  The courts have. op. Sweet Style Manufacturing Corp. his plans with respect to the Brentwood property and the conversion of his bathhouse premises. Merritt. 53 Yale L. begin digging on the property. In the instant case. nor can it be said that the making of an all cash contract was abnormal. applied and that such proof. cit.

Accordingly. 252. plaintiff. Schwarz. it was up to his attorney. The foregoing constitutes the decision of the court pursuant to Civil Practice Act § 440. and judgment will be entered declaring the contract rescinded and dismissing the counterclaim.” The judgment to be settled hereon shall be entitled accordingly. successor by merger to Semel Realty Corp. 263. in reply to an inquiry from defendant’s president as to when he was going to take title. having a series of electroshock treatments while there. his guardian ad litem. defendant’s motions at the end of plaintiff’s case and of the whole case. Sweet Style Manufacturing Corporation. 124  CONTRACTS  . on which decision was reserved. v.Y.. The conversation with defendant’s president could not have occurred until after November 11th and must have occurred several days prior to November 20th.” Blinn v. Plaintiff was still in the mental hospital when the objection sheet was sent and the closing date postponed and these acts have not been shown to have been carried out with his knowledge or by his direction. defendant.Mental Illness  defendant’s attorney and in postponing the closing and by plaintiff himself. Ratification requires conscious action on the part of the party to be charged. supra. The contract with defendant had been signed on September 23rd. that he did not know. are now denied. 177 N. An answer as equivocal in nature and made under the circumstances as the one under consideration cannot in any fair sense be characterized as an exercise of plaintiff’s right of election to “hold on to the bargain if it is good. During trial motions were granted amending the title of the action to read “Isidore Faber by Esther Faber. plaintiff had been sent to the hospital on October 8th and remained there until November 11th. and the complaint in this action was verified November 20th. As for his own action it was merely to answer. and let it go if it is bad.

which is written in the Greek language: Peiraeus. 72. El Paso 226 S. 85. 86. being a translation from the original. 95  & Introductory Note to Topic 2  UCC §§ 2‐203. 88.000. April 2. Justice. 125  . 1942 Mr. 90. Batsakis: I state by my present (letter) that I received today from you the amount of two thousand dollars ($2.000 with interest at the rate of 8% per annum from April 2.W. which I borrowed from you for the support of my family during these difficult days and because it is impossible for me to transfer dollars of my own from America. alleged to be due on the following instrument. 75. 2‐305  _________________________________________________  MUTUALITY & ADEQUACY  _________________________________________________  Batsakis v.2d 673 (1949) McGill. 79. 87.  CHAPTER THREE  CONSIDERATION  Rest. 2d §§ 71. Peiraeus Mr. Demotsis  Court of Civil Appeals of Texas. Konstantinou Diadohou #7. 81. 74.00) of United States of America money. The parties will be so designated. George Batsakis. 2‐304. 1942. Appellant was plaintiff and appellee was defendant in the trial court. 2‐205. Plaintiff sued defendant to recover $2. 73. This is an appeal from a judgment of the 57th judicial District Court of Bexar County.

00 principal. III and V. and struck therefrom paragraphs II. but has not cross-assigned error here.83. the consideration upon which said written instrument sued upon by plaintiff herein is founded. 1942 to the date of judgment. and defendant pleads specially under the verification hereinafter made the want and failure of consideration stated.00 as the value of the loan of money received by defendant from plaintiff. That at the time of the loan by plaintiff to defendant of said 500. and interest at the rate of 8% per annum from April 2. consisted of a general denial contained in paragraph I thereof. and of paragraph IV. Trial to the court without the intervention of a jury resulted in a judgment in favor of plaintiff for $750. The recipient. as defendant has heretofore tendered to plaintiff. with interest thereon at the rate of 8% per annum until paid. $25. in connection with this plea of want and failure of consideration defendant alleges that she at no time received from plaintiff himself or from anyone for plaintiff any money or thing of value other than. as hereinbefore alleged. totaling $1163. I thank you and I remain yours with respects. The answer. and now tenders. is wanting and has failed to the extent of $1975. That under the circumstances alleged in Paragraph II of this answer. stripped of such paragraphs. Further. Defendant excepted to such action of the court.00. The court sustained certain special exceptions of plaintiff to defendant’s first amended original answer on which the case was tried. the original loan of 500. [Signed] Eugenia The. together with interest thereon. Plaintiff has perfected his appeal. which is as follows: IV.000 drachmae.Mutuality & Adequacy  The above amount I accept with the expressed promise that I will return to you again in American dollars either at the end of the present war or even before in the event that you might be able to find a way to collect them (dollars) from my representative in America to whom I shall write and give him an order relative to this You understand until the final execution (payment) to the above amount an eight per cent interest will be added and paid together with the principal. Demotsis.000 drachmae the value of 126  CONTRACTS  .

00 in money of the United States of America. at which time both plaintiff and defendant were residents of and residing in the Kingdom of Greece. 1942 she owned money States of America. in that it affirmatively appears therefrom that defendant received what was agreed to be delivered to her. 1942.000 drachmas from CHAPTER THREE: CONSIDERATION  127  . exacted of her the written instrument plaintiff sues upon.000.Batsakis v. Defendant testified that she did receive 500. The plea of want and failure of consideration is verified by defendant as follows.000 drachmae in the Kingdom of Greece in dollars of money of the United States of America. but was then and there States of America. knowing defendant’s financial distress and desire to return to the United States of America.000 drachmae. The court overruled this exception. Error is also assigned because of the court’s failure to enter judgment for the whole unpaid balance of the principal of the instrument with interest as therein provided. but was then and there in the Kingdom of Greece in straitened financial circumstances due to the conditions produced by World War II and could not make use of her money and property and credit existing in the United States of America. That in the circumstances the plaintiff agreed to and did lend to defendant the sum of 500.000 drachmae of Greek money in the United States of America in dollars was $25. Plaintiff specially excepted to paragraph IV because the allegations thereof were insufficient to allege either want of consideration or failure of consideration. were that the instrument sued on was signed and delivered in the Kingdom of Greece on or about April 2. and also at said time the value of 500.00 of money of the United States of America. Demotsis  500. had the value of $25.00 of United States of America money.00. and such action is assigned as error. on or about April 2. The allegations in paragraph II which were stricken. referred to in paragraph IV. which was a promise by her to pay to him the sum of $2. and Plaintiff (emphasis ours) avers that on or about April 2. That the said plaintiff. which at that time. and that plaintiff breached no agreement. 1942. was $25.

125 Tex. The transaction amounted to a sale by plaintiff of the 500. Texas Christian Missionary Society. He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2. Williams. by defendant. 128  CONTRACTS  . Her testimony clearly shows that the understanding of the parties was that plaintiff would give her the 500.000.00 with interest thereon at the rate of 8% per annum from April 2. She testified: Q.000.Mutuality & Adequacy  plaintiff. Mere inadequacy of consideration will not void a contract. National Bank of Commerce v. It is not contended that the drachmas had no value.000.000 drachmas if she would sign the instrument. 89. Therefore the plea of want of consideration was unavailing.00 on them or on the other consideration which plaintiff gave defendant for the instrument if he believed plaintiff’s testimony. Indeed.000 drachmas or only a portion of them before she signed the instrument in question. Defendant got exactly what she contracted for according to her own testimony.00? A. with interest as therein provided..000 drachmas in consideration of the execution of the instrument sued on. p. A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place. the judgment indicates that the trial court placed a value of $750.150. Such judgment will bear interest at the rate of 8% per annum until paid on $2. As so reformed.00 evidenced by the instrument sued on.W. who suggested the figure of $2. That was how he asked me from the beginning.2d 728. It is not clear whether she received all the 500.000. Chastain v. Contracts. We construe the provision relating to interest as providing for interest at the rate of 8% per annum. The court should have rendered judgment in favor of plaintiff against defendant for the principal sum of $2. Jur. 1942.000. The judgment is reformed so as to award appellant a recovery against appellee of $2. Sec. Nor was the plea of failure of consideration availing. 78 S. 619. 10 Tex. the judgment is affirmed.00 thereof and on the balance interest at the rate of 6% per annum.00 American money.

29 (1861) . Nell  Schnell v. it was ordained that every one of the above named second parties. agrees to pay the above named sums of money to the parties of the second part. he. witnesseth: The said Zacharias Schnell agrees as follows: whereas his wife. and. Hendricks county. and in consideration of all this. and J. viz. to wit: $200 to the said J. should receive the sum of $200.. real or personal. Wendelin Lorenz. for. and all property held by Zacharias and Theresa Schnell jointly. now possessed by him. $200 in two years. Nell. $200 in one year from the date of these presents. between Zach. deceased. of the same place. Schnell. Theresa Schnell. and the love and respect he bears to his wife. Germany. Schnell. and has materially aided him in the acquisition of all property. at the time of her death. of Frickinger. to be divided between the parties in equal portions of $66 2/3 each year. 1856. as parties of the second part. for the reason that no property. was in the possession of the said Theresa Schnell. therefore reverts to her husband. Marion county. and whereas the said provisions of the will must remain a nullity. and $200 to the said Donata Lorenz. upon the following instrument: This agreement. in consideration of one cent. has made a last will and testament. Schnell. or as they may agree. Nell. and Donata Lorenz. in the following installments. of Indianapolis. as party of the first part. State of Indiana. till each one has received his full sum of $200. Action by J. among other provisions. B. State of Indiana. now deceased. $200 to the said Wendelin Lorenz. B. in her own name. and $200 in three years. in which. CHAPTER THREE: CONSIDERATION  129  Supreme Court of Indiana 17 Ind. B. received by him of the second parties. Grand Duchy of Baden. the said Zach. furthermore. and whereas the said Theresa Schnell has also been a dutiful and loving wife to the said Zach. Nell against Zacharias Schnell. J. entered into this 13th day of February. Nell  Perkins. of Stilesville. real and personal.Schnell v.

deceased. real or personal. for. to pay him one cent. He further answered. [SEAL. because his said wife. or any one else (except so far as the law gave her an interest in her husband's property). A promise. which particularly set out the considerations upon which it was executed. and at the time of her death. neither separately.] The complaint contained no averment of a consideration for the instrument. nor jointly with her husband. Zacharias Schnell. 1856. at the time she made the will mentioned. The case turned below. upon the question whether the instrument sued on does express a consideration sufficient to give it legal obligation. had been paid or tendered. that it was given for no consideration. arising from the said last will and testament of the said Theresa Schnell. p.110. The love and affection he bore his deceased wife. owned. on this 13th day of February. the said parties have. as against Zacharias Schnell. and the fact 130  CONTRACTS  . and did not aver that the one cent agreed to be paid. The Court sustained a demurrer to these answers. It specifies three distinct considerations for his promise to pay $600: 1. In witness whereof.] [SEAL. The will is copied into the record. Wen. The defendant answered. A demurrer to the complaint was overruled. But the instrument is latently ambiguous on this point. Dig. evidently on the ground that they were regarded as contradicting the instrument sued on. agree to pay the above named sum of money [one cent]. but need not be into this opinion. set hereunto their hands and seals.] [SEAL. J. any property. See Ind. that the instrument sued on was given for no consideration whatever.. and must turn here. outside of those expressed in it. &c. Lorenz. Theresa. and in consideration of this. Nell. and abstain from collecting any real or supposed claims upon him or his estate. 2.B. on the part of the plaintiffs.Mutuality & Adequacy  And the said parties of the second part. and to deliver up to said Schnell.

plainly. Ind. The fact that she had expressed her desire. 3 Ind. a family piece. 39. will not support a promise. and as she had none of her own. been some particular one cent. Hardesty v. Dig. The consideration of one cent is. 2. There was no mistake of law or fact in this case. of coin.13.. void. Baker v. possessing an indeterminate value. Dig. in itself. Smith. They are past considerations. merely nominal. had the one cent mentioned. It is true. at first blush. only. and the love and affection he had borne her. The promise was simply one to make a gift. A moral consideration. Roberts. But this doctrine does not apply to a mere exchange of sums of money. indeterminate value. or of a suit upon it. for money. and that she had been industrious. The fact that Schnell loved his wife. 14 Ind. And for the same reason.Schnell v. upon its face. on two grounds: 1. is an unconscionable contract. or ancient. remarkable coin. that as a general proposition. that the persons named therein should have the sums of money specified. for where such claim is legally groundless. but to the exchange of something of. in the form of an inoperative will. his promise to discharge them was not legally binding upon him. 3. As the will and testament of Schnell's wife imposed no legal obligation upon him to discharge her bequests out of his property.. extrinsic from its simple money value. Ind. 415. and intended to be so. even had the portion of that cent due from the plaintiff been tendered.13. CHAPTER THREE: CONSIDERATION  131  . in the acquisition of property. In this case. or. whose value is exactly fixed. inadequacy of consideration will not vitiate an agreement. Hollingshead. 8 Blackf. The past services of his wife. as the agreement admits the will inoperative and void. a different view might be taken. Spahr v. Nell  that she had done her part. The consideration of one cent will not support the promise of Schnell. is not legally binding. if it be regarded as an earnest one. a promise upon a compromise of it. 552. p. perhaps. as his wife. are objectionable as legal considerations for Schnell's promise. a valid consideration for his promise can not be found in the fact of a compromise of a disputed claim. p. on that ground. the mere promise to pay six hundred dollars for one cent. for some other thing of indeterminate value. in this case. As it is.

The claimant.N. a sum of money. a sum of money.Mutuality & Adequacy  constituted no consideration for his promise to pay J. a woman. and the Lorenzes. The trustee in bankruptcy objected to the claim. in her lifetime. based on an alleged contract.Y. District Judge. For several years prior to April 28. The correctness of this ruling is raised by the trustee’s petition to review and the referee’s certificate. II.D. 4 Ind. she would be industrious. See Stevenson v. filed proof of claim in the sum of $375. The referee held the claim valid and dismissed the objections. 1930) Woolsey.S. such a promise would have been valid and consistent with public policy. Nor is the fact that Schnell now venerates the memory of his deceased wife. will not support an action. Nell. He 132  CONTRACTS  . Whether.2d 428 (S. The instrument sued on. and worthy of his affection. The petition for review is granted. A hearing was held before the referee in bankruptcy and testimony taken. we need not decide. had apparently lived in adultery with the claimant. had made a bargain with Schnell. a married man. a legal consideration for a promise to pay any third person money. in consideration of his promising to pay. with costs. The judgment is reversed. District Court for the Southern District of New York 45 F. 519. to the persons named.700. and the order of the referee is reversed. the bankrupt. 1926.B. interpreted in the light of the facts alleged in the second paragraph of the answer. Cause remanded &c. if his wife. In re Greene  U. The demurrer to the answer should have been overruled. I. after her death. that. Per Curiam. against this bankrupt’s estate. Druley.

The relations of intimacy between them were discontinued in April.000 a month during their joint lives.000 a month. The preamble to the instrument recites as consideration the payment of $1 by the claimant to the bankrupt. III. and that he should no longer be liable for mortgage interest taxes. “and other good and valuable consideration.” The bankrupt kept up the several payments called for by the instrument until August.000 for failure to pay $1. and $26.In re Greene  gave her substantial sums of money. $99.200 for failure to maintain the insurance policy. and the claimant knew it. the bankrupt undertook (1) to pay to the claimant $1. and other charges on this property.700 was due because of breach of the agreement. The claimant was well over thirty years of age when the connection began. He also paid $70. She testified that the bankrupt has promised to marry her as soon as his wife should get a divorce from him. 1926. and they then executed a written instrument under seal which is alleged to be a binding contract and which is the foundation of the claim under consideration. which she still owns. the bankrupt to pay $100. 1928. Throughout their relations the bankrupt was a married man.500 for failure to pay the rent. CHAPTER THREE: CONSIDERATION  133  .000 to the claimant in case the policy should lapse for nonpayment of premiums. (2) to assign to her a $100. this the bankrupt denied. In this instrument. and (3) to pay the rent for four years on an apartment which she had leased. In the proof of claim it is alleged that a total of $375. which was made in New York. The claimant on her part released the bankrupt from all claims which she had against him.000 for a house on Long Island acquired by her. It was declared in the instrument that the bankrupt had no interest in the Long Island house or in its contents.000 life insurance policy on his life and to keep up the premiums on it for life. but failed to make payments thereafter. made up as follows: $250.

Mutuality & Adequacy  The claim was sustained by the referee for the full amount. for the doctrine that past moral obligation is consideration is now generally exploded. Here the illicit intercourse had been abandoned prior to the making of the agreement.000 a month was excessive. 148. Sec. Williston on Contracts. but for want of consideration. 1745. A contract for future illicit cohabitation is unlawful.000 allowed as damages for failure to pay $1. The bankrupt’s undertaking was to pay $1. There is nothing in the record to indicate the bankrupt’s age. the matter of damages is of no present importance. Williston on Contracts. but the law strikes the agreement down as immoral. to be valid. and it is clear that the past illicit intercourse is not consideration. but the promise in such a case. must be supported by some consideration other than past intercourse. In view of my conclusion that the entire claim is void. The consideration in such a case is past. therefore. not for illegality. The cases dealing with situations where there is illegitimate offspring or where there has been seduction are of doubtful authority. Here there was not any offspring as a result of the bankrupt’s un134  CONTRACTS  . Secs. it was not an annuity for the claimant’s life alone. so that the above rule is not infringed. IV. This case is one where the motive which led the bankrupt to make the agreement on which the claim is based was the past illicit cohabitation between him and the claimant. not of illegality. however. It seems clear that the $250. as she seems to have assumed. There is consideration present in such a case. The problem in the present case. are not in point. cited by the referee. The law is that a promise to pay a woman on account of cohabitation which has ceased is void. 1745. The mere fact that past cohabitation is the motive for the promise will not of itself invalidate it.000 a month only so long as both he and the claimant should live. and consequently there is a failure of proof as to this element of damage. But these cases and others speaking of expiation of past wrong. is one of consideration.

(3) It is said that the release of claims furnishes the necessary consideration. 195. There was not any past wrong for which the bankrupt owed the claimant expiation – volenti non fit injuria. Assuming that he did-though he denies it. just as he had paid many other expenses for the claimant. Sec. The question. mortgages. (4) The claimant also urges that by the agreement the bankrupt obtained immunity from liability for taxes and other charges on the Long Island house.In re Greene  ion with the claimant. It seems plain that no such consideration can be found. is so obvious that no claim could possible arise from it. and the release of such claim could not possibly be lawful consideration. V. there was not any seduction shown in the sense in which that word is used in law. recited but not even shown to have been paid. because no consideration is necessary in an executed transaction. apparently. New York Penal Law. (2) “Other good and valuable consideration” are generalities that sound plausible. Release from imaginary claims is not valuable consideration for a promise. is whether there was any consideration for the bankrupt’s promises. He doubtless had been in the habit of paying them. but I will review the following points emphasized by the claimant as showing consideration: (1) The $1 consideration recited in the paper is nominal. So it would if the claimant had had any claims to release. the claimant testified that the bankrupt had promised to marry her as soon as he was divorced. In this connection. apart from the past cohabitation. The fact is that he was never chargeable for these expenses. therefore. Cf. It cannot seriously be urged that $1. art. will support an executory promise to pay hundreds of thousands of dollars. made while the bankrupt was still married. But the evidence shows no vestige of any lawful claim. but such payCHAPTER THREE: CONSIDERATION  135  . Cases involving deeds. but the words cannot serve as consideration where the facts show that nothing good or valuable was actually given at the time the contract was made. 2175.the illegality of any such promise. and the like are not analogous.

What the bankrupt obviously intended in this case was an agreement to make financial contribution to the claimant because of his past cohabitation with her. 300. but the conveyance was from the seller direct to the claimant. and. the seal was conclusive evidence of consideration. The parties may shout consideration to the housetops. when a donor gives a valuable house to a donee. as charitable subscriptions. 233 N. such an agreement lacks consideration. barring exceptional cases. 230 N. but. 136  CONTRACTS  . Alexander v. Equitable Life Assurance Society. a seal is now only presumptive evidence of consideration on an executory instrument. yet. the fact that the donor need pay no taxes or upkeep thereafter on the property converts the gift into a contract upon consideration. it is said that the parties intended to make a valid agreement. It is absurd to suppose that. to keep to the language of the cases. He furnished the purchase price. A man may promise to make a gift to another. unless consideration is actually present. 343. An order in accordance with this opinion may be submitted for settlement on two days’ notice. for the bankrupt had never owned the house and had never been liable for the taxes. (5) Finally.Mutuality & Adequacy  ments were either gratuitous or were the contemporaneous price of the continuance of his illicit intercourse with the claimant.Y. perhaps. for the proof clearly shows. 342. 348. V. such. In New York. as already pointed out. or. and may put the promise in the most solemn and formal document possible. 307. that there was not in fact any consideration for the bankrupt’s promise contained in the executory instrument signed by him and the claimant. This presumption was amply rebutted in this case. however. The presence of the seal would have been decisive in the claimant’s favor a hundred years ago. the promise will not be enforced.Y. Sec. Then an instrument under seal required no consideration. there is not a legally enforcible contract. Civil Practice Act. The present case is even stronger. Shorall. It is a non sequitur to say that therefore the agreement is valid. Harris v. I think.

a certified public accountant. v. Consequently. part. the Pittsburgh Steelers National Football League franchise (Steelers) prepared to relocate from Three Rivers Stadium to its new home. J. in a case concerning the existence of an oral contract. Moran paid $11. or none of the testimony). we are asked whether a company’s payment of season ticket license fees to a professional sports franchise pursuant to an oral agreement between a company and its employee constitutes consideration. we reverse. without more. That summer.000 for thirty-year licenses to the four seats that corresponded to his former CHAPTER THREE: CONSIDERATION  137  . promissory estoppel fails to support the trial court’s finding of a binding oral contract in favor of the company. a long-time season ticket-holder to Steelers’ home games at Three Rivers Stadium. Because the trial court’s assessment of witness credibility governs most findings of fact pertinent to this case. (Weavertown or Company). Rochon.2d 1169 (Super. 2003) Opinion by Johnson. payment to whom. Moran. Inc. The record is inconclusive.: ¶ 1 In this case. Pa. and much hinges on witness credibility. ¶ 3 In July of 2000.Weavertown Transport Leasing. These we set forth below. v. ¶ 2 It is not surprising. Ct. We hold that it does not because the sports franchise is merely an incidental beneficiary. fact-finder may believe all. we must accept those facts as found by the trial court. Appellant-Defendant Daniel Moran (Moran). Inc. where the sports franchise would have no right to recover against the company who furnishes the fee. Moran  Weavertown Transport Leasing. accepted employment as controller for Appellee-Plaintiff Weavertown Transport Leasing. was offered four season tickets to Heinz Field comparable to his seats at Three Rivers Stadium as well as the opportunity to secure additional seats. Moreover. 398 Pa. that the parties dispute many facts crucial to its disposition. See Commonwealth v. cannot serve as consideration between the company and its employee. 494 (1990) (holding that this Court will not disturb fact-finder’s witness credibility determinations where evidence is conflicting. Inc. Heinz Field. Super. Moran  Superior Court of Pennsylvania 834 A.

804 to the Steelers for the face value of the 2001/2002 season tickets. who in turn sent them to the appropriate bodies. the Company had purchased tickets to many Steelers home games on a per-game basis from another holder of season tickets.O. Moran resigned his position with Weavertown. When the Steelers earned a playoff berth at the end of the 2001/2002 season. but allowed for transfer thereafter. ¶ 6 On May 11.840 to the Stadium Building Fund (SBF) for the license fees corresponding to four Club Level seats. however. ¶ 5 The parties dispute the nature of the agreement Moran and Fuchs-Heiser reached on behalf of Weavertown.283-again by giving a check to Moran who delivered it to the appropriate Steelers office. ¶ 4 While these transactions took place.Mutuality & Adequacy  seats.). He nonetheless in no way interfered with Weavertown’s usage of the seats in dispute throughout that season and during the playoffs. The trial court. before the Steelers began their first season at Heinz Field. To that end.” Trial Court Opinion (T.840. The purchase agreements precluded Moran from selling or transferring his licenses to another party for at least one year after purchase. Weavertown wrote checks totaling $3. he learned through Weavertown’s President. 138  CONTRACTS  . Moran began employment as Weavertown’s controller. In prior years. and then wrote a check for $5. found unequivocally that Moran “offered to sell both the seat license fee to [Weavertown] and the accompanying season tickets for the Steelers to [Weavertown] and to transfer the seat license from his name to that of [Weavertown] when the Steelers would permit [Moran] to do so. These checks were delivered to Moran. These tickets would augment the Company’s season tickets to see the Pittsburgh Penguins (National Hockey League) at Mellon Arena and the Pittsburgh Pirates (Major League Baseball) at PNC Park.C. that the Company sought full ownership of season tickets to Heinz Field to entertain its clients. FuchsHeiser agreed to buy them from Moran. 2001. For the 2001/2002 season. He also agreed to purchase seven-year licenses to four ClubLevel seats. at 3. When he received the tickets he gave them to the Company. Dawn Fuchs-Heiser. Soon after his arrival. which cost $3. Weavertown purchased seats for those games for $1. 12/6/02.

 Inc. From this order. ¶ 9 A contract is formed when the parties to it 1) reach a mutual understanding. 808 A. the license fees for the six years remaining on the licenses. He did. Moran  After the 2001/2002 NFL playoffs. See Geisinger Clinic v. however. FuchsHeiser asked Moran when he would be able to transfer the licenses to Weavertown. 85 (1992). 414 Pa. based on all the evidence. on a pro rata basis. See Stelmack CHAPTER THREE: CONSIDERATION  139  . We will not usurp the trial court’s fact-finding function. whether the trial court properly applied contract principles. and 3) delineate the terms of their bargain with sufficient clarity. Moran appeals presenting the following question: WHETHER THE LOWER COURT ERRED IN CONCLUDING THAT AN ENFORCEABLE ORAL CONTRACT EXISTED AND THAT A SALE TOOK PLACE WHEN THERE WAS NO BARGAINED-FOR AGREEMENT ENTERED INTO BETWEEN THE PARTIES AND THE APPELLANT RECEIVED NO BENEFIT? Brief for Appellant at v. Super. ¶ 8 Our standard of review requires us to determine. Sams. Weavertown rejected the offer and initiated this action. DiCuccio. ¶ 7 The trial court rejected Moran’s argument that the asserted oral contract failed for want of consideration. It counted Weavertown’s payments to SBF and the Steelers as payments to third parties constituting consideration. Consideration consists of a benefit to the promisor or a detriment to the promisee. 210 (Pa.Weavertown Transport Leasing. in the spring of 2002. tender a check to Weavertown equal to six-sevenths of the seat license fee Weavertown had furnished to the SBF-ostensibly to offset. 2002). Thus. v. Moran denied that he had ever intended to transfer the licenses. directing Moran to transfer the seat licenses and any outstanding Steelers tickets purchased under those licenses. See Sams v. The court ordered specific performance. Super.2d 206. and will intercede only where the trial court committed an error of law or an abuse of discretion. the court found that an oral contract existed between Weavertown and Moran. 2) exchange consideration.

339 Pa. ¶ 10 Moran contends that he received no consideration for the season tickets and seat licenses due to Weavertown’s lack of obligation to the Steelers. you may purchase an overcoat on my credit. 359 (1973) (“A benefit to a third 140  CONTRACTS  . Brief for Appellant at 6-12.C. but that in the event of the tramp going to the shop the promisor would make him a gift. ¶ 11 The trial court found consideration in Weavertown’s payments to the Steelers and SBF.2d 357. conditioned on Weavertown’s standing in his place by paying the amounts due the Steelers and SBF for the seats in question. DeGroot. He effectively illustrates his point by observing that. as third-party beneficiaries. it is Moran who is obligated to the Pittsburgh Steelers. The distinction between such a conditional gift and a contract is well illustrated in Williston on Contracts. however. the promise is gratuitous and the satisfaction of the condition is not consideration for a contract.. Instead. This language goes to the heart of the consideration requirement and illustrates why SBF and the Steelers are merely incidental beneficiaries. for some reason. the trial court accurately stated the law. at 128-29 (emphasis added. Glen Alden Coal Co. where it is said: “If a benevolent man says to a tramp. In general. 313 A. v.Mutuality & Adequacy  v. See Bucks County Bank & Trust Co. and Weavertown didn’t want them anymore. were no longer valuable. 356 (1964)). The detriment incurred must be the ‘quid pro quo’. case citations omitted). of course. that the promisee has suffered a legal detriment at the request of the promisor. but it cited no authority supporting its particular application of the third-party beneficiary rule.. Rev. It is not enough. he argues that his arrangement with Weavertown was gratuitous.O. Ed. 410 (1940).’ no reasonable person would understand that the short walk was requested as the consideration for the promise.” Brief for Appellant at 11. at 5-6. and the inducement for which it was made … . Mike’s Café. Vol. Brief for Appellant at 10-11 (citing Fedun v. “[i]f the season tickets. If the promisor merely intends to make a gift to the promisee upon the performance of a condition.” Id. not Weavertown. 12/6/02. Super. Section 112. 204 Pa. 1.. T. or the ‘price’ of the promise.‘If you go around the corner to the clothing shop there.

¶ 12 In Guy v. Id. (internal quotation marks omitted). our Supreme Court adopted the Restatement (Second) Contracts § 302 (stating the rule for when a third party is in fact a third-party beneficiary entitled to enforce a contract between other parties). however. Here. v. See 501 Pa. See DeGroot. A party who does not satisfy the above test is an incidental beneficiary without the right to enforce an agreement. Moran  person is sufficient consideration to sustain a promise.” Id. at 359. 47 (1983). and as such cannot suffice to support consideration. In DeGroot. noting that “the DeGroots received exactly what they expected from the transaction in that the proceeds from their loans went to pay off [their friend’s] various obligations … . This Court rejected the DeGroots’ claim that the arrangement lacked consideration. the arrangement reached between Weavertown and Moran did not aim to benefit SBF or the Steelers. and the latter’s lack of obligation to the former. thus neither SBF nor the Steelers were in the same position as the DeGroots’ needy friend.”). It failed. and (2) the performance must satisfy an obligation of the promisee to pay money to the beneficiary or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. ¶ 14 The Restatement offers an example analogous to the matter at hand: “B contracts with A to buy a new car manufactured by C. Inc. It distilled the Restatement inquiry into the following two-part test: (1) the recognition of the beneficiary’s right must be appropriate to effectuate the intention of the parties. even though the promise can only be performed if money is paid to C. 313 A. however. Liederbach.2d at 358. ¶ 13 The trial court’s failure to cite authority for its finding does not benefit by Weavertown’s citation to one inapposite case. C is an incidental beneficiary. to properly consider the attenuation between the Steelers and Weavertown. Brief for Appellee at 3 (citing DeGroot. the parties secured notes earmarked to go directly to their friend who needed financial assistance.Weavertown Transport Leasing. 313 A.” Restatement (Second) Contracts CHAPTER THREE: CONSIDERATION  141  .2d 357 (1973)).

Illustration 17. We conclude that the Steelers and SBF are Incidental beneficiaries. Cmt. payment to whom could not constitute consideration adequate to affirm the trial court’s ruling. where the following exchange occurred between Weavertown and the court. [The Court]: Can you cite a case on why no consideration is needed in this? [Weavertown]: No.. at 52-53. [The Court]: What are you alleging as consideration or are you alleging no consideration is needed? [Weavertown]: I’m alleging no consideration is needed in this matter. the benefit to whom cannot be consideration. and that actually can be the consideration. Moran came to them with an offer to buy these tickets. that they paid for the license. Your Honor. your honor. ¶ 16 Weavertown has more in common with Williston’s “tramp” than it does with a promisee obliged to a third-party: Weavertown’s payments directly to SBF and the Steelers set up Moran’s conditional gift granting Weavertown access to four Club Level seats at Heinz Field. Your Honor. That Moran arranged it so that Weavertown bore the initial burden of paying the seat licenses does not change the general character of the transaction. ¶ 15 Even Weavertown conceded the absence of consideration at trial.).Mutuality & Adequacy  § 302. we find no consideration in the arrangement between Moran and Weavertown. [Weavertown]: I understand that. [The Court]: I don’t think anyone is disputing that. that Mr. Notes of Testimony (N. 142  CONTRACTS  . SBF and the Steelers were incidental beneficiaries. Thus. that in order to get these season tickets. My clients did pay that license. as demonstrated by Moran’s unsolicited pre-litigation offer to repay sixth-sevenths of the license fees to Weavertown. Your Honor. 10/29/02. the license had to be paid. the license fee had to be paid.T. So I think a claim has been made and I think the case should go forward.

cannot be “loosely applied. see Stelmack. 14 A.. v.. 582 (1982) (noting that Judge Learned Hand considered promissory estoppel to be a “recognized species of consideration. B. v. 14 A. ¶ 19 We find that Moran’s arrangement with Weavertown did not induce Weavertown to act or forbear in a way sufficiently “definite and substantial” to warrant application of estoppel principles. the trial court did not reach that matter in its opinion. 204 A.2d 579. presumably because its finding of adequate consideration made further discussion superfluous. which Weavertown briefed. Weavertown contends that it “gave up the ability to pursue [season ticket licenses] through other avenues because of [its] reliance upon Mr. 440 A. would be enforceable. 204 A. 767 A.&F. Inc.Weavertown Transport Leasing. Brief for Appellee at 3-5. 576 (Pa. regardless of the complete absence of consideration. Co. Assoc. Fedun. however. Moran  ¶ 17 Courts. Because we find that the trial court erred in its finding of consideration. Inc. ¶ 18 This Court has stated the promissory estoppel doctrine as follows: [1] a promise [2] which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and [3] which does induce such action or forbearance is binding if [4] injustice can be avoided only by the enforcement of the promise.2d at 129. any promise. provides an alternative basis on which to affirm the trial court’s order.2d at 129 (quoting Restatement Contracts § 90). if it were.. this Court can affirm on any basis). Regis Ins. Cf. Inc.” while Justice Cardozo countervailingly thought it “a substitute for consideration”). however. Moran’s oral promise to transfer [his] tickets … . v. we address whether promissory estoppel.” Fedun. Super. See Keystone Spray Equip.” Brief for CHAPTER THREE: CONSIDERATION  143  . Robert Mallery Lumber Corp.2d at 782. may find a surrogate for consideration under the doctrine of promissory estoppel. 2001) (holding that where the trial court reaches a correct disposition.2d 572. see Stelmack. The doctrine. in which Weavertown seemed to imply a promissory estoppel argument. Notwithstanding the foregoing colloquy.2d at 782..

The record does not support this claim. On crossexamination. however.T. under Pennsylvania’s restrictive standard. To support an estoppel claim. but the evidence supports neither. Thus.Mutuality & Adequacy  Appellee at 4. the trial court erred in finding adequate consideration to support an oral contract in the gratuitous arrangement between Moran and Weavertown. [Moran]: Finally. Not through the Pittsburgh Steelers. we find no support for the trial court’s order under alternative rationales. contacts. it’s your testimony today that you had an opportunity to buy other tickets from the Pittsburgh Steelers other than these tickets that Mr. Rather. We recognize. so that I understand this. at 33-34.. Moreover. I could buy them from clients. N. right? [Fuchs-Heiser]: That’s correct. It asserts both propositions. Thus we find Weavertown’s estoppel argument unavailing. Fuchs-Heiser conceded that Weavertown never had an opportunity to secure seat licenses. ¶ 20 For all the foregoing reasons. I never said the word Pittsburgh Steelers in there. Weavertown would have to show that it declined a “definite and substantial” opportunity to purchase seat licenses and that it did so in its reliance on Moran’s promise. we must reverse the trial court’s order. ma’am. That is not what I said. [Moran]: So that it’s clearly your testimony that you didn’t have the opportunity to enter into a licensing agreement with the Steelers to buy tickets. Moran had? [Fuchs-Heiser]: Oh. it proceeded as it had been doing prior to Moran’s offer: buying tickets on a per-game basis from season ticket holders. Weavertown therefore declined no opportunities comparable to the one it seeks to enforce here in reliance on Moran’s asserted promise. I have access to get additional seats. no. [Moran]: And to be the owner of tickets? [Fuchs-Heiser]: That’s correct. 10/29/02. that Moran should not receive the benefit of the remaining years on the seat licenses in question without reimbursing Weaver144  CONTRACTS  .

Weavertown Transport Leasing, Inc. v. Moran  town as the trial court deems appropriate. Cf. Rayle v. Bowling Green State Univ., 108 Ohio Misc.2d 60 (Ct. Cl. 2000) (“The court finds that it is reasonable to value plaintiff’s interest in the two seat licenses at the price he paid for them … . Defendant was within its right to refund plaintiff’s original … investment and reallocate his seats … .”). Thus, we remand for further proceedings consistent with this Opinion. ¶ 21 Order reversed. Case remanded. Jurisdiction relinquished. _________________________________________________ 

PAST CONSIDERATION &  MORAL OBLIGATION 
_________________________________________________ 

Mills v. Wyman 
Supreme Judicial Court of Massachusetts 3 Pick. 207 (Mass. 1825) This was an action of assumpsit brought to recover a compensation for the board, nursing, &c., of Levi Wyman, son of the defendant, from the 5th to the 20th of February, 1821. The plaintiff then lived at Hartford, in Connecticut; the defendant, at Shrewsbury, in this county. Levi Wyman, at the time when the services were rendered, was about 25 years of age, and had long ceased to be a member of his father’s family. He was on his return from a voyage at sea, and being suddenly taken sick at Hartford, and being poor and in distress, was relieved by the plaintiff in the manner and to the extent above stated. On the 24th of February, after all the expenses had been incurred, the defendant wrote a letter to the plaintiff, promising to pay him such expenses. There was no consideration for this promise, except what grew out of the relation which subsisted between Levi Wyman and the defendant, and Howe J., before whom the cause was tried in the Court of Common Pleas, thinking this not sufficient to support the action, directed a nonsuit.
CHAPTER THREE: CONSIDERATION  145 

Past Consideration & Moral Obligation  To this direction the plaintiff filed exceptions. J. Davis and Allen in support of the exceptions. The moral obligation of a parent to support his child is a sufficient consideration for an express promise. Andover &c. Turnpike Corp. v. Gould, 6 Mass. R. 40; Andover v. Salem, 3 Mass. R. 438; Davenport v. Mason, 15 Mass. R. 94; 1 Bl. Comm. 446; Reeve’s Dom. Rel. 283. The arbitrary rule of law, fixing the age of twenty-one years for the period of emancipation, does not interfere with this moral obligation, in case a child of full age shall be unable to support himself. Our statute of 1793, c. 59, requiring the kindred of a poor person to support him, proceeds upon the ground of a moral obligation. But if there was no moral obligation on the part of the defendant, it is sufficient that his promise was in writing, and was made deliberately, with a knowledge of all the circumstances A man has a right to give away his property. [Parker C. J. There is a distinction between giving and promising.] The case of Bowers v. Hurd, 10 Mass. R. 427, does not take that distinction. [Parker C. J. That case has been doubted.] Neither does the case of Packard v. Richardson, 17 Mass. R. 122; and in this last case (p.130) the want of consideration is treated as a technical objection. Brigham, for the defendant, furnished in vacation a written argument, in which he cited Fowler v. Shearer, 7 Mass. R. 22; Rann v. Hughes, 7 T.R. 350, note; Jones v. Ashburnham, 4 East, 463; Pearson v. Pearson, 7 Johns. R. 26; Schoonmaker v. Roosa, 17 Johns. R. 301; the note to Wennall v. Adney, 3 Bos. & Pul. 249; Fink v. Cox, 18 Johns. R. 145; Barnes v. Hedley, 2 Taunt. 184; Lee v. Muggeridge, 5 Taunt. 36. He said the case of Bowers v. Hurd was upon a promissory note, where the receipt of value is acknowledged; which is a privileged contract. Livingston v. Hastie, 2 Caines’s R. 246; Bishop v. Young, 2 Bos. & Pul. 79, 80; Pillans v. Mierop, 3 Burr. 1670; 1 Wms’s Saund 211, note 2. The opinion of the Court was read, as drawn up by Parker C. J. General rules of law established for the protection and security of honest and fair-minded men, who may inconsiderately make
146  CONTRACTS 

Mills v. Wyman  promises without any equivalent, will sometimes screen men of a different character from engagements which they are bound in foro conscientiæ to perform. This is a defect inherent in all human systems of legislation. The rule that a mere verbal promise, without any consideration, cannot be enforced by action, is universal in its application, and cannot be departed from to suit particular cases in which a refusal to perform such a promise may be disgraceful. The promise declared on in this case appears to have been made without any legal consideration. The kindness and services towards the sick son of the defendant were not bestowed at his request. The son was in no respect under the care of the defendant. He was twenty-five years old, and had long left his father’s family. On his return from a foreign country, he fell sick among strangers, and the plaintiff acted the part of the good Samaritan, giving him shelter and comfort until he died. The defendant, his father, on being informed of this event, influenced by a transient feeling of gratitude, promises in writing to pay the plaintiff for the expenses he had incurred. But he has determined to break this promise, and is willing to have his case appear on record as a strong example of particular injustice sometimes necessarily resulting from the operation of general rules. It is said a moral obligation is a sufficient consideration to support an express promise; and some authorities lay down the rule thus broadly; but upon examination of the cases we are satisfied that the universality of the rule cannot be supported, and that there must have been some preëxisting obligation, which has become inoperative by positive law, to form a basis for an effective promise. The cases of debts barred by the statute of limitations, of debts incurred by infants, of debts of bankrupts, are generally put for illustration of the rule. Express promises founded on such preëxisting equitable obligations may be enforced; there is a good consideration for them; they merely remove an impediment created by law to the recovery of debts honestly due, but which public policy protects the debtors from being compelled to pay. In all these cases there was originally a quid pro quo; and according to the principles of natural justice the party receiving ought to pay; but the legislature has said he shall not be coerced; then comes the promise to pay the debt that is barred,
CHAPTER THREE: CONSIDERATION  147 

Past Consideration & Moral Obligation  the promise of the man to pay the debt of the infant, of the discharged bankrupt to restore to his creditor what by the law he had lost. In all these cases there is a moral obligation founded upon an antecedent valuable consideration. These promises therefore have a sound legal basis. They are not promises to pay something for nothing; not naked pacts; but the voluntary revival or creation of obligation which before existed in natural law, but which had been dispensed with, not for the benefit of the party obliged solely, but principally for the public convenience If moral obligation, in its fullest sense, is a good substratum for an express promise, it is not easy to perceive why it is not equally good to support an implied promise. What a man ought to do, generally he ought to be made to do, whether he promise or refuse. But the law of society has left most of such obligations to the interior forum, as the tribunal of conscience has been aptly called. Is there not a moral obligation upon every son who has become affluent by means of the education and advantages bestowed upon him by his father, to relieve that father from pecuniary embarrassment, to promote his comfort and happiness, and even to share with him his riches, if thereby he will be made happy? And yet such a son may, with impunity, leave such a father in any degree of penury above that which will expose the community in which he dwells, to the danger of being obliged to preserve him from absolute want. Is not a wealthy father under strong moral obligation to advance the interest of an obedient, well disposed son, to furnish him with the means of acquiring and maintaining a becoming rank in life, to rescue him from the horrors of debt incurred by misfortune? Yet the law will uphold him in any degree of parsimony, short of that which would reduce his son to the necessity of seeking public charity. Without doubt there are great interests of society which justify withholding the coercive arm of the law from these duties of imperfect obligation, as they are called; imperfect, not because they are less binding upon the conscience than those which are called perfect, but because the wisdom of the social law does not impose sanctions upon them. A deliberate promise, in writing, made freely and without any
148  CONTRACTS 

Mills v. Wyman  mistake, one which may lead the party to whom it is made into contracts and expenses, cannot be broken without a violation of moral duty. But if there was nothing paid or promised for it, the law, perhaps wisely, leaves the execution of it to the conscience of him who makes it. It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity. And in the case of the promise of the adult to pay the debt of the infant, of the debtor discharged by the statute of limitations or bankruptcy, the principle is preserved by looking back to the origin of the transaction, where an equivalent is to be found. An exact equivalent is not required by the law; for there being a consideration, the parties are left to estimate its value: though here the courts of equity will step in to relieve from gross inadequacy between the consideration and the promise. These principles are deduced from the general current of decided cases upon the subject, as well as from the known maxims of the common law. 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.1 A legal obligation is always a sufficient consideration to support either an express or an implied promise; such as an infant’s debt for necessaries, or a father’s promise to pay for the support and education of his minor children. But when the child shall have attained to manhood, and shall have become his own agent in the world’s business, the debts he in curs, whatever may be their nature, create no obligation upon the father; and it seems to follow, that his promise
1

Cook v. Bradley, 7 Connect. R. 57; Littlefield v. Shee, 2 Barnw. & Adol. 811; Yelv. (Metcalf’s ed.) 4 a, note 1; Parker v. Carter, 4 Munf. 273; M’Pherson v. Rees, 2 Penrose & Watts, 521; Pennington v. Gittings, 2 Gill & Johns. 208; Smith v. Ware, 13 Johns. R. 259; Edwards v. Davis, 16 Johns. R. 281, 283, note; Greeves v. M’Allister, 2 Binn. 591; Chandler v. Hill, 2 Hen. & Munf. 124; Fonbl. on Eq. by Laussat, 273, note; 2 Kent’s Comm. (2nd ed.) 465. Contra, Glass v. Beach, 5 Vermont R. 172; Barlow v. Smith, 4 Vermont R. 144; Commissioners of the Canal Fund v. Perry, 5 Ohio R. 58. See also Seago v. Deane, 4 Bingh. 459; Welles v. Horton, 2 Carr. & Payne, 183; Davis v. Morgan, 6 Dowl. & Ryl. 42. CHAPTER THREE: CONSIDERATION  149 

Past Consideration & Moral Obligation  founded upon such a debt has no legally binding force. The cases of instruments under seal and certain mercantile contracts, in which considerations need not be proved, do not contradict the principles above suggested. The first import a consideration in themselves, and the second belong to a branch of the mercantile law, which has found it necessary to disregard the point of consideration in respect to instruments negotiable in their nature and essential to the interests of commerce. Instead of citing a multiplicity of cases to support the positions I have taken, I will only refer to a very able review of all the cases in the note in 3 Bos. & Pul. 249. The opinions of the judges had been variant for a long course of years upon this subject, but there seems to be no case in which it was nakedly decided, that a promise to pay the debt of a son of full age, not living with his father, though the debt were incurred by sickness which ended in the death of the son, without a previous request by the father proved or presumed, could be enforced by action. It has been attempted to show a legal obligation on the part of the defendant by virtue of our statute, which compels lineal kindred in the ascending or descending line to support such of their poor relations as are likely to become chargeable to the town where they have their settlement. But it is a sufficient answer to this position, that such legal obligation does not exist except in the very cases provided for in the statute, and never until the party charged has been adjudged to be of sufficient ability thereto. We do not know from the report any of the facts which are necessary to create such an obligation. Whether the deceased had a legal settlement in this commonwealth at the time of his death, whether he was likely to become chargeable had he lived, whether the defendant was of sufficient ability, are essential facts to be adjudicated by the court to which is given jurisdiction on this subject. The legal liability does not arise until these facts have all been ascertained by judgment, after hearing the party intended to be charged.2
2

See Cook v. Bradley, 7 Connect. R. 57; Wethersfield v. Montague, 3 Connect. R. 507, Dover v. M’Murphy, 4 N. Hamp. R. 158. 150  CONTRACTS 

Mills v. Wyman  For the foregoing reasons we are all of opinion that the nonsuit directed by the Court of Common Pleas was right, and that judgment be entered thereon for costs for the defendant.

Webb v. McGowin 
Court of Appeals of Alabama 168 So. 196 (Ala. App. 1935) Bricken, Presiding Judge. This action is in assumpsit. The complaint as originally filed was amended. The demurrers to the complaint as amended were sustained, and because of this adverse ruling by the court the plaintiff took a non-suit, and the assignment of errors on this appeal are predicated upon said action or ruling of the court. A fair statement of the case presenting the questions for decision is set out in appellant’s brief, which we adopt.
On the 3d day of August, 1925, appellant while in the employ of the W.T. Smith Lumber Company, a corporation, and acting within the scope of his employment, was engaged in clearing the upper floor of mill No. 2 of the company. While so engaged he was in the act of dropping a pine block from the upper floor of the mill to the ground below; this being the usual and ordinary way of clearing the floor, and it being the duty of the plaintiff in the course of his employment to so drop it. The block weighed about 75 pounds. As appellant was in the act of dropping the block to the ground below, he was on the edge of the upper floor of the mill. As he started to turn the block loose so that it would drop to the ground, he saw J. Greeley McGowin, testator of the defendants, on the ground below and directly under where the block would have fallen had appellant turned it loose. Had he turned it loose it would have struck McGowin with such force as to have caused him serious bodily harm or death. Appellant could have remained safely on the upper floor of the mill by turning the block loose and allowing it to drop, but had he done this the block would have fallen on McGowin and caused him serious inCHAPTER THREE: CONSIDERATION  151 

Past Consideration & Moral Obligation 
juries or death. The only safe and reasonable way to prevent this was for appellant to hold to the block and divert its direction in falling from the place where McGowin was standing and the only safe way to divert it so as to prevent its coming into contact with McGowin was for appellant to fall with it to the ground below. Appellant did this, and by holding to the block and falling with it to the ground below, he diverted the course of its fall in such way that McGowin was not injured. In thus preventing the injuries to McGowin appellant himself received serious bodily injuries, resulting in his right leg being broken, the heel of his right foot torn off and his right arm broken. He was badly crippled for life and rendered unable to do physical or mental labor. On September 1, 1925, in consideration of appellant having prevented him from sustaining death or serious bodily harm and in consideration of the injuries appellant had received, McGowin agreed with him to care for and maintain him for the remainder of appellant’s life at the rate of $15 every two weeks from the time he sustained his injuries to and during the remainder of appellant’s life; it being agreed that McGowin would pay this sum to appellant for his maintenance. Under the agreement McGowin paid or caused to be paid to appellant the sum so agreed on up until McGowin’s death on January 1, 1934. After his death the payments were continued to and including January 27, 1934, at which time they were discontinued. Thereupon plaintiff brought suit to recover the unpaid installments accruing up to the time of the bringing of the suit. The material averments of the different counts of the original complaint and the amended complaint are predicated upon the foregoing statement of facts.

In other words, the complaint as amended averred in substance: (1) That on August 3, 1925, appellant saved J. Greeley McGowin, appellee’s testator, from death or grievous bodily harm; (2) that in doing so appellant sustained bodily injury crippling him for life; (3) that in consideration of the services rendered and the injuries received by appellant, McGowin agreed to care for him the remainder
152  CONTRACTS 

Webb v. McGowin  of appellant’s life, the amount to be paid being $15 every two weeks; (4) that McGowin complied with this agreement until he died on January 1, 1934, and the payments were kept up to January 27, 1934, after which they were discontinued. The action was for the unpaid installments accruing after January 27, 1934, to the time of the suit. The principal grounds of demurrer to the original and amended complaint are: (1) It states no cause of action; (2) its averments show the contract was without consideration; (3) it fails to allege that McGowin had, at or before the services were rendered, agreed to pay appellant for them; (4) the contract declared on is void under the statute of frauds. 1. The averments of the complaint show that appellant saved McGowin from death or grievous bodily harm. This was a material benefit to him of infinitely more value than any financial aid he could have received. Receiving this benefit, McGowin became morally bound to compensate appellant for the services rendered. Recognizing his moral obligation, he expressly agreed to pay appellant as alleged in the complaint and complied with this agreement up to the time of his death; a period of more than 8 years. Had McGowin been accidentally poisoned and a physician, without his knowledge or request, had administered an antidote, thus saving his life, a subsequent promise by McGowin to pay the physician would have been valid. Likewise, McGowin’s agreement as disclosed by the complaint to compensate appellant for saving him from death or grievous bodily injury is valid and enforceable. Where the promisee cares for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit received. Pittsburg Vitrified Paving & Building Brick Co. v. Cerebus Oil Co., 79 Kan. 603; Edson v. Poppe, 24 S.D. 466; Drake v. Bell, 55 N.Y.S. 945. In Boothe v. Fitzpatrick, 36 Vt. 681, the court held that a promise by defendant to pay for the past keeping of a bull which had escaped
CHAPTER THREE: CONSIDERATION  153 

Past Consideration & Moral Obligation  from defendant’s premises and been cared for by plaintiff was valid, although there was no previous request, because the subsequent promise obviated that objection; it being equivalent to a previous request. On the same principle, had the promisee saved the promisor’s life or his body from grievous harm, his subsequent promise to pay for the services rendered would have been valid. Such service would have been far more material than caring for his bull. Any holding that saving a man from death or grievous bodily harm is not a material benefit sufficient to uphold a subsequent promise to pay for the service, necessarily rests on the assumption that saving life and preservation of the body from harm have only a sentimental value. The converse of this is true. Life and preservation of the body have material, pecuniary values, measurable in dollars and cents. Because of this, physicians practice their profession charging for services rendered in saving life and curing the body of its ills, and surgeons perform operations. The same is true as to the law of negligence, authorizing the assessment of damages in personal injury cases based upon the extent of the injuries, earnings, and life expectancies of those injured. In the business of life insurance, the value of a man’s life is measured in dollars and cents according to his expectancy, the soundness of his body, and his ability to pay premiums. The same is true as to health and accident insurance. It follows that if, as alleged in the complaint, appellant saved J. Greeley McGowin from death or grievous bodily harm, and McGowin subsequently agreed to pay him for the service rendered, it became a valid and enforceable contract. 2. It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. Lycoming County v. Union County, 15 Pa. 166; Ferguson v. Harris, 39 S.C. 323; Muir v. Kane, 55 Wash. 131; State ex rel. Bayer v. Funk, 105 Or. 134; Hawkes v. Saunders, 1 Cowp. 290; In re Sutch’s Estate, 201 Pa. 305; Edson v. Poppe, 24 S.D.
154  CONTRACTS 

Webb v. McGowin  466; Park Falls State Bank v. Fordyce, 206 Wis. 628; Baker v. Gregory, 28 Ala. 544. In the case of State ex rel. Bayer v. Funk, supra, the court held that a moral obligation is a sufficient consideration to support an executory promise where the promisor has received an actual pecuniary or material benefit for which he subsequently expressly promised to pay. The case at bar is clearly distinguishable from that class of cases where the consideration is a mere moral obligation or conscientious duty unconnected with receipt by promisor of benefits of a material or pecuniary nature. Park Falls State Bank v. Fordyce, supra. Here the promisor received a material benefit constituting a valid consideration for his promise. 3. Some authorities hold that, for a moral obligation to support a subsequent promise to pay, there must have existed a prior legal or equitable obligation, which for some reason had become unenforceable, but for which the promisor was still morally bound. This rule, however, is subject to qualification in those cases where the promisor, having received a material benefit from the promisee, is morally bound to compensate him for the services rendered and in consideration of this obligation promises to pay. In such cases the subsequent promise to pay is an affirmance or ratification of the services rendered carrying with it the presumption that a previous request for the service was made. McMorris v. Herndon, 2 Bailey (S.C.) 56; Chadwick v. Knox, 31 N.H. 226; Kenan v. Holloway, 16 Ala. 53; Ross v. Pearson, 21 Ala. 473. Under the decisions above cited, McGowin’s express promise to pay appellant for the services rendered was an affirmance or ratification of what appellant had done raising the presumption that the services had been rendered at McGowin’s request. 4. The averments of the complaint show that in saving McGowin from death or grievous bodily harm, appellant was crippled for life. This was part of the consideration of the contract declared on.
CHAPTER THREE: CONSIDERATION  155 

and for this error the case is reversed and remanded. “I do not think that law ought to be separated from justice. where he says. Fisher v. though not always in accord. 156  CONTRACTS  . Boyd.577. These subsequent purchasers were not the owners of the lands at the time the improvements were made. Bayer v. Porter. they could not have been made for their benefit. 6. 6.L. 25 R. No.) 122. are not in conflict with the principles here announced. In those cases the lands were owned by the United States at the time the alleged improvements were made. § 49. would bar a recovery by plaintiff. 8 Greenl. Judge (concurring). where it is at most doubtful. as stated by judges. Hall. & p. in sustaining the demurrer. 5. The demurrer on this ground was not well taken. Bartlett. (Me. 1 Stew. Cas. Under the averments of the complaint the services rendered by appellant were not gratuitous. Samford. and perhaps the strict letter of the rule.” I concur in the conclusions reached by the court. The questions involved in this case are not free from doubt.83. The cases of Shaw v. 9 Ala. Benefit to the promisor or injury to the promisee is a sufficient legal consideration for the promisor’s agreement to pay. 457 and 470. From what has been said. Funk. that is to say. The contract declared on was not void under the statute of frauds (Code 1923. and Duncan v. 128.Past Consideration & Moral Obligation  McGowin was benefited. The agreement of McGowin to pay and the acceptance of payment by appellant conclusively shows the contrary. 456. supra. Fed.C. we are of the opinion that the court below erred in the ruling complained of. § 8034). Reversed and remanded. Appellant was injured. State ex rel. Consequently. for which subsequent purchasers from the government agreed to pay. but following the principle announced by Chief Justice Marshall in Hoffman v.

though we have held that the state may recognize a moral obligation. 194. The cases CHAPTER THREE: CONSIDERATION  157  . 515.) 168 So. without material benefit to him. without a material and substantial claim to payment. We do not in all cases in which we deny a petition for certiorari to the Court of Appeals approve the reasoning and principles declared in the opinion. 1936) Foster. Justice. 199 (Ala. Board of Revenue of Mobile v. But when the opinion of the Court of Appeals asserts important principles or their application to new situations. we think it advisable to be specific in that respect when the certiorari is denied. even though no opinion is rendered by us. We think such a situation here exists. and was to the person of the promisor rather than to his estate. though it is not enforceable by law. nor that an executory obligation may be so incurred. based upon some refined sense of ethical duty. McGowin  Webb. Hewitt. Moses v. 206 Ala. or city. and pay it or cause it to be paid by a county. Tigner (Ala. Clements. 405(6).Webb v. It does not always seem to be important that they be discussed. 374. 220 Ala. it is within the class of material benefits which he has the privilege of recognizing and compensating either by an executed payment or an executory promise to pay. Those cases do not mean to affirm that the state may recompense for nice ethical obligations. v. Sup. and we exercise a discretion in that respect. We agree with that court that if the benefit be material and substantial. or do the courteous or generous act. McGowin  Supreme Court of Alabama 168 So. Puckett. and one in which such a benefit did in fact occur. Board of Revenue of Jefferson County v. 227 Ala. Neither this court nor the Court of Appeals has had before it questions similar to those here presented. and it may be uncertain whether this court agrees with it in all respects. The opinion of the Court of Appeals here under consideration recognizes and applies the distinction between a supposed moral obligation of the promisor. State v.

the responsibility resting upon the surgeon performing the operation. M. given at the instance of plaintiffs. and Gardner and Bouldin. Harrison. A. C. deceased. Defendant appeals.L.Past Consideration & Moral Obligation  are cited in that opinion. M. The reporter will state the issues and substance of the testimony and set out instructions 1 and 2 given at instance of appellee. C.” Hill. concur. Wisdom  Supreme Court of Arkansas 104 S. his experience and professional training. Cotnam. in a sudden emergency following the deceased’s injury in a street car wreck.. 164 (Ark. are elements to be considered by you in determining what is a reasonable charge for the services performed by plaintiffs in the particular case. Instructions 1 and 2. As 158  CONTRACTS  . in an endeavor to save his life. J. The reason is emphasized when the compensation is not only for the benefits which the promisor received.J. administrator of A. Harrison such sum as you may find from the evidence is a reasonable compensation for the services rendered. JJ. Writ denied. 1907) Action by F. for services rendered by plaintiffs as surgeons to defendant’s intestate. (2) The character and importance of the operation. Reversed and remanded. are as follows: “(1) If you find from the evidence that plaintiffs rendered professional services as physicians and surgeons to the deceased. and the ability to pay of the person operated upon.M. Harrison. (after stating the facts).W. and it will be seen therefrom that instruction 1 amounted to a peremptory instruction to find for the plaintiff in some amount. Judgment for plaintiffs. then you are instructed that plaintiffs are entitled to recover from the estate of the said A. but also for the injuries either to the property or person of the promisee by reason of the service rendered. Cotnam v.T.. Wisdom and another against T. The first question is as to the correctness of this instruction. Anderson.

H. receiving serious injuries which rendered him unconscious. The appellant says: “Harrison was never conscious after his head struck the pavement. Harrison. an idiot. a new rule of law. many of which have been commented on at length by Mr. are peculiarly applicable here: “We regard it as well settled by the cases referred to in the briefs of counsel. and circumstances by the jury--but a contract and promise. and he died without regaining consciousness. and while in that condition the appellees were notified of the accident and summoned to his assistance by some spectator. to be inferred from language. appellant’s intestate. Wisdom  indicated therein the facts are that Mr. § 771. § 14. no meeting of the minds of the parties. He did not and could not.Cotnam v. an actual contract--that is. for necessaries furnished to him in good faith while in that unfortunate and helpless condition. And the reasons upon which this rest are too broad. They are usually called “implied contracts. of contract by implication of law. in assumpsit. as well as too sensible and humane. an actual. and performed a difficult operation in an effort to save his life. said to be CHAPTER THREE: CONSIDERATION  159  . assent to the action of the appellees. 627. and by this is not meant. to be overborne by any deductions which a refined logic may make from the circumstances that in such cases there can be no contract or promise. in fact. The cases put it on the ground of an implied contract. that an insane person.” More properly they should be called “quasi contracts” or “constructive contracts. an actual meeting of the minds of the parties. True. will have to be established by this court in order to sustain the recovery. for such contracts are almost as old as the English system of jurisprudence. He was without knowledge or will power. but they were unsuccessful. expressly or impliedly. also 2 Page on Contracts. 53 N. mutual understanding. acts. was thrown from a street car. Shirley for the defendant.” Appellant is right in saying that the recovery must be sustained by a contract by implication of law. The following excerpts from Sceva v.” See 1 Page on Contracts. or a person utterly bereft of all sense and reason by the sudden stroke of an accident or disease may be held liable. as the defendant’s counsel seems to suppose. However merciful or benevolent may have been the intention of the appellees. but is not right in saying that it is a new rule of law.

The common law supplies no action of duty. 191. where.. with their correlative legal duties. for the obvious and sufficient reason that it is not true. on the contrary. nor the semblance of one. resting wholly for its support on a plain legal obligation. One phase in the law of implied contracts was considered in the case of Lewis v. as it does of assumpsit and trespass. and torts on the other. A contract implied by law. whether express or tacit. or in verbal communications which passed between them. in point of fact. no mutual understanding. when all the evidence in the case shows that there was not a contract. which seem to lie in the region between contracts on the one hand. or in their acts and conduct considered in the light of the circumstances of each particular case. It is doubtless a legal fiction. and to call for the application of a remedy not strictly furnished either by actions ex contractu or actions ex delicto. as a matter of law. It is simply a mythical creation of the law. analogous to the obligationes quasi ex contractu of the civil law. The defendant’s counsel says it is usurpation for the court to hold. If it were true. The law says it shall be taken that there was a promise.Past Consideration & Moral Obligation  implied by the law. and hence the somewhat awkward contrivance of this fiction to apply the remedy of assumpsit where there is no true contract and no promise to support it. and so no promise. Lewis. In its practical application it sustains recovery for physicians and nurses who render services for infants. and firmly fixed in the body of the law. it would not be a fiction. but enough has been said to show that when a contract or promise implied by law is spoken of. there was no contract.” This subject is fully discussed in Beach on the Modern Law of Contracts. rests upon no evidence. 771 et seq. and 2 Page on Contracts. 639 et seq. Of course this is not good logic. Illustrations might be multiplied. a very different thing is meant from a contract in fact. there was none. There is a class of legal rights. It is a legal fiction. that there is a contract and a promise. 75 Ark. when in point of fact. If it was originally usurpation. It has no actual existence. certainly it has now become very inveterate. and a plain legal right. 160  CONTRACTS  . The evidence of an actual contract is generally to be found either in some writing made by the parties. invented and used for the sake of the remedy.

2 Page on Contracts. who brings to such a service due skill and care. the surgeon.. 127 N. In Robinson v.500. Newman. or a laborer for a day’s work. 14.Y. it was said: “There is no more reason why this charge should be enhanced on account of the ability of the defendants to pay than that the merchant should charge them more for a yard of cloth. 625.Y. and that his estate would go to his collateral relatives. 59 Ga. 178 N. There is a conflict in the authorities as to whether it is proper to prove the value of the estate of a person for whom medical services were rendered. or the financial condition of the person receiving such services. The court permitted to go to the jury the fact that Mr. see Haley’s Succession. K. Campbell. the price to be paid therefor does not depend upon the result. or the druggist for filling a prescription. Supp. where the court said: “That is not at all the test. such as the classes above described. The event so generally lies with the forces of nature that all intelligent men know and understand that the surgeon is not responsible therefor. §§ 867. and Lange v. 840. derived by the deceased from the operation. Meyer v. Wisdom  insane persons.” 3. 63. if any. whether the outcome be beneficial to the patient or the reverse. The court was right in refusing to place this burden upon the physicians. So that a surgical operation be conceived and performed with due skill and care. in addition to the value of the services. 676.” On the other hand.Cotnam v. and alleges error in the court refusing to so instruct the jury. Raoul v. 116 Wis. In absence of express agreement.Y. the benefit. including $10. which was affirmed by the Court of Appeals. earns the reasonable and customary price therefor. The defendant sought to require the plaintiff to prove. 2. 4 N. 408. and also permitted proof to be made of the value of the estate. The same question was considered in Ladd v. of P. 906. which amounted to about $18. Kearney. 35. 50 La. 47 Iowa. The court was therefore right in giving the instruction in question. Ann. 897. Harrison was a bachelor.000 from accident and life insurance policies. Witte. And services rendered by physicians to persons unconscious or helpless by reason of injury or sickness are in the same situation as those rendered to persons incapable of contracting. holding that the CHAPTER THREE: CONSIDERATION  161  . and drunkards.

viz. against the objection of the defendant. 14. Kearney. If there was a recognized usage obtaining in the premises here involved to graduate professional charges with reference to the financial condition of the person for whom such services are rendered. Whatever may be the true principle governing this matter in contracts. the amount or value of the latter’s estate could shed no legitimate light upon this issue nor aid in its elucidation. this case differs from the Alabama case. the services rendered the one are of the same value as the same services rendered to the other. in regard to that element. the court said: “The trial court erred in admitting testimony as to the value of the patient’s estate. 4 N. be held to have contemplated what charges the physician might properly bring against him. Wood.” There was evidence in this case proving that it was customary for physicians to graduate their charges by the ability of the patient to pay. The cure or amelioration of disease is as important to a poor man as it is to a rich one. the court is of the opinion that the financial condition of a patient cannot be considered where there is no contract and recovery is sustained on a legal fiction which raises a contract in order to afford a remedy which the justice of the case requires. Supp. as the case was presented below. The same thought differently expressed is found in Lange v. 384.Past Consideration & Moral Obligation  financial condition of the patient may be considered. In Morrissett v. there is no hint of it in the evidence. prima facie at least. because the custom would render the financial condition of the patient a factor to be contemplated by both parties when the services were rendered and accepted. 123 Ala. which had been so long established and so universally acted upon as to have ripened into a custom of such character that it might be considered that these services were rendered and accepted in contemplation of it. and. in fact or in law. But the value of the Alabama decision is the reason given which may admit such evidence. it must be assumed that the sur162  CONTRACTS  .Y. and hence. The inquiry was as to the value of the professional services rendered by the plaintiff to the defendant’s testator. and.. In order to admit such testimony. and certainly the unconscious patient could not. This could not apply to a physician called in an emergency by some bystander to attend a stricken man whom he never saw or heard of before.

and for them the surgeon is entitled to fair compensation for his time. concur in sustaining the recovery. yet a different question is presented when there is no contract to be ascertained or construed. and to instruct the jury in the second instruction that in determining what was a reasonable charge they could consider the “ability to pay of the person operated upon. Battle and Wood.” It was improper to let it go to the jury that Mr. and hence it is impossible to say that this was a harmless error. While the law may admit such evidence as throwing light upon the contract and indicating what was really in contemplation when it was made. Judgment is reversed. and in holding that it was error to permit the jury to consider the fact that his estate would go to collateral heirs. The services are the same be the patient prince or pauper. service.             CHAPTER THREE: CONSIDERATION  163  . and instructing that it might be considered in fixing the charge. JJ.. and skill.Cotnam v. It was therefore error to admit this evidence. and its effect might well have been prejudicial. This was relevant to no issue in the case. but a mere fiction of law creating a contract where none existed in order that there might be a remedy for a right. and cause remanded. While this verdict is no higher than some of the evidence would justify. This fiction merely requires a reasonable compensation for the services rendered. Harrison was a bachelor and that his estate was left to nieces and nephews. but they do not concur in holding that it was error to admit evidence of the value of the estate. yet it is much higher than some of the other evidence would justify. Wisdom  geon and patient each had in contemplation that the means of the patient would be one factor in determining the amount of the charge for the services rendered.

Judgment below was for plaintiff for $5.Promissory Estoppel  _________________________________________________  PROMISSORY ESTOPPEL  _________________________________________________  Feinberg v. office manager. its then president and largest individual stockholder. The parties are in substantial agreement on the essential facts.2d 163 (Mo. when she was but 17 years of age. This is a suit brought in the Circuit Court of the City of St. 1947. and owned 70 shares of its stock out of a total of 6. a former employee of the defendant corporation. as did all of the other stockholders. the case was tried by the court alone. Louis. and the remaining 30 she had acquired by a stock split or stock dividend. Ct. and assistant treasurer of the defendant. Louis by plaintiff. inclusive. Also. On December 27. in 1910. Pfeiffer Co. App. the amount of the pension claimed to be due as of the date of the trial. Commissioner.503 shares issued and outstanding. plaintiff from 1937 to 1949. 164  CONTRACTS  . Missouri 322 S. The other directors present were George L. A jury being waived. By 1947 she had attained the position of bookkeeper. together with interest thereon.W. presided over by Max Lippman.000 in the later years. Plaintiff began working for the defendant.100. Over the years she received substantial dividends on the stock she owned. on an alleged contract whereby defendant agreed to pay plaintiff the sum of $200 per month for life upon her retirement. in addition to her salary. received each year a bonus varying in amount from $300 in the beginning to $2. 1959) Doerner.  St. Twenty shares had been given to her by the defendant or its then president. she had purchased 20. a manufacturer of pharmaceuticals. Louis Court of Appeals. the annual meeting of the defendant’s Board of Directors was held at the Company’s offices in St. and defendant duly appealed.

00 per month. be increased to $400. because it is the crux of the case. Sol Flammer. Not only has she served the corporation devotedly. Feinberg would continue in her present position for as long as she felt able. Messrs. it was – Resolved. and that Mrs. Feinberg’s salary which is presently $350. which. At that meeting the Board of Directors adopted the following resolution. for the remainder of her life.00 per month and that she be afforded the privilege of retiring from active duty in the corporation at any time she may elect to see fit so to do upon retirement pay of $200. It was. that the salary of Anna Sacks Feinberg be increased from $350. Feinberg would be given the privilege of retiring from active duty at any time she may elect to see fit so to do upon a retirement pay of $200. has given the corporation many years of long and faithful service. Harris and Flammer.503 shares then issued and outstanding. with Max Lippman.007 of the 6.  Marcus. Sidney Harris. nevertheless.00 per month. in view of the length of service which she has contributed provision should be made to afford her retirement privileges and benefits which should become a firm obligation of the corporation to be available to her whenever she should see fit to retire from active duty.00 per month for life. but with exceptional ability and skill. At the request of Mr. and upon motion duly made and seconded. The President pointed out that although all of the officers and directors sincerely hoped and desired that Mrs. we quote in full: The Chairman thereupon pointed out that the Assistant Treasurer. Lippman his sons-in-law. owned 5.Feinberg v. After due discussion and consideration. with the distinct understanding that the retirement plan is merely being adopted at the present time in order to afford Mrs. Anna Sacks Feinberg. called upon the plaintiff at her apartment on the same CHAPTER THREE: CONSIDERATION  165  . however many years in the future such retirement may become effective. Pfeiffer Co.00 per month. who. Mrs. and Walter Weinstock. accordingly. proposed that Mrs. Feinberg security for the future and in the hope that her active services will continue with the corporation for many years to come.00 to $400.

and that she would have continued in her employment whether or not such a resolution had been adopted. Mr. Plaintiff did continue to work for the defendant through June 30. Because of an illness. and was succeeded as president of the company by his widow. Harris testified that both Ernst and Ernst. Additional facts will be referred to later in this opinion. he stated. Its complaint is not so much that such evi166  CONTRACTS  . and in the Spring of 1956. 1956.Promissory Estoppel  day to advise her of the passage of the resolution. and this action followed. In accordance with the foregoing resolution. a new accounting firm employed by the defendant questioned the validity of the payments to plaintiff on several occasions. the defendant began paying her the sum of $200 on the first of each month. Plaintiff testified on cross-examination that she had no prior information that such a pension plan was contemplated. and considered the payments as gifts. Harris. at any time. he consulted the Company’s then attorney. Mr. Appellant’s first assignment of error relates to the admission in evidence of plaintiff’s testimony over its objection. 1949. Lippman died on November 18. upon its recommendation. He also stated that he had concurred in the view that the payments to plaintiff were mere gratuities rather than amounts due under a contractual obligation. and the defendant to discharge her. It is clear from the evidence that there was no contract. Sidney M. that it came as a surprise to her. but fussed about doing so. Lippman had been president she signed the monthly pension check paid plaintiff. After his election. Harris testified that while Mrs. 1957. and that she was no longer able to engage in gainful employment because of the removal of a cancer and the performance of a colocholecystostomy operation on November 25. 1949. Mr. on which date she retired. that at the time of trial she was sixty-five and a half years old. she retired from that office and was succeeded in October. and that following his discussion with the Company’s attorney plaintiff was sent a check for $100 on April 1. the accounting firm. Ralph Kalish. by her son-in-law. and that she was free to quit. and Kalish told him there was no need of giving plaintiff the money. Plaintiff declined to accept the reduced amount. as to plaintiff’s length of employment. 1953. oral or written.

as it is that the trial court erroneously made it one basis for its decision in favor of plaintiff. this being a jury-waived case. and to render such judgment as the court below ought to have given. Hussey v. since. Pfeiffer Co. Thumm v. CHAPTER THREE: CONSIDERATION  167  .W. Sec. and need not pass upon questions of error in the admission and exclusion of evidence. 1956.M. Section 512. she stated. the very day it was adopted. from her voluntary retirement until April 1.310 RSMo 1949.. justifiably so. Her testimony continued: Q. it is obvious from his amended grounds for decision and judgment that it was not.. App.S.2d 1.W. what was the reason-I’m sorry.. 510. Mo.160. through June 30. The trial court so found. Lohr. that knowledge of the passage of the resolution was communicated to her on December 27. Minor v.2d 603. Plaintiff testified. 1947. that at that time her health was good and she could have continued to work. Robinson. Mo.. 285 S. and. we are constrained by the statutes to review it upon both the law and the evidence. We consider only such evidence as is admissible. Yes. Did you then quit the employment of the company after you-after this year and a half? A. that she could take the pension as of that day. V. As defendant concedes. as will be seen. but that after working for almost forty years she thought she would take a rest. if she wished. the error (if it was error) in the admission of such evidence would not be a ground for reversal.Feinberg v. Appellant’s next complaint is that there was insufficient evidence to support the court’s findings that plaintiff would not have quit defendant’s employ had she not known and relied upon the promise of defendant to pay her $200 a month for life. Lillard.A. She was told at that time by Harris and Flammer. and was corroborated by Harris.W. plaintiff relied upon the continued receipt of the pension installments. in our opinion.  dence was irrelevant and immaterial. the basis for his decision. 289 S. in fairness to the trial court it should be stated that while he briefly referred to the state of plaintiff’s health as of the time of the trial in his amended findings of fact. Mo. and the finding that. defendant’s witness.2d 604. 306 S. 1949. However. Now. She testified further that she continued to work for another year and a half.

Yes. Q. Very much so. Q. now. Would you have left the employment of the company at that time had it not been for this pension? A. (interrupting): No. I think so. Being paid? A.Promissory Estoppel  Q. My health was good. Yes. We relied upon it because I was positive that I was going to get it as long as I lived. it was a long time and I thought I would take a little rest. No. Q. it is thus succinctly stated in the argument in its brief: “… whether plaintiff has proved that she has a right to recover from defendant based upon a legally binding contractual obligation to pay her $200 per month for life. I thought almost forty years. Did you ever seek employment while this pension was being paid to you – A. You would not have. Q. we figured we could get along. We certainly did. at any time prior-at any other place? A. The question is whether you would have quit the employment of the company at that time had you not relied upon this pension plan? A. Q. Q. Well. Agatstein continuing): Go ahead. We come. No. then. It is obvious from the foregoing that there was ample evidence to support the findings of fact made by the court below. What was the reason that you left? A. And with the pension and what earnings my husband had. (Mr. No. Wait a minute. Was your health good? A. to the basic issue in the case. The Court: It will be overruled. Q. Q. A. Mr. Were you able to hold any other employment during that time? A. Did you rely upon this pension? A. While otherwise defined in defendant’s third and fourth assignments of error. I wouldn’t.” 168  CONTRACTS  . sir. Q. I object to that as calling for a conclusion and conjecture on the part of this witness. Allen: Just a minute.

. And. and that she had no contractual right to her position and could have been discharged at any time. her change of position. in essence.. that the resolution adopted by its Board of Directors was a mere promise to make a gift. Hence there was lacking that mutuality of obligation which is essential to the validity of a contract. App. and the abandonment by her of her opportunity to continue in gainful employment. until the date of her retirement on June 30. and that past services are not a valid consideration for a promise. but contends that there were two other elements which supplied the required element: First. the continuation by plaintiff in the employ of the defendant for the period from December 27.2d 90. Pfeiffer Co. i. Plaintiff concedes that a promise based upon past services would be without consideration. Solace v. or when plaintiff retired. 1947. that she was not under contract to work for any length of time but was free to quit whenever she wished.J. She was told that she could quit the day upon which the resolution was adopted. and that no contract resulted either thereby. and it is clear from her own testimony that she made no promise or agreement to continue in the employ of the defendant in return for its promise to pay her a pension. Middleton v. the date when the resolution was adopted.Feinberg v. We must agree with the defendant that the evidence does not support the first of these contentions. made in reliance on defendant’s promise to pay her $200 per month for life. Defendant argues further that there is nothing in the resolution which made its effectiveness conditional upon plaintiff’s continued employment. that the only apparent consideration for the adoption of the foregoing resolution was the “many years of long and faithful service” expressed therein.W. second. 1949. CHAPTER THREE: CONSIDERATION  169  . T. App.  It is defendant’s contention. It urges that a promise to make a gift is not binding unless supported by a legal consideration. because there was no consideration given or paid by the plaintiff. Mo. There is no language in the resolution predicating plaintiff’s right to a pension upon her continued employment. Holecraft.. Mo. She was not required to work for the defendant for any period of time as a condition to gaining such retirement benefits. her retirement. Moss Tie Co. 270 S. as she herself testified. e..

or (b) a forbearance. Section 75. Fuqua v. as: (1) Consideration for a promise is (a) an act other than a promise. the promisee has suffered detriment. it is only that the promi170  CONTRACTS  . bargained for and given in exchange for the promise. 229 Mo. 341 Mo. Stoddard County. 117 Mo. Industrial Bank & Trust Co. 865. Thompson v. 19. 264 Mo. By the terms of the resolution defendant promised to pay plaintiff the sum of $200 a month upon her retirement. App.” This doctrine has been described as that of “promissory estoppel. 1129. however. the reason for the differentiation being stated as follows: It is generally true that one who has led another to act in reasonable reliance on his representations of fact cannot afterwards in litigation between the two deny the truth of the representations. Duvall v. 195 S. and some courts have sought to apply this principle to the formation of contracts.2d 470.2d 1079. Aslin v. It is to be noticed. 758 Section 90 of the Restatement of the Law of Contracts states that: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.. 349 Mo. McCune. Lumbermen’s Supply Co. 138. the consideration sufficient to support a contract may be either a benefit to the promisor or a loss or detriment to the promisee. Hesselberg. But as to the second of these contentions we must agree with plaintiff. Consideration for a promise has been defined in the Restatement of the Law of Contracts. Kansas City v. As the parties agree. or (d) a return promise. v.W...W. Hudson v. 58. Mo. Browning. modification or destruction of a legal relation. 333 Mo.Promissory Estoppel  142 S. If there is any representation of an existing fact. Duncan. 210. that such a case does not come within the ordinary definition of estoppel. American Handle Co. where. 341 Mo. Campbell v. State ex rel.” as distinguished from that of equitable estoppel or estoppel in pais. State Highway Commission. or (c) the creation. relying on a gratuitous promise. App.

as will estop the defendant. the implied promise to complete being the consideration for the original promise. and the term “promissory” estoppel or something equivalent should be used to make the distinction. Ed. (2) Theory of promissory estoppel. Sheidley (1897) 138 Mo. and therefore create an enforceable contract under the doctrine of CHAPTER THREE: CONSIDERATION  171  . in reliance upon the promise contained in the resolution.. The induced “action or forbearance” works an estoppel against the promisor. Rev. 60 F. 2 Cir. 1. In speaking of this doctrine.) Was there such an act on the part of plaintiff. 675. and we have an enforceable bilateral contract. 139.” That variance. as the authors of the Annotations point out. Williston on Contracts. 522. it is not that which has injured the promisee. In other words.” As pointed out by our Supreme Court in In re Jamison’s Estate.  sor at the time of making the promise intends to fulfill it. it is stated in the Missouri Annotations to the Restatement under Section 90 that: “There is a variance between the doctrine underlying this section and the theoretical justifications that have been advanced for the Missouri decisions. that “… ‘promissory estoppel’ is now a recognized species of consideration.. means that the promise described is a contract without any consideration. v. Underwood Typewriter Co.W. 202 S. The induced “action or forbearance” is the consideration for the promise.2d 673. (Citing School District of Kansas City v. 672 … (3) Theory of bilateral contract. when applied with § 85.. In Missouri three theories have been advanced as ground for the decisions (1) Theory of act for promise. Pfeiffer Co.2d 879. Vol. 887. (1909) 220 Mo. is that: This § 90. In Missouri the same practical result is reached without in theory abandoning the doctrine of consideration. Judge Learned Hand said in Porter v. When the induced “action or forbearance” is begun. See § 76. Commissioner of Internal Revenue. As to such intention there is usually no misrepresentation and if there is.Feinberg v. Sec. he relies on a promise and not on a misstatement of fact. Century Realty Co. (Citing cases. a promise to complete is implied. Mo.

” This illustration is objected to by defendant as not being applicable to the case at hand. A promises B to pay him an annuity during B’s life. the Supreme Court of Nebraska said: … According to the undisputed proof. We think the distinction is immaterial. Would defendant contend that the contract would be enforceable if the plaintiff’s illness had been discovered on March 31. whereas in this case the plaintiff did not discover that she had cancer and thereby became unemployable until after the defendant had discontinued the payments of $200 per month. At the time she retired plaintiff was 57 years of age. or unemployable.Promissory Estoppel  promissory estoppel? We think there was. the day after? Furthermore. but not if it occurred on April 2nd. 51. in the meantime becoming disqualified from again obtaining good employment. holding a 172  CONTRACTS  . much less a position comparable to that which plaintiff enjoyed at the time of her retirement. 57 Neb. The fact of the matter is that plaintiff’s subsequent illness was not the “action or forbearance” which was induced by the promise contained in the resolution. the day before it discontinued the payment of the $200 a month. A’s promise is binding. As the trial court correctly decided. such action on plaintiff’s part was her retirement from a lucrative position in reliance upon defendant’s promise to pay her an annuity or pension. Ricketts v. The only reason for the reference in the illustration to the disqualification of A is in connection with that part of Section 90 regarding the prevention of injustice. as shown by the record before us. One of the illustrations cited under Section 90 of the Restatement is: “2. than as the result of illness. B receives the annuity for some years. B thereupon resigns a profitable employment. In a very similar case. as A expected that he might. the plaintiff was a working girl. The reason advanced by it is that in the illustration B became “disqualified” from obtaining other employment before A discontinued the payments. It is a matter of common knowledge that it is virtually impossible for a woman of that age to find satisfactory employment. 1956. there are more ways to become disqualified for work. The injustice would occur regardless of when the disability occurred. Scothorn. At the time the payments were discontinued she was over 63 years of age.

found that Plantations was obligated to Hayes on the basis of an implied-in-fact contract to pay him a yearly pension of $5. Her grandfather. 1982) Shea. gave her the note accompanying it with the remark that his other grandchildren did not work. The defendant employer. it would be grossly inequitable to permit the maker.2d 1091 (R. or his executor. In effect. but. The trial justice ruled. Hayes (Hayes). C. desiring to put her in a position of independence.. P.Feinberg v. The foregoing opinion by Doerner. Plantations Steel Company (Plantations). it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. he suggested that she might abandon her employment. The Commissioner therefore recommends.  position in which she earned a salary of $10 per week. accordingly. Plantations Steel Co. The trial justice. for the reasons stated. that the judgment be affirmed. concur. Pfeiffer Co.000. Wolfe. JJ. Edward J. and Anderson and Ruddy. affirmed. and that she would not be obliged to work any longer. The judgment is. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due. and rely in the future upon the bounty which he promised..J. is adopted as the opinion of the court. Hayes v. appeals from a Superior Court judgment for the plaintiff employee. The award covered three years in which payment had not been made. Justice. whether he did or not.. also. Per Curiam. to resist payment on the ground that the promise was given without consideration. that Hayes had made a sufficient showing of detrimental reliance upon Plantations’s promise to pay to give rise to its obligation based on the theory of promissory esCHAPTER THREE: CONSIDERATION  173  . sitting without a jury.I.  Supreme Court of Rhode Island 438 A. He doubtless desired that she should give up her occupation.

A dispute between their two families in 1976 and 1977 left the DiMartinos in full control of the corporation. however. Both parties have appealed. that he would not have retired had he not expected to receive a pension. We reverse the findings of the trial justice regarding Plantations’s contractual obligation to pay Hayes a pension. after twenty-five years of continuous service. Mainelli. and Alexander A. Consequently we need not deal with the cross-appeal concerning the award of attorney’s fees under the federal statute. There was no formal authorization for payments by Plantations’s shareholders and/or board of directors. a position of considerable responsibility. who was then an officer and a stockholder of Plantations. This conversation was the first and only one concerning payments of a pension to Hayes during retirement. The company was founded by Hugo R. §§ 10011461 (West 1975).S..A. Hayes received the annual sum of $5.. He stated. Hayes was an employee of the corporation from 1947 until his retirement in 1972 at age of sixty-five. 29 U. Mainelli said that the company “would take care” of him. Hayes instituted this action in December 1977.C. The trial justice. DiMartino. Mainelli. Plantations is a closely held Rhode Island corporation engaged in the manufacture of steel reinforcing rods for use in concrete construction. Indeed. after the then company management refused to make any further payments.000 from Plantations. He decided to retire because he had worked continuously for fifty-one years. Starting in January 1973 and continuing until January 1976. and consequently he was not entitled to attorney’s fees under § 1132(g) of that act. Sr. He began with Plantations as an “estimator and draftsman” and ended his career as general manager. Hayes testified that in January 1972 he announced his intention to retire the following July. Approximately one week before his actual retirement Hayes spoke with Hugo R. he sought no other employment. there 174  CONTRACTS  . Jr. After he stopped working for Plantations. There was no mention of a sum of money or a percentage of salary that Hayes would receive.Promissory Estoppel  toppel. however. found in part for Plantations in ruling that the payments to Hayes were not governed by the Employee Retirement Income Security Act.

testified that his father. Plantations Steel Co. Jr. From the words and conduct of the parties and from the surrounding circumstances. Sr.” Mainelli also testified that it was his “personal intention” that the payments would continue for “as long as I was around. At that time a succession of several poor business years plus the stockholders’ dispute. had authorized the first payment “as a token of appreciation for the many years of (Hayes’s) service. He specifically held that Hayes’s retirement was in reCHAPTER THREE: CONSIDERATION  175  . Mainelli. the trial justice concluded that there existed an implied contract obligating the company to pay a pension to Hayes for life. The ruling implied that barring bankruptcy or the cessation of business for any other reason. The trial justice found that Hugo Mainelli. because he was under no obligation to do so. Hugo R. The trial justice made a further finding that even if Hayes had not truly bargained for a pension by voluntarily retiring. The payments were discontinued after 1976. contributed to the decision to stop the payments.” Mainelli testified that after Hayes’s retirement. Hayes had a right to expect continued annual payments.’s statement that Hayes would be taken care of after his retirement was a promise.000 for the years 1977 through 1979. Mainelli. The trial justice also found that Hayes supplied consideration for the promise by voluntarily retiring.. who benefit from an arrangement through their union. Mr. During the course of his visits.Hayes v. he had nevertheless incurred the detriment of foregoing other employment in reliance upon the company’s promise. The trial justice ruled that Plantations owed Hayes his annual sum of $5. “it was implied that that check would continue on an annual basis.” Furthermore. he would visit the premises each year to say hello and renew old acquaintances. Although no sum of money was mentioned in 1972.  was never any formal provision for a pension plan for any employee other than for unionized employees. The plaintiff was not a union member. resulting in the takeover by the DiMartino family.000 established that otherwise unspecified term of the contract. Jr. Hayes would thank Mainelli for the previous check and ask how long it would continue so that he could plan an orderly retirement. the four annual payments of $5..

I. interest.I. Although words were expressed initially in the remark that Hayes “would be taken care of.I.. if Hayes did not supply consideration. The facts at bar do not present the case of an express contract. His findings will not be disturbed unless it can be shown that they are clearly wrong or that the trial justice misconceived or overlooked material evidence. Assuming for the purpose of this discussion that Plantations in legal effect made a promise to Hayes. The only difference between the two is the manner in which the parties manifest their assent. Lemenski. J. R. 387 A..2d 1052 (1981). After careful review of the record.Promissory Estoppel  sponse to the promise and held also that Hayes refrained from seeking other employment in further reliance thereon. we must ask whether Hayes did supply the required consideration that would make the promise binding? And. v.. West. The findings of fact of a trial justice sitting without a jury are entitled to great weight when reviewed by this court.2d 694 (1978). Contracts implied in fact require the element of consideration to support them as is required in express contracts. standing alone is not an expression of a direct and definite promise to pay Hayes a pension. detriment. or undertaken by the other. Lisi v. or benefit accruing to one party or some forbearance.I. nevertheless we must address the question of consideration. In this jurisdiction. Raheb v. Koury Steel Erectors. 424 A. was his alleged reliance sufficiently induced by the promise to estop defendant from denying its obligation to him? We answer both questions in the negative. Inc. 105 R. Certainly the statement of Hugo Mainelli. suffered. or responsibility given. Marra. San-Vel Concrete Corp. We turn first to the problem of consideration. Though we are analyzing an implied contract.” any contract in this case would be more in the nature of an implied contract.. 576 (1976). R. consideration consists either in some right. Jr. the existence of a contract in this case must be determined from all the circumstances of the parties’ conduct and words. 115 R. See 176  CONTRACTS  . As the trial justice stated. 61 (1969). Bailey v. we conclude that the trial justice’s findings and conclusions must be reversed. however.

D.I. therefore. 172 Ind. the purported consideration must not have been delivered before a promise is executed. Passander. 464 (1957). Plowman v.  Dockery v. Instead. 1 Williston on Contracts. To be valid. and therefore the intention to retire was arrived at without regard to any promise by Plantations. supra. It must induce the return act or promise. Hayes’s long years of dedicated service also is legally insufficient because his service too was rendered without being induced by Plantations’s promise. 178 (1961). Valid consideration furthermore must be bargained for. 48 Tenn. App. Although Hayes may have had in mind the receipt of a pension when he first informed Plantations. 20 F. Indian Refining Co. Hayes had announced his intent to retire well in advance of any promise. 25 R.. Weesner v. § 130B (3d ed. and has no legal effect when rendered in the past and apart from an alleged exchange in the present. In the case before us.Hayes v. 1 (E.. Plantations Steel Co.” As such it was in the nature of a gratuity paid to Hayes for as long as the company chose. See Plowman v. Ill. given without reference to the promise. 49 (1977). v. Supp. his expectation was not based on any statement made to him or on any conduct of the company officer relative to him in January 1972. Jaeger 1957).I. Plantations’s promise to pay Hayes a pension is quite clearly not supported by any consideration supplied by Hayes. that is. 384 (1909). an employer’s promise to an employee to pay him a year-end bonus was unenforceable because it was made after the employee had performed his contractual responsibilities for that year. Nor was the promise made to encourage long service from the start of his employment. Murray. Indian Refining Co. Hayes acted on his own initiative. Inc. 151 (1903). Boornazian. App. In deciding to retire. Electric Power Board of Chattanooga. 113 R. Darcey. Zanturjian v. 29 R.I. the testimony establishes that Plantations’s promise was intended “as a token of appreciation for (Hayes’s) many years of service. Consideration is therefore a test of the enforceability of executory promises. Clearly then this is not a case in which Plantations’s promise was meant to induce Hayes to refrain from retiring when he could have chosen to do so in return for further service. Darcey v. In Spickelmier Industries. 1937). 86 R. CHAPTER THREE: CONSIDERATION  177  . 482 (1974). Greenfield. Angel v..I.

There. the employer made the promise one week prior to the employee’s retirement.E. stating that a genuine issue of material fact existed regarding whether the plaintiff’s retirement was in consideration of her employer’s promise to pay her a lifetime pension. and in almost the same words. Vaughan Mfg. This court adopted the theory of promissory estoppel in East Providence Credit Union v. its duty is grounded properly in the theory of promissory estoppel. 188 N. one of Plantations’s founders. the appellate court reversed a summary judgment granted to the defendant employer.2d at 749. However. In fact. here Hayes announced his unsolicited intent to retire. 103 178  CONTRACTS  . Plantations in this case did not actively seek Hayes’s retirement. 1955). Bredemann is distinguishable because the court characterized that promise as a concrete offer to pay if she would retire immediately. Sunset-McKee Co. He was not contemplating other job offers or considering going into competition with Plantations.2d 128 (9th Cir.. Geremia. 221 F..2d 746 (1963). Co.Promissory Estoppel  The plaintiff’s most relevant citations are still inapposite to the present case. Id. Hayes argues in the alternative that even if Plantations’s promise was not the product of an exchange. Unlike Bredemann. Hayes left his employment because he no longer desired to work. As in the present case. But there the court stated that its prime reason for upholding the agreement was that sufficient consideration existed in the employee’s consent not to compete with his employer. it did not try to deter him. in which the court ruled that work performed during the one-week period of the employee’s notice of impending retirement constituted consideration for the employer’s offer of a pension that the employee had solicited some months previously. Hayes also argues that the work he performed during the week between the promise and the date of his retirement constituted sufficient consideration to support the promise. Bredemann v. presents similar yet distinguishable facts. DiMartino. These circumstances do not appear in our case.E. Although Plantations did not want Hayes to leave. the defendant wanted her to retire. nor did it seek to prevent Hayes from engaging in other activity. 188 N. On the contrary. testified that he did not want Hayes to retire. He relies on Ulmann v.

to obligate itself to pay “retireCHAPTER THREE: CONSIDERATION  179  . Pfeiffer Co. 601 (1968) (quoting 1 Restatement Contracts § 90 at 110 (1932)) stating: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of its promise. To restate the matter differently. In Feinberg v. App.Hayes v. 322 S. as A expected that he might. The particular act in this regard is plaintiff’s decision whether or not to retire.2d 163 (Mo.I. A’s promise is binding. rendering a gratuitous promise enforceable as a contract. 1959).” Id. Nor did he seek other employment.” (Emphasis added. “the acts of reliance by the promisee to his detriment (provide) a substitute for consideration. 597. Plantations Steel Co.W.” In East Providence Credit Union this court said that the doctrine of promissory estoppel is invoked “as a substitute for a consideration. in view of her long years of service. In other words. the plaintiff-employee had worked for her employer for nearly forty years. He would not have otherwise retired.  R. B thereupon resigns profitable employment. The defendant corporation’s board of directors resolved. B receives the annuity for some years. One of the essential elements of the doctrine of promissory estoppel is that the promise must induce the promisee’s action or forbearance. the conversation between Hayes and Mainelli which occurred a week before Hayes left his employment cannot be said to have induced his decision to leave. We disagree with this contention largely for the reasons already stated. As we stated earlier. Hayes urges that in the absence of a bargained-for promise the facts require application of the doctrine of promissory estoppel.. He stresses that he retired voluntarily while expecting to receive a pension. the record indicates that he made the decision on his own initiative. in the meantime becoming disqualified from again obtaining good employment. He had reached that decision long before.” Id. A promises B to pay him an annuity during B’s life. An example taken from the restatement provides a meaningful contrast: “2.) 1 Restatement Contracts § 90 at 111 (1932).

The board then informed her of its resolution. in the face of his uncertainty.000 over the course of four years. Obviously. she would not have left had she not been able to rely on a pension.. Hayes had given notice of his intention seven months previously. the court found sufficient reliance on the part of the plaintiff to support her claim. the important distinction between Feinberg and the case before us is that in Feinberg the employer’s decision definitely shaped the thinking of the plaintiff. The court held that a pension contract existed between the parties. The court based its decision upon the above restatement example. Nor can it be said that Hayes’s refraining from other employment was “action or forbearance of a definite and substantial character. the decision whether and when to retire remained entirely her own. Mainelli. Feinberg presents factors that also appear in the case at bar. the defendant informed the plaintiff of its plan. However. There. that is. Instead. Hayes received $20. expected retirement to result from his conversation with Hayes. These circumstances do not lead to a conclusion that injustice can be avoided only by enforcement of Plantations’s promise. It is not reasonable to infer from the facts that Hugo R. Jr. retired. he would no longer work. It is impossible to say that he changed his position any more so because of what Mainelli had told him in light of his own initial decision. He inquired each year about whether he could expect a check for the following year. the plaintiff had worked many years and desired to retire. She sued the corporation when it reduced her monthly checks seven years later. and the plaintiff in reliance thereon. she sought no other employment. Here there was thus no inducement to retire which would satisfy the demands of § 90 of the restatement. Furthermore. Although continued employment was not a consideration to her receipt of retirement benefits. the mere fact that payment for several years did occur is insufficient by itself to 180  CONTRACTS  . In this case the promise did not.” The underlying assumption of Hayes’s initial decision to retire was that upon leaving the defendant’s employ. The resolution did not require the plaintiff to retire.Promissory Estoppel  ment privileges” to her. there was no absolute certainty on his part that the pension would continue. and once retired. The plaintiff worked for eighteen months more before retiring.

work 1 In May 2003. of his intent to pay for the church projects. Schmidt had created a trust. In 2003. Prior to Schmidt’s death. and greatniece. The trust was worth about $330.000. Schmidt stated he wished the funds would be used for an endowment. BACKGROUND FACTS & PROCEEDINGS Reinhard Schmidt was a member of Bethany United Church of Christ.2d 454 (Table). Schmidt informed his great-nephew. Schmidt made a new will in August 2003. S. No specific amount of money was mentioned. Plantations Steel Co. The trust agreement did not restrict the use of the funds.  meet the requirements of reliance under the doctrine of promissory estoppel. Milligan and Carroll assisted Schmidt with his finances. the defendant’s appeal is sustained and the judgment of the Superior Court is reversed. and in reliance on his agreement to finance the project. Schmidt told the pastor.000 and $150. CHAPTER THREE: CONSIDERATION  181  .” Gardner testified he interpreted the letter to mean that the trust funds should not be used to pay for the remodeling projects. “with an emphasis on long-term stability rather than shortterm expenditure. nephews.W. great-nieces. Barbara Carroll.Hayes v. For the foregoing reasons. he wanted to fund remodeling of the parsonage. and the cemetery. Wayne Gardner. In re Estate of Schmidt  Court of Appeals of Iowa 723 N. but in a separate letter. but he did not include a bequest to the church. Loren Milligan. I.J. and told Schmidt the combined projects would cost between $115. Milligan headed the church committees overseeing the remodeling. and greatnephews. and throughout his lifetime he made many gifts to the church. the church basement. Milligan testified Schmidt had no reservations as to these figures.) Robinson. The papers of the case are remanded to the Superior Court.1 The will included bequests to thirty-four relatives.000. Milligan obtained cost estimates. including nieces. the remainder of which would go to the church upon his death. 2006 WL 2561231 (Iowa App.

The church was added as a party.” Mueller also objected to the amended final report. A beneficiary under the will. Ilse Mueller. 2003. although under no obligation to do so. but corrected a citation to a statute. The request was denied. A final report was filed in district court on March 11. Mueller asked the new judge to reconsider her rule 1. which acknowledged the initial final report “contained numerous errors. should be included within the estate.410 of estate funds for the remodeling projects. Landscaping the cemetery had also been commenced. and he used $135. On September 5. and the case was submitted on the record previously made. 2003. The court also determined that in order to determine maximum fees for the executor under Iowa Code section 633. After an initial hearing before Judge Darrell Goodhue. agreed to recuse himself. the amount of the checks written on September 5. Schmidt died on September 7. and asked Judge Goodhue to recuse himself based on her perceived impression that he was biased against her. 2005.000.Promissory Estoppel  was begun on one bathroom in the parsonage. and Judge Gregory Hulse was assigned to decide the merits. 2003. Schmidt had a joint checking account with Carroll. 2005.197 (2005) and the attorney under section 633.904(2). in an attempt to avoid estate taxes. leaving the checking account essentially without funds. the district court determined the church should be made a party to the proceedings. An amended final report was filed on April 21. The judge. Milligan was named as the executor in the will. and flooring was taken up in the church basement. The court then determined the statutory maximum fees in this case were $28. He chose to honor Schmidt’s verbal pledge to the church.290 each. filed objections to the report. Mueller filed a motion pursuant to Iowa Rule of Civil Procedure 1 . The final decision was rendered by 182  CONTRACTS  . The court reiterated its previous ruling. he asked Carroll to clear out the checking account by writing checks to the beneficiaries in his will. after his health began to fail.904(2) motion.198. Carroll wrote checks totaling $257. and have an opportunity to be heard on the validity of the verbal pledge(s).

Campbell. Trustees of Boston Univ. p. 197 N. Hauser.. II. Davis v.2d 26. and not a mere statement of intent).W. 1199 (Mass.W. The court further determined Schmidt made an enforceable oral pledge to the church. Mueller now appeals.”).6. 219 N.088. STANDARD OF REVIEW A hearing on objections to a fiduciary’s final report is an equitable proceeding. Iowa Code § 633. or for a charitable purpose. but is not bound by them. 27 (Iowa 1975). Iowa R. Bever. and the attorney for the executor fees of $21. 611 (Iowa 1972). Hauser.2d 1196. the court gives weight to the fact findings of the district court.1995).W. See Boughton v. “In equity cases. 93 Iowa 524. which the church accepted prior to his death. 647 N.2d 607. Northwestern Bell Tel.. there must be an offer or promise.W. the court determined the statutory maximum fees were actually $21. no matter how clearly proven. would not give rise to binding obligations. In Iowa.088. 95 (Iowa 1998). 721 (Iowa 1974) (noting there must be a promise to a charitable organization. App. Finally. In equitable actions our review is de novo. 576 N.4.2d 94.14(6)(g).000. The objector’s request for attorney fees was denied.6. especially when considering the credibility of witnesses. 197 N. App.E.2d at 613 (“[M]ere declarations of intention.W. The court awarded the executor fees of $10. however. p.” Iowa R. Thus. 231 N. In re Estate of Roehlke. There must also be acceptance by the promisee. See Pappas v.33 (2003). Salsbury v. Charitable subscriptions are considered under contract principles. Pappas v.In re Estate of Schmidt  Judge Gregory Hulse. 532 (1895) (noting a charitable subscription may not be revoked after it is accepted by the promisee). there is no requirement to show consideration or detrimental reliance. King v. Co. McAllister.904(2) motions. CHARITABLE SUBSCRIPTION A charitable subscription is an oral or written promise to do certain acts or to give real or personal property to a charity. CHAPTER THREE: CONSIDERATION  183  . The court determined it could not reconsider those issues ruled upon by the previous judge on the rule 1.2d 720.904(2) motion because a court cannot consider successive or repetitive 1. III.

see also 83 C.W.W. “[W]here a subscription is unequivocal the pledgor should be made to keep his word. and P. see also King. parsonage. and cemetery.” 73 Am.000 to $155. “This uncontradicted testimony convinces this court that the decedent pledged to pay for improvements to the church.S. 83 C.” Salsbury.” P. The court determined.J. “[C]haritable subscriptions are binding without proof of action or forbearance. This is because “[c]haritable subscriptions often serve the public interest by making possible projects which otherwise could never come about.2d 609. There is no allegation in the present case that the statute of frauds should apply. the cases do not restrict application only to written pledges. Mueller also claims Schmidt’s promise was too vague to be enforceable.W.2d at 613. a subscription may be oral unless it falls within the provisions of the statute of frauds.. 221 N. Subscriptions § 25.W.H.2d 774. Generally. The supreme court has stated.2d Subscriptions § 7. 340 N.2d at 775. 677 (2000).W. and the estate of the subscriber will not be liable on the subscription. 340 N.” We concur with the court’s conclusion that there was clear and convincing evidence in the record to show Schmidt made an enforceable oral subscription to the church. and Carroll. Subscriptions § 7.2d Subscriptions § 4.Promissory Estoppel  221 N. The district court considered the testimony of Gardner.Jur.” The court concluded Schmidt was aware of the amount to be spent. Johnston.S. 221 N. 776 (Iowa 1983).C.E.000. Milligan. 613 (Iowa 1974).2d at 1199 (“A charitable subscription is an oral or written promise … . 619 (2001).C.C. Inc. “The death of the subscriber before the acceptance of the subscription terminates the offer.” Id.Jur. and “the pledge was specific enough to be enforceable.H. 621 (2001). We conclude oral subscriptions are enforceable in the same manner as written subscriptions.J. dealt with written pledges.2d at 610.C. 702 (2000) (“A 184  CONTRACTS  . Mueller disputes that an oral charitable subscription should be enforceable without consideration or detrimental reliance. and found they were credible in their testimony that Schmidt committed to pay for the improvements to the church facilities. 647 N.. 73 Am. v. We first note that while Salsbury.”). between $115.

2d 482 (Iowa 1989). Section 450. “not in excess of the schedule of fees herein provided for personal representatives. 444 N. in finding the checks written by Carroll just prior to Schmidt’s death should be included in the gross assets of the estate. Under section 633. In Bolton. the court concluded that to be effective. “the gross estate listed in the probate inventory for Iowa inheritance-tax purposes include[s] all property passing under the methods of transfer set forth in section 450. The district court relied upon In re Estate of Bolton. if that event occurs before there is an acceptance … .In re Estate of Schmidt  subscription lapses by the death of the subscriber.2d 536.3 without regard to whether the included property is subject to the inheritance tax. IV. 710 N. In determining the gross assets of the estate. and we agree. the church had started the remodeling work.W.” We conclude the evidence shows Schmidt made a charitable subscription to the church. 541 (Iowa 2006).W.000 on Schmidt’s checking account before his death should not have been included within the gross assets of the estate for purposes of calculating the statutory maximum fees.” Iowa Code § 633. Before Schmidt died.198. which was enforceable after his death using funds from his estate. Mueller argues the checks for $257.” The attorney for the estate should be allowed a reasonable fee. EXECUTOR & ATTORNEY FEES Mueller contends Milligan and his attorney were awarded excessive fees.197.”).197. the evidence clearly shows the church accepted Schmidt’s offer prior to his death. a gift in the CHAPTER THREE: CONSIDERATION  185  .” In re Estate of Martin. The district court found. As the court noted.3 lists property which should be included in the probate inventory for calculating inheritance tax. “These projects would not have been undertaken by a small rural congregation without having accepted the generous pledge of one of its members to pay for the improvements. an executor may be allowed fees based on a percentage of “the gross assets of the estate listed in the probate inventory for Iowa inheritance tax purposes … . the supreme court has stated that for purposes of section 633.

but these provisions are not applicable here.” Iowa Code § 450. the checks were written on September 5.2 A related issue arises because Schmidt held the bank account in a joint tenancy with Carroll. Although the checks were signed by Carroll. Here.W. they were clearly gifts from Schmidt.3(5).2d at 483. Iowa Rule of Probate Procedure 7. See Iowa Code § 450. we conclude the value of the account was properly in2 3 The evidence in the case shows the bank apparently honored the checks after Schmidt’s death.3 Here. Under section 450.197. See also In re Estate of Lynch.3(5).Promissory Estoppel  form of a bank check must be accepted and honored by the drawee bank prior to the death of the donor. Carroll testified the final authority to write checks rested with Schmidt. property held in joint tenancy is included within the property which should be listed in the probate inventory. 2003. 444 N. the court shall not include the value of joint tenancy property excluded from the taxable estate pursuant to Iowa Code section 450. some portions of joint tenancy property held by a decedent and surviving spouse may not be subject to taxation.2(2) provides: In determining the value of gross assets of the estate for purposes of Iowa Code section 633. 2003. 159 (Iowa 1992) (noting that in determining the gross assets of an estate the court should not include the value of joint tenancy property which is excludable from the taxable estate). In addition. and had been signed by her.3(5). 186  CONTRACTS  .2d 157. and there is no evidence they cleared through Schmidt’s bank prior to this death on September 7. Because there is no evidence the bank account should be excluded from tax under section 450.3(5). and she only wrote checks as directed by him. Joint tenancy property in a bank or other institution is taxable “except such part as may be proven to have belonged to the survivor … . Bolton.3(5) or the value of life insurance payable to a designated beneficiary. 491 N. all the evidence proves the money in the joint account belonged to Schmidt.W. This may have been because the checks were made from Schmidt’s joint account with Carroll.

Chief Justice. We granted the Congregation’s application for direct appellate review. 66 (Iowa 2003). The decedent suffered a prolonged illness. During four or five of these visits. v. W.P. Generally. an Orthodox Jewish synagogue. Congregation Kadimah Toras-Moshe (Congregation). The Superior Court transferred the case to the Boston Municipal Court. There is no statutory authority for the award of attorney fees to Mueller. The case was then transferred back to the Superior Court. We affirm the decision of the district court. an award of attorney fees is not allowed unless authorized by statute. 435 (Iowa 1972).2d 433. and in the presence of witnesses. We determine Mueller is not entitled to attorney fees paid by the estate.W. which also rendered summary judgment for the estate and dismissed the Congregation’s complaint. We also find no basis for awarding common law attorney fees as discussed in Williams v. 659 N. We now affirm.In re Estate of Schmidt  cluded in the gross assets of the estate. Congregation Kadimah Toras‐Moshe v.2d 572. Van Sickel. V.2d 691 (Mass. the decedent made an CHAPTER THREE: CONSIDERATION  187  . which rendered summary judgment for the estate.E. The facts are not contested.000. 579-80 (Iowa 2003). See In re Estate of Bass. Considerable discretion is given to probate courts in the award of attorney fees or executor fees. 674 N. Barber Lumber Co. 1989) Liacos. ATTORNEY FEES FOR OBJECTOR Mueller asserts the estate should pay her attorney fees for bringing this action.W. commenced this action in the Superior Court to compel the administrator of an estate (estate) to fulfill the oral promise of the decedent to give the Congregation $25. throughout which he was visited by the Congregation’s spiritual leader.W. DeLeo  Supreme Judicial Court of Massachusetts 540 N. 196 N.2d 62. Celania. We find no abuse of discretion under the facts of this case. Rabbi Abraham Halbfinger.

but was survived by his wife. 186 (1972) (moral obligation is not legal obligation). and thus no consideration. 1985. Furthermore. Gishen v. He had no children. The decedent died intestate in September. 1 “We do not use the expression ‘promissory estoppel. Hauserman Co. 280. Corp. 188  CONTRACTS  . there is no evidence in the record that the Congregation’s plans to name a library after the decedent induced him to make or to renew his promise. even though well founded. Hauserman Co. 757.F. because the promise is allegedly supported either by consideration and bargain. or by reliance. E. Contrast Allegheny College v. 377-379 (1927) (subscriber’s promise became binding when charity implicitly promised to commemorate subscriber).000.’ since it tends to confusion rather than clarity. E. 757. A hope or expectation. with no indication as to how the money should be used. See Loranger Constr.” There was no legal benefit to the promisor nor detriment to the promisee. v. Hurley. is insufficient to find reliance or an enforceable obligation. 761 (1978).” We agree. v. the judge stated that the Congregation’s “allocation of $25. merely reduced to writing the Congregation’s expectation that it would have additional funds. 369. The Congregation asserts that the decedent’s oral promise is an enforceable contract under our case law. Horton House Microwave.F. 286 (1974).000 in the budget. 246 N. is not equivalent to either legal detriment or reliance. by itself.000 in its budget[. National Chautauqua County Bank... See Marine Contractors Co. Corp. 376 Mass. 761 (1978) (distinguishing consideration and bargain from reliance in the absence of consideration).Y.Promissory Estoppel  oral promise to give the Congregation $25. 177. Dura Corp. The inclusion of the promised $25. The Congregation planned to use the $25.1 Hall v. 376 Mass. The oral promise was never reduced to writing.000 to transform a storage room in the synagogue into a library named after the decedent. As to the lack of reliance.. v. 362 Mass. 365 Mass. The Superior Court judge determined that “[t]his was an oral gratuitous pledge. or what [the Congregation] was required to do if anything in return for this promise. We disagree.] for the purpose of renovating a storage room.” Loranger Constr.

434 (1828) (subscribers to written agreement could not withdraw “after the execution or during the progress of the work which they themselves set in motion”). 121 Mass. had been repudiated by this court in Cottage St. 528. 345 (1904). Kendall. that each promise is “consideration” or “reliance” for the other. 530 (1877). e. and that each subscription is therefore an enforceable contract. In re Morton Shoe Co. on the other hand. were consideration for the promised funds. The Congregation interprets this court’s opinion in Robinson v. Ct. and hire[d] 2 The Congregation cites two cases for the proposition that Massachusetts requires so little consideration or reliance that. 6 Pick. 1984). Trustees of Amherst Academy v. 14 Mass.g. Trustees of Farmington Academy v. 427. to state the principle that the promises of several subscribers to donate funds are interdependent. and is in any event distinguishable. at 348-349. 121 Mass. The second case cited by the Congregation. Cowls. 176 (1817) (trustees justifiably “proceed[ed] to incur expense. Id. and adhered to by the charity for five years. as distinguished from oral.2 Conversely. Mass. 528 1877).. 948 (D. 24 Mass. is not controlling. on the faith of the defendant’s subscription”). CHAPTER THREE: CONSIDERATION  189  . 172.R. promises and also involved substantial consideration or reliance. The Congregation misconstrues each case.Congregation Kadimah Toras‐Moshe v. These cases are distinguishable because they involved written. in practice. Methodist Episcopal Church v. Allen. That case involved an organized campaign of solicitation and significant reliance by the charity therein. App. This interpretation is neither the reasoning of the case nor good law in Massachusetts. The principle to which the Congregation refers. DeLeo  Inc. See. determine[d] the amount of and recipients of distributions. 185 Mass. we refused to enforce a promise in favor of a charity where there was no showing of any consideration or reliance. in the case of Cottage St. none is required. The Congregation cites several of our cases in which charitable subscriptions were enforced. Nutt.. “After the pledge drive. 94 (1987). 84. The court in Robinson decided that the financial duties imposed on the charity therein. Methodist Episcopal Church v. 40 B. Kendall. [the charity] establishe[d] an operating budget..

it is an oral promise sought to be enforced against an estate. not the opposite. by virtue of the Statute of Frauds. it demonstrates the need for reliance or consideration. yet made no gift during life. The Congregation asks us to abandon the requirement of consideration or reliance in the case of charitable subscriptions. the official comments illustrate that these are relevant considerations. The defendant argues that. 190  CONTRACTS  . we are of the opinion that in this case there is no injustice in declining to enforce the decedent’s promise.). based on the estimated amount of subscriptions.” Id.” Assuming without deciding that this court would apply § 90. c. in subsection (2): “A charitable subscription … is binding under Subsection (1) without proof that the promise induced action or forbearance. Although § 90 dispenses with the absolute requirement of consideration or reliance. which provides. To enforce such a promise would be against public policy.” Subsection (1). 3 4 We need not decide whether we would enforce an oral promise where there was a showing of consideration or reliance. Restatement (Second) of Contracts.Promissory Estoppel  personnel. §§ 5. Thus. The Congregation cites the Restatement (Second) of Contracts § 90 (1981). In addition. if the decedent was aware of impending death. Under the view we take. even assuming this case to have some precedential value.L.4 Judgment affirmed. we need not consider this argument. 259. See G.3 Furthermore. as modified in pertinent part by subsection (2). which is unenforceable. at 949. [the charity] borrow[ed] money from banks so that it [could] make immediate distributions to recipients before obtaining the actual pledge amount. 5A (1986 ed. then the promise is in the nature of a promise to make a will. supra at § 90 comment f. provides: “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person … is binding if injustice can be avoided only by enforcement of the promise … . The promise to the Congregation is entirely unsupported by consideration or reliance.

Commonwealth would do so and would add the cost of the premium to the balance of the mortgage.2d 1003 (Pa. Commonwealth Bank  Superior Court of Pennsylvania 700 A. The Shoemakers allege that Commonwealth sent a letter to them. dated January 20. In 1995. Lorraine and Robert S. that Commonwealth had obtained insurance on their home. that informed them that their insurance had been cancelled and that if they did not purchase a new insurance policy.000 mortgage on their home from Commonwealth Bank (Commonwealth). The parties disagree as to the series of events that occurred after the insurance had lapsed. Commonwealth Bank  Shoemaker v. the Shoemakers’ home. 1997) Johnson.” The Shoemakers further allege that Mrs. The mortgage agreement provided that the Shoemakers were required to “carry insurance” on the property. Shoemaker received a telephone call from a representative of Commonwealth in which the representative informed her that if the Shoemakers did not obtain insurance. Shoemaker obtained a $25. still uninsured. was destroyed by fire. Commonwealth might “be forced to purchase [insurance] and add the premium to [their] loan balance. We conclude.Shoemaker v. We find no merit in those portions of the instant case sounding in fraud and breach of contract. based on the letter and phone conversation. we affirm in part. They also contend that they received no further contact from Commonwealth CHAPTER THREE: CONSIDERATION  191  . 1994. that a mortgagee’s promise to obtain insurance can be actionable on a theory of promissory estoppel. nevertheless. Accordingly. reverse in part and remand for further proceedings. on this appeal from the order granting summary judgment to the mortgagee. By January 1994. Judge: We are asked to determine whether a mortgagor who is obligated by a mortgage to maintain insurance on the mortgaged property can establish a cause of action in promissory estoppel based upon an oral promise made by the mortgagee to obtain insurance. The Shoemakers assert that they assumed. the Shoemakers had allowed the home-owners’ insurance policy covering their home to expire. Super.

1994. 1994. even though the policy later expired.Promissory Estoppel  regarding the insurance and that they continued to pay premiums as a part of their loan payments. the basis for all three causes of action was Commonwealth’s alleged failure to obtain insurance coverage for the Shoemaker home. the Shoemakers allege. alleging causes of action in fraud. Shoemaker was joined as an involuntary plaintiff. 1994. did they learn that the house was uninsured. By order of the court. it had fulfilled its promise to the Shoemakers. by the letter dated October 25. promissory estoppel and breach of contract. even if Commonwealth had promised to obtain insurance on the Shoemakers’ home. Shoemaker. The trial court granted Commonwealth’s motion. on the other hand. Commonwealth then filed a motion for summary judgment. it made no representation regarding the duration of that coverage. it informed the Shoemakers of this fact and reminded them of their obligation under the mortgage to carry insurance on the property. Commonwealth further claims that it obtained insurance coverage for the Shoemakers’ home and notified them of this fact by a letter dated February 4. 1994. Thus. Pennsylvania Rule of Civil Procedure 1035. and that.2 provides that: After the relevant pleadings are closed. Commonwealth also asserts that it elected to allow this coverage to expire on December 1. the Shoemakers could not prevail on any of their causes of action. The court noted that. The Shoemakers deny receiving any letter from Commonwealth regarding the insurance other than the letter dated January 20. but within such time as not to unreasonably delay trial. Mrs. Mrs. Only after the house burned. any party may move 192  CONTRACTS  . admits that it sent the letter of January 20. Mr. that informed them that their policy had expired. Commonwealth. The court concluded that because Commonwealth had actually obtained insurance. the court reasoned that because Commonwealth had made no misrepresentation and breached no promise. but denies the Shoemakers’ allegations regarding the contents of the alleged conversation between its representative and Mrs. Shoemaker now appeals. Shoemaker sued Commonwealth. After the house burned down.

444 Pa. after the completion of discovery relevant to the motion. Pa. Commonwealth Bank  for summary judgment in whole or part as a matter of law (1) whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by additional discovery or expert report. stated that Commonwealth would purchase insurance coverage and add the cost of the premium to the cost of her and her husband’s loan. 538 Pa. Ernst. R. or (2) if. 193.C. (4) the plaintiff justifiably relied upon the misrepresentation. Mrs. supra. Super. 1035. 447 Pa. Super. Coleman v. the court must view the evidence in the light most favorable to the nonmoving party. Gibbs v. Shoemaker directs our attention to her deposition testimony: CHAPTER THREE: CONSIDERATION  193  . in a telephone conversation. (2) the misrepresentation was made with knowledge of the statement’s falsity or with reckless disregard as to whether it was true or false. including the production of expert reports. Coleman. We will reverse the grant of a motion for summary judgment only where the court has committed an error of law. Shoemaker argues that Commonwealth made a misrepresentation to her when its representative. 207 (1994). To prevail on a fraud cause of action.Shoemaker v. Hunger v. at 199 On appeal. an adverse party who will bear the burden of proof at trial has failed to produce evidence of facts essential to the cause of action or defense which in a jury trial would require the issues to be submitted to a jury. 196.2. a plaintiff must prove that: (1) the defendant made a misrepresentation that is material to the transaction at hand. Thus. Mrs. 575. 578 (1996). Shoemaker argues that the trial court erred by entering summary judgment on their fraud and promissory estoppel claims. Mrs. (3) the defendant made the misrepresentation with the intent of inducing reliance. and (5) the resulting injury was proximately caused by the reliance. Coleman. 199 (1995).P. When considering a motion for summary judgment. Grand Central Sanitation. the court must enter summary judgment when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.

supra. promising to take future action. Inc. 56. Commonwealth’s promise cannot form the basis of a cause of action in fraud. 303 (1971). the bank. got a notice that the insurance was being terminated that they. Mrs. Shoemaker claims that the misrepresentation that forms the basis of her and her husband’s fraud claim was Commonwealth’s promise to obtain insurance for their home. 220 Pa. He basically said that they would acquire insurance for me.T. at 38a-39a (emphasis added). 1996. Great Lakes Holdings. at 1719. 298. Commonwealth was. at 304 (a promise to relieve person of liability if certain con194  CONTRACTS  . is that correct. Thus. 387 Pa. Commonwealth Bank. at 67 (an oral representation that a party would assume a debt obligation in exchange for the forbearance from legal action was not actionable in fraud because the representation was a promise to do something in the future). It is well-established that the breach of a promise to do something in the future is not actionable in fraud.. Krause v. Super. See Krause. He also mentioned that as far as the loan was concerned I was required to have insurance on the property. I didn’t recall receiving the letter. deposition of Lorraine Shoemaker. Edelstein v. supra. The Shoemakers base their fraud claim on Commonwealth’s alleged promise that it would obtain an insurance policy for their home if they failed to do so.. Edelstein. Super. were going to put insurance on the property and they were going to add the cost of doing so to your mortgage. … Q: So basically this person from Commonwealth Bank was telling you that because they. Thus. and you told them. Inc. N. therefore. I told them go ahead and do so because at that point I was in no financial situation to so on my own. … Q: What do you believe [the representative] said? A: He mentioned that there had been a letter sent to me that the insurance had expired. 67 (1989).. Carole House Apartments. R. A: Correct.R. go right ahead? A: Yes.Promissory Estoppel  Q: So you’ve spoken to a Commonwealth Bank representative on the issue of insurance on your home once and only once. September 9.

. 437 Pa. See Thatcher’s Drug Store of West Goshen. Inc. Further. 469. Shoemaker next argues that the trial court erred by granting summary judgment on their promissory estoppel claim. the facts alleged by the Shoemakers are insufficient to support their claim because they have not alleged that Commonwealth promised to maintain such insurance for a particular duration. 476 (1994). argues that the Shoemakers cannot enforce their claim through promissory estoppel because of the Shoemakers’ contractual obligation to maintain insurance under the mortgage. on the other hand. and (3) injustice can be avoided only by enforcing the promise.. a party must prove that: (1) the promisor made a promise that he should have reasonably expected would induce action or forbearance on the part of the promisee. Mrs. To establish a promissory estoppel cause of action. 65. Commonwealth argues that even if such a promise was actionable. Super. Commonwealth. Our research has not discovered any Pennsylvania cases that have addressed the question of whether a mortgagor who is obligated by a mortgage to maintain insurance on their property can establish a cause of action in promissory estoppel based upon an oral promise made by the mortgagee to obtain insurance. Super. 178 (1994). They further allege that they relied on this promise by not purchasing the insurance on their own and that injustice can be avoided only by enforcing Commonwealth’s promise. Holewinski v. under certain circumstances. We therefore hold that the trial court properly granted summary judgment on the fraud claim. We have. Restatement (Second) of Contracts § 90. the Shoemakers allege that Commonwealth promised that it would purchase “adequate insurance” and add the cost of the premium to the cost of their loan. 535 Pa. Commonwealth Bank  dition was met is not actionable in fraud because representation was promise to do something in the future). v. 253 Pa. Children’s Hospital of Pittsburgh. however. The doctrine of promissory estoppel allows a party. University of Pittsburgh. to enforce a promise even though that promise is not supported by consideration. In their complaint. 174. Cardamone v. Consolidated Supermarkets. (2) the promisee actually took action or refrained from taking action in reliance on the promise.Shoemaker v. 74 (1978). CHAPTER THREE: CONSIDERATION  195  . Inc.

cf.Promissory Estoppel  discovered cases from other jurisdictions that have addressed this question. Inc. In Graddon v. The mortgage requires B to insure the property. illustration 13 to comment e of section 90 of the Restatement (Second) of Contracts provides: A.. Id. and the weight of this authority holds that such promises are actionable. 122 (D.2d 577 (1956). At the closing of the transaction A promises to 196  CONTRACTS  . who were obligated under a deed of trust to procure and maintain fire insurance on their home. Id..C. v. Huffman. The court first considered whether the bank’s promise to obtain fire insurance was inconsistent with the term of the deed of trust that required the homeowners to concluded that the bank’s promise was not inconsistent with the homeowners’ obligation under the deed of trust because the deed required only that the homeowners procure and maintain insurance. Geremia. at 636-37. 22 (1972) (a gratuitous promise to obtain insurance was enforceable under an estoppel theory). App. a California appellate court considered whether homeowners. Lloyd Hammerstad.2d 119. 393 A. 138 Cal.I. 8 Wash. 103 R. 597 (1968) (an owner of chattels could recover based on a theory of promissory estoppel where a loan agreement obligated the owner to maintain insurance on the property. Knight. the lender failed to do so and property destroyed) (dicta). could establish a cause of action based upon an oral promise by a bank to obtain the insurance on the homeowners’ behalf. App. East Providence Credit Union v. at 635-36. the owner relied on the lender’s promise to obtain such insurance. The court then held that the evidence presented by the plaintiffs was sufficient to establish a cause of action in promissory estoppel because the plaintiffs relied to their detriment on the bank’s promise to obtain insurance. the deed did not bar them from making a separate agreement under which another party would procure the insurance on their behalf. Inc. lends money to B on the security of a mortgage on B’s new home. a bank. 1978) (a gratuitous promise to procure insurance on an automobile obligated the promisor under an estoppel theory to fulfill the promise and obtain insurance). Estes v. In accord with these cases. Franklin Investment Co.

is destroyed by fire. The Shoemakers allege that they actually relied upon Commonwealth’s promise and. Shoemaker testified in her deposition and swore in an affidavit that a representative from Commonwealth stated that the bank would acquire insurance if she did not and that she instructed the representative to take that action. Six months later the property. conditioned upon the Shoemakers course of conduct. essentially. thus. 398 (1973) (adopting section 90 as Pennsylvania law). Id. e. Because the Shoemakers claim that Commonwealth’s promise to obtain insurance was. still uninsured. Shoemaker testified in her deposition and swore in her affidavit that she instructed Commonwealth’s representative to acCHAPTER THREE: CONSIDERATION  197  . Mrs. The second element of a promissory estoppel cause of action is that the promisee actually relied upon the promise. supra. The first element of a promissory estoppel cause of action is that the promisor made a promise that he should reasonably have expected to induce action or forbearance on the part of the promisee. 391.Shoemaker v. Commonwealth Bank  arrange for the required insurance. The Shoemakers have alleged that the bank promised to obtain insurance on their behalf and that it would add this cost to their mortgage payment. that Commonwealth would obtain insurance if they did not. See Holewinski. if believed.e. illus. failed to obtain insurance. i. In support of this allegation. Holewinski.. 454 Pa. The promise is binding. supra. We find this authority persuasive and thus we reject Commonwealth’s claim that the Shoemakers cannot maintain a cause of action because of their obligation under the mortgage to maintain insurance on the property. would be sufficient to allow a jury to find that Commonwealth made a promise upon which it reasonably should have expected the Shoemakers to rely. and in reliance on the promise B fails to insure. at 178. we conclude that this evidence. See also Murphy v. Restatement (Second) of Contracts § 90. cmt. 13. at 178. Mrs. We must next determine whether the Shoemakers’ allegations and the evidence that they have presented are sufficient to create genuine issues of material fact with regard to each element of a promissory estoppel cause of action and thus survive Commonwealth’s motion for summary judgment. Burke.

Accordingly. asserts that it sent the Shoemakers letters informing them that their house would be uninsured after December 1. Order affirmed in part. 9 (1994). Shoemaker testified that she and her husband received no communication from Commonwealth regarding their insurance after her conversation with a Commonwealth representative in early 1994. Mrs. Commonwealth. reversed in part. We conclude that this evidence is sufficient to create a genuine issue of material fact regarding the reasonableness of the Shoemakers’ reliance. supra. at 477. would be sufficient to allow a jury to find that the Shoemakers relied upon Commonwealth’s promise to obtain insurance. Accordingly. Matos. Finally. Super. 1994. supra. we conclude that she has waived any argument that the trial court erred by granting summary judgment on the contract claim. the Shoemakers also allege a breach of contract cause of action in their complaint. 652 (1995) (failure to develop argument in the brief results in waiver of the issue). 541 Pa.Promissory Estoppel  quire insurance on her behalf. Id. appeal denied. One of the factors that a court may consider in determining whether a promisee has satisfied this element is “‘the reasonableness of the promisee’s reliance. b. 198  CONTRACTS  . The final element of a promissory estoppel cause of action is that injustice can be avoided only by enforcement of the promise. we hold that the trial court erred by granting summary judgment on the Shoemakers’ promissory estoppel claim. on the other hand. 439 Pa. Shoemaker has made no argument in regard to the contract claim in her brief to this Court. See Holewinski. Mrs. quoting Restatement (Second) of Contracts § 90.’” Thatcher’s Drug Store. cmt. We affirm the grant of summary judgment on the Shoemakers’ fraud and breach of contract claims. We therefore reverse that portion of the trial court’s order that granted summary judgment on the Shoemakers’ promissory estoppel claim and remand for trial on that claim. if believed. 1. Olmo v. Case remanded for further proceedings consistent with this Opinion. The trial court granted summary judgment on that claim. We conclude that this evidence. at 178.

but the major component of the job was mechanical. 214 n.1 or promissory estoppel.  _________________________________________________  FIRM OFFERS & OPTIONS  _________________________________________________  Pavel Enterprises. A.S. and because there was no traditional bilateral contract formed. “PEI”].  Court of Appeals of Maryland 674 A. Moreover. “The Firm Offer Problem”]. 212.” because we believe it more clearly expresses the concept intended. Rev. Judge. Johnson Co. including heating. we shall affirm the trial court. I The National Institutes of Health [hereinafter. The “Firm Offer” Problem in Construction Bids and the Need for Promissory Estoppel. PEI solicited sub-bids from various mechanical subcontractors.Pavel Enterprises. Inc. to the relationship between general contractors and their subcontractors. 1 We prefer to use the phrase detrimental reliance. Inc. ventilation and air conditioning [“HVAC”]. Johnson Co. In preparing its bid. CHAPTER THREE: CONSIDERATION  199  . In this case we are invited to adapt the “modern” contractual theory of detrimental reliance.2d 521 (Md. v. Virginia and appellant in this action. 1996) Karwacki. Maryland campus. See Note. solicited bids for a renovation project on Building 30 of its Bethesda..17 (1968) [hereinafter. it is not applicable to the facts of this case. Although the theory of detrimental reliance is available to general contractors. Inc. prepared a bid for the NIH work. For that reason.. rather than the traditional nomenclature of “promissory estoppel. “NIH”].S. Inc. a general contractor from Vienna. Johnson Company [hereinafter. we hope that this will alleviate the confusion which until now has permitted practitioners to confuse promissory estoppel with its distant cousin. 10 Wm & Mary L. The proposed work entailed some demolition work. Pavel Enterprises Incorporated [hereinafter. The A. v.S. equitable estoppel. A.

visited the offices of A. and met with James Kick. Johnson on August 26. and basically just sit down and talk to them.000 for the entire project. a mechanical subcontractor located in Clinton. General contractors’ bids were opened on the afternoon of August 5. 1993. as well as the bids of the other potential mechanical subcontractors contained a fixed cost of $355.J.Firm Offers & Options  “Johnson”].S. Thomas F. NIH notified PEI that its bid would be accepted. Johnson’s chief estimator. This is a standard practice in the construction industry.000 for a sub-subcontract to “Landis and Gear Powers” [hereinafter. Because if we were going to use them on a project. PEI submitted a bid of $1. Powers was the sole source supplier of the electric controls for the project. And the reason for me going to their office was to look at their offices. PEI’s bid was the second lowest bid. Inc.000 for the HVAC component. 1993. I wanted to go out and see where their facility was.4 however. but omitted the price term. was disqualified because it was not a small business. With the knowledge that PEI was the lowest responsive bidder. Johnson verbally submitted a quote of $898. to discuss Johnson’s proposed role in the work. The apparent low bidder. but we had heard of their reputation. rather than the arrange2 3 4 The scope of work proposal listed all work that Johnson proposed to perform. Pavel.2 On the morning of August 5. “Powers”]. J. 1993. Kirlin. responded with a written scope of work proposal on July 27.” Pavel also asked if Johnson would object to PEI subcontracting directly with Powers for electric controls. and in mid-August.3 Neither party disputes that PEI used Johnson’s sub-bid in computing its own bid. The government subsequently disqualified the apparent low bidder. The subcontractor’s bid price is then filled in immediately before the general contractor submits the general bid to the letting party. Pavel testified at trial to the purpose of the meeting: “I met with Mr. as I had not done. president of PEI. PEI alleged at trial that Johnson’s bid. I wanted to know who I was dealing with. to see their facility. and my company had not performed business with them on a direct relationship. 1993.585. Kick. The project at NIH was part of a set-aside program for small business. Maryland and the appellee here. the day NIH opened the general contractors’ bids. see where they were located. to basically sit down and talk with them. 200  CONTRACTS  .

Please break out your cost for the “POWERS” supplied control work as we will be subcontracting directly to “POWERS”.5 Johnson did not object. Inc. 1993. [the original low bidder] has been found to be nonresponsive on the solicitation. Kirlin. PEI sent a fax to all of the mechanical subcontractors from whom it had received sub-bids on the NIH job. 2. 1993. On September 1. TO: Prospective Mechanical Subcontractors FROM: Estimating Department REFERENCE: NIH. BLDG 30 Renovation We herewith respectfully request that you review your bid on the above referenced project that was bid on 8/05/93. Inc. The text of that fax is reproduced: Pavel Enterprises.. PEI informed NIH that Johnson was to be the mechanical subcontractor on the job. v. PEI has been notified that we will be awarded the project as J. Johnson Co. We ask this in an effort to allow all prospective bidders to compete on an even playing field. please call us immediately as time is of the essence. On August 30. Inc. That letter read: 5 Pavel testified at trial that restructuring the arrangement in this manner would reduce the amount PEI needed to bond and thus reduce the price of the bond.Pavel Enterprises. A. Following that meeting. CHAPTER THREE: CONSIDERATION  201  . Please resubmit your quote deleting the above referenced item.J. 1. PEI mailed and faxed a letter to Johnson formally accepting Johnson’s bid. We anticipate award on or around the first of September and therefor request that you supply the following information. Inc.S. Should you have any questions.  ment originally envisioned in which Powers would be Johnson’s subcontractor.

1993 Mr. Johnson had discovered the mistake earlier.00. We look forward to working with your firm on this contract and hope that this will lead to a long and mutually beneficial relationship. This action was taken after several telephonic and face to face discussions with you regarding the above referenced bid submitted by your firm.000. and as a result the price was too low. September 1. Kick sought to withdraw Johnson’s bid. President Upon receipt of PEI’s fax of September 1. /s/ Thomas F. Kick. but because Johnson believed that PEI had not been awarded the contract. Inc. they did not feel compelled to correct the error. Estimating Mngr. Sincerely. both over the telephone and by a letter dated September 2. According to Kick. which we expect any day. We herewith respectfully inform your office of our intent to award a subcontract for the above referenced project per your quote received on 8/05/93 in the amount of $898. Kick. James Kick called and informed PEI that Johnson’s bid contained an error. James H.Firm Offers & Options  Pavel Enterprises. A. This subcontract will be forwarded upon receipt of our contract from the NIH. A preconstruction meeting is currently scheduled at the NIH on 9/08/93 at 10 AM which we have been requested that your firm attend. Pavel. a meeting was held between NIH and PEI wherein PEI confirmed our bid to the government. and designated your firm as our HVAC Mechanical subcontractor. Maryland 20735 Re: NIH Bldg 30 HVAC Modifications RC: IFB # 263-93-B (CM)-0422 Subject: Letter of Intent to award Subject: Subcontract Dear Mr. 1993: 202  CONTRACTS  .S. Johnson Company 8042 Old Alexandria Ferry Road Clinton. As discussed with you.

Very truly yours. 1993. Harry Kick.Pavel Enterprises.000 difference between Johnson’s bid and the cost of the substitute mechanical subcontractor. the management of A. A. and the September 2 letter. September 2.S. Kick Estimating Manager PEI responded to both the September 1 phone call. upon which we were to confirm our pricing to you.S. Virginia 22180 Attention: Thomas Pavel. 6 The record indicates that the substitute mechanical subcontractor used “Powers” as a sub-subcontractor and did not “break out” the “Powers” component to be directly subcontracted by PEI. Please contact Mr. Johnson Company was reviewing this proposal.6 PEI brought suit against Johnson in the Circuit Court for Prince George’s County to recover the $32. Suite 101 Vienna. v. expressing its refusal to permit Johnson to withdraw. NIH formally awarded the construction contract to PEI.S. On September 28. Johnson Co.  A. CHAPTER THREE: CONSIDERATION  203  . Johnson Co. Inc. Pavel. The case was heard by the trial court without the aid of a jury. /s/ James H. Inc. General Manager at [telephone number deleted] for any questions you may have.000. As discussed in our telephone conversation and face to face meeting. Attention: President Reference: NIH Building 30 HVAC Modifications Dear Mr. PEI found a substitute subcontractor to do the mechanical work. 1993 PEI Construction 780 West Maples Avenue. but at a cost of $930. We respectfully inform you of our intention to withdraw our proposal for the above referenced project due to an error in our bid..

v. 369 A. 2. The usual procedure is that when a project is announced. raising both traditional offer and acceptance theory.. and that PEI was not relying upon Johnson’s bid. Blake Co. PEI’s letter to all potential mechanical subcontractors. Prior to NIH awarding PEI the contract on September 28. the general contractor. A brief overview of the mechanics of the construction bid process. takes this case out of the ordinary. CONSTRUCTION BIDDING. as well as our legal system’s attempts to regulate the process. PEI relied upon Johnson’s sub-bid in making its bid for the entire project. a subcon204  CONTRACTS  . 1993. II The relationships involved in construction contracts have long posed a unique problem in the law of contracts. indicates that there was no definite agreement between PEI and Johnson. and “promissory estoppel.Firm Offers & Options  The trial court made several findings of fact. who makes a bid on the whole project. withdrew its bid. dated August 26. on September 2. which we summarize: 1. 3. PEI appealed to the Court of Special Appeals. is in order. and the subcontractors. A. but was awarded the project only after the apparent low bidder was disqualified.2d 1017 (1977) is still accurate: In such a building project there are basically three parties involved: the letting party. 279 Md. The trial court analyzed the case under both a traditional contract theory and under a detrimental reliance theory. 531.” Before our intermediate appellate court considered the case. who bid only on that portion of the whole job which involves the field of its specialty. PEI was unable to satisfy the trial judge that under either theory that a contractual relationship had been formed. who calls for bids on its job. we issued a writ of certiorari on our own motion. The fact that PEI was not the low bidder. Johnson. and 4. Our description of the bid process in Maryland Supreme Corp.

THE CONSTRUCTION BIDDING CASES-AN HISTORICAL OVERVIEW. The Second Circuit Court of Appeals held that Gimbel’s initial bid was an offer to contract and. prepares an estimate and submits a bid to one or more of the general contractors interested in the project.Pavel Enterprises. on his own initiative or at the general contractor’s request.. 64 F. A. at 533-34 (citing The Firm Offer Problem) B. [“Gimbel”]. The plaintiff. CHAPTER THREE: CONSIDERATION  205  . Judge Learned Hand.  tractor. D. sent its bid to supply linoleum to a number of bidding general contractors on December 24. [“Baird”] was a general contractor from Washington. also rejected two alternative theories of the case: unilateral contract and promissory estoppel. The letting authority awarded Baird the job on December 30... under traditional contract law.C. and Baird received Gimbel’s bid on December 28. Because the offer was withdrawn before it was accepted there was no contract. Pennsylvania. Inc. Id. bidding to construct a government building in Harrisburg. but by performance. James Baird Co. v. Johnson Co. Gimbel realized its bid was based on an incorrect computation and notified Baird of its withdrawal on December 28. 1933).). the famous New York department store.2d 344 (2d Cir.. Inc. Inc. Gimbel Bros. Baird sued for the additional cost of a substitute linoleum supplier. The problem the construction bidding process poses is the determination of the precise points on the timeline that the various parties become bound to each other. v. Inc. Gimbel Bros.. Baird formally accepted the Gimbel bid on January 2. He held that Gimbel’s bid was not an offer of a unilateral contract7 that Baird could accept by 7 A unilateral contract is a contract which is accepted.S. After receiving bids from general contractors.. When Gimbel refused to perform. 2 Williston on Contracts § 6:2 (4th ed. remained open only until accepted or withdrawn. not by traditional acceptance. The early landmark case was James Baird Co.. The general contractor evaluates the bids made by the subcontractors in each field and uses them to compute its total bid to the letting party. the letting party ordinarily awards the contract to the lowest reputable bidder. speaking for the court.

“Promissory Estoppel”]. Once Around the Flag Pole: Construction Bidding and Contracts at Formation. Schultz. Star Paving. and Other Theories to the Relations Between General Contractors and Subcontractors. rather than from more typical cases. 816. 419 (1934). is not bound to any specific subcontractor. See also Note. L. he held that the theory of promissory estoppel was limited to cases involving charitable pledges. but also widely influential. 51 Cal.8 As one commentator described it. The unfairness of this regime to the general contractor was addressed in Drennan v. Marshall L. any loss which results is a deduction from the general’s profit and conceivably may transform overnight a profitable contract into a losing deal. Judge Hand’s opinion was widely criticized. Rev. the Drennan case arose in the context of a bid mistake. Rev. Rev.2d 409 (1958). 237. The effect of the James Baird line of cases. has distorted the legal system’s understanding of these cases.9 Justice 8 9 Note that under the Baird line of cases. The Construction Industry Bidding Cases: Application of Traditional Contract. 18 UCLA L. At least one commentator argues that although potentially unfair. The Firm Offer Puzzle: A Study of Business Practice in the Construction Industry. Chi.Firm Offers & Options  performing. Closen & Donald G.U. and are free to withdraw. 39 N. Construction Contracts-The Problem of Offer and Acceptance in the General Contractor-Subcontractor Relationship.” Franklin M. this system creates a necessary symmetry between general and subcontractors. an unusual subspecies.. Promissory Estoppel. Comment. Commentators have suggested that the very fact that many of these cases have arisen from bid mistake. “Bid Shopping”]. 19 U. “If the subcontractor revokes his bid before it is accepted by the general. “The Problem of Offer and Acceptance”]. 565. Rev. The general contractor is bound to the price submitted to the letting party. 13 J. Contracts-Revocation of Offer Before Acceptance– Promissory Estoppel. Note. L. 409 (1970) [hereinafter.” Promissory Estoppel. 214 (1933) [hereinafter.Y. Rev. 20 Va. Rev. L. submitting the bid as part of the general bid. and second. 583 (1980). ContractsPromissory Estoppel. at 215. 28 Ill. Cinn. however. L. 37 U. Michael L. Note. 818 206  CONTRACTS  . Weiland. Like James Baird. see Note. Bid Shopping and Peddling in the Subcontract Construction Industry.e. is an “obvious injustice without relief of any description. in that neither party is bound. but the subcontractors are not bound. the general contractor. and is free to “bid shop” prior to awarding the subcontract. Rev. 798 (1980) [hereinafter. 239 (1952). L. 389. i. while bound by his offer to the letting party.

10 This section of the Restatement has been supplanted by the Restatement (Second) of Contracts § 90(1) (1979). Restatement (First) of Contracts § 90 (1932). Johnson Co. Though defendant did not bargain for the use of its bid neither did defendant make it idly. It was to its own interest that the contractor be awarded the general contract. v. indifferent to whether it would be used or not. Inc. Defendant had reason not only to expect plaintiff to rely on its bid but to want him to. CHAPTER THREE: CONSIDERATION  207  . and that it would be included by plaintiff in his bid. but market reality is that subs are usually in weaker negotiating position).  Traynor.10 Justice Traynor reasoned that the subcontractor’s bid contained an implied subsidiary promise not to revoke the bid. (1964) [hereinafter.. a General Contractor. Inc. It was bound to realize the substantial possibility that its bid would be the lowest. it is only fair that plaintiff should have at least an opportunity to accept defendant’s bid after the general contract has been awarded to him. A. “Flag Pole”] (bid mistake cases generally portray general contractor as victim. Clearly defendant had a stake in plaintiff’s reliance on its bid. he bound himself to perform in reliance on defendant’s terms. Given this interest and the fact that plaintiff is bound by his own bid. That provision will be discussed.] used defendant’s offer in computing his own bid. As the court stated: When plaintiff [. writing for the Supreme Court of California. relied upon § 90 of the Restatement (First) of Contracts: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. the lower the subcontract bid.S. infra. the lower the general contractor’s bid was likely to be and the greater its chance of acceptance and hence the greater defendant’s chance of getting the paving subcontract.Pavel Enterprises. On the contrary it is reasonable to suppose that defendant submitted its bid to obtain the subcontract.

Inc. Co.g. 540 (1987). Favret. 291 Minn. Reynolds v. 13 Bid shopping is the use of the lowest subcontractor’s bid as a tool in negotiating lower bids from other subcontractors post-award. Constructors Supply Co. Bostrom Sheet Metal Works. Corp. Debron Corp. v.2d 42 (Ky. at 405-09 (suggesting using “promissory estoppel” to bind generals to subcontractors. 12 See Williams v.A. interpreted the subcontractor’s bid to be irrevocable.2d 352 (8th Cir. Corp. Maeda Pac. Texarkana Constr. Co.Firm Offers & Options  Drennan. Mead Assocs. Co... 1991). with the sub-bid as the offer and promissory estoppel serving to replace acceptance. Edwards Constr. v. Inc. The Drennan decision has been very influential. See also. E. R. Coronis Assocs. v. the Drennan court.. National Homes Constr. 51 Cal. 208  CONTRACTS  . Merritt-Chapman & Scott Corp.1984). 1947). The Drennan court however did not use “promissory estoppel” as a substitute for the entire contract. App.1 (5th Cir..11 The criticism centers on the lack of symmetry of detrimental reliance in the bid process. Many states have adopted the reasoning used by Justice Traynor. e. J. Antonsen. 493 F. as well as subs to generals.. 806 S. v. Justice Traynor’s analysis used promissory estoppel as consideration for an implied promise to keep the bid open for a reasonable time. 764 F. Ct. Eng’g Corp. 413 N.2d at 415.15 to the 11 Home Elec. Manteuffel Co..13 bid chop.W. 161 F. applying the principle of § 90. Super 69 (1966). Recovery was then predicated on traditional bilateral contract.2d 619 (9th Cir. the case has subsequently come under some criticism.F. v. 1974) (applying Missouri law). Co. App. v. in that subcontractors are bound to the general.2d 209 (Ill. Lichtefeld-Massaro.C. 305 F.E. See.2d 434 (Colo.14 and to encourage bid peddling. 113 (1971). Instead. Gordon Constr. 1980). 677 P. See Bid Shopping. but the general is not bound to the subcontractors. 583 (1964). & Maintenance Co.12 The result is that the general is free to bid shop. 1962).2d 822.. 1985) (subcontractor rejected by general contractor could maintain an action in both traditional contract or promissory estoppel). 90 N. M. 237 Ark.. in appropriate circumstances). Illinois Valley Asphalt v. as is the doctrine’s usual function. But see Electrical Constr. 86 N.J.2d 659 (9th Cir. v.. Gunderson Bros. The Problem of Offer and Acceptance. Inc. 823 n. App.J. Underdown Heating & Air Conditioning Co.. v. Despite the popularity of the Drennan reasoning.

the bid estimates prepared by others. Johnson Co. v. As a result. Sixth. bid shopping and peddling tend to increase the risk of loss of the time and money used in preparing a bid.S. This practice is called bid peddling. common among many subcontractors. at 566 n. they will be faced with a Hobson’s choice between doing the job at a loss or doing a less than adequate job. Fifth. it is often impossible for a general to obtain bids far enough in advance to have sufficient time to properly prepare his own bid because of the practice.. Inc. First. One commentator described the problems that these practices create: Bid shopping and peddling have long been recognized as unethical by construction trade organizations. subcontractors who are forced into post-award negotiations with the general often must reduce their sub-bids in order to avoid losing the award. of holding sub-bids until the last possible moment in order to avoid pre-award bid shopping by the general. without expense. and still get the job by not entering a bid or by entering an uncompetitive bid.  detriment of the subcontractors.Pavel Enterprises. 6. as bid shopping becomes common within a particular trade.” Closen & Weiland. CHAPTER THREE: CONSIDERATION  209  . precisely because the honest subcontractor has already paid for the estimate and included that cost in the original bid. any price reductions gained through the use 14 “The general contractor. many subcontractors refuse to submit bids for jobs on which they expect bid shopping. competition is reduced. can then offer to perform the work for less money. This artificial inflation of subcontractor’s offers makes the bid process less effective. construction prices are increased. having been awarded the prime contract. 15 An unscrupulous subcontractor can save estimating costs. This occurs because generals and subcontractors who engage in these practices use. may pressure the subcontractor whose bid was used for a particular portion of the work in computing the overall bid on the prime contract to reduce the amount of the bid. Inc. Second. this unscrupulous subcontractor. Thus. knowing the price of the low sub-bid. and. A. After bid opening.’ but common practices have several detrimental results. These ‘unethical. Third. the subcontractors will pad their initial bids in order to make further reductions during post-award negotiations. consequently. Fourth.

See.g. 678.16 The doctrine of detrimental reliance has evolved in the time since Drennan was decided in 1958. Promissory Estoppel and Judicial Method.” 16 The critical literature also contains numerous suggestions that might be undertaken by the legislature to address the problems of bid shopping. Alaska Bussell Elec. Free competition in an open market is therefore perverted because of the use of post-award bid shopping. Flag Pole. 37 U. Rev.C. Bid Shopping. to whom these price reductions would normally accrue as a result of open competition before the award of the prime contract. See Note. The American Law Institute. e. Construction Bidding Problem: Is There a Solution Fair to Both the General Contractor and Subcontractor?. 97 Harv. 568-72 (1975) (discussing bid depository and bid listing schemes). Option Contract … (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. have adopted it nonetheless. Co. Co.2d 576 (Alaska 1984). See also Flag Pole. while aware of the limitations of promissory estoppel. But other courts. Rev. Jay M.. 86 N.. Underdown Heating & Air Conditioning Co. sought to make detrimental reliance more readily applicable to the construction bidding scenario by adding § 87. 798 (1980). 19 St. 707-08 (1984). Rev. Construction Contracts–The Problem of Offer and Acceptance in the General Contractor-Subcontractor Relationship. These problems have caused at least one court to reject promissory estoppel in the contractorsubcontractor relationship. at 818 (bid mistake cases generally portray general contractor as victim. This new section was intended to make subcontractors’ bids binding: § 87. 552. v. chopping. L. See also Note. App. and peddling. 688 P. Co. L. Home Elec.. Vern Hickel Constr. Feinman. v. Louis L. responding to Drennan. 540 (1987). at 394-96 (citations omitted). Cinn. but market reality is that subs are usually in weaker negotiating position). at 825-26. 210  CONTRACTS  .Firm Offers & Options  of post-award bid shopping by the general will be of no benefit to the awarding authority.

v.F. during the time stated or if no time is stated for a reasonable time.S. There are cases that refer to the tentative drafts. 1973). by: 1) deleting the requirement that the action of the offeree be “definite and substantial. Vol..  Restatement (Second) of Contracts § 87 (1979). A. 321-22 (1986).. Inc. The most prevalent suggestion19 is the use of the firm offer provision of the Uniform Commercial Code. 763 (1978). 376 Mass. Inc. § 2-205 of the Commercial Law Article. That statute provides: An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable. The remedy granted for breach may be limited as justice requires. 757. Arango Constr. Johnson Co.” 19 See Bid Shopping and Peddling at 399-401. v.). and 3) limiting remedies to those required by justice. few courts have availed themselves of the opportunity. for lack of consideration. at 593-97. Drafts Nos. Firm Offer Problem at 215. Success Roofing.” 2) adding a cause of action for third party reliance. 314. E. Section 90(1) of the Restatement (Second) of Contracts (1979) modified the first restatement formulation in three ways. App. at 604 n. CHAPTER THREE: CONSIDERATION  211  . v. 1-7. Hauserman Co.17 Despite the drafter’s intention that § 87 of the Restatement (Second) of Contracts (1979) should replace Restatement (First) of Contracts § 90 (1932) in the construction bidding cases..” Section 90(1) of the Restatement (Second) Contracts (1979) defines the doctrine of detrimental reliance as follows: “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. But see. Maryland Code (1992 Repl. Closen & Weiland.18 Courts and commentators have also suggested other solutions intended to bind the parties without the use of detrimental reliance theory. but 17 This provision was derived from Restatement (Second) of Contracts § 89B(2) (Tent. 133.Pavel Enterprises. 18 Section 90 of the Restatement (First) of Contracts (1932) explains detrimental reliance as follows: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. See Loranger Constr. Inc. Co. 46 Wash. See also Closen & Weiland. Corp.

If the general contractor could prove that there was an exchange of promises binding the parties to each other. Alternatively. Finally. Corp. L. that would constitute a valid bilateral promise conditional upon the general being awarded the job. 64 F. subcontractor’s bids. This directly contrasts with Judge Hand’s analysis in James Baird. Loranger.Firm Offers & Options  in no event may such period of irrevocability exceed three months. William Noel Keyes. at 762-63. 376 Mass. at 762. which renders the initial offer irrevocable under the Restatement (Second) of Contracts § 45 (1979). at 762. and a traditional bilateral contract was formed. made in writing and giving some assurance of an intent that the offer be held open. Hauserman Co. 212  CONTRACTS  . can be found to be irrevocable. This resurrects a second theory dismissed by Judge Learned Hand in James Baird. meaning that acceptance came before withdrawal. Loranger. the Loranger court pointed out that a jury might choose to disbelieve that a subcontractor had withdrawn the winning bid. 757 (1978). James Baird. see Closen & Weiland at 597-603. Loranger Constr. 376 Mass.F. Loranger. that a general’s use of a sub-bid constitutes acceptance conditional upon the award of the contract to the general. use of the sub-bid in the general’s bid constitutes part performance. 10 Stan. E..20 Another alternative solution to the construction bidding problem is no longer seriously considered-revitalizing the common law seal. 376 Mass. Rev. and unrevoked offer analysis.2d at 345-46. Because a sealed 20 For an excellent analysis of the Loranger case. if the subcontractor intended its sub-bid as an offer to a unilateral contract. 441 (1958). The Supreme Judicial Court of Massachusetts has suggested three other traditional theories that might prove the existence of a contractual relationship between a general contractor and a sub: conditional bilateral contract analysis. but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. unilateral contract analysis. and that exchange of promises was made before bid opening. v. In this manner. 376 Mass. Consideration Reconsidered–The Problem of the Withdrawn Bid.

if PEI’s detrimental reliance served to bind Johnson to its sub-bid. III If PEI is able to prove by any of the theories described that a contractual relationship existed. Vol. for the benefit of bench and bar. 285 (1983) and Burton v. Johnson Co. This did not occur in the instant case. This did not happen. A. but without further evidence we are unable to determine if the offer “by its terms gives assurance that it will be held open” and if the sub-bid is for “goods” as that term is defined by Md. then PEI will recover the $32. The trial court held. An offer under seal supplants the need for consideration to make an offer firm. Code (1995 Repl. First. We examine each of these alternatives. 295 Md. Sheehan. Inc. and we agree.22 21 Of course. Md. 22 Because they were not raised. 94 (1977). including Anthony Pools v. § 2-205 of the Commercial Law Article. Vol. The fact that they do not is testament to the lack of appeal this proposal holds. if PEI is unable to prove the existence of a contractual relationship. § 2-105(1) of the Commercial Law Article and by decisions of this Court. beginning with traditional contract theory. Second. 279 Md. We will test the facts of the case against the theories described to determine if such a relationship existed. then Johnson has no obligation to PEI. Inc. Johnson could have submitted its bid as a sealed offer. Code (1994 Repl. CHAPTER THREE: CONSIDERATION  213  . Nevertheless..Pavel Enterprises.). v. § 5-102 of the Courts & Judicial Proceedings Article.21 It is here that the state of the law rests. we need not address the several methods in which a court might interpret a subcontractor’s bid as a firm. either below or in this Court. but Johnson failed to perform its end of the bargain. thus supplying consideration for making the offer irrevocable. Alternatively. Code (1992 Repl. that Johnson’s sub-bid was an offer to contract and that it was sufficiently clear and definite.000 in damages caused by Johnson’s breach of contract.  option contract remains firm without consideration this alternative was proposed as a solution to the construction bidding problem. The third method of Johnson’s offer becoming irrevocable is by operation of Md. general contractors could require their subcontractors to provide their bids under seal. we review those theories as applied to this case. Vol. or in the absence of a valid acceptance.S. PEI could have purchased an option.). We note that Johnson’s sub-bid was made in the form of a signed writing. We must then determine if PEI made a timely and valid acceptance of that offer and thus created a traditional bilateral contract.. and thus irrevocable.). Artery Co. offer.

The trial judge rejected PEI’s claim of bilateral contract for two separate reasons: 1) that there was no meeting of the minds. On September 2.” Implicit in this finding is the judge’s understanding of the contract. our job is to assure that the trial judge’s findings were not clearly erroneous. Johnson’s sub-bid constituted an offer of a contingent contract. On appeal however. Johnson was free to withdraw. if either of these two theories is not clearly erroneous.Firm Offers & Options  A. On September 1. Johnson made its offer. The trial court found. indicates. Johnson withdrew its offer by letter dated September 2. we hold. as the trial judge found. Maryland Rule 8-131(c). however. we affirm. PEI’s apparent acceptance came one day prior to Johnson’s withdrawal. NIH awarded the contract to PEI. This is an easier task.). TRADITIONAL BILATERAL CONTRACT The trial judge found that there was not a traditional contract binding Johnson to PEI. in the form of a sub-bid. Both need not be proper bases for decision. Thus. reproduced supra. Alternatively. See 2 Williston on Contracts § 6:14 (4th ed. PEI’s letter of August 26. PEI accepted that offer subject to the condition precedent of PEI’s receipt of the award of the contract from NIH. On September 28. that the evidence permitted the trial judge to find that Johnson revoked its offer prior to PEI’s final acceptance. on August 5. that Johnson made it clear to [PEI] that they were not going to continue to rely on their earlier submitted bid. Johnson exercised that right to re214  CONTRACTS  . PEI accepted. that PEI and Johnson “did not have a definite. we must affirm. A review of the record and the trial judge’s findings make it clear that this was a close question. We review the relevant chronology. “that before there was ever a final agreement reached with the contract awarding authorities.” Because this reason is itself sufficient to sustain the trial judge’s finding that no contract was formed. to all potential mechanical subcontractors. Prior to the occurrence of the condition precedent. There is substantial evidence in the record to support the judge’s conclusion that there was no meeting of the minds. certain meeting of the minds on a certain price for a certain quantity of goods … . and 2) that the offer was withdrawn prior to acceptance.

319 F. 678. It was not clearly erroneous. and promises of marriage settlement.S. 38586 (1959). 6 Md. not an acceptance. We are asked. Glassman Constr. and found in “cases dealing with such narrow problems as gratuitous agencies and bailments. Gillespie. Litterio & Co.2d 736 (D. as a threshold question. The early Maryland cases applying “promissory 23 We have also considered the possibility that Johnson’s offer was not to enter into a contingent contract. N. Inc. See. The historical development of promissory estoppel. 97 Harv. If Johnson’s bid was for a non-contingent contract.. It was originally a small exception to the general consideration requirement. 24 General contractors. 25 Gittings v. CHAPTER THREE: CONSIDERATION  215  .). Promissory Estoppel and Judicial Method. 378. Inc. 219 Md. Johnson Co. Co. The benefits of binding subcontractors outweigh the possible detriments of the doctrine.” Jay M. Rev. v. so we shall affirm. should not assume that we will also adopt the holdings of our sister courts who have refused to find general contractors bound to their subcontractors. Nothing in our previous cases suggests that the doctrine was intended to be limited to a specific factual setting.Pavel Enterprises. Feinman. Post v. Cir.  voke. L. 113 (1854). 2 Williston on Contracts § 6:13 (4th ed. 1963).24 This Court has decided cases based on detrimental reliance as early as 1854.. This is unlikely because there is no incentive for a general contractor to accept a non-contingent contract prior to contract award but it would bind the general to purchase the subcontractor’s services even if the general did not receive the award.25 and the general contours of the doctrine are well understood by Maryland courts. A.g. PEI’s September 1 letter clearly “accepted” Johnson’s offer subject to the award from NIH. B. v. Moreover. if detrimental reliance applies to the setting of construction bidding. 680 (1984).. e. or detrimental reliance. Mayhew. however.C. waivers.23 The trial judge’s finding that withdrawal proceeded valid final acceptance is therefore logical and supported by substantial evidence in the record. PEI’s response substantially varied the offer and was therefore a counter-offer. DETRIMENTAL RELIANCE PEI’s alternative theory of the case is that PEI’s detrimental reliance binds Johnson to its bid. in Maryland has mirrored the development nationwide.

The remedy granted for breach is to be limited as justice requires. 129 Md.g. 274 (1979). Id. 170 Md. Mayhew.000 to the United Jewish Appeal [“UJA”].”28 The court held that “promissory estoppel” requires a 26 The cases reviewed were Gittings v. e. at 289-90.. Manitowoc Eng’g Corp. Collings. the following circumstances are significant: 216  CONTRACTS  . In that case. The UJA sued Polinger’s estate in an attempt to collect the money promised them. Snyder v. Because the Court found that the UJA had not acted in a “definite or substantial” manner in reliance on the contribution. Milton Polinger. 79 Md. 595 (1917). refuge was sought in the doctrine of “promissory estoppel. 190 Md.Firm Offers & Options  estoppel” or detrimental reliance primarily involve charitable pledges. 232 Md. Judge Orth reviewed four prior decisions of this Court26 and determined that Restatement (First) of Contracts § 90 (1932) applied. had pledged $200. Jr. 448 (1989). 6 Md. a decedent. Cushwa & Sons.. App. 113 (1854). The first. Erdman v. (2) In determining whether injustice can be avoided only by enforcement of the promise. 566 (1963). To avoid the statute of frauds. 555. 28 Section 139 of the Restatement (Second) of Contracts (1979) provides that detrimental reliance can remove a case from the statute of frauds: “Enforcement by Virtue of Action in Reliance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. Co. where this Court’s opinion was authored by the late Judge Charles E.” but did not comment on the standards for the application of this doctrine. Orth. no contract was found to have been created.P. Sterling v. and there remains some uncertainty about its exact dimensions. at 281. United Jewish Appeal Fed’n of Greater Washington. and American University v.27 Two cases from the Court of Special Appeals demonstrate that confusion. arose in the context of a suit to enforce an antenuptial agreement. 688 (1948). The leading case is Maryland Nat’l Bank v. Chesapeake Supply & Equip.. Id. See. 226 (1936). Snyder. Detrimental reliance doctrine has had a slow evolution from its origins in disputes over charitable pledges. 27 Other cases merely acknowledged the existence of a doctrine of “promissory estoppel. v. Trustees Eutaw M. Ch. 286 Md.

App. v. The second. App. (d) the reasonableness of the action or forbearance.  finding of fraudulent conduct on the part of the promisor. First Nat’l Bank. 102 Md. at 336. as set forth in the original Restatement of Contracts. A. particularly cancellation and restitution. the first change was to delete the requirement that the action of the offeree be “definite and substantial. 1986). or now follows the more flexible view found in the Restatement (Second) Contracts. (e) the extent to which the action or forbearance was foreseeable by the promisor. 336 (1994) (a) the availability and adequacy of other remedies. Md.4 (D. 663 F.” 29 This comports with the formulation given by the United States District Court for the District of Maryland in Union Trust Co.. 317. To resolve these confusions we now clarify that Maryland courts are to apply the test of the Restatement (Second) of Contracts § 90(1) (1979). 178 n. 102 Md. and 4. (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise.” Id. App. CHAPTER THREE: CONSIDERATION  217  .29 We have adopted language of the Restatement (Second) of Contracts (1979) because we believe each of the three changes made to the previous formulation were for the better. 175. where the promisor has a reasonable expectation that the offer will induce action or forbearance on the part of the promisee. the court stated that “[i]t is unclear whether Maryland continues to adhere to the more stringent formulation of promissory estoppel. Inc.. Inc. 2. See also Friedman & Fuller v. Charter Medical Corp. 317 (1994). Kiley v. (b) the definite and substantial character of the action or forbearance in relation to the remedy sought. Supp.Pavel Enterprises. As discussed earlier. which we have recast as a four-part test: 1.” Although the Court of Special Appeals in Kiley v. which does induce actual and reasonable action or forbearance by the promisee. First Nat’l Bank. 3. 107 Md. 91 (1995). causes a detriment which can only be avoided by the enforcement of the promise. v. a clear and definite promise. of Md. Johnson Co. Funkhouser. or the making and terms are otherwise established by clear and convincing evidence.S.

.” This is supported by the substantial evidence. will provide strong indices of the reasonableness of a subcontractor’s expectations. Snyder. We do not express a judgment about how precise a bid must be to constitute an offer. The trial court’s finding that Johnson’s reasonable expectation had dissipated in the span of a month is not 30 We expect that evidence of “course of dealing” and “usage of the trade. App.” see Restatement (Second) of Contracts §§ 219-223 (1979). was the apparent low bidder. or to what degree a general contractor may request to change the offered scope before an acceptance becomes a counter-offer. he did not bother to notify PEI because J.30 In this case. The judge found that due to the time lapse between bid opening and award. 448 (1989) and Friedman & Fuller v. Funkhouser. Inc.J. where the general contractor seeks to bind the subcontractor to the sub-bid offered. the trial judge found that the sub-bid was sufficiently clear and definite to constitute an offer. we perceive the language to have always been redundant. and not PEI. and his finding was not clearly erroneous. Kirlin. the trial court correctly inquired into Johnson’s belief that the bid remained open. 91 (1995) to the extent that they required a showing of fraud on the part of the offeree are therefore disapproved. Second. the general must first prove that the subcontractor’s sub-bid constituted an offer to perform a job at a given price.Firm Offers & Options  apparently presumed this to be a major change from the “stringent” first restatement to the “more flexible” second restatement. App. That fact-specific judgment is best reached on a case-by-case basis. If the reliance is not “substantial and definite” justice will not compel enforcement. 218  CONTRACTS  . “it would be unreasonable for offers to continue. In the instant case. 79 Md. The subcontractor’s expectation that the general contractor will rely upon the sub-bid may dissipate through time. In a construction bidding case. James Kick testified that although he knew of his bid mistake. and that consequently PEI was not relying on the Johnson bid. 107 Md. the general must prove that the subcontractor reasonably expected that the general contractor would rely upon the offer. The decisions in Snyder v.

Finally. In this case. and bid peddling. fax from PEI to all prospective mechanical subcontractors.” or “bid peddling” is strong evidence that the general did not rely on the sub-bid. The fourth factor was not specifically mentioned by the trial judge.” This requirement includes. must determine that binding the subcontractor is necessary to prevent injustice.” The August 26.S.31 Third.” or actively encouraged “bid chopping. Johnson Co. the trial judge did not make a specific finding that PEI failed to prove its reasonable reliance upon Johnson’s sub-bid. and not a jury. that the general did not engage in bid shopping. Second. it was not clearly erroneous. is evidence supporting this conclusion. First. We decline to provide a checklist of potential methods of proving this reliance. but we will make several observations. chopping or peddling. prompt notice by the general contractor to the subcontractor that the general intends to use the sub on the job. the trial court. a general contractor must prove that he actually and reasonably relied on the subcontractor’s sub-bid. that the general contractor engaged in “bid shopping. if a sub-bid is so low that a reasonably prudent general contractor would not rely upon it. Inc. but we may infer that he did not find this case to merit an equitable remedy. v. We must assume. however. Inc.  clearly erroneous. bid chopping. Although the finding that PEI did not rely on Johnson’s bid was indisputably a close call. A. As to the third element. 1993. certain meeting of the minds on a certain price for a certain quantity of goods and wanted to renegotiate … . as did the previous element. but also requires the further determination that justice compels the result. 31 Prompt notice and acceptance also significantly dispels the possibility of bid shopping. the trier of fact may infer that the general contractor did not in fact rely upon the erroneous bid. This element is to be enforced as required by common law equity courts-the general contractor must have “clean hands.. that it was his conclusion based on his statement that “the parties did not have a definite. CHAPTER THREE: CONSIDERATION  219  . is weighty evidence that the general did rely on the bid.Pavel Enterprises. a showing by the subcontractor. as to the fourth prima facie element.

and hereby do. Detrimental reliance can be another. 220  CONTRACTS  . IV In conclusion. Judgment affirmed. we emphasize that there are different ways to prove that a contractual relationship exists between a general contractor and its subcontractors. However. we must. under the evidence in this case. affirm the trial court’s ruling.Firm Offers & Options  Because there was sufficient evidence in the record to support the trial judge’s conclusion that PEI had not proven its case for detrimental reliance. Traditional bilateral contract theory is one. with costs. the trial judge was not clearly erroneous in deciding that recovery by the general contractor was not justified under either theory.

 48. 2‐206. 53. 50. on May 15. 20. Judge: On May 17. 52. Inc. and had neglected to remove the car and posted signs prior to Cobaugh’s hole-in-one. 58 through 70. Klick‐Lewis. 277 & Introductory Note to Ch. the parties entered a stipulation regarding the facts and then moved for summary judgment. 51. 12  UCC §§ 2‐204. Amos Cobaugh was playing in the East End Open Golf Tournament on the Fairview Golf Course in Cornwall. 2‐209. 273. 33. 221  . When he arrived at the ninth tee he found a new Chevrolet Beretta. It had offered the car as a prize for a charity golf tournament sponsored by the Hershey-Palmyra Sertoma Club two days earlier. and Klick-Lewis appealed. 55. Super. 56. After Cobaugh sued to compel delivery of the car. 19. 2d §§ 17. together with signs which proclaimed: “HOLEIN-ONE Wins this 1988 Chevrolet Beretta GT Courtesy of KLICKLEWIS Buick Chevy Pontiac $49. Lebanon County. 35  through 46.  89.00 OVER FACTORY INVOICE in Palmyra. 1987. 2‐207. 22 through 30. 32.  Superior Court of Pennsylvania 561 A.2d 1248 (Pa. 54. Klick-Lewis refused to deliver the car. The trial court granted Cobaugh’s motion. 2‐306  _________________________________________________  OFFER  _________________________________________________  Cobaugh v. 1989) Wieand.  CHAPTER FOUR  MUTUAL ASSENT  Rest. 18. 1987.” Cobaugh aced the ninth hole and attempted to claim his prize.

Weiss v.J. See also: Robertson v.. 23 D. Restatement (Second) of Contracts § 24.L. 135. The facts in the instant case are not in dispute. 425.2d 649.R. 87 A. Thorsen v. they have been stipulated by the parties.Offer  Our standard of review is well established. The Pennsylvania cases which have considered prize-winning contests support the principle that an offer to award a prize in a contest will result in an enforceable contract if the offer is properly accepted by the rendition of the requested performance prior to revocation. 280 Pa. 711 (1952) (“The acceptance by the contestants of the offer tendered by the sponsor of the contest creates an enforceable contract.S. it has generally been held that “[t]he promoter of [a prize-winning] contest.” Annotation. 140 (1984). Super.S. Therefore. 8 P.&C. Wood. To the extent that they have not been admitted in the pleadings. 377 Pa. Contracts § 46. 328 Pa. The only acceptance of the offer that is necessary is the performance of the act requested to win the prize. See: Olschiefsky v. Super.E. An offer is a manifestation of willingness to enter into a bargain. 371 (1988). 222  CONTRACTS  . Contracts § 23. 399. United States. Dunn v. we must decide whether under the applicable law plaintiff was entitled to judgment as a matter of law. by making public the conditions and rules of the contest. 430 (1983). Holt v. 310 Pa. Keystone Mack Sales. makes an offer. 343 U. Private Rights and Remedies Growing Out of Prize-winning Contests. Super. Times Publishing Co. the promoter is bound to perform his promise. and if before the offer is withdrawn another person acts upon it. Super. Consistent with traditional principles of contract law pertaining to unilateral contracts. A motion for summary judgment may properly be granted only if the moving party has shown that there is no genuine issue of material fact and that he or she is entitled to judgment as a matter of law. Inc. 17 C. 402 (1980). so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. Id. Iron and Glass Bank. 661.”). Summary judgment should not be entered unless a case is clear and free from doubt.2d 73 (Erie 1959) (overruling demurrer to action against newspaper for failure to award prize to winner of puzzle contest). Teti. 366. United Parcel Service.L. French v..

of Revenue. Inc. 541 (1987). 77 Pa. 534.W. Sup. First Texas Savings Assoc. 313 (1886). 162. Vespaziani v. 1978) (golf tournament). Dept. Dist. See: Restatement (Second) of Contracts § 24.L.. Cardamone v. The contract does not fail for lack of consideration. 259 Pa. 40 Pa. v. 2 Sad. 568 (1908). First Nat’l Bank. University of Pittsburgh. 388 So. Inc. Consideration confers a benefit upon the promisor or causes a detriment to the promisee. the offer specified the performance which was the price or consideration to be given. 253 Pa. v. Grove v. 41 Pitt. Giles. of Transp. Ct. Oliver Realty. Cmwlth. 387 A.2d 1343 (Fla. 72 n. Greene v. Comment b.2d 596 (Me. 363 Pa. 1953) (“Count-the-dots” contest). Central Board of Education of Pittsburg... Jergins.2d 149 (La. Palmer v. There was thus an offer which was accepted when appellee shot a hole-in-one. Chenard v. Ct. A person reading the signs would reasonably understand that he or she could accept the offer and win the car by performing the feat of shooting a hole-in-one.Cobaugh v.  Harmon & Co. By its signs. Inc. Super. The requirement of consideration as an essential element of a contract is nothing more than a requirement that there be a bargained for exchange. 240 N. Cluett. Peabody & Co. Klick-Lewis offered to award the car as a prize to anyone who made a hole-in-one at the ninth hole. 167 (1964). Cmwlth 54 (1979). 65.2d 853 (N. Super. 443 (1894) (holding offer to award house to person submitting name selected for new housing development resulted in binding contract). Charbonneau Buick-Pontiac Inc. Appellant argues that it did nothing more than propose a contingent gift and that a proposal to make a gift is without consideration and unenforceable. 220 Pa. Schreiner v. See also: Aland v. Weil Furniture Co. 1986) (free drawing). Pa. 705 S. Here. 6 (1978). Super. 1980) (bowling contest).2d 390 (Tx.. 553 (1983). v. Inc. Klick-Lewis benefited from the publicity typically generated by such promotional advertising. Trego v. Marcel Motors. Commonwealth Dept. 364 (1918). 1976) (golf tournament).. 551.D.J. We cannot accept this argument. App. 203 Pa. App. Snavely. In CHAPTER FOUR: MUTUAL ASSENT  223  . Academy of Fine Arts. v. 68 So. Pa. Ct.W. Klick‐Lewis. App. Accord: Champagne Chrysler-Plymouth. By making an offer to award one of its cars as a prize for shooting a hole-in-one at the ninth hole of the Fairview Golf Course. General Mills.

Under these circumstances. Courts of other jurisdictions have found similar offers legal and enforceable. 727 P. The car was to be given in exchange for the feat of making a hole-in-one. e. Super. those statistics demonstrate that a professional golfer is generally twice as likely to shoot a hole-in-one as an amateur golfer.1 Even if. there was no evidence in this case that an element of chance was the dominant factor in shooting the hole-in-one. scored a hole-in-one was not gambling and. See: Commonwealth v. 245 (1953) (chance must be dominant factor). 1030 and was not the subject of evidence or argument at trial. 173 Pa. Gibson. supra. See. Indeed. supra (enforcing duty to award prize in free drawing where only performance by plaintiff was completing and depositing entry form). It is not clear in this case that to offer an automobile as a prize for a hole-in-one during a charity golf tournament was to introduce illegal gambling to the tournament. Jergins. Gibson. This was adequate consideration to support the contract. Cobaugh was required to perform an act which he was under no legal duty to perform.g.P. supra (contest to award prize to golfer who.C.2d 807 (1986) (discussing cases). v. this Court may act sua sponte to refuse enforcement of an illegal contract. as the author of the dissent concedes. having paid fee. as the dissent contends. v. 1 The issue of an illegal contract. Even if this Court could legitimately consider the “facts” which the dissent introduces from a popular magazine. I. R. Inc. 224  CONTRACTS  . at 29-30 (where expert testified that “a skilled player will get it (the ball) in the area where luck will take over more often than an unskilled player. it should not do so unless the illegality is clear.: Las Vegas Hacienda. therefore. See: Las Vegas Hacienda. was not raised by appellant in the trial court or on appeal. Gibson. Inc. 77 Nev. it was not pleaded as “new matter” as required by Pa.” See: Las Vegas Hacienda. Inc. 151 Ariz. See also: First Texas Savings v. created valid and enforceable contract). it cannot be said that skill is “almost an irrelevant factor. Laniewski.” there was sufficient evidence to sustain a finding that the shooting of a hole-in-one was a feat of skill). Finally. v. 312. 77 Nev.Offer  order to win the car. 25 (1961) (paying fifty cents and shooting hole-in-one was consideration for prize).

plaintiff appeared on a different episode of the television show and bowled a perfect game. American Oil Co..Cobaugh v. we also reject appellant’s final argument that the contract to award the prize to appellee was voidable because of mutual mistake. while the signs were still posted. a car dealer had advertised that it would give away a new car to any bowler who rolled a perfect “300” game during a televised show.. Super. Inc. rev’d on other grounds. supra. Rusiski v. However. Giles.  There is no basis for believing that Cobaugh was aware that the Chevrolet automobile had been intended as a prize only for an earlier tournament. The dealer refused to award the car. and approximately one month later. 44. relief will not be granted. 8 while driving from the seventeenth tee). There. Therefore. A Florida court held that if plaintiff reasonably believed that the offer was still outstanding when he rolled his perfect game. a mistake similar to that made in the instant case had been made. 552 (1984). 545. 215 Pa. Pribonic. The dealer’s intent was that the offer would continue only during the television show which the dealer sponsored and on which its ads were displayed. He neglected to remove from the alley the signs offering a car to anyone bowling a “300” game. In Champagne Chrysler-Plymouth. Inc. The posted signs did not reveal such an intent by Klick-Lewis. In this case the ofCHAPTER FOUR: MUTUAL ASSENT  225  . Klick‐Lewis. supra (car dealer required to award prize to participant in 18-hole golf tournament played on nine-hole golf course where it had offered to award a car “to the first entry who shoots a hole-in-one on Hole No. 53-54 (1969). McFadden v. See also: Grove v. Restatement (Second) of Contracts § 29. 8” and plaintiff aced the hole marked No. Charbonneau Buick-Pontiac Inc. the dealer also distributed flyers containing its offer and posted signs advertising the offer at the bowling alley. 383. 511 Pa. and the stipulated facts do not suggest that appellee had knowledge greater than that acquired by reading the posted signs. Where the mistake is not mutual but unilateral and is due to the negligence of the party seeking to rescind. he would be entitled to receive the car. v. 326 Pa. Super. It is the manifested intent of the offeror and not his subjective intent which determines the persons having the power to accept the offer.

Offer  feror’s manifested intent. as it appeared from signs posted at the ninth tee. In re: Gaming Devices Seized at American Legion Post No. gambling and bookmaking are strictly prohibited as delineated in 18 Pa. Judge. The mistake upon which appellant relies was made possible only because of its failure to (1) limit its offer to the Hershey-Palmyra Sertoma Club Charity Golf Tournament and/or (2) remove promptly the signs making the offer after the Sertoma Charity Golf Tournament had been completed. It seems clear. 1987). Revised Edition. 226  CONTRACTS  . Such a mistake does not permit appellant to avoid its contract. Cornish and Ronald E. gambling) and 5514 (pool selling. dissenting: “Golf … is … a game of relaxed recreation and limitless enjoyment for millions and a demanding examination of exacting standards …” (Robert Trent Jones. however. Preface of The Golf Course. The offer was not limited to any prior tournament. 109. 197 Pa. 31 (1984). was that a hole-in-one would win the car. §§ 5512 (lotteries). C. therefore. Because of that fact (an element of chance). Weisman. Super. a reward and an element of chance.A. Whitten. bookmaking). 5513 (gaming devices. 10 (1961).2 As our Supreme Court stated eighty-five years ago in Davis v. Super. Fleshman.S. The Rutledge Press. golf-as demonstrated by the vast majority of its practitioners who never have and never will score a round at par-is a sport requiring precise skills. 245 Pa. In short. Making a hole-in-one. the three elements of gambling are consideration. my view is that the necessary elements of gambling are present thus rendering the contract sub judice unenforceable as violating the Commonwealth’s policy against gambling. Commonwealth v. Popovich. 331 Pa. is such a fortuitous event that skill is almost an irrelevant factor. combined with the payment of an entry fee to the East End Open Golf Tournament (consideration) and the automobile prize (reward). Affirmed. 224 (1914): 2 Under Pennsylvania law. Illegal lotteries. Geoffrey S. that the mistake in this case was unilateral and was the product of the offeror’s failure to exercise due care.

While every golfer dreams of the day when his ball flawlessly flies into the cup.  It is equally well settled in this jurisdiction that all mere wagering contracts are illegitimate transaction which the law declares void and which will not be enforced at the insistence of either party to the contract. 340 Pa.” Majority Op. Cobaugh was required to perform an act which he was under no legal duty to perform. the foremost comprehensive periodical on the sport of golf. So few in fact that “aceing” a hole is truly an act of “luck” not skill. Chief of Research. While the chances increase for a professional golfer.3 The truth is quite the opposite. estimates that a golfer of average ability playing a par-3 hole of average difficulty has a mere 1 in 20. 530 (1984) (public policy dictates court must raise “unclean hands” sua sponte). The law will not attempt to settle disputes arising between gamblers by enforcing their alleged rights arising out of an illegal transaction. The car was to be given in exchange for the feat of making a hole-in-one. Super. Rossi v. I raise this issue sua sponte since we have no jurisdiction to enforce a contract in violation of public policy.7 million golfers played 434 million rounds of golf with only 34. In re Estate of Pedrick. Assistant Editor. the majority seems to opine that scoring a hole-in-one is an act of skill which a golfer can choose to undertake. is still re3 4 “In order to win the car. It will leave the parties as it finds them. using figures amassed since 1952. 505 Pa. few ever experience the thrill of a hole-in-one. even for the world’s best players. Golf Digest.469 holes-in-one being reported to the United States Golf Association. Consider the following statistics:4 In 1988. Pennsylvania State Univ. CHAPTER FOUR: MUTUAL ASSENT  227  . It will not aid the winner to recover from the loser the amount of the stake. By couching this transaction in terms of a unilateral contract. and it will not give assistance to the loser to recover back the amount of the bet after the transaction has been closed. 39 (1985) (propriety of summary judgment raised sua sponte). the possibility of a hole-in-one. Klick‐Lewis. at 1250. Inc.Cobaugh v. The statistics are courtesy of Lois Hains.. approximately 21. and Hope Johnson.000 chance of aceing the hole. Golf Digest.

S. 10 Pa. it may be difficult to re-assert a public policy which everyday is violated by common experience. where there probably was no thought of gambling or “breaking the law. Only recently. Thus. See also 4 Pa. especially. a contract covering the context of gambling. even at 10. 72 Pa. I see no reason to enforce this so-called unilateral contract.Offer  mote.000 to 1. only in one state.” Nevertheless. While I recognize that there are a variety of socially acceptable forms of gambling indulged in by the public for the most charitable of purposes and the worthiest of causes. (state lottery). § 325. Dollar raffle tickets for the benefit of a hospital or a Little League Baseball Association are bought and sold innocuously and routinely.A. rather I would find that an unenforceable gambling contract was created. Since all of the elements of gambling are present. Clearly.5 With approximately 300 touring professionals playing in 47 tournaments (four rounds per tournament. and. However. raffles constitute unsanctioned gambling. However. Last year only 22 holes-in-one were recorded during the Professional Golf Association’s tournament schedule. yet.101 et seq.S. has bingo. Millions of citizens spend billions of dollars each year on sports betting in office pools or with the local bookmaker.000. (horse racing). under strict control.A. it is unenforceable no matter how much condoned or indulged. a popular and social form of gambling been legalized.S. the odds increased to approximately 1 in 10. such as here. four par-3’s per round). § 301 et seq. the professional’s chances of aceing a hole are more akin to an act of God than a demonstration of skill. Nevada. we cannot usurp the role of the legislature or turn our heads away from the fundamental substance of this transaction: it is a contract. when such a rare case as this comes into court. C. Hence. § 3761-1 et seq. is it legal so to do. they are nonetheless illicit under Pennsylvania law.A. 5 For the record. we note that female professional golfers playing in Ladies Professional Golf Association events had 20 holes-in-one in 1988. C. the possibility of a hole-in-one is sufficiently remote to qualify as the necessary gambling requirement of an element of chance. 228  CONTRACTS  . C.

000 vials of DTP and Lederle refused to fill the order. Supp. Corinthian and Lederle became entangled in litigation when Corinthian ordered more than 6. are determined to be admissible under the Federal Rules of Evidence. District Judge. comes before the Court on the defendant’s motion for summary judgment. One of the products that Corinthian buys and distributes with some regularity is the DTP vaccine. There is no dispute that the “Tri Immunol” referred to in the 1984 litigation is Lederle’s trade name for DPT. and various documents. at 31). Mr. (Depo. plaintiff’s answers to interrogatories. 1989.Corinthian Pharmaceutical v.2 That lawsuit was settled by written agreement whereby Lederle agreed to sell a specified amount of vaccine to Corinthian at specified times. which is presently set for trial by jury on December 18. at 5-6). Lederle fully performed 1 2 The material facts relayed are undisputed.  Lederle Laboratories  U. The Court will use “DPT” throughout this opinion for simplicity. and are taken favorably for the non-movant plaintiff on this summary judgment motion. admits in his deposition that Corinthian and Criterion Pharmacy are in essence the same entity.S. In 1984. Eaton. Inc. v. For the reasons set forth below. 1989. The issues raised have been fully briefed and the parties have submitted supporting evidence. 1989) McKinney. FACTUAL AND PROCEDURAL BACKGROUND1 Defendant Lederle Laboratories is a pharmaceutical manufacturer and distributor that makes a number of drugs. The issues raised were ripe as of July 21. Ind. CHAPTER FOUR: MUTUAL ASSENT  229  . 605 (S. The facts in this case come from the depositions of Lyman Eaton and James Farris. This diversity action. the affidavits of John Kelly and Anthony La Luna. Plaintiff Corinthian Pharmaceutical is a distributor of drugs that purchases supplies from manufacturers such as Lederle Labs and then resells the product to physicians and other providers. District Court for the Southern District of Indiana 724 F. (Depo. including the DTP vaccine. the president of Corinthian. Lederle Laboratories  Corinthian Pharmaceutical Systems. I. the authenticity of which is not in dispute. the Court GRANTS the motion.D.

The President of Corinthian admits seeing such conditions before and having knowledge of their presence on the back of the 230  CONTRACTS  . the above language was repeated. the largest single order ever placed by Corinthian with Lederle was for 100 vials.” After that litigation was settled Lederle continued to manufacture and sell the vaccine. and indicated that the prices shown “were in effect at the time of publication but are submitted without offer and are subject to change without notice. When Lederle Labs filled an order it sent an invoice to Corinthian. Lederle periodically issued a price list to its customers for all of its products.Offer  under the 1984 settlement agreement. One of the conditions of the settlement was that Corinthian “may order additional vials of [vaccine] from Lederle at the market price and under the terms and conditions of sale in effect as of the date of the order. During this period of time. double-sided invoice contained the specifics of the transaction on the front. and that prior dispute is not at issue.” From 1985 through early 1986. with the addition that the “[s]eller specifically rejects any different or additional terms and conditions and neither seller’s performance nor receipt of payment shall constitute an acceptance of them.” On the back of the seller’s form. The one page. along with form statement at the bottom that the transaction “is governed by seller’s standard terms and conditions of sale set forth on back hereof. Each price list stated that all orders were subject to acceptance by Lederle at its home office. Corinthian made a number of purchases of the vaccine from Lederle Labs.” The price list further stated that changes in price “take immediate effect and unfilled current orders and back orders will be invoiced at the price in effect at the time shipment is made. and Corinthian continued to buy it from Lederle and other sources. notwithstanding any provisions submitted by buyer. “Acceptance of the order is expressly conditioned on buyer’s assent to seller’s terms and conditions.” The reverse side also stated that prices are subject to change without notice at any time prior to shipment. and that the seller would not be liable for failure to perform the contract if the materials reasonably available to the seller were less than the needs of the buyer.

The Telgo system is a telephone computer ordering system that allows customers to place orders over the phone by communicating with a computer. and indicated that effective May 20. See Farris depo. Lederle concluded that a substantial increase in the price of the vaccine would be necessary. Lederle Laboratories  invoices. Corinthian immediately ordered 1000 vials of DTP vaccine from Lederle. Corinthian somehow gained knowledge of this letter on May 19. In order to cover the costs of self-insurance.Corinthian Pharmaceutical v. After Corinthian placed its order with the Telgo system.” This document was dated May 19.5 Corinthian Pharmaceutical did not know of the existence of this internal price letter until a Lederle representative presented it to Corinthian several weeks after May 20. (Depo. the date before the price increase was to take effect. Corinthian placed its order on May 19. 1986. to its customers announcing the price increase and explaining the liability and insurance problems that brought about the change. 1986. Lederle Labs also wrote a letter dated May 20. at 23. In response to the knowledge of the impending price increase.4 but did not go to customers. 61. Although he was aware of their existence.3 During this period of time. In order to communicate the price change to its own sales people. at 22. Lederle’s Price Manager prepared “PRICE LETTER NO. E48. Lederle decided in early 1986 to self-insure against such risks. at 69). 1986. 11-14. at pp. See Farris depo. On the same date.00 to $171. As a result. CHAPTER FOUR: MUTUAL ASSENT  231  . the computer gave Corinthian a tracking number for its order. and insurance became more difficult to procure. 1986. by calling Lederle’s “Telgo” system. 74. Corinthian’s president never read the conditions on the forms. product liability lawsuits concerning DTP increased.32 per vial price.” 3 4 5 See Eaton depo. and Corinthian stipulates that all Lederle’s invoices have this same language. On each form Corinthian stated that this “order is to receive the $64. Corinthian sent Lederle two written confirmations of its order. Price letters such as these were routinely sent to Lederle’s sales force. the price of the DTP vaccine would be raised from $51. 1986.00 per vial. 1986. Additionally.

” Based on these facts. At the same time. that if one was formed. Lederle urges a number of alternative grounds for disposing of this claim. costs. at 34-35. it was governed by Lederle’s terms and conditions. at 60. Lederle had decided to make an exception to its terms and conditions and ship a portion of the order at the lower price. Eaton depo. The letter closed. please contact [us] … on or before June 13. and that shipment would be made during the week of June 16.Offer  On June 3. plaintiff Corinthian Pharmaceutical brings this action seeking specific performance for the 950 vials of DTP vaccine that Lederle Labs chose not to deliver. then. Before reaching these issues. The 50 vials were sent to Corinthian and were accepted. plaintiff now merely seeks specific performance for the 950 vials of DTP that were not delivered. and attorney’s fees. the relevant summary judgment standards must be set forth. The letter further stated that the balance would be priced at $171. SUMMARY JUDGMENT STANDARDS Under Rule 56(c) of the Federal Rules of Civil Procedure. including Corinthian.” The letter stated that under Lederle’s standard terms and conditions of sale the normal policy would be to invoice the order at the price when shipment was made. 1986.32 per vial. Lederle sent invoice 1771 to Corinthian for 50 vials of DTP vaccine priced at $64. “If for any reason you wish to cancel the balance of your order.7 In support of its summary judgment motion. and that the 50 vials sent to Corinthian were merely an accommodation.6 This letter stated that the “enclosed represents a partial shipment of the order for DTP vaccine. 1986. Lederle sent its customers. Not surprisingly. which you placed with Lederle on May 19.”). in light of the magnitude of the price increase. See Plaintiff’s Brief at 19 (“[Corinthian] seeks only specific performance. depo6 7 See Farris depo. The Amended Complaint vaguely seeks damages. including that no contract for the sale of 1000 vials was formed. However. The invoice contained the standard Lederle conditions noted above. a letter regarding DTP vaccine pricing and orders.00. The undisputed facts show that Corinthian did not have specific contracts for resale of the vaccine lined up at the date of its order. 232  CONTRACTS  . 10 to Eaton depo. summary judgment “shall be rendered forthwith if the pleadings. Defendant’s Ex. II.

1989). 477 U. it is clear that the mandatory aspects of Rule 56 must be followed by the district courts. Mid-State Fertilizer v.2d 148. e. who must press their claims and vigorously oppose the motion for summary judgment. 877 F. and Matsushita Electric Industrial Co. Civ.g. 574 (1986). 477 U. v. by affidavits or as otherwise provided in this rule. an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleadings.2d 563 (7th Cir.2d 400. 1988). Commissioner. Liberty Lobby. if any.Corinthian Pharmaceutical v. City of Chicago. Additionally. Ltd. 56(e). Herman v. must set forth specific facts showing that there is a genuine issue for trial. In short. e.” Further. Decisions of the Seventh Circuit reflect this change in attitude as well.S. See. 1988). but the adverse party’s response. shall be entered against the adverse party. summary judgment must be entered where appropriate. Catrett. Spellman v. it is the advocates.. Zenith Radio Corp. Anderson v. Rule 56(e) provides: When a motion for summary judgment is made and supported as provided in this rule. City of Chicago. not the courts.. see Celotex Corp.2d 400. summary judgment. Exchange National Bank.. and.” Fed. 1989).. Randle v. Lederle Laboratories  sitions. R. Inc.2d 473 (7th Cir. 404 (7th Cir. if appropriate.g.S. 870 F. The Seventh Circuit has recently interpreted this rule strictly. See. 242 (1986). e. 845 F. requiring affidavits to contain more than broad conclusions. 152 (7th Cir. P. Cf.. show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. If the adverse party does not so respond..” and “must set forth specific facts showing that there is a genuine issue for trial. 475 U. together with the affidavits.g. answers to interrogatories. 876 F.. Collins v. Since the Supreme Court’s trilogy of decisions on summary judgment. 870 F. adversaries are to pursue their cases and courts are to rule accordingly). affidavits submitted at summary judgment must “set forth such facts as would be admissible in evidence. as a result. Inc. Associated Pathologists.2d 1333 (7th Cir. v.. 1989) (hearsay cannot be considCHAPTER FOUR: MUTUAL ASSENT  233  . 844 F. 404 (7th Cir.S. 317 (1986). See. Herman v. 1989) (courts need not scour record to support a party’s claim at summary judgment. and admissions on file. LaSalle Telecommunications.

2d 1023. As shown below.C. but because the Code is substantially the same in all states having any connection to this dispute. 1989).. 867 F. See.2d 186. 868 F. The fundamental question is whether Lederle Labs agreed to sell Corinthian Pharmaceuticals 1. decisions for simplicity. this is a straightforward sale of goods problem resembling those found in a contracts or sales casebook.000 VIALS AT THE LOWER PRICE: Initially. the Court will address the substantive questions raised. III. A. the Court will. Svetanoff.g. v.C. The parties do not discuss which state’s laws are to apply to action. LEDERLE LABS NEVER AGREED TO SELL 1. and that both parties are merchants under the Code.32 per vial.2d 908 (7th Cir. so made as to justify another person in understanding that 8 The Court notes that Lederle's standard terms state that any contract is to be construed under New Jersey law. DISCUSSION Despite the lengthy recitation of facts and summary judgment standards. Inc.8 The starting point in this analysis is where did the first offer originate. McMillian v. Morgan v. the Seventh Circuit has made it clear that issues of motive or intent may properly be decided by way of summary judgment where there are no genuine issues of material fact on the issue.000 vials of DTP vaccine at $64. 878 F. For purposes of this motion. 234  CONTRACTS  . with relevant interpretations from Indiana and other states.. With these standards at hand. Longview Fibre Co. the Court will use Indiana U.C. Harris Trust and Savings Bank of Chicago. the undisputed material facts mandate the conclusion as a matter of law that no such agreement was ever formed. 188 (7th Cir. An offer is “the manifestation of willingness to enter into a bargain.C. 1989) (summary judgment “will not be defeated simply because issues of motive or intent are involved”). Finally. 1026 (7th Cir. it should be noted that this is a sale of goods covered by the Uniform Commercial Code. for ease of reference. because it is not established that there is any difference between New Jersey's and Indiana's interpretation of the Code. e. 1989).Offer  ered under Rule 56(e)). Corrugated Paper Products. refer in general to the U.

the price lists specifically stated that prices were subject to change without notice and that all orders were subject to acceptance by Lederle.C..2 at 51. 1986) (No offer where price quotation is subject to change and orders are subject to seller’s confirmation). Second.9 Thus. The only possible conclusion in this case is that Corinthian’s “order” of May 19.D. Dominick’s Finer Foods. Greenberg. Quaker State Mushroom v.e. Contracts § 4 (1981)). Article 2 § 5. 873 (7th Cir. Article 2 § 5. Interstate Industries. 28 (1982). (quoting 1 Restatement (Second). as a matter of law. Ill.000 vials at $64. can be construed as an offer to sell 1. Barclay Industries. Inc. It is well settled that quotations are mere invitations to make an offer. There is no evidence that Lederle intended Corinthian to receive the internal price memorandum. for 1. letter was an offer to sell 1. Article 2”].32 was the first offer.C. was a mere quotation (i. 1284 (N. the first offer was made by Corinthian 9 Nor is there any course of dealing that can support the existence of an offer by Lederle to Corinthian. Inc. the evidence shows that Corinthian was not supposed to receive this letter until after the price increase had taken place. U. one million vials of vaccine.2 at 51.. CHAPTER FOUR: MUTUAL ASSENT  235  . Moreover. for that matter. Lederle Laboratories  his assent to that bargain is invited and will conclude it. 540 F. 635 F. the letter. 1986. just like the price lists.000 vials at the lower price. Article 2 § 5. nor is there anything in the record to support the conclusion that the May 20. Corbin on Contracts §§ 26. Greenberg.Corinthian Pharmaceutical v.C. Supp. U.” H. 1976) (price quotation not an offer).C. Greenberg. an invitation to submit an offer) sent to all customers.C.000 vials to Corinthian at the lower price.C.2d 868. it did not bestow on Corinthian nor other customers the power to form a binding contract for the sale of one thousand.2 at 50 (1987) [hereinafter “Greenberg. U. the price lists distributed by Lederle to its customers did not constitute offers. 1986.C. neither Lederle’s internal price memorandum nor its letter to customers dated May 20.C. as here. particularly where. First. If anything. or. 1281. As such. Rights and Remedies Under U. Nothing that the seller had done prior to this point can be interpreted as an offer. 1986. v.

Eastman Kodak Co.C. Such an automated. 785 (1981) (seller’s acknowledgement of receipt of purchase order did not constitute assent to its terms). The next question. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. The first question regarding acceptance. is whether Lederle ever accepted that offer. therefore. is whether Lederle accepted the offer prior to sending the 50 vials of vaccine. then. § 2-206 (emphasis added).. under the Code a seller accepts the offer by shipping goods. there was no acceptance of Corinthian’s offer prior to the deliver of 50 vials. The record is clear that Lederle did not communicate or do any act prior to shipping the 50 vials that could support the finding of an acceptance. whether they are conforming or not. Foremost Pro Color. 53 N. e. 1983) (logging purchase orders as received did not manifest acceptance). The next question. Milliken & Co. App. Southern Spindle & Flyer Co. § 2-207. v.2d 534. U.. Inc. 539 (9th Cir. Under § 2-206. the offeree must still do some act that manifests the intention to accept the offer and make a contract. an acceptance need not be the mirror-image of the offer.C.000 vials at the lower price. However. then. ministerial act cannot constitute an acceptance. it merely received a tracking number from the Telgo computer. 703 F. Thus. Under the Code. but if the seller ships non-conforming goods and seasonably notifies the 236  CONTRACTS  .g.. Section 2-206(b) of the Code speaks to this issue: [A]n order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods. but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. When Corinthian placed its order.C. v. is what is to be made of the shipment of 50 vials and the accompanying letter.Offer  when it phoned in and subsequently confirmed its order for 1. See. Thus.

Inc. the shipment of nonconforming goods is treated as a counteroffer just as at common CHAPTER FOUR: MUTUAL ASSENT  237  . Under these undisputed facts. for it was for only 1/20th of the quantity desired by the buyer. then. is whether Lederle’s response to the offer was a shipment of non-conforming goods not constituting an acceptance because it was offered only as an accommodation under § 2-206.C. Clearly.5 at 53.000 vials at $64. § 2-206(1)(b) was satisfied. the offer made by Corinthian was for 1. Article 2 § 5. U. The term implies no consideration. Lederle had no obligation to make the partial shipment. Michiana Mack.E.32. 1370 (Ind. In this case. In this case. then the seller has not.Corinthian Pharmaceutical v.2d 1367. Lederle’s shipment was non-conforming. accepted the buyer’s offer. Moreover. then. The narrow issue. and did so only as a favor to the buyer. the standard terms of Lederle’s invoice stated that acceptance of the order was expressly conditioned upon buyer’s assent to the seller’s terms. Allendale Rural Fire Protection. The letter further indicated that Lederle’s proposal to ship the balance of the order at the higher price could be rejected by the buyer. the notification is properly made. See § 2-106(2) (goods or conduct are conforming when they are in accordance with the obligations under the contract). Black’s Law Dictionary (5th ed. in fact. Lederle Laboratories  buyer that the shipment is a mere accommodation. and that the balance of the offer would be invoiced at the higher price. even taking all inferences favorably for the buyer. v. 428 N. 1979).32 per vial. An accommodation is an arrangement or engagement made as a favor to another. 1981) (non-conformity describes goods and conduct). In response. clearly stated that the 50 vials were being sent at the lower price as an exception to Lederle’s general policy. which Corinthian is sure it received. Where. The letter further indicated that the buyer could cancel its order by calling Lederle Labs. The accommodation letter. App.00 per vial and would be shipped during the week of June 16.C. as here. the only possible conclusion is that Lederle Labs’ shipment of 50 vials was offered merely as an accommodation. and wrote Corinthian indicating that the balance of the order would be priced at $171. Lederle Labs shipped only 50 vials at $64. that is to say. Id. See Greenberg.

. it is clear that Lederle Labs would still prevail for two related reasons. assuming arguendo that a contract for the sale of 1. 1964) (same under Kentucky law).E. 434 (1931) (parties to a contract are deemed to know the contents of the agreement). The price of all products remained subject to change at any time. Wasson Coal Mining Corp. Thus. Eaton. B. Ltd. ANY CONTRACT FORMED WOULD HAVE BEEN GOVERNED BY LEDERLE’S CONDITIONS: Additionally. Lederle’s terms and conditions.000 vials at the low price. v. Chipman. Walb Construction Co. Under a separate contractual agreement compromising a similar dispute. there being no genuine issues of material fact on these issues and the law being in favor of the seller. as set forth in its price lists and its invoices. Corinthian agreed to be bound by these conditions. summary judgment must be granted for Lederle Labs. v. Uniform Commercial Code Series § 2-206:04 (1987). National Steel Corp. it is undisputed that as a result of the 1984 litigation between the parties. 255 (Ind. Hawkland.G. the end result of this analysis is that Lederle Lab’s price quotations were mere invitations to make an offer. 1984) (same under New York law). that by shipping 50 vials at the low price Lederle’s response was non-conforming. 462 N. First.Offer  law. v. Ultracashmere House. Accordingly. and the seller retained the right to allocate its product as it deemed proper without incurring liability for failure to perform any contract. Terry Fashions. 567-68 (7th Cir. as president of Corinthian. but the non-conforming response was a mere accommodation and thus constituted a counteroffer. 238  CONTRACTS  .2d 252.2d 565.000 vials were somehow formed. 338 F. Ltd. and the buyer may accept or reject the counteroffer under normal contract rules. remained the same. Throughout the parties’ relationship. 2 W. signed the written release in that 1984 litigation. 202 Ind. Mr. that by placing its order Corinthian made an offer to buy 1.. L. App. thus he and his company are charged with knowledge of its contents. Corinthian agreed to be bound by the seller’s terms and conditions in effect as of the date of any order.

Lederle retained the defenses set forth in its standard conditions. App. 2d Cir. It is so ordered. Green  Court of Appeal of Louisiana. Second Circuit 83 So. Judge. and that acceptance of the order was expressly made conditional on the buyer’s assent thereto. Again. for the purpose of obtaining the services of plaintiff in re-roofing CHAPTER FOUR: MUTUAL ASSENT  239  . _________________________________________________  ACCEPTANCE  _________________________________________________  Ever‐Tite Roofing Corp. 1956) Ayres. Lederle thus followed the prophylactic language of § 2-207 and insulated itself from any other conditions (such as the low price demanded by Corinthian) that a buyer might attempt to impose. and hence contended no contract was ever entered into. 1953. For all these reasons. Second and similarly. v. The trial court sustained defendants’ defense and rejected plaintiff’s demands and dismissed its suit at its costs. Defendants executed and signed an instrument June 10. Defendants denied that their written proposal or offer was ever accepted by plaintiff in the manner stipulated therein for its acceptance. From the judgment thus rendered and signed. plaintiff appealed. even if a contract were ever formed in this case.2d 449 (La.Corinthian Pharmaceutical v. the defendant’s motion for summary judgment is granted. even if a contract were formed. Lederle Laboratories  Thus. the invoice sent by Lederle clearly stated that the transaction would be governed by Lederle’s terms and conditions. it remained bound by Lederle’s conditions giving the seller the price and allocation defenses. This is an action for damages allegedly sustained by plaintiff as the result of the breach by the defendants of a written contract for the re-roofing of defendants’ residence.

The document set out in detail the work to be done and the price therefor to be paid in monthly installments. plaintiff requested a credit report.Acceptance  their residence situated in Webster Parish. partial roof jobs. The day immediately following this approval. who. With this procedure defendants were more or less familiar and knew their credit rating would have to be checked and a report made. It is understood and agreed that this Contract provides for attorney’s fees and in no case less than ten per cent attorney’s fees in the event same is placed in the hands of an attorney for collecting or collected through any court. or paint jobs. or upon commencing performance of the work. which then gave its approval. however. This contract is Not Subject to Cancellation. Texas. This alleged contract contained these provisions: This agreement shall become binding only upon written acceptance hereof. Houston. On receipt of the proposed contract in plaintiff’s office on the day following its execution. which was made after investigation and which was received in due course and submitted by plaintiff to the lending agency. it was necessary for plaintiff to obtain credit reports and approval from the lending institution which was to finance said contract. 240  CONTRACTS  . which was likewise in due course transmitted to the institution. Louisiana. 5203 Telephone. and further provides for accelerated maturity for failure to pay any installment of principal or interest thereon when due. No guarantee on repair work.) Inasmuch as this work was to be performed entirely on credit. plaintiff engaged its workmen and two trucks. This instrument was likewise signed by plaintiff’s sale representative. It is understood and agreed that this contract is payable at office of Ever-Tite Roofing Corporation. This written agreement is the only and entire contract covering the subject matter hereof and no other representations have been made unto Owner except these herein contained. was without authority to accept the contract for and on behalf of the plaintiff. Additional information was requested by this institution. (Emphasis supplied. by the principal or authorized officer of the Contractor. 1953. which was either June 18 or 19.

Formal acceptance of the contract was not made under the signature and approval of an agent of plaintiff. Green  loaded the trucks with the necessary roofing materials and proceeded from Shreveport to defendants’ residence for the purpose of doing the work and performing the services allegedly contracted for the defendants. Defendants notified plaintiff’s workmen that the work had been contracted to other parties two days before and forbade them to do the work. Defendants’ attempt to justify their delay in thus notifying plaintiff for the reason they did not know where or how to contact plaintiff is without merit. With this conclusion we find ourselves unable to agree. terminate or cancel the contract. Upon their arrival at defendants’ residence. Be that as it may. as will be shown by reference to the extract from the contract quoted hereinabove. however. The trial court held that notice to plaintiff’s workmen upon their arrival with the materials that defendants did not desire them to commence the actual work was sufficient and timely to signify their intention to withdraw from the contract. defendants had determined on a course of abrogating the agreement and engaged other workmen without notice thereof to plaintiff. a copy of which was left with them. The basis of the judgment appealed was that defendants had timely notified plaintiff before “commencing performance of work”. Prior to this time. defendants at no time.Ever‐Tite Roofing Corp. the intention of plaintiff to accept the contract by commencing the work. however. notified or attempted to notify plaintiff of their intention to abrogate. v. 1953. It was. The contract itself. address and telephone number. processing or accepting the contract or in commencing the work contracted to be done. Defendants evidently knew this work was to be processed through plaintiff’s Shreveport office. the workmen found others in the performance of the work which plaintiff had contracted to do. The record discloses no unreasonable delay on plaintiff’s part in receiving. conspicuously displayed plaintiff’s name. from June 10. which was one of the ways provided for in the instrument for its acceptance. until plaintiff’s workmen arrived for the purpose of commencing the work. No time limit was specified in the contract within which it was to be CHAPTER FOUR: MUTUAL ASSENT  241  .

C. which his proposal expressed.C. It was nevertheless understood between the parties that some delay would ensue before the acceptance of the contract and the commencement of the work. However. 1802. if no time is specified. not without exceptions. however. immediately after the proposition. Art. Art. 1804 and 1809. The party proposing shall be presumed to continue in the intention. 1801. Restatement of the Law of Contracts stated: (1) The power to create a contract by acceptance of an offer terminates at the time specified in the offer. … Art. this general rule is modified by the provisions of LSA-C. The general rule of law is that an offer proposed may be withdrawn before its acceptance and that no obligation is incurred thereby. The evidence as referred to hereinabove shows that plaintiff proceeded with due diligence. the usages of business and other circumstances of the case which the offeree at the time of his acceptance either knows or has reason to know. which read as follows: Art. 1800 provides that an offer is incomplete as a contract until its acceptance and that before its acceptance the offer may be withdrawn. 1802. he do not signify the change of his intention. on receiving the unqualified assent of him to whom the proposition is made. if made at any time before the person who offers 242  CONTRACTS  . if the proposition be made in terms. or. He is bound by his proposition. Arts. and the signification of his dissent will be of no avail. and if that assent be given within such time as the situation of the parties and the nature of the contract shall prove that it was the intention of the proposer to allow. For instance. This is. What is a reasonable time is a question of fact depending on the nature of the contract proposed. due to the necessity of compliance with the requirements relative to financing the job through a lending agency.Acceptance  accepted or within which the work was to be begun. 1801. if. These principles are recognized in the Civil Code. LSA-C. at the end of a reasonable time. 1804. or in point of time. The acceptance needs (need) not be made by the same act. which evince a design to give the other party the right of concluding the contract by his assent.

They employed others to do the work contracted to be done by plaintiff and forbade plaintiff’s workmen to engage upon that undertaking. a reasonable time must be allowed therefor in accordance with the facts and circumstances and the evident intention of the parties. A reasonable time is contemplated where no time is expressed. Actual commencement or performance of the work therefore began before any notice of dissent by defendants was given plaintiff. Green  or promises has changed his mind. which the other party has sustained by his default.) Therefore. By their aforesaid acts defendants breached the contract. which raise such implication. LSA-C. CHAPTER FOUR: MUTUAL ASSENT  243  . (Emphasis supplied. or from the circumstances of the case he may be supposed to have intended to give to the party. the party who violates them.C.Ever‐Tite Roofing Corp. as one of the incidents of his obligations. v. The contract was accepted by plaintiff by the commencement of the performance of the work contracted to be done. The obligation of a contract not being complete. This commencement began with the loading of the trucks with the necessary materials in Shreveport and transporting such materials and the workmen to defendants’ residence. Art. until the acceptance. By this breach defendants are legally bound to respond to plaintiff in damages. he may therefore revoke his offer or proposition before such acceptance. since the contract did not specify the time within which it was to be accepted or within which the work was to have been commenced. or may reasonably be presumed to have done so. What is a reasonable time depends more or less upon the circumstances surrounding each particular case. or in cases where it is implied by law. The proposition and its acceptance thus became a completed contract. are known to the party proposing. 1809. is liable. The delays to process defendants’ application were not unusual. … Art. 1930 provides: The obligations of contract (contracts) extending to whatsoever is incident to such contracts. to communicate his determination. but not without allowing such reasonable time as from the terms of his offer he has given. it is sufficient. to the payment of the damages. until the circumstances.

37.S. and the profit of which he has been deprived. Ciaramella v. avoided. reversed and set aside and there is now judgment in favor of plaintiff. Green and Mrs. Plaintiff expended the sum of $85. and for all costs. such fees are not allowed. and arti244  CONTRACTS  . This article. Ever-Tite Roofing Corporation.  U.37 in loading the trucks in Shreveport with materials and in transporting them to the site of defendants’ residence in Webster Parish and in unloading them on their return. the judgment appealed is annulled. 42 U. … . as plaintiff alleges. Reversed and rendered. Jessie Fay Green.3d 320 (2d Cir. but this is not an action on the contract or to collect under the contract but is an action for damages for a breach of the contract. For the reasons assigned. for the full sum of $311. None of this evidence is controverted or contradicted in any manner.C. with 5 per cent per annum interest thereon from judicial demand until paid. and for wages for the workmen for the time consumed. Plaintiff’s Shreveport manager testified that the expected profit on this job was $226. Court of Appeals for the Second Circuit 131 F. 1997) Oakes. §§ 12101-12213 (1994) (“ADA”). in part. Reader’s Digest Ass’n. the contract provides for attorney’s fees where an attorney is employed to collect under the contract. In the absence of an agreement for the payment of attorney’s fees or of some law authorizing the same. T. G.S. The contract in that respect is silent with reference to attorney’s fees. 1934 provides the measure of damages for the breach of a contract. Inc. states: Where the object of the contract is anything but the payment of money. Senior Circuit Judge: Plaintiff filed suit against Reader’s Digest Association (“RDA”) alleging employment discrimination under the Americans with Disabilities Act. the damages due to the creditor for its breach are the amount of the loss he has sustained. True. against the defendants.Acceptance  The same authority in Art.

§§ 1001-1461 (1994) (“ERISA”). Herbert Eisenberg. Exec.  cle 15 of the New York State Executive Law.S. This draft. RDA prepared a draft agreement and sent it to Ciaramella’s then attorney. “We have a deal.Y. and reverse. 1996. RDA moved for an order to enforce the settlement agreement. Law §§ 290-301 (McKinney 1993). for review. contained language indicating that the settlement would not be effective until executed by all the parties and their attorneys. Shortly after the commencement of the action. Before the exchange of any discovery. The negotiations resulted in an agreement in principle to settle the case in May. Inc. Eisenberg asked for a few final changes and then allegedly stated to RDA’s lawyer. Ciaramella consulted a second attorney and ultimately decided that CHAPTER FOUR: MUTUAL ASSENT  245  . I.Ciaramella v. alleging that RDA failed to give him reasonable accommodations for his disability of chronic depression and subsequently terminated his employment in violation of the ADA and article 15 of New York State Executive Law. RDA. the parties entered into settlement negotiations. N. Eisenberg then made several suggestions for revision to RDA which were incorporated into a revised draft. After reviewing the revised draft. However. as well as all subsequent copies. who authorized Eisenberg to accept it. BACKGROUND In November 1995.). Brieant. Ciaramella filed suit against his former employer. Reader’s Digest Ass’n. granted the motion and dismissed the plaintiff’s complaint with prejudice. Ciaramella also raised a claim under ERISA for failure to pay severance benefits. We agree. Eisenberg explained the terms of the settlement to Ciaramella. the parties negotiated a settlement which Ciaramella later refused to sign.” RDA forwarded several execution copies of the settlement to Eisenberg. and also violations of the Employee Retirement Income Security Act. 29 U. J. The United States District Court for the Southern District of New York (Charles L. Ciaramella argues that enforcement of the settlement agreement was improper because he had never signed the written agreement and the parties had specifically agreed that the settlement would not become binding until signed by all the parties.C. before signing the agreement.

Davidson Pipe Co. claiming that the parties had reached an enforceable oral settlement. 1997) (declining to decide whether state or federal common law governs the interpretation of a settlement agreement under Title VII where both sources of law dictate the same result). We review the district court’s findings of law under a de novo standard.3d 433. Eisenberg then moved to withdraw as plaintiff’s counsel. This Court has jurisdiction under 28 U. v. Spanakos. 439 (D. United States. and state law. the district court granted Eisenberg’s motion to withdraw. Cir. 1996. 104 F. RDA. See Bowden v.C.S. 1996. On October 25. 84 246  CONTRACTS  . 1996. CHOICE OF LAW An initial question presented is whether New York or federal common law determines whether the parties reached a settlement of claims brought under the ADA. The district court.3d 16. 19 (2d Cir. 84 Civ. after considering RDA’s unopposed motion papers and questioning Ciaramella about the formation of the settlement agreement. we need not decide this question here. DISCUSSION A. and stayed proceedings on the motion to enforce the settlement for thirty days to give Ciaramella time to obtain another attorney. See Hirschfeld v. Ciaramella had not yet obtained substitute counsel and appeared pro se at the hearing. the district court heard RDA’s motion to enforce the settlement agreement. and its factual conclusions under a clearly erroneous standard of review. Because we find that there is no material difference between the applicable state law or federal common law standard. Laventhol & Horwath. The district court entered a judgment of dismissal on October 29.C. granted RDA’s motion to enforce the settlement by order dated October 28. ERISA.1997).Acceptance  the proposed settlement agreement was not acceptable to him and that he would not sign it. § 1291. 106 F. 5192(LBS). The district court analyzed the issue using federal common law and concluded that the parties had intended to enter into a binding oral agreement. filed a motion to enforce the settlement agreement on September 3. At a hearing on September 13. II. Nos.

1996) (interpreting section 2104 as a defense to contract enforcement. Under New York law. See Taylor v. 6334(LBS). we have no reason to rely on section 2104 in this case.1 See Winston v. 56 (2d Cir.N. 1986) (finding no federal rule that would differ critically from New York’s rule governing the validity of oral settlement agreements). Barwick.2d at 80. Gordon Flesch Co. Cf. they will not be bound until then. we need not address the issue whether section 2104 applies in federal cases or is consistent with federal policies favoring settlement. 777 F. 11.2d 495. The intention of the parties on this issue is a question of fact. See Sears. may also apply.1996) (reserving decision on whether federal courts sitting in diversity must apply section 2104 when relying on New York law). Teleprompter Corp. 392. which sets out technical requirements that must be met for a settlement agreement to be enforceable under New York law. Ciaramella never formed an agreement with RDA. to be determined by examination of the totality of the circumstances. signed 1 We note that New York Civil Practice Law and Rules 2104. see also Jim Bouton Corp. and not as a rule of contract formation). This same standard has been applied by courts relying on federal common law.3 (2d Cir.R.D.Y.D. 862 (7th Cir. parties are free to bind themselves orally. 1985) (applying principles drawn from the Restatement (Second) of Contracts to determine whether a binding settlement agreement existed under New York law). Monaghan v. 73 F. 404 F. v. 80-81 (2d Cir. Inc. under common law contract principles. N. V’Soske v.N.. v. 1990) (describing the New York rule of contract formation as “generally accepted”).2d 1074. CHAPTER FOUR: MUTUAL ASSENT  247  . 1081 (2d Cir. 1986) (enforcing an oral settlement of a Title VII case where the parties had not specified the need for a final. 777 F. Reader’s Digest Ass’n.L.. SZS 33 Assoc.Ciaramella v. See Winston. v.2d 78. if the parties intend not to be bound until the agreement is set forth in writing and signed. Roebuck and Co. William Wrigley Jr. However. 1979). New York relies on settled common law contract principles to determine when parties to a litigation intended to form a binding agreement.Y. 401 (N. 1283 n. Feb. C. and the fact that they contemplate later memorializing their agreement in an executed document will not prevent them from being bound by the oral agreement.  Civ.. Mediafare Entertainment Corp.3d 1276.Y. Sears Realty Co. See International Telemeter Corp. at *2 (S. 2104 (McKinney 1997). 902 F. However... 932 F. Co. 1986 WL 2201. 499 (2d Cir. Because we agree with Ciaramella that. 1968).P. 592 F.. 793 F. Supp.2d 858.2d 49.

g. However. RDA is correct that at least one of the federal statutes at issue expresses a preference for voluntary settlements of claims. Board of Trustees of Sheet Metal Workers Local Union No. The rule aims to ascertain and give effect to the intent of the parties at the time of contract. See 42 U. 466 (E..E.C. 213 (1997). e. such as settlement. Vic Constr. 651 (1963)).S.. Jaeger.N. the common law rule does not conflict with this policy. Supp. Even in cases where federal courts can choose the governing law to fill gaps in federal legislation. Annuity & Apprenticeship Training Funds v.”). Such a rule promotes settlements that are truly voluntary.. 373 U. Ray McDermott & Co. See Atherton v. 662 F. We can find no federal objective contained in the ADA or ERISA that would be compromised by the application of the common law rules described above. the Supreme Court has directed that state law be applied as the federal rule of decision unless it presents a significant conflict with federal policy.2 We reject this suggestion.S. RDA’s reliance on Fulgence is misplaced because there was no suggestion in that case that the parties had ever explicitly reserved the right not to be bound until the execution of a written agreement. Wheeler. A Treatise on the Law of Contracts § 28 (3d ed. 1981) as support for this standard. 1957) (“It is … everywhere agreed that if the parties contemplate a reduction to writing of their agreement before it can be considered complete. 647. Corp. 1993) (adopting the Winston analysis as based on “general contract principles” to uphold an oral settlement of an ERISA case). 2 RDA relies on the Fifth Circuit’s opinion in Fulgence v.S. 87 (1994) (noting that “cases in which judicial creation of a federal rule would be justified … are … ‘few and restricted’”) (quoting Wheeldin v.D. 463. 519 U.Acceptance  document). O’Melveny & Myers v.2d 1207 (5th Cir. § 12212 (1994) (encouraging the use of alternative means of dispute resolution. 512 U. However. 79. 248  CONTRACTS  . 825 F. see also 1 Samuel Williston & Walter H. FDIC. See.Y. J. 137 Ins. RDA urges us to fashion a federal rule of decision that would disregard this longstanding rule of contract interpretation and would hold parties to an oral settlement whenever their attorneys arrive at an agreement on all material terms. there is no contract until the writing is signed. to resolve claims arising under the ADA). FDIC.S.

 Reader’s Digest Ass’n. (3) whether all of the terms of the alleged contract have been agreed upon.  Winston.S. Enforcing premature oral settlements against the expressed intent of one of the parties will not further a policy of encouraging settlements.2d 69. The district court did not explicitly rely on the Winston test. 777 F. We therefore decline to adopt a federal rule concerning the validity of oral agreements that is in conflict with federal policy and the settled common law principles of contract law. 364. 751 F. United States Gypsum Co. and (4) whether the agreement at issue is the type of contract that is usually committed to writing.. See United States v. 777 F. 74-75 (2d Cir. Group. We must consider (1) whether there has been an express reservation of the right not to be bound in the absence of a signed writing. Inc. 1984) (granting summary judgment where all four factors indicated that the parties had not intended to be bound by an oral franchise agreement). secure in the knowledge that he will not be bound until execution of what both parties consider to be final document [sic]. B. No single factor is decisive. Horn & Hardart Co. we are left with the definite and firm conviction that the district court erred in concluding that the parties intended that the unexecuted draft settlement constitute a binding agreement. (2) whether there has been partial performance of the contract.Ciaramella v. People may hesitate to enter into negotiations if they cannot control whether and when tentative proposals become binding. See R.”). v. but concluded that based on the evidence the parties intended to enter into a binding oral agreement. In fact. Id. Considering the above factors in the context of this case. EXISTENCE OF A BINDING AGREEMENT This court has articulated four factors to guide the inquiry regarding whether parties intended to be bound by a settlement agreement in the absence of a document executed by both sides.. it is the rule suggested by RDA that would conflict with federal policy. a party can negotiate candidly. but each provides significant guidance. 395-97 (1948) (finding clear error where trial CHAPTER FOUR: MUTUAL ASSENT  249  . 333 U.2d at 80. Inc.2d at 80 (“Because of this freedom to determine the exact point at which an agreement becomes binding. Winston.G.

751 F. the agreement states.Acceptance  court’s findings conflicted with uncontroverted documentary evidence). “This Settlement Agreement and General Release shall not become effective (‘the Effective Date’) until it is signed by Mr. RDA was not required to send the letter of reference until the agreement was signed. Under the terms of the proposed settlement. EXPRESS RESERVATION We find numerous indications in the proposed settlement agreement that the parties did not intend to bind themselves until the settlement had been signed. However. RDA had no obligation to pay Ciaramella until the agreement was signed and became effective. under paragraph 12 of the final draft.2d at 83 (finding clear error where the district court had enforced an unsigned settlement and three of the four factors indicated that the parties had not intended to be bound in the absence of a signed agreement). The more reasonable inference to be drawn from the structure of paragraph 2 is that 250  CONTRACTS  . leaves Ciaramella no consideration for his promise to dismiss the suit. Likewise. Group. and Reader’s Digest. as courts should avoid frustrating the clearlyexpressed intentions of the parties.2d at 75.G. which addresses RDA’s payment obligation. R. RDA further urges that Ciaramella’s obligation to dismiss the suit was not conditioned on paragraph 10. 1. Ciaramella. in paragraph 10. Paragraph 2 states that RDA must proffer payment “[w]ithin ten (10) business days following the later of (a) the Effective Date of this Settlement Agreement and General Release (as defined by paragraph ten …) or (b) entry by the Court of the Stipulation of Dismissal With Prejudice” (emphasis added). For instance.” RDA argues that the effect of paragraph 10 was simply to define the “Effective Date” of the agreement for the purpose of establishing the time period in which RDA was obligated to deliver payment and a letter of reference to Ciaramella. Davis & Eisenberg. this interpretation is belied by the language of paragraph 2. We must give these statements considerable weight. Winston. that Ciaramella had an obligation to dismiss the suit regardless of whether the settlement was signed. 777 F. The interpretation that RDA advances.

e. R.2d at 71. See. Reader’s Digest Ass’n. with the intent to be legally bound hereby.  it provided Ciaramella with an incentive to dismiss the suit quickly because he would receive no payment simply by signing the agreement.. may not be changed orally and supersedes any and all prior agreements between the parties. McCoy v. CHAPTER FOUR: MUTUAL ASSENT  251  . and in consideration of the mutual promises and covenants contained herein.2d at 76. e. This Settlement Agreement and General Release constitutes the complete understanding between the parties.g. The presence of such a merger clause is persuasive evidence that the parties did not intend to be bound prior to the execution of a written agreement. The agreement’s first paragraph after the WHEREAS clauses reads. and not any preexisting pact..g..G.g. 1986 WL 2201. Davidson Pipe Co.. this paragraph explicitly signals the parties’ intent to bind themselves only at the point of signature. would legally bind the parties. THEREFORE. 76 (finding an explicit reservation of the right not to be bound absent signature in the wording of an agreement that declared. In addition to the language of the first paragraph. Inc.G. Group. 751 F. Group. [this agreement] sets forth your rights and your obligations”). Similarly. “NOW. at *4 (finding that wording in a settlement agreement that placed great significance on the execution date evinced an intent not to create a binding settlement until some formal date of execution). 3 This language was contained in paragraph 12 of earlier drafts. See. 751 F. … No other promises or agreements shall be binding unless in writing and signed by the parties. paragraph 13 of the final draft3 contains a merger clause which states. but that execution was necessary to trigger either parties’ obligations. which provides that the settlement agreement is effective only when signed. Reader’s Digest and Ciaramella agree to the terms and conditions set forth below: …” (emphasis added).Ciaramella v. R. See. Read in conjunction with paragraph 10. “when duly executed. e. This language demonstrates that only the terms of the settlement agreement. several other paragraphs of the proposed agreement indicate that the parties contemplated the moment of signing as the point when the settlement would become binding.

at *2 (S. PARTIAL PERFORMANCE A second factor for consideration is whether one party has partially performed. which at all times clearly expressed the requirement that the agreement be signed to become effective. Aug. Paragraph 9 states. 751 F. 4508. 1996) (refusing to enforce a settlement of a § 1983 claim where a signed copy of the settlement agreement containing a merger clause had never been returned by the plaintiff).” However. and that he is signing the Settlement Agreement and General Release of his own force and will. Group. and that performance has been accepted by the 252  CONTRACTS  .Y.D.N.. Ciaramella’s signature was meant to signify his voluntary and informed consent to the terms and obligations of the agreement. 1986 WL 2201. see also Davidson Pipe Co.14. 1996 WL 457312. and where neither party had ever … even discussed dropping the writing requirement. he demonstrated that he withheld such consent. Other parts of the agreement also emphasize the execution of the document. in relevant part.2d at 76. nothing in the record suggests that either attorney took this statement to be an explicit waiver of the signature requirement. “we have a deal. “We have a deal. Eisenberg’s statement followed weeks of bargaining over the draft settlement.G. Ciaramella represents and warrants that he … has executed this Settlement Agreement and General Release after consultation with his … legal counsel. The sole communication which might suggest that the parties did not intend to reserve the right to be bound is Eisenberg’s alleged statement to RDA’s counsel. 2. … that he voluntarily assents to all the terms and conditions contained therein.” R. This Court has held in a similar situation that an attorney’s statement that “a handshake deal” existed was insufficient to overcome “months of bargaining where there were repeated references to the need for a written and signed document. 95 Civ. No. at *5 (holding that oral statement. Mr.Acceptance  New York City Police Dep’t. By not signing.” made by one attorney to another did not in and of itself preclude a finding that the parties intended to be bound only by an executed contract).

At the October 25. Inc. this Court found that the existence of even “minor” or “technical” points of disagreement in draft settlement documents were sufficient to forestall the conclusion that a final agreement on all terms had been reached. No evidence of partial performance of the settlement agreement exists here. In Winston. He stated. the letter of reference from RDA was a substantive point of disagreement.2d at 75. Ciaramella was evidently dissatisfied with the example letter. a material term of the contract since it was part of Ciaramella’s consideration for dismissing the suit. It was also.  party disclaiming the existence of an agreement.” Because Ciaramella’s attorney resigned when Ciaramella refused to sign the settlement agreement. we find that the parties here had not yet reached agreement on all terms of the settlement. 751 F. Group. These were the two basic elements of consideration that would have been due to Ciaramella under the settlement agreement. hearing at which Ciaramella appeared pro se. the one that was reduced to writing for me to sign had a discrepancy about letters of recommendation. That provision required RDA to deliver a letter of reference concerning Ciaramella to Eisenberg. TERMS REMAINING TO BE NEGOTIATED Turning to the third factor.Ciaramella v. 3. By contrast. Winston. from Ciaramella’s perspective. The execution copy of the settlement agreement contained a new provision at paragraph 12 that was not present in earlier drafts.2d at 82-83. and RDA thereafter moved to enforce the agreement.G. Ciaramella never had an opportunity to finish bargaining for the letter he desired. The final draft of the settlement contained an example copy of the letter of reference annexed as Exhibit B. On this basis. 1996. RDA paid no money to Ciaramella before the district court ordered the settlement enforced. Reader’s Digest Ass’n. we find that the parties had not yet agreed on all material terms. CHAPTER FOUR: MUTUAL ASSENT  253  . 777 F. R. nor did it provide Ciaramella with a letter of reference. “The original settlement that was agreed to. he attempted to explain to the court that the proposed letter of reference differed from what he had expected. I had requested one thing and the settlement in writing did not represent that.

Code § 664. 777 F. and also states that Ciaramella can never reapply for employment at RDA. “Where.. the parties are adversaries and the purpose of the agreement is to forestall litigation. Cal.” R. Group. as here. at a minimum. SCM Corp. 751 F. 1984) (finding that the magnitude and complexity of a four million dollar sale of six companies under the laws of five different countries reinforced the stated intent of the parties not to be bound until written contracts were signed).2d at 83. e. we find that the totality of the evidence before us clearly indicates that Ciaramella never entered into a binding settlement 254  CONTRACTS  .L. v. Settlements of any claim are generally required to be in writing or. 777 F. it does span eleven pages of text and contains numerous provisions that will apply into perpetuity.2d at 76.G.P.2d 257. 727 F.Acceptance  4.. the requirement that the agreement be in writing and formally executed “simply cannot be a surprise to anyone. and to avoid still further litigation. made on the record in open court.” Winston. N. CONCLUSION In sum.2d at 77. also weighs in Ciaramella’s favor. prudence strongly suggests that their agreement be written in order to make it readily enforceable. 262-63 (2d Cir. Paragraph 7 states that Ciaramella will not publicly disparage RDA and agrees not to disclose the terms of the settlement agreement.R. B. Proc. See R.6 (West 1996). whether the agreement at issue is the type of contract that is usually put in writing. TYPE OF AGREEMENT THAT IS USUALLY REDUCED TO A WRITING The final factor.g. While this settlement agreement does not concern a complicated business arrangement.Y. Reprosystem. § 2104. See. Civ. C. 751 F. We have also found that the complexity of the underlying agreement is an indication of whether the parties reasonably could have expected to bind themselves orally. paragraph 6 determines how future requests for references would be handled.. see also Winston. Group.G. As we stated in Winston. In such a case.2d at 83 (finding a four page settlement agreement that contained obligations that would last over several years sufficiently complex to require reduction to writing).V. For instance.

the expiration of the contractual notice period. See Erie R. This conclusion is supported by the text of the proposed agreement and by Ciaramella’s testimony at the October 25 hearing. a Rhode Island state court. Accordingly. Inc. Rhode Island common law governs this dispute. Wolfe. 304 U. 1999). v.  agreement with his former employer. in our estimation. 576-77 (1st Cir. declaring effective Emergency Medicine’s notice to terminate a service contract with appellants. Where the law of Rhode Island is not clear.. and (2) a separate contractual notice provision invites notice by mail to a certain address. 1 Because we sit in diversity. See Catex Vitol Gas. (“MBS”) (collectively. Rapier Investments Ltd. Ltd. Reader’s Digest Ass’n. Because we agree with the trial court that such notice was effective. Inc. CHAPTER FOUR: MUTUAL ASSENT  255  . This case calls upon us to decide whether notice of termination is effective pursuant to the law of Rhode Island1 where: (1) the notice is mailed in advance of. 178 F. but received after.  U. _________________________________________________  THE MAILBOX RULE  _________________________________________________  University Emergency Medicine Foundation v. Tompkins. the “appellants”) appeal from the summary judgment entered in favor of plaintiff-appellee. and actually received by. Costs to appellant. the noticee at a different address. (“Rapier”) and Medical Business Systems. we affirm.3d 18 (1st Cir. 64 (1938). we apply the law to the facts at hand as would.3d 572. the order enforcing the settlement is vacated and the case remanded for further proceedings. Inc. 1999) Lipez.Ciaramella v.S. University Emergency Medicine Foundation (“Emergency Medicine”). v.S. Circuit Judge. but notice is sent to.  Rapier Investments.R. Court of Appeals for the First Circuit 197 F.

126 F. Emergency Medicine is a non-profit Rhode Island corporation that provides physicians’ services to emergency departments at several Rhode Island hospitals. a subsidiary of Rapier. Newton. neither party terminated. The only addresses “set forth” in the Agreement are Rapier’s principal office. Emergency Medicine and Rapier executed a contract (the “Agreement”) calling for MBS to service Emergency Medicine for one year.” (the “notice paragraph”). ending September 30. John Alden Life Ins. May 30. Massachusetts. On October 1. and Emergency Medicine’s principal place of business. Rhode Island.. 1995. On Friday. we recount the pertinent facts in the light most favorable to the nonmoving party. 1997.1997).3d 1. Annamarie Monks of Emergency Medicine mailed two letters intended to notify Rapier that Emergency Medicine planned to terminate the Agreement before it re256  CONTRACTS  . collection and accounts receivable services for Emergency Medicine. During the contract’s first year. performed coding. the appellants. 1997. 593 Eddy Street. billing. A separate paragraph entitled “Notices.The Mailbox Rule  I. prescribes a method by which notice may be “effectively given”: Any notices given pursuant to this Agreement shall be deemed to have been effectively given if sent by registered or certified mail to the party to whom the notice is directed at the address set forth for such party herein above or at such other address as such party may hereafter specify in a notice given in accordance with this paragraph. MBS. without cause. 6 (1st Cir. Pursuant to a series of contracts spanning more than ten years. and it automatically renewed for an additional year. As this is an appeal from an entry of summary judgment. 7 Wells Avenue. and further providing that this Agreement shall be automatically extended for additional one (1) year period [sic] (“additional terms”) unless and until either party elects to terminate this Agreement as of the end of the initial term or any additional term by giving at least four (4) months written notice that it elects to have this Agreement terminated. Co. See Reich v. Providence.

and has no bearing on our decision. ending September 30. The Agreement entered into by Emergency Medicine and Rapier expressly reserved to either party the power to terminate the con2 3 4 According to Ms. because Emergency Medicine’s termination notice had been invalid. Emergency Medicine solicited bids for a new service contract and. She sent one letter certified mail to Alan Carr-Locke of Rapier at 1238 Chestnut Street.1999). the Agreement had already extended automatically for an additional year. Newton. Meanwhile. the employee who had negotiated and signed the Agreement on behalf of Rapier. MBS then asserted that.” and. We review de novo the grant or denial of summary judgment.4 II. this telephone call was not relied upon by the trial court. Town of Clinton. although MBS submitted a bid. Monks. Rhode Island. This appeal ensued. Emergency Medicine filed its complaint in Rhode Island state court and Rapier and MBS removed to federal court based on diversity jurisdiction. Barato-Mills on June 2. See Fletcher v. Newton. at her place of business.2 In the months following Emergency Medicine’s notice of nonrenewal. She sent the second letter certified mail to JoAnn Barato-Mills of MBS. in any case. 48-49 (1st Cir. and notified her of Emergency Medicine’s intent to terminate the Agreement.3d 41. Barato-Mills received the letter the following Monday. Emergency Medicine awarded the new contract to a different service provider. Rapier Investments  newed for a third year. Warwick. 20 Altieri Way. at which point Emergency Medicine mailed the notice to 7 Wells Avenue. However. Massachusetts. Massachusetts. 1997. she also telephoned Ms. 1998. it was returned undelivered on June 10. 196 F. because the Agreement demands “written notice. Because the letter was incorrectly addressed. the four-month notice period had expired by June 2.University Emergency Medicine v. Ms. 1997. CHAPTER FOUR: MUTUAL ASSENT  257  . MBS continued to perform services under the Agreement.3 The parties filed cross-motions for summary judgment on the validity of the termination notice. Emergency Medicine filed a complaint seeking. and the trial court granted judgment in favor of Emergency Medicine. June 2. inter alia. a declaration that its notice had effectively terminated the Agreement.

§ 265. was set to expire on September 30. 414 (1927). at 56. Kansas Co-op. Contracts § 8. “Strict compliance” means that “[t]he notice to terminate. 1997. such “a condition is required by the agreement of the parties … a rule of strict compliance traditionally applies. As one court cautioned more than seventy-five years ago. to be effective. Wheat Mktg. THE MAILBOX RULE The Agreement expressly conditions a party’s right to terminate on that party “giving at least four (4) months written notice” to the other party.” termination is not effective until the party seeking termination can show that the condition has been fulfilled. 269 (1932). Ass’n. at 65-66 (where the contract expresses a time period for notice. but it is the distance across a necessary boundary in relations under the contract. see 6 Corbin. we must strictly enforce the four-month notice period bargained for by Rapier and Emergency Medicine. and such provisions often require that the terminating party fulfill certain conditions before termination is effective. 136 Kan. We are asked therefore to evaluate the effectiveness of Emergency Medicine’s termination notice pursuant to the contract. as here. According to Rapier. v. 153 Md. or there can be no boundary. Inc. see 1A Corbin on Contracts. Termination provisions are standard fare in modern contracts. Ginsberg.The Mailbox Rule  tract before it automatically renewed. The Agreement. “[t]he difference of one day in the giving of notice is small. See id. see also 6 Corbin § 1266. Counting back exactly four months. and must be taken as decisive. Where “the power to terminate is a conditional power. § 1266 at 55-56.” Farnsworth. as extended by renewal for one additional year. at 571 (1990) (emphasis added). at 531. Where. it is presumed that “time is of the essence”). v. Accordingly.” Brown Method Co. the last day on which Emergency Medicine had the 258  CONTRACTS  . must be given at the stipulated time.3.” Fred Mosher Grain. Emergency Medicine did not fulfill the condition required for termination under the Agreement because it failed to provide Rapier with at least four months written notice. A. in one view.

Accordingly. the parties may override the default rule by contract. the general rule is that notification is fulfilled by proof of mailing.S. 71 N.”). or upon receipt.I. Kantrowitz. However. Rep. 250 (K. Rapier Investments  power to terminate was May 31. once the offeree placed an acceptance in the mail. Dairymen’s League Co-op. the Agreement unquestionably authorizes notice by mail.Y. The “mailbox rule” derives from the famous case. the timeliness of Emergency Medicine’s notice turns on whether notice of termination is effective upon mailing. If they do. The notice paragraph expressly invites notice “sent by registered or certified mail. 71 N. the notice will be effective only when received. 1988) (“Where the [insurance] policy provides that cancellation may be effected by mailing notice. May 31.2d 821.e.5 Although Emergency Medicine mailed notice letters on May 30.B.” making notice effective upon mailing. but does not specify the manner in which the notice is to be given. Kantrowitz v. Lindsell. notice becomes effective upon mailing pursuant to the timehonored “mailbox rule. See Farnsworth. putting to rest any question about whether four months from September 30 was May 30 or May 31. not mailing. at 65 (“The time and manner of exercising a power of termination may be specified in the contract … .”).2d at 822. the rule that governs unless the parties contract for different terms – makes notice effective only upon receipt.S. 1818). and hence could no longer be revoked. these letters were not received until after the notice period had expired. which held that an offer was binding. In particular.” This paragraph therefore triggers the “mailbox rule. and not when it is started by mail or otherwise.1947) (“[W]here a contract requires notice. at 180-81.22. Adams v. 531 (R. the mere mailing of notice is not sufficient unless it is received within the time specified. cf.University Emergency Medicine v. Here. Emergency 5 6 The appellants concede in their brief that the deadline for providing four months written notice did not expire until Saturday.”6 See 1 Merrill on Notice § 633 (1956). the parties may contract to permit notice by mail. Contracts § 3.. Thus. See 6 Corbin § 1266. Ass’n. 1997. 106 Eng.Y. the default rule – i. At common law.”). 536 A. CHAPTER FOUR: MUTUAL ASSENT  259  .”).Y. at 532 (“If the agreement merely provides that one party may terminate by giving notice.2d 529. See 1A Corbin § 265. Rhode Island Joint Reinsurance Ass’n. Larocque v. 822 (N.

impliedly. THE MAILING ADDRESS The notice paragraph states that notice “shall be deemed to have been effectively given if sent … to the party to whom the notice is directed at the address set forth for such party herein above or at such other address as such party may hereafter specify … . Massachusetts. Finding that Emergency Medicine’s notice was actually received (and. Because Emergency Medicine must rely on 260  CONTRACTS  . 1998) (order granting summary judgment). took effect on that date.” The address “set forth” in the Agreement was Rapier’s principal office located at 7 Wells Avenue. at 6. No. See id. op. but disagree slightly with its underlying reasoning. only set forth one method by which notice could be “effectively given. it is only by virtue of this paragraph that Emergency Medicine’s notice was timely. consequently. mailed on May 30.” See University Emergency Med.. Emergency Medicine. Emergency Medicine must rely on the notice paragraph on the facts of this case because it is only this paragraph that invites notice by mail. Found. B. Newton. 97-549-T.The Mailbox Rule  Medicine’s notice letters. which did not expire until May 31. Rapier Inv. as a general rule. § 603. October 15. unless the use of an address other than the one specified in the contract deprived Emergency Medicine of the benefit of the mailbox rule. the court ruled that notice was effective. (citing 1 Merrill. at 4-5 (D. The trial court concluded that the notice paragraph. and were timely under the Agreement’s four-month notice period. Ltd. written in non-exclusive language. however. and. permitting notice in any other way recognized by law. that the contractual method for providing notice was not an “essential element” of Rapier and Emergency Medicine’s transaction). Although the notice paragraph is non-exclusive. 1997. We accept the trial court’s conclusion that the notice was effective. at 662-63). as discussed above.I. The court then noted that. mailed its May 30 notices to Rapier at an incorrect Massachusetts address and to MBS at a Rhode Island address. v. notice given by a method different from the one provided for in the contract “is effective if it is actually received unless the method by which notice is given is an essential element of the transaction.R..” Id. slip.

Palo Alto Town & Country Village.1994). in itself.” we must inquire whether Emergency Medicine’s notice letters complied with the terms and conditions of valid notice under that paragraph. and terms intended merely to enhance the convenience of the transactionis well-recognized in the law of contracts. Rather. v..” not “a prescribed requirement or an absolute condition. Azure. See Farnsworth. 22 F. Norwich Union Fire Ins. It is merely a collateral term intended to enhance the probability that mailed notice will arrive promptly in the proper hands.. the stipulation that notice be sent to a particular address is not the type of term ordinarily bargained-for. so fundamental in the law of contracts.University Emergency Medicine v. 355 (1st Cir. Contracts § 8.3d 494 (1974) (in bank) (an option contract’s provision that notice be given personally or by prepaid registered mail is a “mere suggestion of a permissive method of communication. Rapier Investments  the notice paragraph as its authority for invoking the “mailbox rule.3d 351. Here. By contrast.7 First. Brady v. A notice period reflects the amount of time deemed necessary by the parties to adapt to the other’s termination. we are mindful of the principle. Cf. In doing so. it includes the time needed to replace its former service provider. the non-occurrence of which prevents a party from exercising a right (or relieves the other party from a duty). BBTC Co. 11 Cal. by its very nature. the critical question is whether the parties intended the use of the mailing address specified in the contract to be a condition precedent to valid termination. it includes the time needed to procure new clients or reallocate staff and equipment. nor is it the type of term intended to allow one party to extinguish the other’s contractual rights based on a failure 7 This distinction-between terms intended as conditions. We conclude that they did not. See McCarthy v. for the service recipient. 416 (1926). that we must give effect to the intent of the parties. 47 R. we note the obvious difference in import of the fourmonth notice provision and the mailing address provision. CHAPTER FOUR: MUTUAL ASSENT  261  . Inc. at 579-81. For the service provider. the mailing address does not. confer any benefit upon either party. Thus. Soc.”).4. we find that the parties identified specific addresses for the mailing of notice merely as a convenient means of ensuring timely delivery.I.

Second. 1980) (finding that the contractual address “merely suggests a permitted place and method of giving notice and does not preclude sending notice to other offices … . see U. or where the form of the mailing is technically defective. Co. 439 F. v. Found. Barbier v. See University Emergency Med. Corp.2d 88. 872 F. 8. v. No. App. 612 S. 164 (Tenn. 1994) aff’d. If the parties had intended the use of the address specified in the contract to be a condition of valid termination. The only conditions of termination expressed within the paragraph on termination rights are that notice be given in writing and at least four months in advance of the Agreement’s year-end date.C.S. 262  CONTRACTS  .O.S. 261 (D. 562 (Tex. Mass.3d 1386 (4th Cir. 9-10 (D. Realty.. Moreover. But see Prudential Carolinas Realty v. Rather.2d 848. 92 (R. 620 A. Supp. 256. the overall structure of the Agreement indicates that the parties did not intend the mailing address to be a condition of valid termination. v. See Aneluca Assoc.. Civ. Ct. App.2d 557. 345 S.2d 162. see Southern Sanitation Co. 1961) (letter sent by regular rather than registered mail). Barry. even where it is mailed to an incorrect address.. 1994) (per curiam). The paragraph of the Agreement delineating termination rights appears five pages before the paragraph describing “notice” by mail. 849 (La. 1977). parties that desire stringent enforcement of an address to which termination notice is sent must state this intention clearly within their agreement. they presumably would have 8 We do not mean to suggest that parties could never require strict compliance with a mailing address. Cambridge Dev. see also Southern Region Indus. City of Shreveport. National Broad. slip.. Co.”). 1975) (letter addressed incorrectly to “P. courts have held that mailed termination notice is valid so long as it is actually received by the noticee. Supp. 42 F. Lombardi. as the trial court correctly found. op. Broad. v. Box 3326” rather than “3328.”). suggesting that any method of written notice valid under law would be effective. 1993) (construing the parties’ intent by looking to the contract as a whole).W.I. at 4-5.The Mailbox Rule  of strict compliance. Chattanooga Warehouse and Cold Storage Co. the notice by mail paragraph is written in non-exclusive language. 97-549-T. like the four-month notice period.W. Inc. 308 So.8 Indeed.

and the notice was undelivered because of a failure by the postal service. Worms v. Emergency Medicine would lose the benefit of the mailbox rule. if the address was an essential term of the bargain. That is. Emergency Medicine directed its otherwise timely notice of termination to the wrong address and there were no delivery. Thus. CHAPTER FOUR: MUTUAL ASSENT  263  .”).22. Farnsworth.2d 455. 1980) (observing that in the offer-acceptance context the mailbox rule shifts the risk of loss during transmission to the offeror). which states that notice of termination may be given effectively by registered or certified mail sent to a particular address. Contracts § 3. allocated the risk of nondelivery of a notice sent in strict compliance with the contract. … an acceptance made in a manner and by a medium invited by an offer is operative … without regard to whether it ever reaches the offeror … . The contract provision at issue in this case. and the circumstances indicate that the parties intended the address as merely a collateral term designed to enhance the timely delivery of notice. Ct. if Emergency Medicine chose to give timely notice of termination by registered or certified mail sent to the specified address. To be sure. App. the overall structure of the Agreement supports our conclusion that the parties intended the mailing address as a convenient means of effectuating delivery and not as a condition precedent to valid termination.”). In situations where there is delivery despite the use of a wrong address. 620 P. Restatement (Second) of Contracts § 63 (“Unless an offer provides otherwise. 457 (Okla. Cf. at 184 (“The mailbox rule has been used to allocate the risk of transmission … .University Emergency Medicine v. Cf. the parties would have made notice sent to that address the exclusive means of providing written notice. Emergency Medicine would have still given timely notice of termination despite the nondelivery. rather than just one method among many that would have been effective. however. Rapier Investments  located the address requirement next to the notice period in the paragraph defining termination rights. a party that fails to use the address identified in the contract for mailing notice risks losing the benefit of the mailbox rule. the continuing availability of the mailbox rule to the sender requires an assessment of the particular facts of the case. Burgess. Moreover. If.

Y.S.2d 523. Davies v. Inc. Masonry Bldg. Pay TV of Greater New York. See Menard & Co.9 Therefore..2d 893. nowhere in their brief do the appellants directly contest the trial court’s conclusion that “MBS had at least implied or apparent authority … to accept the notice of termination of those services.Y. That risk arguably materialized in the case of the letter mailed to Rapier’s Alan Carr-Locke. within the ordinary time period expected for delivery by mail. Inc. However. 9 The appellants suggest that notice received by Barato-Mills was defective because she worked for MBS rather than for Rapier. 1987) (negotiating service agreement evidence of apparent authority to accept contractual termination notice). Div. Such apparent authority could be inferred from Barato-Mills’s negotiation and execution of the service contract on behalf of Rapier. Inc. However. 1988) (negotiating and executing a subcontract evidence of apparent authority).2d 661. 665 (1973) (where two corporations share the same interests and same governing bodies. Emergency Medicine risked losing the benefit of the mailbox rule with respect to both of its improperly addressed May 30 mailings.. and this second letter placed Rapier on written notice of Emergency Medicine’s intent to terminate the Agreement before it automatically renewed for a third year. 264  CONTRACTS  . App. Under these circumstances. and finally arrived at Rapier more than 10 days after it was originally sent. Marshall Bldg.. which was returned undelivered. 896 (N. cf. Emergency Medicine retained the benefit of the mailbox rule despite the improper address. Sys.The Mailbox Rule  In the case at hand.I. 539 A. 526 (R. Contractors v. Little. notice sent to one is effective to notify the other). there are sufficient facts in the record to support the trial court’s legal conclusion that Rapier cloaked Barato-Mills with the apparent authority to accept notice of termination. Affirmed. the letter mailed to MBS’s JoAnn Barato-Mills arrived in her hands just one business day after it was mailed (the letter was mailed on Friday and arrived on Monday). 510 N. v. 304 A. Empire Communications Consultants. we conclude that Emergency Medicine provided Rapier with four months written notice of its intent to terminate as required under the Agreement. Restatement (Second) of Agency § 27 (1958).” Moreover.

and some local FedEx employees discussed the possibility of such a route being formed with plaintiff. (“FedEx”) as a cartage agent. District Court for the District of Oregon 2004 WL 2457776 (D. the route was established and FedEx contracted with a different individual to service it. Magistrate J. Fedex Ground Package System. Between 1998 and 2002. Inc. In December of 2002. which would operate under contract with FedEx under FedEx's operating authority. Inc. Inc  _________________________________________________  INVITATION TO DEAL &  PRELIMINARY NEGOTIATION  _________________________________________________  Brazil v. discussions were had within FedEx regarding the idea.) Coffin. and now seeks summary judgment in its favor on all claims.Brazil v.S.  U. In June of 2002. In September 2003. plaintiff filed the instant action in Deschutes County Circuit Court. however. FedEx began to consider the viability of creating a contract route for the region. plaintiff delivered packages to various locations within central Oregon under her own operating authority. CHAPTER FOUR: MUTUAL ASSENT  265  . As the volume of deliveries in the area increased. Fedex Ground Package System. plaintiff purchased a larger vehicle that she felt would be suitable for use as an official FedEx Ground delivery vehicle. Defendant removed the action to this court based on diversity jurisdiction. alleging that FedEx had promised her the contract route and that it had breached express and implied contracts with her and violated its obligation of good faith and fair dealing. As a cartage agent. Or. BACKGROUND Plaintiff was self-employed by FedEx Ground Package Systems.

56(c).Invitation to Deal & Preliminary Negotiation  STANDARD OF REVIEW A party is entitled to summary judgment as a matter of law if “the pleadings. the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried.” Matsushita Electric Industrial Co. or is not significantly probative. v. 1991).. 1976). Id. Zenith Radio Corporation.” Fed. 1409 (9th Cir.1981). 1137 (9th Cir. Deference to the non-moving party does have some limit..S. Wiens. of North America.” Anderson v. Liberty Lobby Inc. 669 F. if any.1989).S. Cameron Meadows Land Co.S.. Bojorquez. The facts on which the opponent relies must be admissible at trial. answers to interrogatories. 638 F. Once the initial burden is satisfied. Sankovich v. R. Where “the record taken as a whole could not lead a rational trier of fact to find for the non-moving party. The inferences drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. The court must view the evidence in the light most favorable to the nonmoving party. 242. If the evidence is merely colorable. Celotex Corp. 140 (9th Cir. R. 587 (1986). 252 (1986). The “mere existence of a scintilla of evidence in support of the plaintiff's position would be insufficient. 477 U. 317 (1986). Valadingham v. The moving party must carry the initial burden of proof. P. v. 477 U. Bahn v. 432 (9th Cir. Hector v. 929 F. Id.2d 429. 866 F. although they need not be presented in admissible form for the purposes of opposing the summary judgment motion. Civ. 1284 (9th Cir. The non-moving party “must set forth specific facts showing that there is a genuine issue for trial. NME Hosp's. 475 U. show there is no genuine issue as to any material fact. Ltd.2d 136. and admissions on file. 56(e) (emphasis added). This burden is met through identifying those portions of the record which demonstrate the absence of any genuine issue of material fact. Inc. Insurance Co. Where different ultimate inferences may be drawn. Catrett. summary judgment is inappropriate. there is no genuine issue for trial.” Fed.. Bell v. 574. All reasonable doubt as to the existence of a genuine issue of fact should be resolved against the moving party. together with affidavits. sum266  CONTRACTS  .2d 1404. 1982). P. depositions. Civ. 533 F.2d 1278.2d 1135.

477 U. A. Q. Right. They have a written agreement. H) at 182. Ex. and may deny summary judgment “in a case where there is reason to believe that the better course would be to proceed to a full trial. Inc  mary judgment may be granted. And you understood that that would be the actual contract that would govern the work that you would do for that route? A. at 255. Do [FedEx Ground contractors] also have oral agreements or do they actually have a written agreement that is signed by them and the company? A. Plaintiff's contract claims. Was it your understanding that that is what you would ultimately get? A. Yes. PLAINTIFF'S CONTRACT CLAIMS It is undisputed that there was no written contract between plaintiff and FedEx wherein she was made the contract carrier for the newly-established central Oregon route. Yes. these claims must fail. Ex. therefore. Q.S. H) at 56. Subcontractors or contractor? Q.Brazil v. Fedex Ground Package System.” Anderson. both parties were aware that the discussions regarding the route and the possibility of plaintiff's being offered it were not the same as a final agreement making plaintiff a contractor. are made on the assertion that the parties had entered into an oral agreement which is enforceable against FedEx For a variety of reasons. Deposition of Lora Brazil (# 20. CHAPTER FOUR: MUTUAL ASSENT  267  . However. Contractor. Plaintiff's deposition testimony demonstrates such knowledge: Q. Did you have an understanding that the contract would be written? A. As a threshold matter. at 248. Q. DISCUSSION I. trial courts should act with caution in granting summary judgment. Deposition of Lora Brazil (# 20. Id.

See. Q.] Deposition of Lora Brazil (# 20. Contracts § 26 (“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.. Ex. Clearly. e. Yes. but the circumstances may show that the agreements are preliminary negotiations. Yes. No. H) at 214. Ex.g. Deposition of Lora Brazil (# 20. the discussions in advance of the signing of a written contract were merely preliminary negotiations. Restatement 2d. [Y]ou understood that … ultimately.”).Invitation to Deal & Preliminary Negotiation  Q. H) at 83. The comment to § 27 of the Restatement1 is also illuminating: (b) [I]f either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist until other terms are assented to or until the whole has been reduced to another written form. [Y]ou understood that the details … would find their way into a final written agreement that you and FedEx Ground would sign? A. As such. That's when I would have signed the contract[. what would happen is that this document would be signed by both parties and … that this would be the agreement between the parties? A. Deposition of Lora Brazil (# 20. Ex. H) at 92. Did you ever become a contractor? A. Q. plaintiff knew that a written contract was necessary for her to become a contractor.” 268  CONTRACTS  . the preliminary negotiations and agreements do not constitute a contract. (c) Among the circumstances which may be helpful in determining whether a contract has been concluded are the 1 Section 27 states that: “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.

Such circumstances may be shown by oral testimony or by correspondence or other preliminary or partially complete writings. 137-38 (1971) (“Where it is clearly understood that the terms of a proposed contract. Thorsen. whether a standard form of contract is widely used in similar transactions. and whether either party takes any action in preparation for performance during the negotiations. See also Britt v.F. the Oregon Court of Appeals granted summary judgment to a county commission defendant which had encouraged plaintiff to prepare his land for development and indicated that approval for a necessary permit would be forthcoming. at 49 C. whether it is a common or unusual contract. Properties v. though tentatively agreed on.11. the court notes that plaintiff. CHAPTER FOUR: MUTUAL ASSENT  269  . & L. § 376. 122 Or. whether the contract is of a type usually put in writing. in her deposition. 395 (1993). Henry. the parties had never entered into an enforceable agreement. Following this reasoning. Fedex Ground Package System. even assuming. provide that “[an] authorized carrier may perform authorized transportation in equipment it does not own only under 2 Additionally.J. that local FedEx officials had indicated that plaintiff would be awarded a route. whether it has few or many details.”) (quoting General Realty Corp. 223 Or. at the very least.Brazil v. 258 Or. In a case analogous to the one at bar. v. even in the face of strong encouragement and assurances from defendants. are to be reduced to writing and signed before it is complete and binding on the parties. Douglass Lowell. acknowledged that she was aware that the formation of the route needed to be approved by higherlevel corporate decision-makers before it could be awarded to anybody. whether it needs a formal writing for its full expression. whether the amount involved is large or small. but who ultimately-after plaintiff spent considerable money preparing the land-denied the permit. Inc  following: the extent to which express agreement has been reached on all the terms to be included. federal law required that such a contract be in writing. 244 (1960) (internal quotation marks omitted)). there is no final contract until that is done. her knowledge that final approval of the route remained outstanding negates her assertion that an enforceable agreement was formed. to finalize a contract between them.2 Further. The court found that because plaintiff knew that rejection of the permit remained a possibility. not only were the parties aware that a written agreement was necessary to create or. J. 135.R. The Federal Motor Carrier Safety Regulations. arguendo. App.

but the parties never entered into the required written lease.g. or even explicit. including: whether the route was actually going to be finalized.. In this case. 245 Or.e.” Kliemek v. 57 (1966). Finally.”). Plaintiff purchased a vehicle that she apparently intended to use as the vehicle she would make FedEx deliveries in when she was awarded the contract route.Invitation to Deal & Preliminary Negotiation  the following conditions: (a) … There shall be a written lease granting the use of the equipment and meeting the requirements contained in § 376. supra. defendant is permitted to. 71.” As an authorized carrier subject to the FMCSRs. at 137. Morrill. 258 Or. even assuming. an implied. allow contractors to purchase and use their own (approved) vehicles to make deliveries. arguendo. the terms of any agreement between the parties were insufficiently certain for the agreement to be enforceable. See. oral agreement in the absence of a written one is not enforceable. 78 (1962). e. Western Bank v. “[a]n offer must be so certain that upon an unqualified acceptance the nature and extent of the obligations of each party are fixed and may be determined with reasonable certainty. Negotiations can bind a party to an agreement where a writing is not necessary. it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. To form an enforceable contract..]” Britt. with her using her own vehicle to make deliveries)-had to be in writing under federal regulation. see also Restatement 2d. but only “[w]here the terms of a contract have in all respects been definitely understood and agreed upon[. what the scope of the route was going 270  CONTRACTS  . certain central terms were never specifically described nor agreed to during the time in which plaintiff alleges the agreement was formed.12 … . but is required to enter into a written lease for the use of the equipment. and does. 231 Or. … The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. 47. Contracts § 33 (“Even though a manifestation of intention is intended to be understood as an offer. that an oral agreement that purported to award plaintiff the route was otherwise acceptable. Because the agreement-under the terms plaintiff believed the contract would operate (i. Perisich. however.

g.. of course. have used the same terms with plaintiff were she awarded the contract.. but never produced a written agreement after their verbal discussions. Bonnevier v. as described above. spoke only in terms of generalities and left uncertain what each was supposed to do. and what the duration of the contract would be. when plaintiff's compensation was never agreed to?3 Because the parties were aware that any contractor agreement between them had to be in writing. how. However. Fedex Ground Package System. The court will not write contracts for parties. as a matter of law plaintiff's contract claims must fail. the duty of good faith and fair dealing does not 3 Plaintiff's assertion that the terms are not critical to contract formation because “she would have agreed to any terms” or because the contractor agreements are boilerplate. for example..e. it is clearly impossible to enforce the alleged agreement. cannot determine terms of the contract that were not discussed simply because plaintiff alleges that she would have agreed to any terms. The court will not. in negotiating. Presumably she would not have agreed to make deliveries for no compensation (i. Dairy Cooperative Assn. what plaintiff's compensation package would consist of.” Restatement 2d. in the absence of evidence of mutual understandings between the parties. How is the court to know what she really would have agreed to? Similarly. In the absence of these terms. 227 Or. CHAPTER FOUR: MUTUAL ASSENT  271  . bind plaintiff or defendant to terms that it had not agreed to when those terms form the heart of the contract. could the court compute plaintiff's economic damages if it found a breach. e. the court is unwilling to find that because plaintiff asserts that FedEx has entered into other contractor agreements utilizing uniform terms that it would. and because any verbal agreement they might have had did not sufficiently specify the terms of the agreement such that a court could enforce it. but that is at least a theoretically possible term of the contract. See. 131-32 (1961) (“[I]f the parties. plaintiff's claim of a breach of the duty of good faith and fair dealing must also fail. 123. the court could not enforce the purported agreement unless it itself wrote the contract. Contracts § 205 (emphasis supplied). “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. beyond all doubt. II.Brazil v. The court. solely for the ownership of the contract route). non-negotiable form contracts are unavailing. Inc  to be. PLAINTIFF'S GOOD FAITH AND FAIR DEALING CLAIM Because. the parties never entered into an enforceable contract.”).

to wit: whether the district court erred in dismissing the portion of 272  CONTRACTS  Supreme Court of Idaho 99 Idaho 740 (1978) . Paloukos does not contest the summary judgment entered in favor of General Motors. On appeal. 1975).2003). First National Bank of Oregon. See 3A W. defendant's motion (# 17) for summary judgment is granted. This appeal involves a suit by the plaintiff appellant Gust Paloukos for breach of an alleged contract with defendant respondent Intermountain Chevrolet Co. Justice. Paloukos brought suit against Intermountain.Invitation to Deal & Preliminary Negotiation  extend to the formation of contracts. Intermountain does business as Glen’s Chevrolet. Paloukos v. for the purchase of a 1974 pickup truck. an Idaho corporation. Intermountain is a dealer for vehicles manufactured by defendant respondent General Motors. 492 (1991). e.. Fletcher. In general. 96 Idaho 311 (1974). CONCLUSION For the above stated reasons. Paloukos has alleged nothing which would constitute an exception to that general rule. corporate officers are not individually liable for the contracts of the corporation. 347 F. damages for its breach. State Farm Bureau Mut. Cyclopedia of the Law of Private Corporations §§ 1117-33 (rev. and defendant respondent Glen Huff is its president.. We affirm the summary judgment entered in favor of Glen Huff. Glen Huff and Intermountain. The district court dismissed the portion of the complaint seeking specific performance and later entered summary judgments in favor of General Motors. Liu v. Inc.. Amway Corp. 485.  Bakes. Because no contract was formed. Intermountain Chevrolet Co. Inc. See also Benner v. in the alternative. We turn now to the principal issues presented in this case. Ins.g. 312 Or. 1129 (9th Cir. of Idaho.3d 1125.. General Motors and Glen Huff seeking specific performance of the alleged contract and. vol. Tolbert v. See. This action is dismissed. the duty of good faith and fair dealing is not implicated.

however. On November 6. The first issue which must be addressed is whether there was a contract formed between Paloukos and Intermountain. Paloukos. The trial court granted summary judgment on this issue.00. Intermountain’s sales manager informed Paloukos that “because of a product shortage” the dealership would not be able to deliver the vehicle and returned the deposit. visited Intermountain’s place of business and spoke with George Rowe. The pleadings and affidavits in the record before this Court allege the following facts with respect to the formation of the alleged contract. The completed form also indicates a purchase price of $3. “WORK SHEET This is NOT a Purchase Order. Glen’s Chevrolet Co. concluding that under the facts as submitted to it no contract could have been formed as a matter of law.  Paloukos’ complaint seeking specific performance and whether the court erred in granting summary judgment in favor of Intermountain. its address and phone number and the Chevrolet logo. The sale and the sales price were approved by Intermountain’s sales manager.. 1973. Although there is no designated signature line on the form. in a letter dated April 11. a salesman for Intermountain. and all reasonable inferences to be drawn thereCHAPTER FOUR: MUTUAL ASSENT  273  . Paloukos signed at the bottom of the form. concerning the purchase of a 1974 3/4 ton Chevrolet pickup.Paloukas v. V-8 engine and an automotive transmission.650. We consider first the issues concerning the summary judgment. but Paloukos paid a $120 deposit and was told that the truck would be ordered for him.” On the form Rowe handprinted his name in a space provided for the salesman’s name. Intermountain Chevrolet Co. The heading on the form contained Intermountain’s business name. Recognizing that in a summary judgment proceeding the facts. Five months later. Intermountain did not have the pickup in stock. 1974. accompanied by his son Sam Paloukos. and second those concerning Paloukos’ request for specific performance. They agreed to the sale of a pickup and Rowe completed a printed form. Beneath the heading and in bold type was printed the caption. indicated Paloukos’ name and address and described the pickup involved as a new green or yellow 1974 3/4 ton 4-wheel drive vehicle with a radio.

The more terms the parties leave open. comment. I. I. Rather. Intermountain argues that the worksheet. (3) 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. commercial standards on the point of ‘indefiniteness’ are intended to be applied. the document Palou274  CONTRACTS  . this Act making provision elsewhere for missing terms needed for performance.C. which is applicable to this case. but their actions may be frequently conclusive on the matter despite the omissions. the question is whether Idaho law compelled the trial court to rule on this record that no contract had been formed between the parties. including conduct by both parties which recognizes the existence of such a contract. FORMATION IN GENERAL. The test is not certainty as to what the parties were to do nor as to the exact amount of damages due the plaintiff. this subsection recognizes that agreement as valid in law. (1) A contract for sale of goods may be made in any manner sufficient to show agreement. Straley v. § 28-2-204 provides: 28-2-204. states the standard for determining whether a contract has been formed.C. § 28-2-102. Chapter 2 of the Idaho version of the Uniform Commercial Code (UCC). despite missing terms. See Luke v. Nor is the fact that one or more terms are left to be agreed upon enough of itself to defeat an otherwise adequate agreement.Invitation to Deal & Preliminary Negotiation  from.C. remedies and the like. The official comment to this section further explains: If the parties intend to enter into a binding agreement.. I. the less likely it is that they have intended to conclude a binding agreement. if there is any reasonably certain basis for granting a remedy. open price. 96 Idaho 221 (1974). Conrad. 94 Idaho 917 (1972). Idaho Nuclear Corp. should be liberally construed in favor of the party against whom summary judgment is sought. § 28-2-204.

precludes the court from concluding that a contract was formed. evidence of additional terms not included on the worksheet. Rather. the UCC requires a determination whether the circumstances of the case. Intermountain’s approach. are “sufficient to show agreement. CHAPTER FOUR: MUTUAL ASSENT  275  . that Paloukos was told the truck would be ordered for him. is much too narrow. In our view these alleged facts could support a conclusion by a trier of fact that under I. We do not believe that the paucity of the vehicle description in the worksheet.” We discuss the remedies appropriate in this case later in this opinion. as a matter of law. or evidence of usage of trade. Moreover. a full development of the facts at a trial may resolve these omitted items with evidence explanative of the notations on the worksheet. the box size and style. and other items concerning the specific kind of truck Paloukos desired. the UCC does not require a document itemizing all the specific terms of the agreement. § 28-2-204 the parties intended to enter into a binding contract. that Paloukos signed the completed form. § 28-2-202. and that Intermountain accepted and retained for several months a deposit on the truck. § 28-2204(1). however. Paloukos has alleged facts which indicate that he and Rowe agreed to the sale of the pickup. That some terms are undetermined does not defeat the existence of a contract provided the parties “intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. See I. Intermountain notes that the worksheet fails to specify the specific shade of green or yellow.” I.C. Intermountain Chevrolet Co. § 28-2-204(3). and these facts form a “reasonably certain basis for giving an appropriate remedy.C. the specific engine size.C.C. that Rowe completed a form which though not entirely complete described the truck Paloukos desired and stated a price. One inference which could be drawn from the alleged facts is that Intermountain and Paloukos believed the agreement was sufficiently definite to permit Intermountain to order a vehicle acceptable to Paloukos. that the sale was approved by a sales manager.Paloukas v.” I.  kos relies upon as a memorial of the agreement. including the parties’ conduct. represents only preliminary discussions and is too indefinite to constitute an enforceable contract. In order to have an enforceable contract. In this respect.

State v.R. § 28-2-201 defines the term “signed” as “a word which includes any authentication which identifies the party to be charged … . 8(c). some discussion of the provision of I. In fact. 276  CONTRACTS  . I.” The official comment to I. § 1205.Invitation to Deal & Preliminary Negotiation  The next issue necessary to discuss is whether the alleged contract is nevertheless unenforceable as a matter of law because of the statute of fraud provisions of I. § 28-1-201(39) defines “signed” as: 21-1-201. 94 Idaho 542 (1971). the only issue is whether it was “signed by the party against whom enforcement is sought. Ash. and unless the context otherwise requires. Intermountain’s answer did not assert the defense of statute of frauds. See I. § 28-2-201. the worksheet could suffice as an indication that a contract for sale was made. Subject to additional definitions contained in the subsequent chapters of this act which are applicable to specific chapters or Parts thereof. I.C.C. § 28-2-201. (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.C. since on remand the trial court may permit Intermountain to amend its answer to assert that defense. § 28-2-201 is appropriate.” I. In our view. FORMAL REQUIREMENTS STATUTE OF FRAUDS. in this act: (39) “Signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing. However.C. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.P.C. That section provides: 28-2-201. it appears to be first raised on appeal at oral argument.C. GENERAL DEFINITIONS. comment 1. The statute of frauds defense is an affirmative defense which must be specifically raised by the pleadings.C. much too late to be available to support the trial court’s judgment on appeal.

1974) (printed heading on invoice). First. comment 39. No catalog of possible authentications can be complete and the court must use common sense and commercial experience in passing upon these matters. may satisfy the signature requirement. Intermountain’s business name. “Signed. See Automotive Spares Corp. The question always is whether the symbol was executed or adopted by the party with present intention to authenticate the writing. Rowe’s handprinted signature in the form space for the salesman’s name may also suffice as an authentication. stamped or written.. 513 (N.C. § 28-2-201. It may be on any part of the document and in appropriate cases may be found in a billhead or letterhead. Supp. Moreover. Ct. § 28-2-201. v. v.C. Paloukos’ payment of CHAPTER FOUR: MUTUAL ASSENT  277  . § 28-1-201. 169 (1974) (printed heading on bill of sale and warranty of title). Authentication may be printed. Intermountain Chevrolet Co. 684 (1970) (defendant’s name.” New. The inclusion of authentication in the definition of “signed” is to make clear that as the term is used in this Act a complete signature is not necessary. such headings are specifically mentioned in the official comment as examples of satisfactory authentications in appropriate cases. Ill. § 28-2-201(1). comment 39. v. failed to satisfy the writing requirement of I. it may be by initials or by thumbprint. handprinted. Bowen. See Southwest Engineering Co. 382 F. Moore. Second. Evans v. App. as a matter of law. I. either of which may be an authentication satisfying the signature requirement of I. Martin Tractor Co. at head of document). 205 Kan. I. 126 Ga.C. § 28-2-201(1).D. App.  The official comment further explains: 39.Paloukas v. 131 Ga. Questions whether either symbol was executed with the intention to authenticate the document raise factual issues not properly decided on a motion for summary judgment.C. the district court was not entitled to rule in granting summary judgment that the worksheet. App.. even if the worksheet did not satisfy the requirements for a writing in I.C. The worksheet relied upon here contains two symbols. In sum. which is printed in the heading of the form. Archer Bearings Co. Kohlmeyer & Co. 700 (Ga. 1972) (printed heading on confirmation form). Indeed.

Ct. D. The final issue presented is whether the district court properly dismissed that portion of Paloukos’ complaint which sought specific 278  CONTRACTS  . & C. 1956). there is no dispute over quantity. 1967) ($25 deposit for purchase of automobile). Smigel. We agree with the commentators and the majority of the courts which have considered the issue that part payment for a non-divisible unit. comment 2. Inc. However. § 28-2-201. Handbook of the Law Under the Uniform Commercial Code § 2-5 at 58 (1972). as is recognized by the UCC. Lockwood v. Starr v. Contra. 282 N.. Freeport Dodge. non-divisible item. Martz.P. The UCC is clear that where the goods are apportionable part payment permits enforcement of the contract only as to the portion of the goods for which payment has been made.2d 33 (C.3d 800 (1971) ($100 deposit for purchase of Rolls Royce). FORMAL REQUIREMENTS STATUTE OF FRAUDS. 18 Cal. constitutes sufficient part performance to excuse compliance with the statute of frauds. J. such as an automobile.2d 58 (Dist. § 28-2-201(3)(c) to prove and recover in full on the oral contract. White & R. Williamson v. such as an automobile. which involves a single.S. The partial payment and its acceptance. the UCC is ambiguous with respect to a partial payment in a transaction involving a single. 11 Pa. Summers. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (section 28-2-606). permits the party under I.C. In a case such as this. is a sufficiently reliable manifestation of the existence of a contract that the party ought to be afforded the opportunity to prove its existence. App.Invitation to Deal & Preliminary Negotiation  $120.C. I. § 28-2-201(3) provides: 28-2-201. non-divisible item. which was accepted by Intermountain though later returned. See I.Y. The obvious purpose of limiting enforcement of an oral contract to the extent of partial payment is to permit enforcement of that part of the contract verified by the partial performance and to avoid disputes over the quantity.C.

Although Paloukos was successful. such as ordering the seller under a sales contract to sell to the buyer that which the seller does not have. … (2) In any civil action to recover on an open account. § 28-2-716(1).C. Adams. on this appeal. Although the UCC may have liberalized some of the old common law rules. of automobiles. Indeed. account stated.C. negotiable instrument. is a dealer. White & R. Intermountain Chevrolet Co. 5A A. See I. Bowman v. bill. not a manufacturer. to be taxed and collected as costs. the record suggests quite the contrary. 45 Idaho 217 (1927). The market value of such a vehicle is readily ascertainable and Paloukos’ pleadings indicate no reason why damages would not be adequate relief. or contract relating to the purchase or sale of goods. wares. illus. or merchandise. comment 1. Paloukos has requested attorney fees for this appeal citing I. 1 (1932). ATTORNEY FEES IN CIVIL ACTIONS.C. the prevailing party shall be allowed a reasonable attorney fee to be set by the court. note.1 A prerequisite to an award of attorney fees under that section is that the party prevail. We therefore affirm the district court’s dismissal of that portion of Paloukos’ complaint seeking specific performance. specific performance nevertheless remains an extraordinary remedy generally available only where other remedies are in some way inadequate.” I.Paloukas v. § 28-2-716. In his pleadings Paloukos alleged no facts suggesting anything unique about the pickup involved. Under the UCC specific performance is available to a purchaser where “the goods are unique or in other proper circumstances. Corbin. § 12-120. the sole remaining defendant in this case. Summers. Purcell. Paloukos does not allege that Intermountain is in possession of a conforming pickup which it could sell him. in part at least. See Moody v. Crane. 34 Idaho 103 (1921). Moreover. Contracts § 1170 (1964). 74 Idaho 109 (1953). Intermountain. CHAPTER FOUR: MUTUAL ASSENT  279  . unless otherwise provided by law. Handbook of the Law Under the Uniform Commercial Code § 6-6 (1972). Restatement of Contracts § 368. it nonetheless remains to be determined whether he will ultimately prevail on his cause of action for 1 The statute says in pertinent part: 12-120. It is well established that the courts will not order the impossible.  performance of the alleged contract. See also Sims v. See J.

1976) Holmes. The appellant-Coley appeals.500 “due to their (Lang’s) reliance upon the representation of the agreement by respondent (Coley) that he would purchase the stock … .000. Coley v. dissents without opinion. C. The complaint was later amended to include a claim for damages incurred by Lang in reliance on Coley’s promise to buy the stock. Affirmed in part.. Coley appeals from this judgment. JJ. The price was to be $60. After a hearing ore tenus the trial court entered a judgment for Lang in the amount of $7.C.” As noted earlier. should of course consider the fees incurred in bringing this appeal. The issues as presented by appellant for this court’s consideration are: (1) Did the “letter agreement” entered into by the parties contractually bind the parties? (2) Can the award be supported on the basis of promissory estoppel or reliance on a promise? Viewing the trial court’s decree with the attendant presumption of correctness. Donaldson and Bistline.000. Civ. Judge. Should Paloukos ultimately prevail and satisfy the other requirements of I. Lang’s complaint alleged that Coley and Lang had entered into an agreement whereby Coley was to purchase the stock of Lang’s corporation. The record reveals the following: Lang sued Coley for specific performance. the district court.J. This is an appeal from the Circuit Court of Mobile County’s action awarding damages to appellee-Lang for breach of agreement.2d 70 (Ala. in late August of 1972. our review of the testimony as shown by the transcript of the evidence reveals the following: Coley.Invitation to Deal & Preliminary Negotiation  breach of contract. McFadden. reversed and remanded in part. entered into discussions with 280  CONTRACTS  . in fixing the award. App. concur.. The specific performance prayed for was the payment of $60. Lang  Court of Civil Appeals of Alabama 339 So. § 12-120 for an award of attorney fees. Shepard.

00) payable as follows: $10. President International Aerospace Services. Coley did not desire to purchase the assets of IAS. $21. South Carolina 29410 Dear Bob: This letter is to express the agreement which we have reached today. Principal payments due on the note shall not bear interest to their stated maturity. Coley’s purpose in acquiring the corporation was to enable Coley to be in a favorable position to bid on government contracts. 1974. During the negotiation. and the following document was drafted and signed by each party: September 1. or guaranteed by me for execution by my nominee. and $21.000 on December 31. Lang.Coley v. the parties contacted an attorney. 1972 Mr. Lang  Lang concerning the purchase of IAS Corporation. Inc.000 on the date of sale. (“IAS”). $8. 1973. Post Office Box 9516 Charleston. The purchase price for the stock shall be the sum of Sixty Thousand Dollars ($60. Lang owned the vast majority of the stock of IAS. all of the outstanding stock of every kind of International Aerospace Services.000 on December 31. you have agreed to sell to nominee to buy.000 on December 31.000. 1972. but any past due payments shall bear interest at the rate of 10% Per annum. It is our understanding that prior to the sale of the IAS stock to me you will cause IAS to transfer all of its assets and liabilities (other than its corporate name and the right to use that corporate name in foreign jurisdictions. Subject to the approval of your Board of Directors and stockholders. Robert J. and its corporate franchise) to a new corporation or partnership as CHAPTER FOUR: MUTUAL ASSENT  281  . Inc. who represented Coley. The unpaid portion of the purchase price shall be represented by a promissory note executed by me. but only desired to purchase the name and good will of IAS.

Invitation to Deal & Preliminary Negotiation 
you and the other present stockholders of IAS may determine. The new corporation or partnership, herein called IASCO, shall indemnify IAS against all liabilities of IAS which it has assumed. If IASCO fails to perform this indemnity and IAS is required to pay off liabilities assumed by IASCO, then I shall have the right to setoff any such payments against amounts due on the note representing the purchase price of the IAS stock. IAS will, of course, be responsible for any liabilities which it creates or incurs after you sell the stock to me. All work and contracts in progress of IAS shall be transferred to IASCO at the same time as the transfer of assets and liabilities. I recognize that you must consider the method to complete this transaction to the best advantage of you and the other shareholders of IAS. We agree together that on or before September 18, this letter agreement will be reduced to a definitive agreement binding upon all of the parties hereto and accomplishing the sale and purchase contemplated by this agreement. You agree that until we reach a definitive agreement I may request bid sets from the government and attend bidding conferences on behalf of an in the name of IAS. If the foregoing correctly reflects our agreement, please execute and return to me the enclosed copy of this letter. Yours very truly, /s/ William H. Coley Agreed to and accepted. /s/ R.L. Lang

Both parties testified at great length regarding their understanding of the “letter agreement.” Suffice it to say that Lang testified that the agreement was binding and only certain details remained to be done. Additionally, Lang testified that stockholder approval was obtained and further, that the corporation (Lang) had lost $30,000 as a result of the reliance on the “letter agreement.” We should note that details of the loss are not spelled out with any degree of specificity. Coley testified that the letter agreement was only a basic outline of points which had been agreed upon; that there remained many
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Coley v. Lang  items that had to be worked out; and further, that time was of the essence. Specifically, Coley testified that Lang had not sought approval of the IRS concerning a pension and profit sharing plan nor had certain details with the government been completed. And that because of this he (Coley) realized that the sale would not work out within the contemplated time frame. Coley, on September 18, 1972, notified Lang of this fact. We note that Coley did attend certain bid conferences conducted by the U.S. Government and registered with the government as a representative of Lang’s corporation. This action occurred after the “letter agreement” had been executed. The attorney who drafted the “letter agreement” testified that he informed both parties that the document in question was not binding. Lang denied that the attorney so informed him. The trial court, with the above before it, entered a decree which in pertinent part provided as follows:
THAT the Complainants are the stockholders and owners of the International Aerospace Services, Inc., and that heretofore on, to-wit, September 1, 1972, they, by and through their President, Robert J. Lang, entered into a preliminary agreement with the Respondent, William H. Coley to sell to the Respondent all of the outstanding stock of every kind of International Aerospace Services, Inc., with the purchase price being the sum of $60,000 to be paid in the following manner: $10,000.00 on the date of the sale; $8,000.00 on December 31, 1972; $21,000.00 on December 31, 1973; and $21,000.00 on December 31, 1974. THAT as a part of said preliminary agreement all of the assets and liabilities of International Aerospace Services, Inc., were to be transferred to a new corporation; the said Respondent was to purchase all of the stock, goodwill, and reputation of International Aerospace Services, Inc., a corporation, and the Respondent was authorized to request bids set for the United States Federal Government and atCHAPTER FOUR: MUTUAL ASSENT  283 

Invitation to Deal & Preliminary Negotiation 
tend bidding and conferences on behalf of and in the name of International Aerospace Services, Inc. The Court finds as a matter of fact that the Respondent or his said representative did attend pre-bid conferences and did use the name of International Aerospace Services, Inc.; that the said Respondent has failed and refused and continues to fail and refuse to pay any sum of money or to carry out any of the terms of the above mentioned agreement; that the Complainants have incurred certain expenses and have made certain preparations and plans to transfer all of the said outstanding stock to the Respondent; and to carry out the terms and provisions of the aforesaid preliminary agreement between the Complainants and the Respondent. The Court finds as a matter of fact, and it is hereby ORDERED, ADJUDGED and DECREED by the Court that the Bill for Specific Performance as filed by the Complainants is hereby denied. It is further ORDERED, ADJUDGED and DECREED that the Complainants have and recover of the Respondent the sum of $7,500.00 as damages which the Complainants have suffered due to their reliance upon the representation of the agreement by the Respondent that he would purchase the stock of International Aerospace Services, Inc., including certain attorney’s fees, accountants fees, loss of business, loss of income, loss of goodwill and reputation by the Complainants.

I We do not find as a matter of law that the “letter agreement” is an agreement upon which specific performance can be based. Suffice it to say that the language found in Onyx Oils & Resins v. Moss, 367 Pa. 416, and quoted to this court by appellant-Coley, in his excellent brief, is a correct statement of the law.
Aside from the intention of the parties to reduce their agreement to writing, it is admitted that there was no full and definite agreement on terms. In Nicholls v. Granger, 1896, 40 N.Y.S. 99, 101, the court pertinently stated, “It is undoubtedly true that a stipulation to reduce a valid contract to some other form does not affect its validity, and
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Coley v. Lang 
that although it is in contemplation of the parties that a more formal contract shall be executed, … .” But it is an essential to the enforcement of such an informal contract that the minds of the parties should meet upon all the terms, as well as the subject matter, of the contract; and, if anything is left open for future consideration, the informal paper cannot form the basis of a binding contract. We cannot enforce a portion of an agreement which failed to materialize; nor can we supply the terms of this contract.

Additionally, we find the language of Elmore, Quillian and Co. v. Parish, Bros., 170 Ala. 499, to be appropriate in this instance: “[A]n agreement to enter into an agreement upon terms to be afterwards settled between the parties, is a contradiction in terms, and amounts to nothing.” 170 Ala. at 503 However, as seen from the above, the trial court did not base its judgment on a finding that the “letter agreement” was a binding agreement upon which specific performance could be enforced. Therefore, we find no reversible error in this regard. II The court decreed complainants recover $7,500 as damages suffered “due to their reliance upon the representation of the agreement by the Respondents.” The record viewed in the most favorable light for Mr. Lang does not support such a decree, irrespective of whether premised on a theory of equitable estoppel or promissory estoppel. The purpose of the former doctrine is to prevent inconsistency and fraud resulting from injustice. Fiscus v. Young, 243 Ala. 39. “It rests at last for its vindication on the manifest idea that to allow such representation to be gainsaid would be fraud on him who had thus acted, believing it to be true.” Cosby v. Moore, 259 Ala. 41, 47; Leinkauff v. Munter, 76 Ala. 194, 198. The record in this case shows no misrepresentation or deliberate conduct designed to consciously and unfairly mislead Mr. Lang. The most that can be said is that Mr. Coley and Mr. Lang conducted negotiations which both parties
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Invitation to Deal & Preliminary Negotiation  hoped would eventually result in consummation of a contract. That the negotiations proved unfruitful does not warrant application of equitable estoppel. For cases applying the doctrine see Dunn v. Fletcher, 266 Ala. 273; Birmingham Trust and Savings Co. v. Strong, 239 Ala. 118, wherein the facts markedly differ from those herein. As stated by the Alabama Supreme Court in Messer v. City of Birmingham, 243 Ala. 520, 524, “A mere breach of Promise cannot constitute an estoppel en pais.” (Emphasis supplied.) Neither do we deem promissory estoppel applicable. Restatement (First) of Contracts, § 90 (1932) states: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” Accord Bush v. Bush, 278 Ala. 244, 245 Assuming the existence of a promise on the part of Mr. Coley to purchase the name and stock of IAS, the record discloses no “action or forbearance of a definite and substantial character” on the part of Mr. Lang. The total time during which Mr. Lang could have curtailed his profit generating activities due to his reliance on Mr. Coley’s promise extended only from September 1, 1972, the date of the signing of the documents by the parties, to September 18, 1972, when the negotiations were terminated. Moreover, Mr. Lang could testify with certainty only that he missed opportunities to bid on two contracts during the period. There was no evidence showing the probability that IAS’s bid would have been the lowest in either instance. Furthermore, Mr. Lang attended at least one prebid conference during the eighteen-day period; and, presumably, he could have attended others. The circumstances of this case do not constitute the “substantial” forbearance or action in reliance contemplated by the Restatement. See Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683; Wheeler v. White, Tex., 398 S.W.2d 93. It follows that the trial court misapplied the law to the facts in this case. King v. Carley, 274 Ala. 116; Department of Industrial Relations v. Tomlinson, 251 Ala. 144; Fulton Bag & Cotton Mills v. Leder Oil Co., 207 Ala. 350.
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Coley v. Lang  Disposition of other issues is rendered unnecessary by our resolution of this issue. The case is due to be and is, accordingly, reversed. Reversed and remanded for entry of a judgment not inconsistent with this opinion. Wright, P.J., and Bradley, J., concur.

Hoffman v. Red Owl Stores, Inc. 
Supreme Court of Wisconsin 133 N.W.2d 267 (Wis. 1965) Action by Joseph Hoffman (hereinafter “Hoffman”) and wife, plaintiffs, against defendants Red Owl Stores, Inc. (hereinafter “Red Owl”) and Edward Lukowitz. The complaint alleged that Lukowitz, as agent for Red Owl, represented to and agreed with plaintiffs that Red Owl would build a store building in Chilton and stock it with merchandise for Hoffman to operate in return for which plaintiffs were to put up and invest a total sum of $18,000; that in reliance upon the above mentioned agreement and representations plaintiffs sold their bakery building and business and their grocery store and business; also in reliance on the agreement and representations Hoffman purchased the building site in Chilton and rented a residence for himself and his family in Chilton; plaintiffs’ actions in reliance on the representations and agreement disrupted their personal and business life; plaintiffs lost substantial amounts of income and expended large sums of money as expenses. Plaintiffs demanded recovery of damages for the breach of defendants’ representations and agreements. The action was tried to a court and jury. The facts hereafter stated are taken from the evidence adduced at the trial. Where there was a conflict in the evidence the version favorable to plaintiffs has been accepted since the verdict rendered was in favor of plaintiffs. Hoffman assisted by his wife operated a bakery at Wautoma from 1956 until sale of the building late in 1961. The building was owned in joint tenancy by him and his wife. Red Owl is a Minnesota
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Invitation to Deal & Preliminary Negotiation  corporation having its home office at Hopkins, Minnesota. It owns and operates a number of grocery supermarket stores and also extends franchises to agency stores which are owned by individuals, partnerships and corporations. Lukowitz resides at Green Bay and since September, 1960, has been divisional manager for Red Owl in a territory comprising Upper Michigan and most of Wisconsin in charge of 84 stores. Prior to September, 1960, he was district manager having charge of approximately 20 stores. In November, 1959, Hoffman was desirous of expanding his operations by establishing a grocery store and contacted a Red Owl representative by the name of Jansen, now deceased. Numerous conversations were had in 1960 with the idea of establishing a Red Owl franchise store in Wautoma. In September, 1960, Lukowitz succeeded Jansen as Red Owl’s representative in the negotiations. Hoffman mentioned that $18,000 was all the capital he had available to invest and he was repeatedly assured that this would be sufficient to set him up in business as a Red Owl store. About Christmastime, 1960, Hoffman thought it would be a good idea if he bought a small grocery store in Wautoma and operated it in order that he gain experience in the grocery business prior to operating a Red Owl store in some larger community. On February 6, 1961, on the advice of Lukowitz and Sykes, who had succeeded Lukowitz as Red Owl’s district manager, Hoffman bought the inventory and fixtures of a small grocery store in Wautoma and leased the building in which it was operated. After three months of operating this Wautoma store, the Red Owl representatives came in and took inventory and checked the operations and found the store was operating at a profit. Lukowitz advised Hoffman to sell the store to his manager, and assured him that Red Owl would find a larger store from him elsewhere. Acting on this advice and assurance, Hoffman sold the fixtures and inventory to his manager on June 6, 1961. Hoffman was reluctant to sell at that time because it meant losing the summer tourist business, but he sold on the assurance that he would be operating in a new location by fall and that he must sell this store if he wanted a bigger one. Before selling, Hoffman told the Red Owl representatives that
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Hoffman v. Red Owl Stores, Inc.  he had $18,000 for “getting set up in business” and they assured him that there would be no problems in establishing him in a bigger operation. The makeup of the $18,000 was not discussed; it was understood plaintiff’s father-in-law would furnish part of it. By June, 1961, the towns for the new grocery store had been narrowed down to two, Kewaunee and Chilton. In Kewaunee, Red Owl had an option on a building site. In Chilton, Red Owl had nothing under option, but it did select a site to which plaintiff obtained an option at Red Owl’s suggestion. The option stipulated a purchase price of $6,000 with $1,000 to be paid on election to purchase and the balance to be paid within 30 days. On Lukowitz’s assurance that everything was all set plaintiff paid $1,000 down on the lot on September 15th. On September 27, 1961, plaintiff met at Chilton with Lukowitz and Mr. Reymund and Mr. Carlson from the home office who prepared a projected financial statement. Part of the funds plaintiffs were to supply as their investment in the venture were to be obtained by sale of their Wautoma bakery building. On the basis of this meeting Lukowitz assured Hoffman: “… [E]verything is ready to go. Get your money together and we are set.” Shortly after this meeting Lukowitz told plaintiffs that they would have to sell their bakery business and bakery building, and that their retaining this property was the only “hitch” in the entire plan. On November 6, 1961, plaintiffs sold their bakery building for $10,000. Hoffman was to retain the bakery equipment as he contemplated using it to operate a bakery in connection with his Red Owl store. After sale of the bakery Hoffman obtained employment on the night shift at an Appleton bakery. The record contains different exhibits which were prepared in September and October, some of which were projections of the fiscal operation of the business and others were proposed building and floor plans. Red Owl was to procure some third party to buy the Chilton lot from Hoffman, construct the building, and then lease it to Hoffman. No final plans were ever made, nor were bids let or a construction contract entered. Some time prior to November 20, 1961, certain of the terms of the lease under which the
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Invitation to Deal & Preliminary Negotiation  building was to be rented by Hoffman were understood between him and Lukowitz. The lease was to be for 10 years with a rental approximating $550 a month calculated on the basis of 1 percent per month on the building cost, plus 6 percent of the land cost divided on a monthly basis. At the end of the 10-year term he was to have an option to renew the lease for an additional 10-year period or to buy the property at cost on an instalment basis. There was no discussion as to what the instalments would be or with respect to repairs and maintenance. On November 22nd or 23rd, Lukowitz and plaintiffs met in Minneapolis with Red Owl’s credit manager to confer on Hoffman’s financial standing and on financing the agency. Another projected financial statement was there drawn up entitled, “Proposed Financing For An Agency Store.” This showed Hoffman contributing $24,100 of cash capital of which only $4,600 was to be cash possessed by plaintiffs. Eight thousand was to be procured as a loan from a Chilton bank secured by a mortgage on the bakery fixtures, $7,500 was to be obtained on a 5 percent loan from the father-inlaw, and $4,000 was to be obtained by sale of the lot to the lessor at a profit. A week or two after the Minneapolis meeting Lukowitz showed Hoffman a telegram from the home office to the effect that if plaintiff could get another $2,000 for promotional purposes the deal could go through for $26,000. Hoffman stated he would have to find out if he could get another $2,000. He met with his father-inlaw, who agreed to put $13,000 into the business provided he could come into the business as a partner. Lukowitz told Hoffman the partnership arrangement “sounds fine” and that Hoffman should not go into the partnership arrangement with the “front office.” On January 16, 1962, the Red Owl credit manager teletyped Lukowitz that the father-in-law would have to sign an agreement that the $13,000 was either a gift or a loan subordinate to all general creditors and that he would prepare the agreement. On January 31, 1962, Lukowitz teletyped the home office that the father-in-law would sign one or other of the agreements. However, Hoffman testified that it was not until the final meeting some time between
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Hoffman v. Red Owl Stores, Inc.  January 26th and February 2nd, 1962, that he was told that his father-in-law was expected to sign an agreement that the $13,000 he was advancing was to be an outright gift. No mention was then made by the Red Owl representatives of the alternative of the father-in-law signing a subordination agreement. At this meeting the Red Owl agents presented Hoffman with the following projected financial statement:
Capital required in operation: Cash Merchandise Bakery Fixtures Promotional Funds TOTAL: Source of funds: Red Owl 7-day terms Red Owl Fixture contract (Term 5 years) Bank loans (Term 9 years Union State Bank of Chilton (Secured by Bakery Equipment) Other loans (Term No-pay) No interest Father-in-law (Secured by None) (Secured by Mortgage on Wautoma Bakery Bldg.) Resale of land Equity Capital: $ 5,000.00-Cash Amount owner has 17,500.00-Bakery Equip. to invest: TOTAL: 22,500.00 $70,500.00 6,000.00 2,000.00 13,000.00 $5,000.00 14,000.00 8,000.00 $5,000.00 20,000.00 18,000.00 17,500.00 1,500.00 $62,000.00

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291 

Invitation to Deal & Preliminary Negotiation  Hoffman interpreted the above statement to require of plaintiffs a total of $34,000 cash made up of $13,000 gift from his father-inlaw, $2,000 on mortgage, $8,000 on Chilton bank loan, $5,000 in cash from plaintiff, and $6,000 on the resale of the Chilton lot. Red Owl claims $18,000 is the total of the unborrowed or unencumbered cash, that is, $13,000 from the father-in-law and $5,000 cash from Hoffman himself. Hoffman informed Red Owl he could not go along with this proposal, and particularly objected to the requirement that his father-in-law sign an agreement that his $13,000 advancement was an absolute gift. This terminated the negotiations between the parties. The case was submitted to the jury on a special verdict with the first two questions answered by the court. This verdict, as returned by the jury, was as follows:
Question No. 1: Did the Red Owl Stores, Inc. and Joseph Hoffman on or about mid-May of 1961 initiate negotiations looking to the establishment of Joseph Hoffman as a franchise operator of a Red Owl Store in Chilton? Answer: Yes. (Answered by the Court.) Question No. 2: Did the parties mutually agree on all of the details of the proposal so as to reach a final agreement thereon? Answer: No. (Answered by the Court.) Question No. 3: Did the Red Owl Stores, Inc., in the course of said negotiations, make representations to Joseph Hoffman that if he fulfilled certain conditions that they would establish him as franchise operator of a Red Owl Store in Chilton? Answer: Yes. Question No. 4: If you have answered Question No. 3 “Yes,” then answer this question: Did Joseph Hoffman rely on said representations and was he induced to act thereon? Answer: Yes. Question No. 5: If you have answered Question No. 4 “Yes,” then answer this question: Ought Joseph Hoffman, in the exercise of ordinary care, to have relied on said representations? Answer: Yes. Question No. 6: If you have answered Question No. 3 “Yes” then answer this question: Did Joseph Hoffman fulfill all the conditions he was required to fulfill by the terms of
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Hoffman v. Red Owl Stores, Inc. 
the negotiations between the parties up to January 26, 1962? Answer: Yes. Question No. 7: What sum of money will reasonably compensate the plaintiffs for such damages as they sustained by reason of: (a) The sale of the Wautoma store fixtures and inventory? Answer: $16,735.00. (b) The sale of the bakery building? Answer: $2,000.00. (c) Taking up the option on the Chilton lot? Answer: $1,000.00. (d) Expenses of moving his family to Neenah? Answer: $140.00. (e) House rental in Chilton? Answer: $125.00.

Plaintiffs moved for judgment on the verdict while defendants moved to change the answers to Questions 3, 4, 5, and 6 from “Yes” to “No”, and in the alternative for relief from the answers to the subdivisions of Question 7 or new trial. On March 31, 1964, the circuit court entered the following order:
IT IS ORDERED in accordance with said decision on motions after verdict hereby incorporated herein by reference: 1. That the answer of the jury to Question No. 7(a) be and the same is hereby vacated and set aside and that a new trial be had on the sole issue of the damages for loss, if any, on the sale of the Wautoma store, fixtures and inventory. 2. That all other portions of the verdict of the jury be and hereby are approved and confirmed and all afterverdict motions of the parties inconsistent with this order are hereby denied.

Defendants have appealed from this order and plaintiffs have cross-appealed from paragraph 1. thereof. Currie, Chief Justice. The instant appeal and cross-appeal present these questions: (1) Whether this court should recognize causes of action grounded on promissory estoppel as exemplified by sec. 90 of Restatement, 1 Contracts? (2) Do the facts in this case make out a cause of action for promissory estoppel?
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Invitation to Deal & Preliminary Negotiation  (3) Are the jury’s findings with respect to damages sustained by the evidence? RECOGNITION OF A CAUSE OF ACTION GROUNDED ON PROMISSORY ESTOPPEL. Sec. 90 of Restatement, 1 Contracts, provides (at p.110):
A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action of forbearance is binding if injustice can be avoided only by enforcement of the promise.

The Wisconsin Annotations to Restatement, Contracts, prepared under the direction of the late Professor William H. Page and issued in 1933, stated (at p.53, sec. 90):
The Wisconsin cases do not seem to be in accord with this section of the Restatement. It is certain that no such proposition has ever been announced by the Wisconsin court and it is at least doubtful if it would be approved by the court.

Since 1933, the closest approach this court has made to adopting the rule of the Restatement occurred in the recent case of Lazarus v. American Motors Corp. (1963), 21 Wis.2d 76, 85, wherein the court stated:
We recognize that upon different facts it would be possible for a seller of steel to have altered his position so as to effectuate the equitable considerations inherent in sec. 90 of the Restatement.

While it was not necessary to the disposition of the Lazarus Case to adopt the promissory estoppel rule of the Restatement, we are squarely faced in the instant case with that issue. Not only did the trial court frame the special verdict on the theory of sec. 90 of Restatement, 1 Contracts, but no other possible theory has been presented to or discovered by this court which would permit plaintiffs to recover. Of other remedies considered that of an action for fraud and deceit seemed to be the most comparable. An action at law for fraud, however, cannot be predicated on unfulfilled promises unless the promisor possessed the present intent not to perform. Suskey v.
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Hoffman v. Red Owl Stores, Inc.  Davidoff (1958), 2 Wis.2d 503, 507, and cases cited. Here, there is no evidence that would support a finding that Lukowitz made any of the promises, upon which plaintiffs’ complaint is predicated, in had faith with any present intent that they would not be fulfilled by Red Owl. Many courts of other jurisdictions have seen fit over the years to adopt the principle of promissory estoppel, and the tendency in that direction continues.1 As Mr. Justice McFaddin, speaking in behalf of the Arkansas court, well stated, that the development of the law of promissory estoppel “is an attempt by the courts to keep remedies abreast of increased moral consciousness of honesty and fair representations in all business dealings.” Peoples National Bank of Little Rock v. Linebarger Construction Company (1951), 219 Ark. 11, 17. For a further discussion of the doctrine of promissory estoppel, see 1A Corbin, Contracts, pp.187, et seq., secs. 193-209; 3 Pomeroy’s Equity Jurisprudence (5th ed.), pp.211, et seq., sec. 808b; 1 Williston, Contracts (Jaeger’s 3d ed.), pp.607, et seq., sec. 140; Boyer, Promissory Estoppel: Requirements and Limitations of the Doctrine, 98 University of Pennsylvania Law Review (1950), 459; Seavey Reliance Upon Gratuitous Promises or Other Conduct, 64 Harvard Law Review (1951), 913; Annos. 115 A.L.R. 152, and 48 A.L.R.2d 1069. The Restatement avoids use of the term “promissory estoppel,” and there has been criticism of it as an inaccurate term. See 1A Corbin, Contracts, p.232, et seq., sec. 204. On the other hand, Williston advocated the use of this term or something equivalent. 1 Williston, Contracts (1st ed.), p.308, sec. 139. Use of the word “estoppel” to describe a doctrine upon which a party to a lawsuit may obtain affirmative relief offends the traditional concept that estoppel merely serves as a shield and cannot serve as a sword to create a
1

Among the many cases which have granted relief grounded upon promissory estoppel are: Goodman v. Dicker (1948), 83 U.S. App. D.C. 353; Drennan v. Star Paying Co. (1958), 51 Cal.2d 409; Van Hook v. Southern California Waiters Alliance (1958), 158 Cal. App.2d 556; Chrysler Corporation v. Quimby (1958), 51 Del. 264; Lusk-Harbison-Jones, Inc. v. Universal Credit Co. (1933), 164 Miss. 693; Feinberg v. Pfeiffer Company (Mo. App. 1959), 322 S.W.2d 163; Schafer v. Fraser (1955), 206 Or. 446; Northwestern Engineering Co. v. Ellerman (1943), 69 S.D. 397. CHAPTER FOUR: MUTUAL ASSENT  295 

Invitation to Deal & Preliminary Negotiation  cause of action. See Utschig v. McClone (1962), 16 Wis.2d 506, 509. “Attractive nuisance” is also a much criticized term. See concurring opinion, Flamingo v. City of Waukesha (1952), 262 Wis. 219, 227. However, the latter term is still in almost universal use by the courts because of the lack of the better substitute. The same is also true of the wide use of the term “promissory estoppel.” We have employed its use in this opinion not only because of its extensive use by other courts but also since a more accurate equivalent has not been devised. Because we deem the doctrine of promissory estoppel, as stated in sec. 90 of Restatement, 1 Contracts, is one which supplies a needed tool which courts may employ in a proper case to prevent injustice, we endorse and adopt it. APPLICABILITY OF DOCTRINE TO FACTS OF THIS CASE. The record here discloses a number of promises and assurances given to Hoffman by Lukowitz in behalf of Red Owl upon which plaintiffs relied and acted upon to their detriment. Foremost were the promises that for the sum of $18,000 Red Owl would establish Hoffman in a store. After Hoffman had sold his grocery store and paid the $1,000 on the Chilton lot, the $18,000 figure was changed to $24,100. Then in November, 1961, Hoffman was assured that if the $24,100 figure were increased by $2,000 the deal would go through. Hoffman was induced to sell his grocery store fixtures and inventory in June, 1961, on the promise that he would be in his new store by fall. In November, plaintiffs sold their bakery building on the urging of defendants and on the assurance that this was the last step necessary to have the deal with Red Owl go through. We determine that there was ample evidence to sustain the answers of the jury to the questions of the verdict with respect to the promissory representations made by Red Owl, Hoffman’s reliance thereon in the exercise of ordinary care, and his fulfillment of the conditions required of him by the terms of the negotiations had with Red Owl. There remains for consideration the question of law raised by
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Hoffman v. Red Owl Stores, Inc.  defendants that agreement was never reached on essential factors necessary to establish a contract between Hoffman and Red Owl. Among these were the size, cost, design, and layout of the store building; and the terms of the lease with respect to rent, maintenance, renewal, and purchase options. This poses the question of whether the promise necessary to sustain a cause of action for promissory estoppel must embrace all essential details of a proposed transaction between promisor and promisee so as to be the equivalent of an offer that would result in a binding contract between the parties if the promisee were to accept the same. Originally the doctrine of promissory estoppel was invoked as a substitute for consideration rendering a gratuitous promise enforceable as a contract. See Williston, Contracts (1st ed.), p.307, sec. 139. In other words, the acts of reliance by the promisee to his detriment provided a substitute for consideration. If promissory estoppel were to be limited to only those situations where the promise giving rise to the cause of action must be so definite with respect to all details that a contract would result were the promise supported by consideration, then the defendants’ instant promises to Hoffman would not meet this test. However, see. 90 of Restatement, 1 Contracts, does not impose the requirement that the promise giving rise to the cause of action must be so comprehensive in scope as to meet the requirements of an offer that would ripen into a contract if accepted by the promisee. Rather the conditions imposed are: (1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee? (2) Did the promise induce such action or forbearance? (3) Can injustice be avoided only by enforcement of the promise?2 We deem it would be a mistake to regard an action grounded on promissory estoppel as the equivalent of a breach of contract action.
2

See Boyer, 98 University of Pennsylvania Law Review (1950), 459, 460. “Enforcement” of the promise embraces an award of damages for breach as well as decreeing specific performance. CHAPTER FOUR: MUTUAL ASSENT  297 

Invitation to Deal & Preliminary Negotiation  As Dean Boyer points out, it is desirable that fluidity in the application of the concept be maintained. 98 University of Pennsylvania Law Review (1950), 459, at page 497. While the first two of the above listed three requirements of promissory estoppel present issues of fact which ordinarily will be resolved by a jury, the third requirement, that the remedy can only be invoked where necessary to avoid injustice, is one that involves a policy decision by the court. Such a policy decision necessarily embraces an element of discretion. We conclude that injustice would result here if plaintiffs were not granted some relief because of the failure of defendants to keep their promises which induced plaintiffs to act to their detriment. DAMAGES. Defendants attack all the items of damages awarded by the jury. The bakery building at Wautoma was sold at defendants’ instigation in order that Hoffman might have the net proceeds available as part of the cash capital he was to invest in the Chilton store venture. The evidence clearly establishes that it was sold at a loss of $2,000. Defendants contend that half of this loss was sustained by Mrs. Hoffman because title stood in joint tenancy. They point out that no dealings took place between her and defendants as all negotiations were had with her husband. Ordinarily only the promisee and not third persons are entitled to enforce the remedy of promissory estoppel against the promisor. However, if the promisor actually foresees, or has reason to foresee, action by a third person in reliance on the promise, it may be quite unjust to refuse to perform the promise. 1A Corbin, Contracts, p.220, sec. 200. Here not only did defendants foresee that it would be necessary for Mrs. Hoffman to sell her joint interest in the bakery building, but defendants actually requested that this be done. We approve the jury’s award of $2,000 damages for the loss incurred by both plaintiffs in this sale. Defendants attack on two grounds the $1,000 awarded because of Hoffman’s payment of that amount on the purchase price of the Chilton lot. The first is that this $1,000 had already been lost at the time the final negotiations with Red Owl fell through in January,
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Hoffman v. Red Owl Stores, Inc.  1962, because the remaining $5,000 of purchase price had been due on October 15, 1961. The record does not disclose that the lot owner had foreclosed Hoffman’s interest in the lot for failure to pay this $5,000. The $1,000 was not paid for the option, but had been paid as part of the purchase price at the time Hoffman elected to exercise the option. This gave him an equity in the lot which could not be legally foreclosed without affording Hoffman an opportunity to pay the balance. The second ground of attack is that the lot may have had a fair market value of $6,000, and Hoffman should have paid the remaining $5,000 of purchase price. We determine that it would be unreasonable to require Hoffman to have invested an additional $5,000 in order to protect the $1,000 he had paid. Therefore, we find no merit to defendants’ attack upon this item of damages. We also determine it was reasonable for Hoffman to have paid $125 for one month’s rent of a home in Chilton after defendants assured him everything would be set when plaintiff sold the bakery building. This was a proper item of damage. Plaintiffs never moved to Chilton because defendants suggested that Hoffman get some experience by working in a Red Owl store in the Fox River Valley. Plaintiffs, therefore, moved to Neenah instead of Chilton. After moving, Hoffman worked at night in an Appleton bakery but held himself available for work in a Red Owl store. The $140 moving expense would not have been incurred if plaintiffs had not sold their bakery building in Wautoma in reliance upon defendants’ promises. We consider the $140 moving expense to be a proper item of damage. We turn now to the damage item with respect to which the trial court granted a new trial, i. e., that arising from the sale of the Wautoma grocery store fixtures and inventory for which the jury awarded $16,735. The trial court ruled that Hoffman could not recover for any loss of future profits for the summer months following the sale on June 6, 1961, but that damages would be limited to the difference between the sales price received and fair market value of the assets sold, giving consideration to any goodwill attaching thereto by reason of the transfer of a going business. There was no
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Invitation to Deal & Preliminary Negotiation  direct evidence presented as to what this fair market value was on June 6, 1961. The evidence did disclose that Hoffman paid $9,000 for the inventory, added $1,500 to it and sold it for $10,000 or a loss of $500. His 1961 federal income tax return showed that the grocery equipment had been purchased for $7,000 and sold for $7,955.96. Plaintiffs introduced evidence of the buyer that during the first eleven weeks of operation of the grocery store his gross sales were $44,000 and his profit was $6,000 or roughly 15 percent. On cross-examination he admitted that this was gross and not net profit. Plaintiffs contend that in a breach of contract action damages may include loss of profits. However, this is not a breach of contract action. The only relevancy of evidence relating to profits would be with respect to proving the element of goodwill in establishing the fair market value of the grocery inventory and fixtures sold. Therefore, evidence of profits would be admissible to afford a foundation for expert opinion as to fair market value. Where damages are awarded in promissory estoppel instead of specifically enforcing the promisor’s promise, they should be only such as in the opinion of the court are necessary to prevent injustice. Mechanical or rule of thumb approaches to the damage problem should be avoided. In discussing remedies to be applied by courts in promissory estoppel we quote the following views of writers on the subject: Enforcement of a promise does not necessarily mean Specific Performance. It does not necessarily mean Damages for breach. Moreover the amount allowed as Damages may be determined by the plaintiff’s expenditures or change of position in reliance as well as by the value to him of the promised performance. Restitution is also an “enforcing” remedy, although it is often said to be based upon some kind of a rescission. In determining what justice requires, the court must remember all of its powers, derived from equity, law merchant, and other sources, as well as the
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Hoffman v. Red Owl Stores, Inc.  common law. Its decree should be molded accordingly. 1A Corbin, Contracts, p.221, sec. 200. The wrong is not primarily in depriving the plaintiff of the promised reward but in causing the plaintiff to change position to his detriment. It would follow that the damages should not exceed the loss caused by the change of position, which would never be more in amount, but might be less, than the promised reward. Seavey, Reliance on Gratuitous Promises or Other Conduct, 64 Harvard Law Review (1951), 913, 926. There likewise seems to be no positive legal requirement, and certainly no legal policy, which dictates the allowance of contract damages in every case where the defendant’s duty is consensual. Shattuck, Gratuitous Promises–A New Writ?, 35 Michigan Law Review (1936), 908, 912.3 At the time Hoffman bought the equipment and inventory of the small grocery store at Wautoma he did so in order to gain experience in the grocery store business. At that time discussion had already been had with Red Owl representatives that Wautoma might be too small for a Red Owl operation and that a larger city might be more desirable. Thus Hoffman made this purchase more or less as a temporary experiment. Justice does not require that the damages awarded him, because of selling these assets at the behest of defendants, should exceed any actual loss sustained measured by the difference between the sales price and the fair market value. Since the evidence does not sustain the large award of damages arising from the sale of the Wautoma grocery business, the trial court properly ordered a new trial on this issue. Order affirmed. Because of the cross-appeal, plaintiffs shall be limited to taxing but two-thirds of their costs.
3

For expression of the opposite view, that courts in promissory estoppel cases should treat them as ordinary breach of contract cases and allow the full amount of damages recoverable in the latter, see note, 13 Vanderbilt Law Review (1960), 705. CHAPTER FOUR: MUTUAL ASSENT  301 

Counteroffer & The Battle of the Forms  _________________________________________________ 

COUNTEROFFER &  THE BATTLE OF THE FORMS 
_________________________________________________ 

Gardner Zemke Co. v. Dunham Bush, Inc. 
Supreme Court of New Mexico 850 P.2d 319 (N.M. 1993) Franchini, Justice. This case involves a contract for the sale of goods and accordingly the governing law is the Uniform Commercial Code-Sales, as adopted in New Mexico. NMSA 1978, §§ 55-2-101 to -2-725 (Orig. Pamp. & Cum. Supp. 1992) (Article 2). In the course of our discussion, we will also refer to pertinent general definitions and principles of construction found in NMSA 1978, Sections 55-1-101 to -1-209 (Orig. Pamp. & Cum. Supp. 1992). Section 55-2-103(4). The case presents us with our first opportunity to consider a classic “battle of the forms” scenario arising under Section 55-2-207. Appellant Gardner Zemke challenges the trial court’s judgment that a Customer’s Acknowledgment (Acknowledgment) sent by appellee manufacturer Dunham Bush, in response to a Gardner Zemke Purchase Order (Order), operated as a counteroffer, thereby providing controlling warranty terms under the contract formed by the parties. We find merit in appellants’ argument and remand for the trial court’s reconsideration. I. Acting as the general contractor on a Department of Energy (DOE) project, Gardner Zemke issued its Order to Dunham Bush for air-conditioning equipment, known as chillers, to be used in connection with the project. The Order contained a one-year manufacturer’s warranty provision and the requirement that the chillers comply with specifications attached to the Order. Dunham
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Gardner‐Zemke Co. v. Dunham Bush, Inc.  Bush responded with its preprinted Acknowledgment containing extensive warranty disclaimers, a statement that the terms of the Acknowledgment controlled the parties’ agreement, and a provision deeming silence to be acquiescence to the terms of the Acknowledgment. The parties did not address the discrepancies in the forms exchanged and proceeded with the transaction. Dunham Bush delivered the chillers, and Gardner Zemke paid for them. Gardner Zemke alleges that the chillers provided did not comply with their specifications and that they incurred additional costs to install the nonconforming goods. Approximately five or six months after start up of the chillers, a DOE representative notified Gardner Zemke of problems with two of the chillers. In a series of letters, Gardner Zemke requested on-site warranty repairs. Through its manufacturer’s representative, Dunham Bush offered to send its mechanic to the job site to inspect the chillers and absorb the cost of the service call only if problems discovered were within any component parts it provided. Further, Dunham Bush required that prior to the service call a purchase order be issued from the DOE, to be executed by Dunham Bush for payment for their services in the event their mechanic discovered problems not caused by manufacturing defects. Gardner Zemke rejected the proposal on the basis that the DOE had a warranty still in effect for the goods and would not issue a separate purchase order for warranty repairs. Ultimately, the DOE hired an independent contractor to repair the two chillers. The DOE paid $24,245.00 for the repairs and withheld $20,000.00 from its contract with Gardner Zemke.1 This breach of contract action then ensued, with Gardner Zemke alleging failure by Dunham Bush to provide equipment in accordance with the project plans and specifications and failure to provide warranty service.

1

The government has the right to set off the remaining $4,245.00 from any other Gardner Zemke government contract. See Project Map, Inc. v. United States, 203 Ct. Cl. 52 (1973) (per curiam). CHAPTER FOUR: MUTUAL ASSENT  303 

and well it may be said that the product as it finally reads is not altogether satisfactory. Fla. On cross-motions for summary judgment. Llewellyn. Gardner Zemke filed an application for interlocutory appeal from the partial summary judgment in this Court. Gardner Zemke raises two issues: (1) the trial court erred as a matter of law in ruling that the Acknowledgment was a counteroffer.” Id. Llewellyn. the trial court granted partial summary judgment in favor of Dunham Bush. the principal draftsman of Article 2. King.” Bender’s Uniform Commercial Code Service (Vol. breach of code warranties. 10 U. and (2) Gardner Zemke proved breach of contract and contract warranty. Rev. L. III. described it as “[t]he heart of the Code. subtle. Why We Need the Uniform Commercial Code. 3. Recognizing its innovative purpose and complex structure Duesenberg and King further observe Section 2-207 “is one of the most important. § 3. Sales & Bulk Transfers Under The Uniform Commercial Code) § 3. unless acceptance is expressly made conditional on assent to the additional or different terms. Duesenberg & Lawrence P. and the trial court again ruled the Acknowledgment was a counteroffer which Gardner Zemke accepted by silence and that under the warranty provisions of the Acknowledgment. Karl N. ruling that its Acknowledgment was a counteroffer to the Gardner Zemke Order and that the Acknowledgment’s warranty limitations and disclaimers were controlling. Section 55-2-207 provides: (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon. which was denied. Richard W.02 at 3-13.01 at 3-2 (1992).Counteroffer & The Battle of the Forms  II. 367 (1957). A bench trial was held in December 1991.” Karl N. and damages. Gardner Zemke was not entitled to damages. On appeal. and difficult in the entire Code. Section 2-207 is characterized by commentators as a “crucial section of Article 2” and an “iconoclastic Code section. 304  CONTRACTS  .

or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.2d 924.” Leonard Pevar Co. together with any supplementary terms incorporated under any other provisions of this act [this chapter]. If the accepting terms were different from or additional to those in the offer. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. v. At common law. Corp. 926 (9th Cir. from a common law perspective. see also Silva v. Thus. 596 F. 1981). Evans Prods. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer. v. Dunham Bush. v. Inc. 677. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree. not an acceptance. the “mirror image” rule applied to the formation of contracts. 546 (D. 524 F. 1979).. Supp.  (2) The additional terms are to be construed as proposals for addition to the contract. the trial court’s conclusion that the Dunham Bush Acknowledgment was a counteroffer was correct. Relying on Section 2-207(1).M.. However. Gardner Zemke asserts that even though the Acknowledgment contained terms different from or in addition to the terms of their Order. Idaho Power Co. Westinghouse Elec. (b) they materially alter it. Del.. 678-79 (1973). 85 N. As Professors White and Summers explain: CHAPTER FOUR: MUTUAL ASSENT  305  .Gardner‐Zemke Co. it did not make acceptance expressly conditional on assent to the different or additional terms and therefore should operate as an acceptance rather than a counteroffer. and the terms of the acceptance had to exactly imitate or “mirror” the terms of the offer. Gardner Zemke argues that the trial court erred in concluding that the Dunham Bush Acknowledgment was a counteroffer rather than an acceptance. the result was a counteroffer. the drafters of the Code “intended to change the common law in an attempt to conform contract law to modern day business transactions. Noble. Id.

Where merchants exchange preprinted forms and the essential contract terms agree. Section 2-207 rejects the common law mirror image rule and converts many common law counteroffers into acceptances under 2-207(1). Where preprinted forms are used to structure deals. IT BEING STRICTLY UNDERSTOOD THAT THESE TERMS AND CONDITIONS BECOME A PART OF THIS ORDER AND THE ACKNOWLEDGMENT THEREOF. yet the parties usually assume they have a binding contract and act accordingly.Counteroffer & The Battle of the Forms  The rigidity of the common law rule ignored the modern realities of commerce. The face of the Acknowledgment states: IT IS UNDERSTOOD THAT OUR ACCEPTANCE OF THIS ORDER IS SUBJECT TO THE TERMS AND CONDITIONS ENUMERATED ON THE REVERSE SIDE HEREOF. despite the presence of additional and different terms. 1988) (footnotes omitted). or when “acceptance is expressly made conditional on assent to the additional or different terms”-whether a contract is formed under Section 2207(1) here turns on the meaning given this phrase. A responding document will fall outside of the provisions of Section 2-207(1) and convey a counteroffer. they rarely mirror each other. Handbook of the Law Under the Uniform Commercial Code § 1-3 at 29-30 (3d ed. The following was among the terms and conditions on the reverse side of the Acknowledgment. § 3. Summers. Section 2-207(1) provides that a document responding to an offer and purporting to be an acceptance will be an acceptance. White & Robert S. On its face. Failure of the Buyer to object in writing within five (5) days of receipt thereof to Terms of Sale contained in the Seller’s 306  CONTRACTS  .04 at 3-47 to -49. James J. only when its terms differ radically from the offer. Duesenberg & King. Dunham Bush argues that the language in its Acknowledgment makes acceptance expressly conditional on assent to the additional or different terms set forth in the Acknowledgment. a contract is formed under Section 2-207(1).

Fratello. Dunham Bush suggests that this Court has demonstrated alliance with the principles of Roto-Lith in Fratello v. or other communications. we cited Roto-Lith in support of the proposition that the additional term made the proposed stipulation a counteroffer. F. There. Id. Duesenberg & King. v.Gardner‐Zemke Co. Fratello involved the terms of a settlement agreement in which one party sent the other party a proposed stipulated order containing an additional term. Roto-Lith did not protest the terms of the acknowledgment and accepted and paid for the goods. shall be deemed an acceptance of such Terms of Sale by Buyer. Socorro Electric Cooperative. 524 F.M. at 500. Roto-Lith sent an order for goods to Bartlett. 378 (1988). Inc. a statement that the acknowledgment reflected the terms of the sale. Roto-Lith has been almost uniformly criticized by the courts and commentators as an aberration in Article 2 jurisprudence. Dunham Bush. In the context of the common law. 1962). the First Circuit’s analysis imposes the common law doctrine of offer and acceptance on language designed to avoid the common law result. While ostensibly interpreting Section 2207(1). v.. Id.. In support of its contention that the above language falls within the “expressly conditional” provision of Section 2-207. The court held the Bartlett acknowledgment was a counteroffer that became binding on Roto-Lith with its acceptance of the goods. which responded with an acknowledgment containing warranty disclaimers. § 1-3 at 36-37. White & Summers.2d 497 (1st Cir. reasoning that “a response which states a condition materially altering the obligation solely to the disadvantage of the offeror” falls within the “expressly conditional” language of 2-207(1). Dunham Bush urges that we adopt the view taken by the First Circuit in RotoLith. Bartlett & Co. § 3. Supp. We have never adopted Roto-Lith in the context of the Code and decline to do so now. at 498-99..  acceptance and/or acknowledgment. 107 N.05[1] at 3-61 to -62. Mindful of the purpose of Section 2-207 and the spirit of Article CHAPTER FOUR: MUTUAL ASSENT  307  . Leonard Pevar Co. and a provision that if the terms were unacceptable Roto-Lith should notify Bartlett at once. at 381. 297 F. 107 N.M. at 551 (and cases cited therein).P. Inc. Ltd.

v.2d at 926-27. Pa.. including receipt and retention of their form for ten days without objection.” the Court reasoned that it was not enough to make acceptance expressly conditional on additional or different terms. Diatom. 588 F. Collins & Aikman Corp. Concentrating its analysis on the concept of the offeror’s “assent. at 1168. Co. v. together with at least seven methods in which a buyer might acquiesce to their terms. 1972)... 1288 (E. An exchange of forms containing identical dickered terms. Id. 1576-77 (10th Cir.Counteroffer & The Battle of the Forms  2. the expressly conditional nature of the acceptance must be predicated on the offeror’s “assent” to those terms. will not propel the transaction into the “expressly conditional” language of Section 2-207(1) and confer the status of counteroffer on the responsive document. however worded. such as the identity. Reaction Molding Technologies. Inc. the Sixth Circuit considered terms in acknowledgment forms sent by Collins & Aikman similar to the terms in the Dunham Bush Acknowledgment. instead. The Collins & Aikman acknowledgments provided that acceptance of orders was subject to the terms and conditions of their form. we find the better approach suggested in Dorton v. such as warranty terms and a provision making the bargain subject to the terms and conditions of the offeree’s document. This approach has been widely accepted. and conflicting undickered boilerplate provisions. Idaho Power Co. and quantity of goods. it fails to provide a means for the determination of when a responsive document be308  CONTRACTS  . 741 F. 1984).2d 1569. General Elec.” Id.D. 453 F. 1984). Pennwalt Corp. Supp. While Dorton articulates a laudable rule. We agree with the court in Dorton that the inquiry focuses on whether the offeree clearly and unequivocally communicated to the offeror that its willingness to enter into a bargain was conditioned on the offerors “assent” to additional or different terms. price. 596 F.2d 1161 (6th Cir. The Court concluded that the “expressly conditional” provision of Section 2-207(1) “was intended to apply only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured of the offeror’s assent to the additional or different terms therein. Id. In Dorton. Inc. 1280.. at 1167-68.

CHAPTER FOUR: MUTUAL ASSENT  309  . Section 2-207 Of The Uniform Commercial Code: Another Word About Incipient Unconscionability. We adopt the rule in Dorton and add that whether an acceptance is made expressly conditional on assent to different or additional terms is dependent on the commercial context of the transaction. 597. relevant evidence of course of performance. and course of dealing and usage of the trade.Gardner‐Zemke Co. It requires consideration of the parties’ activities and interaction during the making of the bargain. As Professor Llewellyn explained.. Section 55-2-208. Why We Need the Uniform Commercial Code.”2 While the comment applies broadly and envisions recognition of contracts formed under a variety of circumstances. v. Alsup (In Re Anthony). 375 (1957). 98 n. 10 U. the proposed deal has been closed. 95. L. These comments are very useful in presenting something of the background and purposes of the sections. L. This determination requires a very fact specific inquiry. Fla. in commercial understanding. it guides us to application of the concept of “commercial understanding” to the question of formation. See 2 William D. Hawkland. Llewellyn. Discerning whether “commercial understanding” dictates the existence of a contract requires consideration of the objective manifestations of the parties’ understanding of the bargain. Uniform Commercial Code Series § 2-207:02 at 160 (1992) (“The basic question is whether. under the joint auspices of the Conference of Commissioners on Uniform State Laws and the American Law Institute. and when available.1 (1992). Rev.”). Karl N. Inc. Murray.. 367. The question guiding the inquiry should be whether the offeror could reasonably believe that in the context of the commercial setting in which the parties were acting. Section 55-1-205. Pitt. Jr.M. Rev. and of the way in which the details and policies build into a whole. Dunham Bush. 632-34 (1978) (discussing Dorton and 2 While we recognize that the Official Comments do not carry the force of law. a contract had been formed. See John E. the Comments were: prepared. In these aspects they greatly aid understanding and construction. as was the Code itself. 114 N.  comes a counteroffer. they are a part of the official text of the Code adopted by our legislature and we do look to them for guidance. Reardon v. 39 U. Official Comment 2 to Section 55-2-207 suggests that “[u]nder this article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract.

it does remain true to the spirit of Article 2. § 55-2-315 (implied warranty of fitness for a particular purpose). The Gardner Zemke Order provides that the “[m]anufacturer shall replace or repair all parts found to be defective during initial year of use at no additional cost. We will not attempt to make the factual determination necessary to characterize this transaction on the record before us. § 55-1-102(2)(b) (stating one purpose of the act is “to permit the continued expansion of commercial practices through custom.Counteroffer & The Battle of the Forms  identifying the commercial understanding of the reasonable buyer as the “critical inquiry”). The trial court’s treatment of this issue did not encompass the scope of the inquiry we envision. The Dunham Bush Acknowledgment contains the following warranty terms. In the interest of judicial economy. IV. Article 2 express and implied warranties arise by operation of law. we remand for reconsideration of the question. it will face the question of which terms will control in the exchange of forms. as it calls the trial court to consider the commercial setting of each transaction and the reasonable expectations and beliefs of the parties acting in that setting. usage and agreement of the parties”). In the event the trial court concludes that the Dunham Bush Acknowledgment constituted an acceptance. However. we proceed with our analysis. § 55-2-314 (implied warranty of merchantability). Section 55-2-313 (express warranties).” Because the Order does not include any warranty terms. at 600. WARRANTY: We agree that the apparatus manufactured by the Seller will be free from defects in material and workmanship for a period of one year under normal use and service and when properly installed: and our obligation un310  CONTRACTS  . Our analysis does not yield an iron clad rule conducive to perfunctory application. and because this determination is a question of law. Not satisfied that the trial court adequately considered all of the relevant factors in determining that the Dunham Bush Acknowledgment functioned as a counteroffer. Id.

§ 2-207:04 at 178-79. there are courts that disagree even with this proposition.2d at 1166. AS WELL AS ALL OTHER IMPLIED WARRANTIES. Inc. of any part or parts thereof which shall within one year from date of original installation or 18 months from date of shipment from factory to the original purchaser. Dorton.  der this agreement is limited solely to repair or replacement at our option. 896 (D. White & Summers. Duesenberg & King. Dunham Bush. 2 Hawkland. 453 F.. Colo. Nielsons. 647 F. AND IS IN LIEU OF AND IN DISCLAIMER AND EXCLUSION OF ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. … Our obligation to repair or replace shall not apply to any apparatus which shall have been repaired or altered outside our factory in any way … . v. The omission of the word “different” from Section 55-2-207(2) gives rise to CHAPTER FOUR: MUTUAL ASSENT  311  . IN LAW OR EQUITY. While Section 2-207(1) refers to both “additional or different” terms. at our factories. Corp. Inc. THIS AGREEMENT TO REPAIR OR REPLACE DEFECTIVE PARTS IS EXPRESSLY IN LIEU OF AND IS HEREBY DISCLAIMER OF ALL OTHER EXPRESS WARRANTIES. § 3. finding a contract under 2-207(1) and proceeding to apply 2-207(2) and 2-207(3)). whichever date may first occur be returned to us with transportation charges prepaid which our examination shall disclose to our satisfaction to have been defective.Gardner‐Zemke Co. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE DESCRIPTION HEREOF. Supp. However. 1986) (dealing with different terms. However. See Westinghouse Elec. The one proposition on which most courts and commentators agree at this point in the construction of the statute is that Section 2207(3) applies only if a contract is not found under Section 2207(1). The language of the statute makes it clear that “additional” terms are subject to the provisions of Section 2-207(2). § 1-3 at 35. AND OF ALL OTHER OBLIGATIONS OR LIABILITIES ON OUR PART. a continuing controversy rages among courts and commentators concerning the treatment of “different” terms in a Section 2-207 analysis. Section 2-207(2) refers only to “additional” terms. v.03[1] at 3-40.

and relying on the observation in Comment 4 that a clause negating implied warranties would “materially alter” the contract. and the Gardner Zemke warranty provision.” Duesenberg and King postulate that a “different” term in a responsive document operating as an acceptance can never become a part of the parties’ contract under the plain language of the statute. Mobile Oil Corp. 527 (Mo.” Duesenberg & King. how they are to be treated. 2 Hawkland. Id. Initially.2d 520.” they also admonish that “the Official Comments do not happen to be the statute. § 3. which provides “[w]hether or not additional or different terms will become part of the agreement depends upon the provisions of Subsection (2). 141 Cal. While conceding that Comment 3 “contributes to the confusion.5 (1977).03[1] at 3-38. The foundation for this position is found in Comment 3.W. 616 S. The reasoning supporting this position is that once an offeror addresses a subject it implicitly objects to variance of that subject by 312  CONTRACTS  . 157. That the terms in the Acknowledgment are “different” rather than “additional” guides the remainder of our inquiry and requires that we join the fray. § 2-207:03 at 168. § 3. Observing that “the drafters knew what they were doing.. § 55-2-207(2)(b). together with the Article 2 warranties would control. One view is that. Ct. Another approach is suggested by Duesenberg and King who comment that the ambiguity found in the treatment of “different” and “additional” terms is more judicially created than statutorily supported. Dean Machinery Co.” Armed with this statement in Comment 3. Steiner v. 165-66 n. 1981). Following this rationale in this case.05 at 3-52. and if not. the Dunham Bush warranty terms would not become a part of the contract. we briefly survey the critical and judicial approaches to the problem posed by “different” terms. proponents point to the ambiguity in the distinction between “different” and “additional” terms and argue that the distinction serves no clear purpose. v. in spite of the omission. and that they did not sloppily fail to include the term ‘different’ when drafting subsection (2). Boese-Hilburn Co.Counteroffer & The Battle of the Forms  the questions of whether “different” terms are to be dealt with under the provisions of Section 2-207(2). App. Rptr.. “different” terms are to be analyzed under Section 2-207(2).

and the stated Gardner Zemke and Article 2 warranty provisions apply. however. The import of Comment 6 is that “different” terms cancel each other out and that existing applicable code provisions stand in their place. The analysis arising from Comment 6. & Chems. Inc. 741 F. Inc. which in pertinent part states: Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself.Gardner‐Zemke Co. § 1-3 at 34. thereby preventing the “different” term from becoming a part of the contract by prior objection and obviating the need to refer to “different” terms in Section 55-2-207(2). As a result the requirement that there be notice of objection which is found in Subsection (2) is satisfied and the conflicting terms do not become a part of the contract. § 3. Daitom. 58 Wis.05[1] at 377. White & Summers. including Subsection (2). Professor Summers lends support to this position. 1578-79 (10th Cir.. Following a discussion similar to the one we have just inCHAPTER FOUR: MUTUAL ASSENT  313  .2d 193 (1973). Inc. Yet a third analysis arises from Comment 6. 1984). Fairbanks Morse. The obvious flaws in Comment 6 are the use of the words “confirming forms.2d 1569.” suggesting the Comment applies only to variant confirmation forms and not variant offer and acceptance forms. Pennwalt Corp. The contract then consists of the terms originally expressly agreed to.05[1] at 3-79. Inc. and a poorly drawn one at that. v.” Duesenberg & King. v. Air Prods.  the offeree. Dunham Bush. has found acceptance in numerous jurisdictions including the Tenth Circuit.. Of course. Duesenberg and King remind us that Comment 6 “is only a comment. and the reference to Subsection 55-2-207(2)-arguably dealing only with “additional” terms-in the context of “different” terms. v. terms on which the confirmations agree. and terms supplied by this act. Although indulging a different analysis. Id. § 3. following this view in the case before us creates a result identical to that flowing from application of the provisions of Section 2-207(2) as discussed above-the Dunham Bush warranty provisions fall out.

314  CONTRACTS  . and conscionable conduct. 98 Idaho 495. the Code may provide a term similar to one rejected. It is so ordered.S. we do not address the second issue raised by Gardner Zemke. appeal dismissed and cert. accord Southern Idaho Pipe & Steel Co. the court found this the preferable approach. However. we cannot conclude that the statute was intended to shift that advantage to the party sending the first form. 503-04 (1977). While Section 2-207 was designed to avoid the common law result that gave the advantage to the party sending the last form. In such cases. good faith. v. White & Summers. should the trial court conclude a contract was formed under Section 2-207(1).. § 1-3 at 33-35. denied. We do 268 find that the analysis relying on Comment 6 is the most consistent with the purpose and spirit of the Code in general and Article 2 in particular. Section 55-2-302. Inc. Such a result will generally follow from the first two analyses discussed. Cal-Cut Pipe & Supply. at 1579. and the warranty provisions of Article 2 will control. We are unable to find comfort or refuge in concluding that any one of the three paths drawn through the contours of Section 2-207 is more consistent with or true to the language of the statute. We are also aware that under this analysis even though the conflicting terms cancel out. there are times where the conduct of the parties makes realizing that goal impossible.Counteroffer & The Battle of the Forms  dulged. We adopt the third analysis as the most even-handed resolution of a difficult problem. the conflicting warranty provisions in the parties’ forms will cancel out. § 1-3 at 35. Sections 55-1-203 & -2-103(1)(b). Section 55-1-102(3). 1056 (1978). Professor White also finds merit in this analysis.” White & Summers. Application of this approach here cancels out the parties’ conflicting warranty terms and allows the warranty provisions of Article 2 to control. 434 U. Id. On remand. We agree with Professor White that “[a]t least a term so supplied has the merit of being a term that the draftsmen considered fair. we find guidance in the Code’s commitment to fairness. Due to our disposition of this case. We are mindful that the overriding goal of Article 2 is to discern the bargain struck by the contracting parties.

Step-Saver Data Systems.. It has also created a difficult choice for consumers. Step-Saver performed this function as a value added retailer for International Business Machine (IBM) products. and develop a package of hardware and software to satisfy those needs. I. therefore. The trial judge held that the terms of the Limited Use License Agreement governed the purchase of the package. v. CHAPTER FOUR: MUTUAL ASSENT  315  . granted the software producer. Circuit Judge:* The “Limited Use License Agreement” printed on a package containing a copy of a computer program raises the central issue in this appeal. 1991) Wisdom. data management. some companies will evaluate the needs of particular groups of potential computer users.S. FACTUAL AND PROCEDURAL BACKGROUND The growth in the variety of computer hardware and software has created a strong market for these products. but we do not find these issues warrant reversal. a directed verdict on claims of breach of warranty brought by a disgruntled purchaser. Court of Appeals for the Third Circuit 939 F. Step-Saver raises several other issues. We disagree with the district court’s determination of the legal effect of the license. John M. It would combine hardware and software to satisfy the word processing. and reverse and remand the warranty claims for further consideration. as they must somehow decide which of the many available products will best suit their needs. Beginning in 1981. therefore. Wyse Technology  Step‐Saver Data Sys.2d 91 (3d Cir. Wyse Technology  U. The Software Link. Inc. We. * Hon. United States Court of Appeals for the Fifth Circuit. sitting by designation. Inc. and. Inc v. Inc. compare those needs with the available technology. To assist consumers in this decision process. It originally marketed single computer systems. (“TSL”). based primarily on the IBM personal computer.Step‐Saver Data Systems. and communications needs for offices of physicians and lawyers. Wisdom. affirm in all other respects.

an operator could work with a word processing program on a terminal. MS-DOS was the standard operating system for IBM and compatible personal computers. designed to run under Microsoft’s Disk Operating System (“MS-DOS”). an employee of Step-Saver. the commands of each user are processed within each user’s computer. the three companies 1 2 3 In essence. with a set of computers.Counteroffer & The Battle of the Forms  As a result of advances in micro-computer technology. The main computer receives data from all of the terminals and processes it appropriately. the terminal appears to function as if it were. a user can access the programs available on the main computer. sending a return signal to the terminal. a computer. To someone working on one of the terminals of a properly operating multi-user system. For applications software. referred these complaints to Wyse and TSL.2 as well as several programs written by Step-Saver. the commands of all of the users are sent to the main computer for processing. After several preliminary attempts to address the problems.1 After evaluating the available technology. and sold one hundred forty-two systems mostly to law and medical offices before terminating sales of the system in March of 1987. With a multiuser system. Almost immediately upon installation of the system. Step-Saver selected a program by TSL. Thus. From these terminals. as the operating system for the multi-user system. Step-Saver began to receive complaints from some of its customers. and requested technical assistance in resolving the problems. twenty to twenty-five of the purchasers of the multi-user system had serious problems with the system that were never resolved. in fact. According to the testimony of Jeffrey Worthington. and it would appear to the operator the same as would working with the word processing program on a computer. Terminals are attached. by cable. 316  CONTRACTS  . in addition to conducting its own investigation of the problems. Step-Saver selected WY-60 terminals manufactured by Wyse. entitled Multilink Advanced. the terminals are simply video screens with keyboards that serve as input-output devices for the main computer.3 Step-Saver. and used an IBM AT as the main computer. Step-Saver included in the package several off-the-shelf programs. whereas with a multi-user system. The difference is that. StepSaver developed and marketed a multi-user system. to the main computer. only one computer is required. Step-Saver began marketing the system in November of 1986.

The court therefore granted TSL’s motion in limine to exclude all evidence of the earlier oral and written 4 5 6 See Step-Saver Data Sys. Step-Saver also advanced claims under negligent misrepresentation and breach of contract theories. 912 F. without modification. All three parties agree that the terminals and the program are “goods” within the meaning of UCC § 2-102 & 2-105. §§ 2101-2725 (Purdon 1984). 13 Pa.2d 643 (3d Cir.2d 670. see Ga. the relevant portions of Article 2 of the Uniform Commercial Code. finding that the issue was not ripe for judicial resolution. Wyse Technology  were unable to reach a satisfactory solution.Step‐Saver Data Systems. Stat. the problems were never solved. v. Unisys Corp. v. CHAPTER FOUR: MUTUAL ASSENT  317  . We affirmed the dismissal on appeal. seeking indemnity from either Wyse or TSL. Inc v. the district court held that the box-top license disclaimed all express and implied warranties otherwise made by TSL.6 Based on § 2-316 of the UCC.. Step-Saver does not appeal these claims. 674-76 (3d Cir. At least twelve of StepSaver’s customers filed suit against Step-Saver because of the problems with the multi-user system. 925 F. §§ 11-2-101 to 11-2-725 (1990).. TSL and Step-Saver have disputed whether Pennsylvania or Georgia law governs the issues of contract formation and modification with regard to the Multilink programs. Inc. for any costs incurred by Step-Saver in defending and resolving the customers’ law suits. Advent Sys. As a result. the district court specifically agreed with the basic contention of TSL that the form language printed on each package containing the Multilink Advanced program (“the boxtop license”) was the complete and exclusive agreement between Step-Saver and TSL under § 2-202 of the Uniform Commercial Code (UCC). Ltd. 1990).. we will simply cite to the relevant UCC provision. Cons. Wyse Tech. On the first day of trial. Step-Saver filed suit for declaratory judgment. Ann. Code Ann. 1991).4 Step-Saver then filed a second complaint alleging breach of warranties by both TSL and Wyse and intentional misrepresentations by TSL. Once it became apparent that the three companies would not be able to resolve their dispute amicably. The district court dismissed this complaint. Cf.5 The district court’s actions during the resolution of this second complaint provide the foundation for this appeal. and disputes developed among the three concerning responsibility for the problems. Because both Pennsylvania and Georgia have adopted. or both.

(4) The trial court abused its discretion by excluding from the evidence a letter addressed to Step-Saver from Wyse. The trial judge requested briefing on several issues related to Step-Saver’s remaining express warranty claim against TSL. 318  CONTRACTS  . and dismissed TSL from the case. directed a verdict in favor of TSL on Step-Saver’s remaining warranty claims. Over Step-Saver’s objection. after considering the additional briefing by Step-Saver and TSL. The jury returned a verdict in favor of Wyse on the two warranty issues submitted. the district court granted a directed verdict in favor of TSL on the intentional misrepresentation claim. The district court instructed the jury on the issues of express warranty and implied warranty of fitness for a particular purpose. and refused to instruct the jury on such warranty. the trial court permitted Wyse to proceed with its defense. (3) There was sufficient evidence to submit Step-Saver’s implied warranty of merchantability claim against Wyse to the jury.Counteroffer & The Battle of the Forms  express warranties allegedly made by TSL. While TSL and Step-Saver prepared briefs on these issues. (1) Step-Saver and TSL did not intend the box-top license to be a complete and final expression of the terms of their agreement. and (2) reasonable reliance by StepSaver. The trial proceeded on Step-Saver’s breach of warranties claims against Wyse. After Step-Saver presented its case. the trial judge. Step-Saver appeals on four points. At the conclusion of Wyse’s evidence. holding the evidence insufficient as a matter of law to establish two of the five elements of a prima facie case: (1) fraudulent intent on the part of TSL in making the representations. and by refusing to permit Step-Saver to introduce rebuttal testimony on the ordinary uses of the WY-60 terminal. (2) There was sufficient evidence to support each element of Step-Saver’s contention that TSL was guilty of intentional misrepresentation. the district judge denied Step-Saver’s request for rebuttal testimony on the issue of the ordinary uses of the WY-60 terminal. On the third day of Wyse’s defense. the district court found insufficient evidence to support a finding that Wyse had breached its implied warranty of merchantability.

or on either the purchase orders or the invoices CHAPTER FOUR: MUTUAL ASSENT  319  . and allegedly was assured by sales representatives that the new version was compatible with ninety percent of the programs available “offthe-shelf” for computers using MS-DOS. First. to ship the goods promptly. THE EFFECT OF THE BOX-TOP LICENSE The relationship between Step-Saver and TSL began in the fall of 1984 when Step-Saver asked TSL for information on an early version of the Multilink program. TSL would ship the order promptly. known as Multilink Advanced. (Step-Saver would typically order twenty copies of the program at a time. The invoice would contain terms essentially identical with those on Step-Saver’s purchase order: price. After these tests. along with an invoice. Step-Saver would send a purchase order.) TSL would accept the order and promise. detailing the items to be purchased. Step-Saver would telephone TSL and place an order. and shipping and payment terms. Inc v. without charge to permit Step-Saver to test the program to see what it could accomplish. Wyse Technology  II. Based on these representations. No reference was made during the telephone calls. Step-Saver noticed some advertisements in Byte magazine for a more powerful version of the Multilink program. quantity. Step-Saver would typically purchase copies of the program in the following manner. From August of 1986 through March of 1987. and conducted tests with the program. The sales representatives allegedly made a number of additional specific representations of fact concerning the capabilities of the Multilink Advanced program. Step-Saver obtained several copies of the Multilink Advanced program in the spring of 1986. known simply as Multilink. TSL provided Step-Saver with a copy of the early program. Step-Saver purchased and resold 142 copies of the Multilink Advanced program. while on the telephone. After the telephone order. Step-Saver performed some tests with the early program. and shipping and payment terms. Step-Saver decided to market a multi-user system which used the Multilink Advanced program. their price.Step‐Saver Data Systems. In the summer of 1985. but did not market a system based on it. Step-Saver requested information from TSL concerning this new version of the program.

350 (1908). Printed on the package of each copy of the program. Kewanee Oil Co. would simply rent a copy of the program. See Computer Software 320  CONTRACTS  . the companies. the owner of the copy could “sell or otherwise dispose of the possession of that copy” without the copyright holder’s consent. though. to avoid the federal copyright law first sale doctrine. software producers wanted to sue the companies that were renting the copies of the program to individual consumers. Typically. once the copyright holder has sold a copy of the copyrighted work. Compco Corp. 210 U. Roebuck & Co. Thus. amended the first sale doctrine as it applies to computer programs and phonorecords. Sears.S. Straus. in large part. 225 (1964). v.S. Inc. however. however. instead of purchasing their own copy of the program..S.S.Counteroffer & The Battle of the Forms  with regard to a disclaimer of any warranties. 376 U. but usually it would be far too expensive for the copyright holder to identify and sue each individual copier. By characterizing the original transaction between the software producer and the software rental company as a license. Day-Brite Lighting. would purchase a number of copies of each program.7 7 When these form licenses were first developed for software. one could purchase a copy of a computer program. v. 234 (1964). See generally Bonito Boats. it was. 470 (1974). 141 (1989). as to whether the use of state contract law to avoid the first sale doctrine would be preempted either by the federal copyright statute (statutory preemption) or by the exclusive constitutional grant of authority over copyright issues to the federal government (constitutional preemption). See Bobbs-Merrill Co. Congress recognized the problem. Under the first sale doctrine. rather than the individual consumers. Inc.. Bicron Corp. Consumers. Under this doctrine. software producers hoped to avoid the reach of the first sale doctrine and to establish a basis in state contract law for suing the software rental companies directly. Questions remained.. software producers were justifiably concerned that companies would spring up that would purchase copies of various programs and then lease those to consumers. nontransferable license to use the program.. and then lease it or lend it to another without infringing the copyright on the program.S. 17 U. Thunder Craft Boats. Inc.C. in 1990. The first sale doctrine.S. 489 U. § 109(a) (West 1977). The box-top license contains five terms relevant to this action: (1) The box-top license provides that the customer has not purchased the software itself. like a videotape rental store. but has merely obtained a personal. and then make them available for over-night rental to consumers. Stiffel Co. and. v. and by making the license personal and non-transferable. even under a theory of contributory infringement.A. 416 U. rather than a sale. 339. stood as a substantial barrier to successful suit against these software rental companies. v. Because of the ease of copying software. and duplicate it. This copying by the individual consumers would presumably infringe the copyright. 376 U. v. would be a copy of the box-top license.

1442 (9th Cir. While these transactions took place in 1986-87.. CHAPTER FOUR: MUTUAL ASSENT  321  8 . L. (3) The box-top license provides that the sole remedy available to a purchaser of the program is to return a defective disk for replacement. disclaims all express and implied warranties except for a warranty that the disks contained in the box are free from defects. See Diamond Fruit Growers. you should promptly return the package unopened to the person from whom you purchased it within fifteen days from date of purchase and your money will be refunded to you by that person. See 17 U. 794 F.A. we review the district court’s resolution of these questions de novo. as a matter of law. the license excludes any liability for damages. direct or consequential.C. that the box-top license was the final and complete expression of the terms of the parties’s agreement. 1986). 101-650. 5134 (codified at 17 U. there was no need to characterize the transactions between Step-Saver and TSL as a license to avoid the first sale doctrine because both Step-Saver and TSL agree that Step-Saver had the right to resell the copies of the Multilink Advanced program. a purchaser of a copy of a copyrighted computer program may still sell his copy to another without the consent of the copyright holder.A. before the Computer Software Rental Amendments were enacted. in detail and at some length. caused by the use of the program. which provides that the box-top license is the final and complete expression of the terms of the parties’s agreement. (5) The box-top license states: “Opening this package indicates your acceptance of these terms and conditions. 104 Stat.Step‐Saver Data Systems. § 109(b) (West Supp. the first sale doctrines permits only non-profit libraries and educational institutions to lend or lease copies of software and phonorecords. (Under the amended statute. If you do not agree with them. v. Inc v.8 Rental Amendments Act of 1990. § 109(b)(1)(A) (West Supp.) This amendment renders the need to characterize the original transaction as a license largely anachronistic.2d 1440. As amended. 1991). Wyse Technology  (2) The box-top license.S.S. Krack Corp. Inc.C.” The district court. without much discussion. Pub. No. held. (4) The box-top license contains an integration clause. Because the district court decided the questions of contract formation and interpretation as issues of law. 1991)).

Step-Saver argued that the box-top disclaimer is either unconscionable or not in good faith.. (b) they materially alter it. courts have typically treated the questions of formation and interpretation as separate from the question of when the contract becomes enforceable.10 Alternatively. (2) The additional terms are to be construed as proposals for addition to the contract.E. the parol evidence rule of UCC § 2-202 would not apply. v.). on the telephone. argues Step-Saver. v. unless acceptance is expressly made conditional on assent to the additional or different terms. 1988). In such case the terms of the particular contract consist of those terms on which the writings of the parties agree. Ct.2d 1228. e.2d 741. the oral contract would not be enforceable in the absence of a writing or part performance because each order typically involved more than $500 in goods.. Funder America. 1977). Super. 11 Two other issues were raised by Step-Saver. 1232-33 (7th Cir. Ct.2d 1333 (1987). C. v.2d 505.Counteroffer & The Battle of the Forms  Step-Saver contends that the contract for each copy of the program was formed when TSL agreed.11 9 See UCC § 2-206(1)(b) and comment 2. and. 366 S. Hawley Fuel Coal. Step-Saver argues that inter322  CONTRACTS  .9 The box-top license. 525 A. 507-08 (N. therefore. denied. 743 (Pa. First.C. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. StepSaver argued that the warranty disclaimer was inconsistent with the express warranties made by TSL in the product specifications. Note that under UCC § 2-201. was a material alteration to the parties’s contract which did not become a part of the contract under UCC § 2-207. See. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer. 552 F. Jordan Int’l Co. to ship the copy at the agreed price. App.. Step-Saver argues that the undisputed evidence establishes that the parties did not intend the box-top license as a final and complete expression of the terms of their agreement. However. United Coal & Commodities Co. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon. Inc. 536 A. 10 Section 2-207 provides: Additional Terms in Acceptance or Confirmation. Second. Itoh & Co. app. or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. Southeastern Adhesives Co.g. together with any supplementary terms incorporated under any other provisions of the Act.

1985). Third. 1983). Because of our holding that the terms of the box-top license were not incorporated into the contract. 708 F. it did not accept Step-Saver’s telephone offer. Inc v. DOES UCC § 2-207 GOVERN THE ANALYSIS? As a basic principle. the terms of the box-top license were incorporated into the parties’s agreement. we do not address these issues. TSL has shipped the product. CHAPTER FOUR: MUTUAL ASSENT  323  . Therefore. Second. under UCC § 2-207. ITT Meyer Indus. TSL argues. TSL contends that too many material terms were omitted from the telephone discussion for that discussion to establish a contract for the software. we agree with Step-Saver that UCC § 2-207 governs our analysis. as a proposed modification under UCC § 2-209.Step‐Saver Data Systems. however the contract was formed. assented to the disclaimer. we first consider whether the license should be treated as an integrated writing under UCC § 2-202. Step-Saver was aware of the warranty disclaimer. The dispute is.2d 405 (8th Cir. not over the preting the form language of the license agreement to override the specific warranties contained in the product specification is unreasonable. by continuing to order and accept the product with knowledge of the disclaimer. TSL contends that its acceptance of Step-Saver’s telephone offer was conditioned on Step-Saver’s acceptance of the terms of the box-top license.. and that Step-Saver. We see no need to parse the parties’s various actions to decide exactly when the parties formed a contract. v. See also Northern States Power Co. therefore. and Step-Saver has accepted and paid for each copy of the program. or as a written confirmation under UCC § 2-207. which was accepted when Step-Saver opened each package. The parties’s performance demonstrates the existence of a contract. but made a counteroffer represented by the terms of the box-top license. and opened the program packaging. 777 F. Applied Digital Data Sys. citing Consolidated Data Terminals v. A.. we then consider whether. Wyse Technology  TSL argues that the contract between TSL and Step-Saver did not come into existence until Step-Saver received the program. TSL argues that. Finding that UCC § 2-207 best governs our resolution of the effect of the box-top license.2d 385 (9th Cir. saw the terms of the license. In analyzing these competing arguments.

and UCC § 2-209 permits the parties to modify an existing contract without additional consideration. As stated by the official comment to § 2-207: 1. e. 488 (6th Cir. where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or more of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. and the writings exchanged by the parties do not agree.g. In the absence of evidence demonstrating an express intent to adopt a writing as a final expression of. the President of StepSaver. Inc. any additional matter contained in the confirmation or in the acceptance falls within subsection (2) and must be regarded as a proposal for an added term unless the acceptance is made conditional on the acceptance of the additional or different terms. or a modification to. a writing will be a final expression of. … 2. In fact. 1989). UCC § 2207 determines the terms of the contract. 890 F.. 324  CONTRACTS  . Burroughs Corp.. 1989) (UCC § 2-202). Therefore. an earlier agreement. either as a final expression of. UCC § 2-209 extends only to “[a]n agreement to modify”.12 When the parties’s conduct establishes a contract. or a modification to. an earlier agreement only if the parties so intend. Under this Article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract. we find UCC 12 13 See McJunkin Corp. Sierra Diesel Injection Serv.. Mechanicals. but the nature of its terms. Inc. See. This section is intended to deal with two typical situations. the parties’s agreement. Barry Greebel.2d 481. By its terms. or a binding modification to. v.Counteroffer & The Battle of the Forms  existence of a contract.2d 108. The one is the written confirmation. but the parties have failed to adopt expressly a particular writing as the terms of their agreement. Although UCC § 2-202 permits the parties to reduce an oral agreement to writing.. 112-13 (9th Cir. testified without dispute that he objected to the terms of the box-top license as applied to Step-Saver. 888 F.13 It is undisputed that Step-Saver never expressly agreed to the terms of the box-top license. v.

realized. he would. Learning Annex. Hope springs eternal in the commercial world and expectations are usually. Diamond Fruit Growers.2d at 1443. Corp. and simultaneously made a counteroffer. 1984).. arises. and be bound by its terms. by his performance.g. e.2d 1569. 16 See. v. 830 F. while a party may desire the terms detailed in its form if a dispute. Summers.15 an acceptance that varied any term of the offer operated as a rejection of the offer. White & R. v. This result was known as the “last shot rule”.. these standard terms mean little.14 To understand why the terms of the license should be considered under § 2-207 in this case. The UCC. the terms of the party who sent the last form. constructively accept the terms of the “counteroffer”. CHAPTER FOUR: MUTUAL ASSENT  325  . § 1-2 at 34 (2d ed. 18 As Judge Engel has written: Usually. most parties do not expect a dispute to arise when they first enter into a contract. Inc. e. but not always. Instead. v.2d at 482.17 If the offeror proceeded with the contract despite the differing terms of the supposed acceptance.g. Under the common law of sales. in fact. would become the terms of the parties’s contract. 794 F.. Inc. typically the seller.g. 15 See.16 This common law formality was known as the mirror image rule.2d 541. 1578 (10th Cir. e. 654 F. J. Daitom.2d 1197. it recognized that. for a contract looks to its fulfillment and rarely anticipates its breach. McJunkin Corp. Inc.. 1206 (6th Cir.. 1981). Pennwalt Corp. most parties will proceed with the transaction even if they know that the terms of their form would not be enforced. Mechanicals. rejected this approach. 543 (4th Cir. Handbook of the Law Under the Uniform Commercial Code.18 The insight behind the rejec14 See Mead Corp. As a result. As a result of these rules. Inc v. because the terms of the acceptance had to mirror the terms of the offer to be effective. 1980). 741 F.. we review briefly the reasons behind § 2207. in § 2-207. 1987).Step‐Saver Data Systems. Inc. 17 See.. 888 F. Inc.. and to some extent still for contracts outside the UCC. McNally-Pittsburgh Mfg. v. Wyse Technology  § 2-207 to provide the appropriate legal rules for determining whether such an intent can be inferred from continuing with the contract after receiving a writing containing additional or different terms. Learning Works.

Thus. the terms detailed in the parties’s earlier writings or discussions. section 2-207 provides a default rule that the parties intended. nor did it. 654 F. and section 2-207 establishes important legal principles to be employed to resolve complex contract disputes arising from the exchange of business forms. 326  CONTRACTS  . Thus. and the question of 19 As the Mead Court explained: Absent the [UCC]. those terms to which both parties have agreed. even though those terms differed substantially from those previously discussed by the parties. is best seen as one more form in a battle of forms. Mead Corp.. the terms of the box-top license. simply because the seller sent the last form. However. at any time. comment 1. Instead. TSL contented itself with attaching the terms to the packaging of the software.2d at 1206 (citations omitted). 20 The parties may demonstrate their acceptance of a particular term either “orally or by informal correspondence”. obtain Step-Saver’s express assent to. the [UCC] provides rules of law. UCC § 2207 establishes a legal rule that proceeding with a contract after receiving a writing that purports to define the terms of the parties’s contract is not sufficient to establish the party’s consent to the terms of the writing to the extent that the terms of the writing either add to. and the adoption of section 2-207. The reasons that led to the rejection of the last shot rule. TSL never mentioned during the parties’s negotiations leading to the purchase of the programs.19 In the absence of a party’s express assent to the additional or different terms of the writing. In our view. as the terms of their agreement. apply fully in this case. when neither party cared sufficiently to establish expressly the terms of their agreement. UCC 2-207. questions of contract formation and intent remain factual issues to be resolved by the trier of fact after careful review of the evidence.Counteroffer & The Battle of the Forms  tion of the last shot rule is that it would be unfair to bind the buyer of goods to the standard terms of the seller. or by placing the term in their respective form. in this case. or differ from. Section 2-207 was intended to provide some degree of certainty in this otherwise ambiguous area of contract law.20 along with any terms implied by the provisions of the UCC. the box-top license. it is unreasonable and contrary to the policy behind the [UCC] merely to turn the issue over to the uninformed speculation of the jury left to apply its own particular sense of equity.

TSL argues that the following terms were only defined in the boxtop license: (1) the nature of the transaction. if any. Third. thereby consenting to the terms of the license. Wyse Technology  whether Step-Saver has agreed to be bound by the terms of the boxtop license is best resolved by applying the legal principles detailed in section 2-207. TSL argues that Step-Saver. TSL argues that the box-top license was a conditional acceptance and counter-offer under § 2-207(1). CHAPTER FOUR: MUTUAL ASSENT  327  . it appears that the following terms. APPLICATION OF § 2-207 TSL advances several reasons why the terms of the box-top license should be incorporated into the parties’s agreement under a § 2-207 analysis. and (2) the warranties. available. B. First. without referring to the box-top license. and opened the package. TSL argues that a contract defined without reference to the specific terms provided by the box-top license would necessarily fail for indefiniteness.Step‐Saver Data Systems. (2) the quantity. 1.21 From the evidence. consented to the terms of the box-top license. apart from the box-top license: (1) the specific goods involved. TSL argues that it is impossible to tell. sale or license. and that several critical terms could only be determined by referring to the box-top license. whether the parties intended a sale of a copy of the program or a license to use a copy. saw the terms of the box-top license. TSL cites Bethlehem Steel Corp. Second. TSL argues that the parties’s contract was not formed until Step-Saver received the package. WAS THE CONTRACT SUFFICIENTLY DEFINITE? TSL argues that the parties intended to license the copies of the program. Litton Industries in support of its position that any contract defined without reference to the terms of the box-top license would fail for indefiniteness. v. TSL argues that these two terms 21 507 Pa. 88 (1985). and (3) the price. at the least. by continuing to order and use the product with notice of the terms of the box-top license. Inc v. were discussed and agreed to. Pressing the point.

Finalco. We hold that contract was sufficiently definite without the terms provided by the box-top license.g.2d 494 (N.E. App.D. 1987). 25 See. while Step-Saver could do so under the federal copyright law if it had purchased the copy. 129 A.. the UCC provides for express and implied warranties if the seller fails to disclaim expressly those warranties. v. the two terms cited by TSL are not “gaping holes in a multi-million dollar contract that no one but the parties themselves could fill. Step-Saver could not transfer the copies without TSL’s consent. 374 N. App.2d at 591. even though warranties are an important term left blank by the parties. 1978)..2d 1123 (Ill. Even if we assume that federal law would not preempt state law enforcement of this aspect of the license. Co.”22 First.Counteroffer & The Battle of the Forms  are essential to creating a sufficiently definite contract. We disagree. The most significant difference would be that. the rights of the respective parties under the federal copyright law if the transaction is characterized as a sale of a copy of the program are nearly identical to the parties’s respective rights under the terms of the box-top license.25 2. the default rules of the UCC fill in that blank. 328  CONTRACTS  . 2-313. 24 See UCC § 2-312.24 Thus.Y. & 2-315. Div. this difference is not material to this case in that both parties agree that Step-Saver had the right to transfer the copies to purchasers of the Step-Saver multi-user system. 22 23 488 A. Section 2-204(3) of the UCC provides: 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. Ct. Unlike the terms omitted by the parties in Bethlehem Steel Corp. under the terms of the license. Inc..23 Second. e. Trent. URSA Farmers Coop. First. 2-314. THE BOX-TOP LICENSE AS A COUNTER-OFFER? TSL advances two reasons why its box-top license should be considered a conditional acceptance under UCC § 2-207(1). City University of New York v.

v. 1990). To determine whether a writing constitutes a conditional acceptance. TSL argues that the box-top license. 550 (Pa. Dist. Edenfield. establishes that TSL’s acceptance was conditioned on Step-Saver’s assent to the terms of the box-top license. Inc v.. Super. App. 888 F..30 Under the first test. we consider these three tests to determine which test the state courts would most likely apply. by permitting return of the product within fifteen days if the purchaser27 does not agree to the terms stated in the license (the “refund offer”). Wyse Technology  TSL argues that the express language of the box-top license.28 While we are not certain that a conditional acceptance analysis applies when a contract is established by performance. 29 Even though a writing is sent after performance establishes the existence of a contract. including the integration clause and the phrase “opening this product indicates your acceptance of these terms”. by doing so. v. an offeree’s response is a conditional acceptance to the extent it states a term “materially altering the contrac26 27 UCC § 2-207(1). 28 426 So. See Herzog Oil Field Serv. Ct. v.Step‐Saver Data Systems. but. courts have analyzed the effect of such a writing under UCC § 2-207. do not mean to resolve the sale-license question. CHAPTER FOUR: MUTUAL ASSENT  329  . Otto Torpedo Co.2d at 1574-75. even though a proposed deal has been closed.29 we assume that it does and consider TSL’s arguments. Mechanicals. 741 F. any additional matter contained in the confirmation or in the acceptance falls within subsection (2) and must be regarded as a proposal for an added term unless the acceptance is made conditional on the acceptance of the additional or different terms. Inc. McJunkin Corp. 30 See Daitom. In the remainder of the opinion. Therefore. Ct.2d at 487. Under this Article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract. made TSL’s acceptance “expressly conditional on assent to the additional or different terms”. citing Monsanto Agricultural Products Co..2d 549. 2. Inc. 1982). we will refer to the transaction as a sale for the sake of simplicity.2d 574 (Fla. the conditional acceptance analysis still applies in determining which writing’s terms will define the contract. Because neither Georgia nor Pennsylvania has expressly adopted a test to determine when a written confirmation constitutes a conditional acceptance. courts have established three tests.26 Second. 570 A. The official comment to UCC 2-207 suggests that.

Roto-Lith Ltd. e. 794 F. we note that adopting this test would conflict with the express provision of UCC § 2-207(2)(b). Super.2d at 1444.. alone. and is conditional. Inc.Counteroffer & The Battle of the Forms  tual obligations solely to the disadvantage of the offeror”..32 a Pennsylvania Superior Court analyzed a term in a written confirmation under UCC § 2-207(2). 654 F. If the sole evidence of assent to the terms of the counteroffer is from the conduct of the parties in proceeding with the transaction.g.P.33 Furthermore. these courts typically avoid finding a contract on the terms of the counteroffer by requiring the offeree/counterofferor to establish that the offeror assented to the terms of the counteroffer. Generally. Westinghouse Elec. v.31 Pennsylvania. at least. Idaho Power Co. 32 570 A. 1962). Ct. is not sufficient to establish assent by the offeror to the terms of the counteroffer.2d at 1215. rather than as a conditional acceptance even though the term materially altered the terms of the agreement to the sole disadvantage of the offeror. e. Inc. Note that even though an acceptance contains the key phrase. Bartlett & Co. Unit B Aug. has implicitly rejected this test. Diamond Fruit Growers. additional terms in a written confirmation that “materially alter [the contract]” are construed “as proposals for addition to the contract”.. 833 F. Diamond Fruit Growers.2d 497 (1st Cir.2d 1210.2d at 1576.35 31 Daitom... see McJunkin Corp. See.2d 549 (Pa. v. 741 F. Automatic Steam Prods. Inc.g. 1979).2d at 550. 33 The seller/offeree sent a written confirmation that contained a term that provided for attorney’s fees of 25 percent of the balance due if the account was turned over for collection.g. See.. v. 297 F. 570 A.. In Herzog Oil Field Service. Inc. 888 F. not as conditional acceptances.. Inc.. Coastal Indus.2d at 488. See. 596 F... Corp. 330  CONTRACTS  . Under § 2-207(2)(b). Corp.2d at 1443. A second approach considers an acceptance conditional when certain key words or phrases are used. 1981).34 The third approach requires the offeree to demonstrate an unwillingness to proceed with the transaction unless the additional or different terms are included in the contract. 34 Ralph Shrader. 794 F. then the courts generally define the terms of the parties’s agreement under § 2-207(3).. 1987). 35 See.g. v. e.2d 924. Inc.. e.2d at 1576. Ralph Shrader. acceptance of the goods. 1990). Daitom. 833 F. Inc. 926 (9th Cir. such as a written confirmation stating that the terms of the confirmation are “the only ones upon which we will accept orders”. 1214 (6th Cir. Diamond Int’l Corp.2d 375 (5th Cir. F... 741 F.

794 F.38 this type of language provides no real indication that the party is willing to forego the transaction if the additional language is not included in the contract. cf. Section 2-207 attempts to distinguish between: (1) those standard terms in a form confirmation.2d at 1444. Instead. As other courts have recognized.. would not be automatically bound to the terms of the box-top license. Because the writings of the parties did not agree on the warranty disclaimer and limitation of remedies terms. 39 One Florida Court of Appeals has accepted such an offer as a strong indication of a conditional acceptance. the box-top license version of those terms would not be included in the parties’s contract. Ralph Shrader. Inc.. Inc.g...2d at 926-27. but Step-Saver. courts have applied UCC § 2-207(3) to determine the terms of the parties’s agreement. Monsanto Agricultural Prods. it is apparent that the integration clause and the “consent by opening” language is not sufficient to render TSL’s acceptance conditional.37 Using this test. 38 See. the default provisions of the UCC would govern. See Diamond Fruit Growers. 833 F. The terms of the agreement would be those “on which the writings of the parties agree. 426 So. The third test properly places the burden on the party asking a court to enforce its form to demonstrate that a particular term is a part of the parties’s commercial bargain. On its face. 596 F. The second provision provides a more substantial indication that TSL was willing to forego the contract if the terms of the box-top license were not accepted by Step-Saver. 37 See Diamond Fruit Growers.. Wyse Technology  Although we are not certain that these last two approaches would generate differing answers. the box-top license states that TSL will refund the purchase price if the purchaser does not agree to the terms of the license. Inc. Idaho Power Co. together with any supplementary terms incorporated under any other provisions of this Act. Inc v.2d at 575-76. which the party would like a court to incorporate into the contract in the event of a dispute.39 Even with such a 36 Under the second approach. and (2) the actual terms the parties understand to govern their agreement. CHAPTER FOUR: MUTUAL ASSENT  331  . 794 F.. rather. e.” UCC § 2-207(3). Co. the box-top license might be considered a conditional acceptance.36 we adopt the third approach for our analysis because it best reflects the understanding of commercial transactions developed in the UCC. by accepting the product.Step‐Saver Data Systems.2d at 1215.2d at 1444-45.

as Step-Saver was not the end user of the Multilink Advanced program. that it was willing to forego its sales to Step-Saver unless Step-Saver agreed to the terms of the box-top license. the purchaser may use it despite the refund offer.Counteroffer & The Battle of the Forms  refund term. But we need not decide whether such a refund offer could ever amount to a conditional acceptance. Such an inference is inconsistent with the fact that both parties agree that the terms of the box-top license did not represent the parties’s agreement with respect to Step-Saver’s right to transfer the copies of the Multilink Advanced program. TSL on two occasions asked Step-Saver to sign agreements that would put in formal terms the relationship between Step-Saver and TSL. 332  CONTRACTS  . Both proposed agreements contained warranty disclaimer and limitation of remedy terms similar to those contained in the box-top license. the undisputed evidence in this case demonstrates that the terms of the license were not sufficiently important that TSL would forego its sales to Step-Saver if TSL could not obtain Step-Saver’s consent to those terms. by Step-Saver. regardless of the additional terms specified after the contract formed. As discussed. however. When an offeree proceeds with a contract with constructive knowledge of the terms of the offer. TSL asks us to infer. the offeree is typically bound by those terms. Step-Saver refused to sign the agreements. nevertheless. making the conditional acceptance finding unnecessary to the result reached in Monsanto. Additionally. Supporting this testimony. Mr. Although the box-top license prohibits the transfer. TSL continued to sell copies of Multilink Advanced to Step-Saver. both parties agree that Step-Saver was entitled to transfer its copies to the purNote that the Monsanto warranty label was conspicuous and available to the purchaser before the contract for the sale of the herbicide was formed. based on the refund offer. Greebel testified that TSL assured him that the box-top license did not apply to Step-Saver. of its copies of the program. Because a purchaser has made a decision to buy a particular product and has actually obtained the product. the offeree/counterofferor may be relying on the purchaser’s investment in time and energy in reaching this point in the transaction to prevent the purchaser from returning the item.

DID THE PARTIES’S COURSE OF DEALING ESTABLISH THAT THEY HAD EXCLUDED ANY EXPRESS OR IMPLIED WARRANTIES ASSOCIATED WITH THE SOFTWARE? TSL argues that because Step-Saver placed its orders for copies of the Multilink Advanced program with notice of the terms of the box-top license. therefore. a “course of dealing” or “course of performance” analysis focuses on the actions of the parties with respect to a particular issue. The box-top license did not. while others such as the non-transferability provision were not. Thus. CHAPTER FOUR: MUTUAL ASSENT  333  ..41 Because this is the 40 A “course of performance” refers to actions with respect to the contract taken after the contract has formed. Inc v. for example. Step-Saver is bound by the terms of the box-top license. 41 See Nanakuli Paving & Rock Co. 3.” UCC § 1-205. Ordinarily. Based on these facts. 1981). such as the warranty disclaimers. were essential to TSL.Step‐Saver Data Systems. constitute a conditional acceptance under UCC § 2-207(1). “A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. v. 664 F.2d 772 (9th Cir. Essentially. we conclude that TSL did not clearly express its unwillingness to proceed with the transactions unless its additional terms were incorporated into the parties’s agreement. a jury may infer that the parties have incorporated such a term in their agreement by their course of performance. the repeated expression of those terms by TSL eventually incorporates them within the contract. Wyse Technology  chasers of the Step-Saver multi-user system. a supplier of asphaltic paving material on two occasions gives a paving contractor price protection. Shell Oil Co.40 If. We see no basis in the terms of the boxtop license for inferring that a reasonable offeror would understand from the refund offer that certain terms of the box-top license. TSL was willing to proceed with the transaction despite the fact that one of the terms of the box-top license was not included in the contract between TSL and Step-Saver. TSL is arguing that. even if the terms of the box-top license would not become part of the contract if the case involved only a single transaction. UCC § 2-208(1).

9 (7th Cir.42 most courts have rejected such reasoning. 882 F. As support for its position. the repeated exchange of forms by the parties only tells Step-Saver that TSL desires certain terms.2d at 715.. In Barliant.. Ct. 831 F. without any action with respect to the issues addressed by those terms. 714-15 (7th Cir.. 366 S. we hold that the repeated sending of a writing which contains certain standard terms. In contrast. Inc. App. Diamond Fruit Growers. Nevertheless. which included charges for freight and warehousing even though the agreement specified charges were F. Trans-Aire Int’l v. the Schulze Court held that. the buyer had paid some twentyfour invoices. 882 F.2d at 1445..E. the buyer waived any right to complain that the charges should not have been included. the Schulze Court cites Barliant v.Counteroffer & The Battle of the Forms  parties’s first serious dispute. there was no conduct by either party indicating how disputes were to be resolved. 483 N. e. First..2d 709.B.2d 1312 (Ill.2d at 507-08. Yet. Inc. Northern Adhesive Co.2d 1254. The court found that the buyer had paid the invoices with knowledge of the additional charge for freight and warehousing. 1987). the parties have not previously taken any action with respect to the matters addressed by the warranty disclaimer and limitation of liability terms of the box-top license. We note that the Seventh Circuit refused to follow Schulze in a more recent case raising the same issue. Reichhold Chemicals. Because of this conduct with respect to the term in question.2d 676.2d at 1262-63 & n. 483 N. neither party had taken any action with respect to the arbitration provision. 1989)..E. Inc. v. Southeastern Adhesives Co.. cannot constitute a course of dealing which would incorporate a term of the writing otherwise excluded under § 2-207.O.E. 794 F. See Trans-Aire Int’l v.43 For two reasons. Tree Top. 334  CONTRACTS  . 1989). because the provision had been repeated in nine previous invoices. the facts and result in Barliant do not support the reasoning in Schulze.Y.S. TSL seeks to extend the course of dealing analysis to this case where the only action has been the repeated sending of a particular form by TSL.Y. Given TSL’s failure to obtain Step-Saver’s express assent to 42 See Schulze & Burch Biscuit Co. Tuck Industries v. in Schulze. Follett Corp.g.2d at 1314-15. Div. 831 F. While one court has concluded that terms repeated in a number of written confirmations eventually become part of the contract even though neither party ever takes any action with respect to the issue addressed by those terms.. 1985).9. 1262-63 & n. App. Because no disputes had arisen. it became part of the parties’s bargain. 542 N. 678 (N. 43 See. Nevertheless. Northern Adhesive Co.

The seller’s unwillingness or inability to obtain a negotiated agreement reflecting its terms strongly suggests that. With regard to more specific evidence as to the parties’s course of dealing or performance. Step-Saver might well be surprised to learn that the terms of the box-top license have been incorporated into the parties’s agreement. it appears that the parties have not incorporated the warranty disclaimer into their agreement. whose terms would otherwise be excluded under UCC § 2-207. But we hold that the actions of TSL in repeatedly sending a writing. when first notified of the problems with the program. Step-Saver refused to sign the proposed agreements. Step-Saver can reasonably believe that. there is the evidence that TSL tried to obtain Step-Saver’s express consent to the disclaimer and limitation of damages provision of the box-top license. Inc v. we are not convinced that TSL’s unilateral act of repeatedly sending copies of the box-top license with its product can establish a course of dealing between TSL and Step-Saver that resulted in the adoption of the terms of the box-top license. UCC § 2-207. First. those terms are not a part of the parties’s commercial bargain. while TSL desires certain terms. Wyse Technology  these terms before it will ship the program. while the seller would like a court to incorporate its terms if a dispute were to arise. 44 Cf. CHAPTER FOUR: MUTUAL ASSENT  335  . comment 4 (suggesting that terms that “materially alter” a contract are those that would result in “surprise or hardship if incorporated without express awareness by the other party”). Second. For these reasons. as TSL sought to do in this case. cannot establish a course of conduct between TSL and Step-Saver that adopted the terms of the writing. it has agreed to do business on other terms-those terms expressly agreed upon by the parties. the seller in these multiple transaction cases will typically have the opportunity to negotiate the precise terms of the parties’s agreement. Second. Course of conduct is ordinarily a factual issue.Step‐Saver Data Systems. TSL spent considerable time and energy attempting to solve the problems identified by Step-Saver. even though Step-Saver would not be surprised44 to learn that TSL desires the terms of the box-top license. Thus.

ch. C. we note that at least two states have enacted statutes that modify the applicable contract rules in this area. §§ 51:1961-1966 (1987). La. 46 Louisiana Software License Enforcement Act. Edenfield. BASF Wyandotte Corp. If TSL wants relief for its business operations from this wellestablished rule. Monsanto Agricultural Prods. such disclaimers. that we are following the well-established distinction between conspicuous disclaimers made available before the contract is formed and disclaimers made available only after the contract is formed. See also Bowdoin v. PUBLIC POLICY CONCERNS. 426 So. 290-91 (4th Cir. TSL has raised a number of public policy arguments focusing on the effect on the software industry of an adverse holding concerning the enforceability of the box-top license. their arguments are better addressed to a legislature than a court. In that case. Inc. Indeed. Co.2d 287. are not incorporated into the parties’s agreement. an additional term detailed in the box-top license will not be incorporated into the parties’s contract if the term’s addition to the contract would materially alter the parties’s 45 Compare Hill v. between merchants. Showell Growers.2d 1543. Because the disclaimer was printed conspicuously on each can.S. Ann. We emphasize..46 but both Georgia and Pennsylvania have retained the contract rules provided by the UCC. 696 F. 1987) (disclaimers that were conspicuous before the contract for sale has formed are effective. R. the law implies his assent to the terms of the disclaimer. Stat.. 801-808 (1987). Illinois Software Enforcement Act. however. 817 F.Counteroffer & The Battle of the Forms  4.45 When a disclaimer is not expressed until after the contract is formed. v. 336  CONTRACTS  . the farmer had constructive knowledge of the terms of the disclaimer before the contract formed. when he selected each can of the herbicide from the shelf and purchased it.2d at 575-76. a farmer purchased seventy-three five gallon cans of a herbicide from a retailer. Ill. 1545 (11th Cir. post-sale disclaimers are ineffective). to the extent they materially alter the parties’s agreement. para. THE TERMS OF THE CONTRACT Under section 2-207. As a result. 1982). We are not persuaded that requiring software companies to stand behind representations concerning their products will inevitably destroy the software industry. UCC § 2-207 governs the interpretation of the contract. 29. and.

questions exist as to: (1) whether the statements by TSL were representations of fact.S. General Connectors Corp. 884 F. we must conclude that adding the disclaimer of warranty and limitation of remedies provisions from the box-top license would.2d at 678. 50 The following recent cases reach a similar conclusion concerning indemnity or warranty disclaimers contained in writings exchanged after the contract had formed: i.2d at 488-89. 542 N.Y. v. UCC § 2-207. (2) whether the custom in the trade is to exclude warranties and limit remedies in contracts between a software producer and its dealer. as did the warranty claims against Wyse.2d at 1445.2d at 155. The existence and nature of the warranties is primarily a factual question that we leave for the district court.2d at 1262-63. Valtrol. 882 F. Northern Adhesive Co. General Connectors Corp.50 Based on these considerations. Wyse Technology  agreement.2d 149. Bowdoin. Inc. Because the district court considered the box-top license to exclude all of these warranties.48 but assuming that these warranties were included within the parties’s original agreement. From the record.2d at 1262-63. 794 F. Trans-Aire Int’l v.. 1989). Southeastern Adhesives Co.E. the box-top 47 48 UCC § 2-207(2)(b). Northern Adhesive Co. as a matter of law. and that valid implied warranties were also a part of the parties’s agreement. it appears that most of these issues are factual determinations that will require a trial. (3) whether Step-Saver relied on TSL’s alleged representations. Diamond Fruit Growers. Trans-Aire Int’l v. 366 S.2d at 507-08.. the disclaimer of warranty and limitation of remedies terms of the box-top license did not become a part of the parties’s agreement. 817 F. 155 (4th Cir. under UCC § 2-207(2)(b). Inc v. or mere statements of opinion. v.. For example. Inc. the district court did not consider whether other factors may act to exclude these warranties. 884 F.49 Therefore.Step‐Saver Data Systems..47 Step-Saver alleges that several representations made by TSL constitute express warranties.2d at 1545-46. 882 F. substantially alter the distribution of risk between Step-Saver and TSL. But we leave these issues open to the district court on remand. CHAPTER FOUR: MUTUAL ASSENT  337  .. Inc. official comment 4. Tuck Industries. 888 F. and (4) whether Step-Saver’s testing excluded some or all of these warranties. 49 See Valtrol. Despite the presence of an integration clause in the box-top license. or whether these warranties became a basis of the parties’s bargain.. we reverse the trial court’s holding that the parties intended the box-top license to be a final and complete expression of the terms of their agreement.

v.2d at 925-27 (applying UCC § 2-207 despite presence of integration clause in written confirmation). THE INTENTIONAL MISREPRESENTATION CLAIM AGAINST TSL We review the trial court’s decision to grant a directed verdict on the intentional misrepresentation claim de novo.S. 338  CONTRACTS  . 752 F. cert.. by clear and convincing evidence. Indian Coffee Corp.51 Because the warranty disclaimer and limitation of remedies terms would materially alter the parties’s agreement. (3) an intention to induce reliance.53 each essential element of Step-Saver’s fraud claim: (1) a material misrepresentation. 52 See.). these terms did not become a part of the parties’s agreement.S.2d 958.. Proctor & Gamble Co. 280.2d 23. 474 U. (4) justifiable reliance by the recipient upon the representation. StepSaver refers to several statements made in deposition testimony by the co-founders of TSL. 490 Pa. in its advertisement and in statements by its sales representatives. Mid-Atlantic Mausoleums.g.. Scaife Co. denied. 596 F. 446 Pa. 894 (3d Cir. 53 See Beardshall v. 963-64 (3d Cir. 407 U. 26 (3d Cir. cert.Counteroffer & The Battle of the Forms  license should have been treated as a written confirmation containing additional terms. We remand for further consideration the express and implied warranty claims against TSL. 863 (1985)..54 To support its intentional misrepresentation claim. 1988). Step-Saver 51 See Idaho Power Co. 277. Snell v. State Examining Bd. Rockwell-Standard Corp. v. 285 (1971)..52 We ask whether. Minuteman Press Int’l. Inc. a reasonable jury could find.. III. that the Multilink Advanced program was compatible with various MS-DOS application programs and with the Wyse terminal.2d 891. and (5) damage to the recipient proximately caused by the misrepresentation. 664 F. (2) an intention to deceive. and argues that these statements are sufficient to establish that TSL knew these compatibility representations were false at the time they were made. denied.. Inc. considering the evidence in the light most favorable to Step-Saver. 281 (1980). Step-Saver argues that TSL made specific claims. 54 See Kinnel v. In particular. 920 (1972). To demonstrate that TSL made these compatibility representations with an intent to deceive. 1981). 850 F. e.

While two computer products are not likely to be perfectly compatible.55 It is undisputed that the representations made by the sales representatives referred to practical compatibility. THE IMPLIED WARRANTY OF MERCHANTABILITY CLAIM AGAINST WYSE Step-Saver argues that there was sufficient evidence in the record to support a jury finding that the Wyse terminal was not “fit for the 55 We disagree with the holding by the district court that a representation of compatibility is a statement of opinion. Robertson’s statement was simply an expression of technical fact. Robertson. if they work together almost every time in almost every possible situation. the question of whether the degree of compatibility is consistent with industry standards is a question generally for the jury. “complete compatibility is almost virtually impossible to obtain”. CHAPTER FOUR: MUTUAL ASSENT  339  . absolute. Inc v. we agree with the district court that Mr. Robertson’s testimony referred to complete compatibility. Compatibility between two computer products can be tested and determined. IV. two products are compatible. that he did not know of any programs “completely compatible” with Multilink Advanced. every time. that TSL knew its representations concerning practical compatibility were false. not an indication that he knew that Multilink Advanced failed to satisfy industry standards for practical compatibility. while Mr. we. as those terms are used in the industry.Step‐Saver Data Systems. If two products are completely compatible. In determining whether Mr. Because of the differences between practical and complete compatibility. As Mr. In context. like the experts at trial. within the standards of the computer industry. Robertson’s testimony will support an inference of fraudulent intent. Wyse Technology  points to the statement by Mr. one of TSL’s cofounders. On the other hand. under the clear and convincing standard. or practical compatibility. rather than fact. and complete. Robertson’s testimony about “complete compatibility” will not support a finding. Robertson explained. they will work properly together in every possible situation. Mr. not the judge. or theoretical compatibility. distinguish between compatibility.

the terminals offered by Wyse’s two primary competitors. when in fact it was off. undisputed testimony by Wyse engineers established that the WY-60 terminals were built to industry-standard 56 57 UCC § 2-314(2)(c). the setting will not change but once. the WY-60 terminal originally had repeatable. if a user presses and holds a toggle key. As a result. In contrast. Wyse introduced undisputed testimony that a user would encounter the same compatibility problems when using the Multilink Advanced operating environment on either a Kimtron KT-7 terminal. Undisputed testimony also established that Wyse had sold over one million WY-60 terminals since the terminal’s introduction in April of 1986. For example. only to discover upon printing that the document was in all lower case letters. The only evidence introduced by Step-Saver on this issue was that certain features on the WY-60 terminal were not compatible with the Multilink Advanced operating environment. the terminal will switch from the present setting to the other setting. 340  CONTRACTS  . or a Link terminal. If a user presses and holds a repeatable NUM LOCK key. Even if the user continues to hold the key. In order to change the setting back to the prior setting.56 and that the trial judge should have permitted the jury to decide the implied warranty of merchantability issue. the user must release the key and press it again. Because of this. the terminal will switch back and forth between NUM LOCK on and NUM LOCK off as long as the user holds down the key. a user might type an entire document believing that the document was in all capital letters. While this evidence demonstrates some compatibility problems between the WY-60 terminal and the Multilink Advanced program. instead of toggle.57 NUM LOCK and CAPS LOCK keys. The combination of repeatable keys and the Multilink Advanced program caused the NUM LOCK or CAPS LOCK indicated by the terminal to become out of synchronicity with the actual setting followed by the computer. and that the WY-60 was the top-selling terminal in its class. Furthermore.Counteroffer & The Battle of the Forms  ordinary purposes for which such goods are used”. a terminal’s screen and keyboard might indicate that CAPS LOCK was on.

D.D. so too the components of a multi-user system.59 V. We will reverse the holding of the district court that the parties intended to adopt the box-top license as the complete and final ex58 Price Bros. the evidence of incompatibility with the Multilink Advanced operating system is not sufficient to support a finding that Wyse breached the implied warranty of merchantability. 471 U. Supp. see also Dugan & Meyers Constr. Inc v.60 we hold that the exclusion of the unsent letter and the refusal to permit rebuttal testimony on the issue of the ordinary uses of the WY-60 terminal did not constitute an abuse of discretion.). cert. so too the WY-60 terminal. Philadelphia Gear Corp. built to industry standards for a certain size and thread. 752 F. Pa. denied. Co. the seller warrants only that the goods are of acceptable quality “when compared to that generally acceptable in the trade for goods of the kind. 155.. Under a warranty of merchantability. 1984). 454 U. 1099 (1981). cannot be considered unfit for its ordinary use simply because a particular nut does not fit it. cert. v.2d 1166.S. CHAPTER FOUR: MUTUAL ASSENT  341  . 157 (Bankr. 1990).. E. 649 F.. each piece must conform to certain specifications if the pieces are to work together properly. v. 746 F. It is apparent that when the pieces of a system intended to work together are designed and built independently. Wyse Tech. denied. Worthington Pump Corp. 1135 (1985). VI..R. 1986).”58 Because the undisputed testimony established that the WY-60 terminal conformed to the industry standard for terminals designed to operate in conjunction with an IBM AT. Wyse Technology  specifications for terminals designed to work with a multi-user system based on the IBM AT or XT. Just as a nut and bolt must be built in a certain manner to insure their fit.2d 416. Co. 1176 (6th Cir. 60 Step-Saver Data Sys. 57 B.S. For the reasons given on these two issues in the district court’s memorandum opinion rejecting Step-Saver’s motion for a new trial. 181. 424 (6th Cir. EVIDENTIARY RULINGS We have carefully reviewed the record regarding the evidentiary rulings. Just as a bolt. (USA). 59 See In re Franklin Computer Corp. v. Pa. Inc. 192-93 (E.Step‐Saver Data Systems.

Hill v. Finding a sufficient basis for the other decisions of the district court.C. Inc. we will affirm in all other respects. writing that “[t]he present record is insufficient to support a finding of a valid arbitration agreement between the parties or that the plaintiffs were given adequate notice of the arbitration clause. the judge refused. Yet an agreement to arbitrate must be enforced “save upon such grounds as exist at law or in equity for the revocation of any contract. § 2. 1997) Easterbrook. Doc342  CONTRACTS  . Are these terms effective as the parties’ contract. and they ask us to conclude that they therefore may go to court. the customers. Court of Appeals for the Seventh Circuit 105 F. Gateway asked the district court to enforce the arbitration clause.S. Gateway 2000. as is its right.” 9 U. A customer picks up the phone. Rich and Enza Hill.  U. We will remand for further consideration of Step-Saver’s express and implied warranty claims against TSL. said to govern unless the customer returns the computer within 30 days. that the product’s shortcomings make Gateway a racketeer (mail and wire fraud are said to be the predicate offenses). Presently a box arrives. kept the computer more than 30 days before complaining about its components and performance. § 16(a)(1)(A).3d 1147 (7th Cir. among other things. Circuit Judge. The Hills say that the arbitration clause did not stand out: they concede noticing the statement of terms but deny reading it closely enough to discover the agreement to arbitrate. leading to treble damages under RICO for the Hills and a class of all other purchasers.S. or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer’s assent? One of the terms in the box containing a Gateway 2000 system was an arbitration clause.Counteroffer & The Battle of the Forms  pression of the terms of their agreement.S. and gives a credit card number. orders a computer.” Gateway took an immediate appeal. 9 U. containing the computer and a list of terms.C. They filed suit in federal court arguing.

The district court concluded in ProCD that the contract is formed when the consumer pays for the software. v. ProCD relied on the Uniform Commercial Code rather than any peculiarities of Wisconsin law. Canada Life Assurance Co. holds that terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product. as master of the offer. Carnival Cruise Lines. both Illinois and South Dakota. 681 (1996).3d 544. as a result. neither side has pointed us to any atypical doctrines in those states that might be pertinent. ProCD and Carnival Cruise Lines exemplify the many commercial transactions in which people pay for products with terms to follow. Chicago Pacific Corp. only terms known to the consumer at that moment are part of the contract. Gateway shipped computers with the same sort of accept-or-return offer ProCD made to users of its software. Inc. 517 U.. 585 (1991). Gateway 2000. 86 F. Terms inside Gateway’s box stand or fall together. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. CIGNA Securities. it is not the only way: “A vendor.” Id. Zeidenberg. Likewise.2d 334 (7th Cir.S. Inc. the two states whose law might govern relations between Gateway and the Hills. may invite acceptance by conduct. ProCD discusses others. 1996). v. 1996). If they constitute the parties’ contract because the Hills had an opportunity to return the computer after reading them. and provisos inside the box do not count.3d at 1451-52.  tor’s Associates. 547 (7th Cir. Although this is one way a contract could be formed. Shute. Carr v.. Inc. 86 F. v. people who accept take the risk that the unread terms may in retrospect prove unwelcome. 499 U. 850 F. A contract need not be read to be effective. enforces a forum-selection clause that was included among three pages of terms attached to a cruise ship ticket. have adopted the UCC. ProCD. Inc.Hill v. then all must be enforced. ProCD therefore applies to this dispute. 1988). CHAPTER FOUR: MUTUAL ASSENT  343  . Inc. and may propose limitations on the kind of conduct that constitutes acceptance.S. the court held. v. 95 F. holds that this provision of the Federal Arbitration Act is inconsistent with any requirement that an arbitration clause be prominent.3d 1447 (7th Cir. Casarotto. at 1452.

but where’s the sense in that? ProCD is about the law of contract. And oral recitation would not avoid customers’ assertions (whether true or feigned) that the clerk did not read term X to them. we add that the box from Gateway was crammed with software. The computer came with an operating system. Practical considerations support allowing vendors to enclose the full legal terms with their products. 1996).. even if it were sound legally-which it is not. Customers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation. If the staff at the other end of the phone for direct-sales operations such as Gateway’s had to read the four-page statement of terms before taking the buyer’s credit card number. So the Hills’ effort to limit ProCD to software would not avail them factually. or that they did not remember or understand it. and therefore does not apply because both parties’ performance of this contract was complete when the box arrived at their home. 73 F. Cashiers cannot be expected to read legal documents to customers before ringing up sales. the Hills contend that ProCD should be limited to executory contracts (to licenses in particular). v. insurance. and use instead a simple approve-or-return device. and factually because both contracts were incompletely performed. For what little it is worth. This is legally and factually wrong: legally because the question at hand concerns the formation of the contract rather than its performance.Counteroffer & The Battle of the Forms  Plaintiffs ask us to limit ProCD to software. Competent adults are bound by such documents. Gateway also included many application programs. Writing provides benefits for both sides of commercial transactions. we treated it as a contract for the sale of goods and reserved the question whether for 344  CONTRACTS  . 761 (7th Cir. Payment preceding the revelation of full terms is common for air transportation. Inc. the droning voice would anesthetize rather than enlighten many potential buyers. Others would hang up in a rage over the waste of their time. ProCD did not depend on the fact that the seller characterized the transaction as a license rather than as a contract. For their second sally. See Digital Equipment Corp. without which it was useful only as a boat anchor. Uniq Digital Technologies. and many other endeavors. not the law of software.3d 756. read or unread.

All debates about characterization to one side. Long-term service and information obligations are common in the computer business. both ProCD and Gateway promised to help customers to use their products. Plaintiffs tell us that ProCD came out as it did only because Zeidenberg was a “merchant” and the terms inside ProCD’s box were not excluded by the “unless” clause. so if arrival of the box with the product ends the time for revelation of contractual terms. these promises bind Gateway just as the arbitration clause binds the Hills. 86 F. Gateway offers “lifetime service” and has a round-the-clock telephone hotline to fulfill this promise. whether a CHAPTER FOUR: MUTUAL ASSENT  345  . One element of the transaction was the warranty.3d at 1450. The Hills have invoked Gateway’s warranty and are not satisfied with its response. Gateway 2000. then the time ended in ProCD before Zeidenberg opened the box.3d at 1452. Between merchants such terms become part of the contract unless …”. 2-207 is irrelevant. the transaction in ProCD was no more executory than the one here: Zeidenberg paid for the software and walked out of the store with a box under his arm. Some vendors spend more money helping customers use their products than on developing and manufacturing them. but how and when the contract was formed-in particular. Section 2-207(2) of the UCC. “sec. which concluded that. the infamous battle-of-the-forms section. so they are not well positioned to say that Gateway’s obligations were fulfilled when the motor carrier unloaded the box. This argument pays scant attention to the opinion in ProCD. But of course ProCD had not completed performance with delivery of the box.Hill v. and neither had Gateway. Next the Hills insist that ProCD is irrelevant because Zeidenberg was a “merchant” and they are not. What is more. Inc. when there is only one form. The document in Gateway’s box includes promises of future performance that some consumers value highly.” 86 F. which obliges sellers to fix defects in their products.  other purposes a “license” characterization might be preferable. on both hardware and software sides. The question in ProCD was not whether terms were added to a contract after its formation. states that “additional terms [following acceptance of an offer] are to be construed as proposals for addition to a contract.

Gateway’s box. What the remedy would be in such a case-could it exceed the shipping charges?-is an interesting question. not legal.” for merchants and consumers alike. How limited was the warranty-30 days. Consumers browsing the aisles of a store can look at the box.Counteroffer & The Battle of the Forms  vendor may propose that a contract of sale be formed. Gateway’s ads state that their products come with limited warranties and lifetime support. by contrast. Zeidenberg bought the product at a retail store. but one that need not detain us because the Hills knew before they ordered the computer that the carton would include some important terms. is just a shipping carton. which led to the litigation but did not make Zeidenberg a software merchant. with service contingent on ship346  CONTRACTS  . A “merchant” under the UCC “means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction”. Yet again. for what little it is worth we observe that the Hills misunderstand the setting of ProCD. Its function is to protect the product during transit. ProCD answers “yes. while the box containing Gateway’s computer did not. but were dissuaded by the expense of shipping. and if they are unwilling to deal with the prospect of additional terms can leave the box alone. avoiding the transactions costs of returning the package after reviewing its contents. § 2-104(1). and the information on its sides is for the use of handlers rather than would-be purchasers.” but after the customer has had a chance to inspect both the item and the terms. Perhaps the Hills would have had a better argument if they were first alerted to the bundling of hardware and legal-ware after opening the box and wanted to return the computer in order to avoid disagreeable terms. and they did not seek to discover these in advance. At oral argument the Hills propounded still another distinction: the box containing ProCD’s software displayed a notice that additional terms were within. an uncommon place for merchants to acquire inventory. it is not on display anywhere. not in the store (or over the phone) with the payment of money or a general “send me the product. The difference is functional. His corporation put ProCD’s database on the Internet for anyone to browse.

scaring some customers away and leading to excess returns from others. including the arbitration clause. By keeping the computer beyond 30 days. Whatever may be said pro and con about the cost and efficacy of arbitration (which the Hills disparage) is for Congress and the contracting parties to consider. Inc. 482 U. including a contention that the arbitration clause is unenforceable as part of a scheme to defraud. Like Zeidenberg. The decision of the district court is vacated. Flood & Conklin Mfg. The Magnuson-Moss Warranty Act requires firms to distribute their warranty terms on request. the Hills accepted Gateway’s offer. the Hills took the third option..C. Inc. The Hills’ remaining arguments.S. or five years. shoppers can consult public sources (computer magazines. Claims based on RICO are no less arbitrable than those founded on the contract or the law of torts.Hill v. the Hills do not contend that Gateway would have refused to enclose the remaining terms too. Shearson/American Express. Concealment would be bad for business. the Web sites of vendors) that may contain this information. 238-42 (1987). Third. they may inspect the documents after the product’s delivery. § 2302(b)(1)(A). 220. Second.  ping the computer back. CHAPTER FOUR: MUTUAL ASSENT  347  . Gateway 2000. 15 U. First. and this case is remanded with instructions to compel the Hills to submit their dispute to arbitration. McMahon. 395 (1967). they can ask the vendor to send a copy before deciding whether to buy. v.S. 388 U. do not require more than a citation to Prima Paint Corp. with free onsite service? What sort of support was offered? Shoppers have three principal ways to discover these things. Co. v.S.

2A-205. and installed by Sign-O-Lite. operates a commercial signage company called Sign-O-Lite Signs. see RCWA 2. Sign-O-Lite sued the McCorkles for breach of contract because the contract contained an irrevocability clause. 2003. We reverse and remand for entry of summary judgment against Sign-O-Lite.Options  _________________________________________________  OPTIONS  _________________________________________________  2949. McCorkle  Court of Appeals of Washington. FACTS Appellants Taletha and Terry McCorkle own a floral design company. App. Div. Respondent 2949. The trial court agreed and entered summary judgment against the McCorkles. We also conclude that the McCorkles should not have reasonably expected Sign-O-Lite to take substantial action in reliance on their offer. Inc. 2003. 1) (unpublished opinion. On appeal. On February 21. the owner of Sign-O-Lite signed the contract. but revoked their offer before receiving notice that Sign-O-Lite accepted it. the McCorkles signed a pre-printed form contract provided by a SignO-Lite sales representative. In the contract. v.. On February 26. but did not send it to the McCork348  CONTRACTS  . J.040) Agid.06. so the irrevocability clause is not enforceable based on detrimental reliance. Division 1 2005 WL 1303491 (Wash. We agree that there was no consideration to support the McCorkles’ promise not to revoke. the McCorkles argue that the contract’s irrevocability clause is unenforceable because there was no consideration for it and in light of RCW 62A. the McCorkles agreed to lease commercial signage that would be designed. Inc. Taletha and Terry McCorkle signed a contract to lease a sign from Sign-O-Lite. manufactured.

Inc. On February 28. DISCUSSION In reviewing a trial court’s decision to grant summary judgment. Nevertheless. and costs. which we review de novo.2949. 2003.5 1 2 3 4 5 (Emphasis added. and Sign-O-Lite brought this breach of contract action arguing that paragraph 23 of the contract made the McCorkles’ offer irrevocable. 5. and we granted discretionary review. Tarabochia. the McCorkles notified Sign-O-Lite that they were canceling the contract. Mason v. 813 (1993).. 71 Wn.2 The Superior Court affirmed the judgment. 54 (1993) (citing CR 56(c)). Marincovich v. App.. Mains Farm Homeowners Ass’n v.1 In light of this irrevocability clause. v.2d 271. 114 Wn. The trial court relied on this provision when determining damages. on March 19. Kenyon Zero Storage. Worthington. McCorkle  les. CHAPTER FOUR: MUTUAL ASSENT  349  .3 Absent a genuine issue of any material fact. v. the moving party is entitled to summary judgment as a matter of law. The McCorkles continued to avoid the contract. 121 Wn. 71 Wn. we consider all facts and reasonable inferences in the light most favorable to the nonmoving party. 8-9 (1993). The execution of the Agreement by a sales representative of the Owner is in no way acceptance by the Owner. a district court judge granted summary judgment in Sign-O-Lite’s favor and awarded Sign-O-Lite approximately $11. Inc. as long as Sign-O-Lite had not yet begun manufacturing the sign. 2003. This Agreement shall not be binding upon the Owner after execution by the Advertiser(s) [the McCorkles] and this Agreement shall constitute an irrevocable offer by the Advertiser(s) to the Owner for a period of sixty (60) days from the date of execution by the Advertiser(s). App. attorney fees. the McCorkles received a letter dated March 11 from Sign-O-Lite notifying them that the company accepted their contract offer. 48.) The contract allowed the McCorkles to be released from the contract for onethird of the total rental payments required.2d 810. That paragraph states: Acceptance by the Owner [Sign-O-Lite] must be by an executive officer of the Owner.000 plus interest. Boise Cascade Corp. 274 (1990)). Condor Enters.4 This case raises questions of law.

87(1)(a) (1981).13 even if that consideration is nominal. Restatement (Second) of Contracts sec.. 68 Wash. a (1981) (“But the [option contract] serves a useful purpose even though no preliminary bargain is made: it is often a necessary step in the making of the main bargain proposed.23.23.”). First. at 714(4th ed. 42 (1981)). Farnsworth on Contracts sec.”9 In this context. option contracts are valid irrevocable offers. 9 Restatement (Second) of Contracts sec. 678 (1984). v. Farnsworth on Contracts sec. Co. a subcontractor’s oral bid is irrevocable. Allen. 3. 33 Wn.14 And while courts are moving toward liberalizing the consideration requirement in option contracts. 8 See Baker v. 25 (1981). L. Rev. 350  CONTRACTS  . Feinman. Corbett.8 “An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer. Restatement (Second) of Contracts sec.”12 The promise not to revoke must be supported by consideration. at 37 (1998) (citing Restatement (Second) of Contracts sec.15. 97 Harv.11 Option contracts are often necessary because “[a]n offeree may need time to decide whether to accept the offer and. IS THE IRREVOCABILITY CLAUSE ENFORCEABLE? A. 87 cmt. 12 Id. 222-23 (1949). ed. Success Roofing.1990).23. an irrevocable offer is called an “option. CONSIDERATION An offer may generally be revoked anytime before it is accepted. during that time.]”15 Options typically benefit the one 6 25 David K. may need to spend money and effort. See also Restatement (Second) of Contracts sec. b (1981). 3. “most courts still require a benefit to the promisor or a detriment to the promisee [. at 345 (citations omitted).2004). Washington Practice: Contract Law and Practice sec. Allen Farnsworth. 99.7 And second. in construction cases. 46 Wn. 314. Shaw.2d 219.”10 The option itself is a contract and is sometimes called an “option contract” to distinguish it from the main contract. 13 Hill v. 10 1 E. 14 See Farnsworth on Contracts sec. 5:15. 15 1 Richard A.6 with two exceptions. 87 cmt. 103 (1912). Inc. at 344 (3d.Options  I. 11 Id. App. Williston on Contracts sec. DeWolf & Keller W. Restatement (Second) of Contracts sec. 87(2) cmt. Lord. and it partakes of the natural formalities inherent in business transactions. at 345. 321 (1986) (citing J. 2. Promissory Estoppel & Judicial Method. e (1979)). 7 See Arango Constr. 3.

 v. and install commercial signage for the McCorkles. The district court judge found that the parties’ mutual promises constituted adequate consideration to support the option. There is no new consideration for the clause. Inc. which is identical to RCW 62A. McCorkle  qualified to exercise the option.”).2A-205. and there is none here. In other words. It also ruled that RCW 62A. Finally.2-205.2A-205 The McCorkles also argue that the irrevocability clause is unenforceable because it was not accompanied by a separate signature as required by RCW 62A.2949. An option contract requires separate consideration.18 While Sign-O-Lite points out that it promised to do such things as prepare. manufacture. at 722. at the Superior Court level.2-205 does not apply to this case. 71(1) (1981) (“To constitute consideration. the McCorkles raise RCW 62A. at sec. the irrevocability clause is unenforceable. a performance or a return promise must be bargained for.”17 Here. the McCorkles did not cite the statute. RCW 62A. Because insufficient consideration supported the option.16 “[I]f the optionee stands to make a substantial gain by exercising the option and the optionor must stand by idly awaiting the decision. 18 See Restatement (Second) of Contracts sec. B. and they cited a different statute.2A-205. 19 Sign-O-Lite argues that we may not consider this statute because the McCorkles did not raise it below. We disagree. Id. this was the consideration offered for their performance under the contract as a whole. on appeal. there is no evidence that Sign-O-Lite bargained for the irrevocability clause. known as the optionee. paragraph 23 makes the McCorkles’ offer irrevocable for a period of time before acceptance. RCW 62A. RAP CHAPTER FOUR: MUTUAL ASSENT  351  .2-205 except that it applies to the lease rather than the sale of goods. It is true that an appellate court may refuse to review any claim of error that was not raised in the court below. The Superior Court decided that the McCorkles waived their right to raise the statutory argument by failing to present it below. and thus it is an option contract. Sign-O-Lite offered nothing to the McCorkles in exchange for their inability to revoke their offer before acceptance. 5:16. At the district court level. it is appropriate that the optionee pay for the privilege.19 That is Washington’s version of 16 17 Id.

113 Wn. RCW 62A.C. and thus we may consider it on appeal.C.” Farnsworth on Contracts sec. but in no event may the period of irrevocability exceed three months. and it provides that an irrevocability clause in a contract to lease goods is valid despite a lack of consideration if the clause is separately signed by the offeror: Firm offers. II.2A-205 is pertinent to the issue of consideration. an option contract that lacks consideration is nevertheless binding if the offeree relied on the offer: 2. But the McCorkles raised the lack of consideration issue below. The U.Options  the Uniform Commercial Code’s (U. for a reasonable time. 85 Wn. for lack of consideration. the clause is not enforceable under RCW 62A. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.) section 2A-205. a respondent may present a ground for affirming the trial court even if it was not presented to that court as long as the record was sufficiently developed to allow the court to consider the argument.” Bennett v. An offer by a merchant to lease goods to or from another person in a signed writing that by its terms gives assurance it will be held open is not revocable.21 Under the Restatement (Second) of Contracts.2A-205. refers to irrevocable offers as “firm offers. DID SIGN-O-LITE DETRIMENTALLY RELY ON THE OFFER? Sign-O-Lite argues that even if insufficient consideration supports the irrevocability clause. 3.5(a).20 Under this statute.5(a). 918 (1990) (citing State v. and “a statute not addressed below but pertinent to the substantive issues which were raised below may be considered for the first time on appeal. at 347. during the time stated or.2d 730. Hardy.C. 732 (1975)).2d 912. Fagalde. the clause is enforceable because Sign-O-Lite detrimentally relied on the McCorkles’ offer.23. 20 RCW 62A. 21 On appeal. paragraph 23 of the parties’ contract would be valid and enforceable despite its lack of consideration if the McCorkles had separately signed that clause. if no time is stated.C.2A-205. But because there is no separate signature. 352  CONTRACTS  . RAP 2.

cmt e.26 In this case. v. CHAPTER FOUR: MUTUAL ASSENT  353  . in order to put himself in a position to accept by either promise or performance. 87. which does not specify the level of action or forbearance required to establish detrimental reliance.22 The requirement for reliance of a substantial character is a higher standard than that found in the Restatement’s promissory estoppel rule. constituted action of a substantial character that makes the irrevocability clause binding under the Restatement rule. Sign-O-Lite argues. at illus.000 baby chicks because a buyer offered a blanket arrangement to buy all poultry grown by the farmer.”24 As illustrations of substantial expense and commitments. But “the 22 23 Restatement (Second) of Contracts sec.23 The “substantial character” requirement is important because “circumstances may be such that the offeree must undergo substantial expense. or undertake substantial commitments. 25 Id. 87(2) (1981) (emphasis added). the Restatement commentators describe two scenarios: a tenant who spends several thousand dollars to make permanent improvements on a lessor’s land in response to a lessor’s promise that the tenant would have the option to buy the land.25 and a poultry farmer who buys and raises 7. 4. Restatement (Second) of Contracts sec. or forego alternatives. McCorkle  An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. at sec.2949. The remedy granted for breach may be limited as justice requires. Sign-O-Lite argues that the McCorkles should reasonably have known that Sign-O-Lite would perform a credit check. 5. 26 Id. Inc. a reference check. at illus. 90(1) states: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. 24 Id. This. and examine the details of the McCorkles’ offer in order to decide whether to accept the offer.

Options  mere fact that an offeree incurs a detriment by expending time or money in investigating the offer is not sufficient to make it irrevocable. nor is validating an otherwise invalid irrevocability clause necessary to avoid injustice in this case. We reverse and remand for entry of summary judgment in the McCorkles’ favor.28 27 28 Williston on Contracts sec. especially when compared to the Restatement’s examples of substantial action. The McCorkles notified Sign-O-Lite of their intent to revoke only seven days after they submitted their offer. We conclude that no genuine issue of material fact supports Sign-OLite’s detrimental reliance argument. or a farmer buying and raising thousands of chicks in reliance on an offer. The trial court can determine on remand whether the McCorkles are entitled to fees and/or costs. The McCorkles should not have reasonably expected their offer to induce Sign-O-Light to substantially act in those seven days. We also vacate the trial court’s attorney fees and costs award. 5:15. at 715-16. since the detriment incurred was not requested by the offeror in return for a promise on his part. and we decline to affirm the trial court on that basis.”27 And the customary task of checking credit and references is not action of a “substantial” character. 354  CONTRACTS  . Sign-O-Lite’s actions in response to the McCorkles’ offer were not akin to a tenant spending thousands of dollars.

A thirty-day option. In this action. The Summit Thread Company. as also various devices which. it loans to its customers for use with its products. led to a conference. Mass. the plaintiff’s demand for increased salary. and hereinafter referred to as the company. 1933) . and then read as follows: Whereas. and adds the general money counts with specifications. 79 (Me. and a mill and machine shops in East Hampton. is a cotton yarn finisher with executive offices in Boston. The preambulary provisions of the agreement recite the giving and the reception of the option already referred to. Conn. the Summit Thread Company being desirous at all times to be fair and reasonable. Corthell. The result was that. and offered to sell them to the company. especially adapted for use in stitching machines in shoe shops. Robert N. his remuneration for them and his salary as a salesman. which involved.Corthell v. the plaintiff. The plea is the general issue.  Sturgis.. Some time prior to the spring of 1926.  _________________________________________________  CERTAINTY  _________________________________________________  Corthell v. on March 31. the plaintiff declares in special assumpsit for the breach of a written contract. It manufactures spools. taken but not exercised. Summit Thread Co. then employed by the company as a salesman. Summit Thread Co. the defendant in this action. but also future patents which might be taken out by the plaintiff. now makes the following CHAPTER FOUR: MUTUAL ASSENT  355  Supreme Judicial Court of Maine 167 A. to stimulate and retain trade. 1926. perfected and patented two bobbin case control adjuncts and a guarding attachment for thread cops. and other receptacles for winding threads. The case comes forward on report. not only the purchase of these inventions. Justice. bobbins. the contract in suit was executed.

1926. That beginning on April 1. Connecticut. Corthell a salary of $4.N. from the Summit Thread Company for the three patents mentioned in this agreement. Corthell agrees to accept $3. In consideration. The plaintiff continued as a salesman for the company. R. Robert N.Certainty  proposition. on March 23. which was accepted by the said Corthell. Within five months after the contract was signed. The company was marketing thread on a spool or “cop” called the Summit King spool. The certificate accompanying the report stipulates that the case is to be decided upon so much of the evidence as is legally admissible. the basis and amount of recognition to rest entirely with the Summit Thread Company at all times. to Corthell for the three patents. is to be deducted from whatever the amount coming to him is. 1926. in which case. in a rough form at East Hampton. The facts already stated are not in controversy. in event of any distribution of Profits as covered by the Memorandum of Agreement relative to the Distribution of Profits which might be coming to the said Corthell. per annum. and Furthermore. all future inventions for developments. the receipt of which is acknowledged by Corthell’s signature to this agreement. no question was raised by either party to it as to the validity or the binding effect of its several provisions. reasonable recognition will be made to him by the Summit Thread Company. covering the same New England territory and particularly the shoe shop trade. additional to Corthell’s present salary and that. of the above.500. The following summary sets out the findings on other issues: During the term of the contract. Corthell agrees that he will turn over to the Summit Thread Company. made up by attaching a smooth frusto-conical wooden base to a tu356  CONTRACTS  .N. All of the above is to be interpreted in good faith on the basis of what is reasonable and intended and not technically. which is $620. in consideration of the increased salary to Corthell for five years and the payment of $3500. he turned over a new invention for development.000. the Summit Thread Company agrees to pay R. for a period of five years. then the above $620.

and was made with the object of taking up the thrust or side play of the thread bobbins used in stitching machines in shoe factories. the plaintiff filed an application on a bobbin controlling adjunct for sewing machine shuttles. and.646. It has never been patented. Finally.Corthell v. the boss acting as a hub for the bobbin to turn on.” but received only assurances that he would be fixed up all right. On April 27. 1927. The plaintiff has never received any compensation for these inventions. bobbin with celluloid or paper discs fastened to the tube by four ears pressed down in the center.  bular fiber core. data and drawings furnished. composed of an annular sheet metal head provided with a tube or tubular shank to fit the bore of a thread cop. This was also a device particularly adapted to use in shoe shops. 1929. Summit Thread Co. This adjunct.C.392. so-called.B. had fixed to its outer surface a thin spring of resilient sheet metal. on October 18. M. the company. took out letters patent No. 1. the plaintiff turned over for development what seems to be termed in the trade as a S. He turned them over to the company in accordance with the terms of his contract.698. This was made for use in all sewing machines using ready-wound bobbins. keeping it steady as the machine runs and the thread is unwound. 1927. making corrugations thereon which would prevent thread convolutions from dropping as they unwound. and on January 8. the plaintiff requested “recognition. and its patentability is doubtful. 1. As an improvement.198. shuttles. and was patented by the company. and it owns them and the patents which have been issued. The plaintiff assigned this patent to the company. A further invention made by the plaintiff and turned over to the company consists of a celluloid disc with a boss in the center used in Singer I. it obtained letters patent No. and finally that the matter of his comCHAPTER FOUR: MUTUAL ASSENT  357  . upon application by the general manager and through his assignment. Prior to the expiration of the contract. the plaintiff conceived the idea of grooving the head or base of the spool. to confine the bobbin ready would with thread in the chamber. This invention was brought to the attention of the officers of the company.

work to be done. 53 L. as it here claims the right. 266. the plaintiff’s employment was terminated.Certainty  pensation would be taken up when a new contract was made. See extended note. When. the price to be paid. To this is added the claim that the inventions were worthless and the plaintiff has suffered no damage. And a reservation to either party of an unlimited right to determine the nature and extent of his performance renders his obligation too indefinite for legal enforcement. vol. 1. If the terms of the agreement are uncertain as to price. The point raised is that coupled with the reservation that the “basis and amount of recognition to rest entirely with” the company “at all times” leaves “reasonable recognition” to the unrestricted judgment and discretion of the company. There is no more settled rule of law applicable to actions based on contracts than that an agreement. the contract expired. permitting it to pay. accepted. at the end of July. following. Williston on Contracts.A. Indefiniteness may relate to the time of performance. it was not renewed.” as used in the contract under consideration. on April 1. means other than reasonable compensation or payment for such inventions as the plaintiff turned over. and the fair value of the services or property is recoverable. no contract can arise. and. making it.R. but exclude the supposition that a reasonable price was intended. It is contended that the vagueness and uncertainty of these provisions relating to the price to be paid renders the contract unenforceable. and now owns. the law invokes the standard of reasonableness. It is accordingly held that a contract is not enforceable in which the price to be paid is indefinitely stated as the cost plus “a nice 358  CONTRACTS  . nothing at all for the inventions which it has received. in order to be binding. as it is termed. and cases cited. 13 C.J.. No contention is made that the term “reasonable recognition. merely illusory. 1931. must be sufficiently definite to enable the court to determine its exact meaning and fix exactly the legal liability of the parties. or other miscellaneous stipulations of the agreement. 288 et seq. §§ 37 et seq. property to be transferred. If the contract makes no statement as to the price to be paid.

217 N. an intent on the one hand to pay and on the other to accept a fair CHAPTER FOUR: MUTUAL ASSENT  359  . 103. the agreement of a contractor to “make it right with” a laborer who had been injured. Ditmars. 223. 365. the plaintiff’s intestate agreed to produce certain formulas and to permit their use for manufacturing purposes. 101. and not too indefinite. 260. 478. the contracting firm to manufacture and put upon the market compounds made in accordance with any of these formulas which they believed capable of yielding a profit and to pay the intestate “a fair and equitable share of the net profits. 149 N.” The terms “right” or “satisfactory” were held there to mean what ought to satisfy a reasonable person or what was fair and just as between the parties. 208 Mass. Y. 163 Ky. supra. [1819] 2 Q. Graves. 233. are instructive. Tobacco Co. 75. The views of Judge Cardozo in the dissenting opinion in Varney v. 406. was held not void for indefiniteness. 164 N. 213 Mass. In re Vince. and “a due allowance”.Y. Smith. if he was not able to resume work at the end of six weeks. in Brennan v. 716. In Noble v. Ditmars. Assurance Corporation. v. the words “make it right” meaning fair compensation in money for the injuries received. “a sum not exceeding three hundred dollars during each and every week.S. S.Y. McGrath. “a fair share of my profits.” Cauet v. “a reasonable amount from the profits. to be a promise to pay a reasonable compensation. through express words or by reasonable implication.” Gaines v.” The contract was held to be sufficiently certain as to the price to be paid to be enforced. 217 N. Summit Thread Co. recovery was allowed on the defendant’s promise to the plaintiffs that.  profit. 134 U.Y.Corthell v. he would “make it right with (them) with a certain sum” and “give (them) a sum of money that would be satisfactory.” United Press v. if parties manifest. B. In Henderson Bridge Co. New York Press Co. a promise to pay “what was right” was held.. He seems to be in accord with the cases last cited and to hold the opinion that. if they would withdraw their appeal in the matter of the probate of a will. Burnett Co. if made with a contractual intent. In Silver v. 26. 210 Mass. On the other hand..” Varney v..

a continuation of the company’s monopoly in the Summit King spool. the contract of the parties indicates that they both promised with “contractual intent. It was bound in good faith to determine and pay the plaintiff the reasonable value of what it accepted from him. and such damages as can be proved may be recovered. The evidence indicates that the S.” Nevertheless.” In these provisions. too vague for enforcement. we think. “Reasonable recognition. it is liable in this action. and not technically. the parties continued to exhibit a contractual intent and a contemplation of the payment of reasonable compensation to the plaintiff for his inventions. The utility and value of these inventions for the stimulation and retention of trade is apparent. indirectly at least. 5 M. It not appearing that it has performed its promise in this regard. 114. which they lay down. and why production and distribution were discontinued does not 360  CONTRACTS  . effected.C. was. a promise to pay a “fair price” is not.” the one intending to pay and the other to accept a fair price for the inventions turned over. coupled with the reservation that the “basis and amount of recognition (was) to rest entirely with” the company “at all times. the contract was “to be interpreted in good faith on the basis of what is reasonable and intended. and its use would expose the company to suits for infringement of other patents.Certainty  price.” as used by the parties. “Reasonable recognition” seems to have meant what was fair and just between the parties. Its promise was not purely illusory. that is. The expression is sufficiently analogous to those used in the Massachusetts and concurring cases which have been cited to permit the application of the doctrine. We accept it as the law of this jurisdiction. to this case. and the plaintiff may recover under his count in indebitatus assumpsit. as a matter of law. & W. bobbin disc has no real value. however.B. reasonable compensation. In the instant case. Flight. Bryant v. as in those last cited. The corrugated spool head. and the bobbin controlling adjunct and the bossed disc patents brought and held profitable customers in the shoe trade. The company was not free to do exactly as it chose. § 49. It is doubtful if it is patentable. as already noted. Williston on Contracts.

. The entry is Judgment for the plaintiff for $5. at the time these inventions were turned over to the defendant. It is not disputed that the tenant gave timely notice of its desire to renew or that. It calls upon us to review a decision of the Appellate Division. v. The writ was dated March 5.Corthell v. to be mailed certified mail. 1981) Fuchsberg. as landlord.2d 558 which held that a realty lease’s provision that the rent for a renewal period was “to be agreed upon” may be enforceable. the tenant engaged an appraiser who opined that a fair market rental value would be $545.Y. Jr. Suffolk County. Summit Thread Co.41. Tenant shall give Landlord thirty (30) days written notice. 70 A. The pertinent factual and procedural contexts in which the case reaches this court are uncomplicated.E. The election of the company to abandon their use does not measure their worth.  Schumacher  Court of Appeals of New York 417 N. they had a reasonable value of $5. and the plaintiff should recover accordingly. once the landlord made it clear that he would do so only at a rental starting at $900 a month.000. 1932.2d 1. Judge. leased a retail store to the respondent for a five-year term at a rent graduated upwards from $500 per month for the first year to $650 for the fifth. of the intention to exercise such right”. The tenant thereupon commenced an action for specific performance in Supreme Court. the appellant.D. This case raises an issue fundamental to the law of contracts.2d 541 (N. The renewal clause stated that “(t)he Tenant may renew this lease for an additional period of five years at annual rentals to be agreed upon.Y. In 1973. Delicatessen. 419 N. Inc. return receipt requested. Joseph Martin. to compel the landlord to extend the lease for the additional term at the appraiser’s CHAPTER FOUR: MUTUAL ASSENT  361  . We are of opinion that.S. Interest from that date must be added.000 and interest from the date of the writ.  satisfactorily appear.

it must appear that the promisee assented to the obligation in question. (b).) 87. the Supreme Court. The tenant seeks only a modification adopting the concurrer’s position. g. it reasoned that “a renewal clause in a lease providing for future agreement on the rent to be paid during the renewal term is enforceable if it is established that the parties’ intent was not to terminate in the event of a failure to agree”. par. residential emergency rent control statutes). Hart and Sachs.. Each party now appeals by leave of the Appellate Division pursuant to CPLR 5602 (subd.Certainty  figure or such other sum as the court would decide was reasonable. It went on to provide that. Concordantly. a contract is a private “ordering” in which a party binds himself to do. One of the Justices. concurring. expressly overruling an established line of cases in the process.S. 147-148 (1958)). before one may secure redress in our courts because another has failed to honor a promise. It was on appeal by the tenant from these orders that the Appellate Division. or not to do. This liberty is no right at all if it is not accompanied by freedom not to contract. would have eliminated the first step and required the trial court to proceed directly to the fixation of the rent. it denied as moot the tenant’s motion to remove the District Court case to the Supreme Court and to consolidate the two suits. our answer must be in the negative. In so doing. if the tenant met that burden. Peck. Since we conclude that the disposition at the Supreme Court was the correct one. a particular thing (Fletcher v. unless otherwise mandated by law (e. the landlord in due course brought a holdover proceeding in the local District Court to evict the tenant. For his part. The corollary is that. holding that a bald agreement to agree on a future rental was unenforceable for uncertainty as a matter of law. The question formally certified to us by the Appellate Division is simply whether its order was properly made. reinstated the tenant’s complaint and granted consolidation. We begin our analysis with the basic observation that. 6 Cranch (10 U. dismissed the tenant’s complaint. On the landlord’s motion for summary judgment. 1). 362  CONTRACTS  . the trial court could proceed to set a “reasonable rent”. Legal Process.

 v. the extraordinary remedy of specific performance is sought (11 Williston. Inc. Ruby. Sourwine v. definiteness as to material matters is of the very essence in contract law. a court. it is rightfully well settled in the common law of contracts in this State that a mere agreement to agree. Thus. Impenetrable vagueness and uncertainty will not do (1 Corbin.2d 462. in intervening. 5 N. 211 Ark. Schneider. CHAPTER FOUR: MUTUAL ASSENT  363  . § 1405).Y. would be imposing its own conception of what the parties should or might have undertaken. dsmd 67 N. Weatherford. § 95. Comment a). 32 Ariz. 267 Or. Blair. 351 Mo. Arizona (Hall v. Ohio (Moss v. Missouri (State ex rel. rather than confining itself to the implementation of a bargain to which they have mutually committed themselves. 370). 46 R. App. p. Dictated by these principles. Olson.Y.2d 710. 58 A.Y. Patterson. § 32. Moran. Restatement. 76 N.394. 17 Hun. as here.Joseph Martin.. Country Clubs. 472). if a methodology for de* Other States which are in accord include: Arkansas (Lutterloh v. when. generally. This is not to say that the requirement for definiteness in the case before us now could only have been met by explicit expression of the rent to be paid. and not the less. Giarraputo. Sweet.). 1072). The rule applies all the more.. 10 Alaska 543). Otherwise. Contracts 2d.R. 625). 148 Ohio St.L. is unenforceable (Willmott v. Equity Jurisprudence. app. and Tennessee (Playmate Clubs v.Y. 62 Tenn. Huber v. California (Chaney v. 3d 500. It certainly would have sufficed. v. 1). Contracts. Hamm.I. 266 N. before the power of law can be invoked to enforce a promise. 814). Pomeroy. Johnson v. not form. Truscott. Norton. see. 253.S.S. 383). Schumacher  It also follows that. 119 Me. Ringstad. Contracts. 6 Encyclopedia of New York Law. in which a material term is left for future negotiations. Jr. Peerless Wrench Co.S. 623). § 1424. 65 N. for instance.2d 232. Validity and Enforceability of Provision for Renewal of Lease at Rental to be Fixed by Subsequent Agreement of the Parties). it must be sufficiently certain and specific so that what was promised can be ascertained. North Carolina (Young v. § 301. Delicatessen. The concern is with substance. 434). App. Contracts (Jaeger 3d ed. 432. and Rhode Island (Vartabedian v.C. 103).2d 88). Maine (Metcalf Auto Co. But see: Alaska (Hammond v.* This is especially true of the amount to be paid for the sale or lease of real property (see Forma v. 92 Cal. Oregon (Karamanos v.2d 250.

Backer Mgt. Its simple words leave no room for legal construction or resolution of ambiguity.Y.2d 472 (rental increase to be adjusted for upward movement in US Consumer Price Index). v. Its unrevealing. 260. v. to subordinate the figure on which it ultimately would insist. inter alia. or. Nowhere is there an inkling that either of the parties directly or indirectly assented. in this context. as the Appellate Division decreed be done.Y. is misplaced. 406 N. Fisk Bldg. 47a).R. Finally.L.Certainty  termining the rent was to be found within the four corners of the lease. Corp. All of these. There the parties had executed a franchise agreement for the sale of oil burners. In holding that the defendant’s motion for summary judgment should have been denied. see. for a rent so arrived at would have been the end product of agreement between the parties themselves. Assoc. would have come within the embrace of the maxim that what can be made certain is certain (9 Coke.2d 211 (escalation of rent keyed to building employees’ future wage increases).. Lease Provisions Providing for Rent Adjustment Based on Event or Formula Outside Control of Parties.) But the renewal clause here in fact contains no such ingredients. much less any definition of either.S. (Cf.. Acme Quilting Co. the court indicated that the plaintiff should be given an opportunity to establish that a series of annual renewals had ripened into a course of dealing from which it might 364  CONTRACTS  .Y. 290 N. The contract provided for annual renewal. by an arbitrator or other third party. City of Hope v. upon accepting the clause. 3d 986. to one fixed judicially. generally. unamplified language speaks to no more than “annual rentals to be agreed upon”. 46 N.. we note that the tenant’s reliance on May Metropolitan Corp. 87 A. for that matter. condition or standard on which the amount was made to depend. May Oil Burner Corp. at which time each year’s sales quota was “to be mutually agreed upon”. There is not so much as a hint at a commitment to be bound by the “fair market rental value” which the tenant’s expert reported or the “reasonable rent” the Appellate Division would impose. Nor would the agreement have failed for indefiniteness because it invited recourse to an objective extrinsic event. Neither tenant nor landlord is bound to any formula.

Realty Corp. v. § 249). the code. Restatement. quoting from A. 17 N. subd.Joseph Martin. The May case is therefore not applicable to real estate contracts. As the tenant candidly concedes. without costs. § 1-205. While I recognize that the traditional rule is that a provision for CHAPTER FOUR: MUTUAL ASSENT  365  .Y. Inc. also. Suffolk County. is limited to the sale of goods. therefore. Meyer.Y. City of New York. 185 N. The certified question. subd. may be seen as a precursor to the subsequently enacted Uniform Commercial Code’s treatment of open terms in contracts for the sale of goods (see Uniform Commercial Code. should be answered in the negative. Judge (concurring). see. 30 N. Judge (dissenting in part). (3). (1). 260. with costs. I cannot concur in the majority’s rejection of that case as necessarily inapplicable to litigation concerning leases. in the more fluid sales setting in which it occurred. Jasen.. since that party was not aggrieved by the order of the Appellate Division. May Oil Burner Corp. Contracts 2d. 82. For all these reasons.2d 76. the order of the Appellate Division should be reversed. by its very terms.A. 212: “An agreement of lease possesses no peculiar sanctity requiring the application of rules of construction different from those applicable to an ordinary contract. and the orders of the Supreme Court. Schumacher  be possible to give meaning to an otherwise uncertain term.2d 352. the appeal should be dismissed (CPLR 5511). That the setting of that case was commercial and that its principle is now incorporated in a statute (the Uniform Commercial Code) which by its terms is not applicable to real estate is irrelevant to the question whether the principle can be applied in real estate cases. Stability is a hallmark of the law controlling such transactions (see Heyert v. This decision. v.S. Orange & Rockland Utilities.Y. 290 N. v. § 2-204.Y. As to the plaintiff’s appeal. reinstated.” To the extent that the majority opinion can be read as holding that no course of dealing between the parties to a lease could make a clause providing for renewal at a rental “to be agreed upon” enforceable I do not concur. 362). Harrigan’s Cafe. Jr. As we recognized in Farrell Lines v. Delicatessen. While I concur in the result because the facts of this case do not fit the rule of May Metropolitan Corp.Z.

 Lucy. On plaintiff’s appeal: Appeal dismissed. with costs. without costs. Therefore.. I would affirm the order of the Appellate Division for the reasons stated in the opinion of Justice LEON D. Suffolk County. Meyer. J. the mere presence of a provision calling for renewal at “rentals to be agreed upon” should not prevent judicial intervention to fix rent at a reasonable rate in order to avoid a forfeiture.” Her favor helps a sale. reinstated and the question certified answered in the negative.J. J.E.. the orders of Supreme Court. have a new value in the 366  CONTRACTS  . The things which she designs. LAZER at the Appellate Division. C. J. Jones and Wachtler. and what not. 214 (N. REQUIREMENTS &  EXCLUSIVE DEALINGS  _________________________________________________  Wood v.. 1917) Cardozo. millinery. Jasen. parasols. concurs in a memorandum. concur with Fuchsberg. and Gabrielli. On defendant’s appeal: Order reversed. Cooke. fabrics. Manufacturers of dresses. dissents in part and on defendant’s appeal votes to affirm in a memorandum.Certainty  renewal of a lease must be “certain” in order to render it binding and enforceable. J. JJ.Y.. in my view the better rule would be that if the tenant can establish its entitlement to renewal under the lease. _________________________________________________  OUTPUTS. Lady Duff‐Gordon  Court of Appeals of New York 118 N. The defendant styles herself “a creator of fashions. and like articles are glad to pay for a certificate of her approval.

424. and millinery without his knowledge. Stevens & Bro. We think. A promise may be lacking. It has a wealth of recitals. Mineral Spring Co. The acceptance of the exclusive agency was an assumption of its duties. The defendant insists. 164 App. The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman...” imperfectly expressed (Scott. Div. W. Div. Filtrine Mfg. 108 N. Mueller v. The agreement of employment is signed by both parties. or to license others to market them. subject always to her approval. It is true that he does not promise in so many words that he will use reasonable efforts to place the defendant’s indorsements and market her designs. The defendant gave an exclusive privilege. Russell v. however. and yet the whole writing may be “instinct with an obligation. 187. Allerton. Hearn v. Y. and withheld the profits. He was to have the exclusive right. In return she was to have one-half of “all profits and revenues” derived from any contracts he might make. 133 App.. 62. that such a promise is fairly to be implied. Lady Duff‐Gordon  public mind when issued in her name. dresses. The implication of a promise here finds support in many circumstances. Phoenix Hermetic Co. 198). Co. Taylor Co. in McCall Co. Moran v. 101. and the case comes here on demurrer. Wright. 88 Mich. 106. Y. It takes a broader view today. and every slip was fatal.Wood v. there is a contract. Lucy. She placed her indorsement on fabrics. v. J. He sues her for the damages. 111 App. 1915. Div. 189. and that the defendant broke it. She says that the plaintiff does not bind himself to anything. The plaintiff says that he kept the contract on his part. 390. Standard Oil Co. v. She was to have no right for at least a year to place her own indorsements or market her own designs except through the agency of the plaintiff. If that is so. 120 Wis.. Many other terms CHAPTER FOUR: MUTUAL ASSENT  367  . v. and thereafter from year to year unless terminated by notice of 90 days. We are not to suppose that one party was to be placed at the mercy of the other. The exclusive right was to last at least one year from April 1. Bannerman. 288. to place her indorsements on the designs of others. He was also to have the exclusive right to place her own designs on sale. that it lacks the elements of a contract.. however. 211 N. She employed the plaintiff to help her to turn this vogue into money.G.

But the terms of the defendant’s compensation are even more significant. v. 14 C. It is true. Rosser & Sons [1906] 2 K. [N. Phoenix Hermetic Co. Boutard. Taylor Co.Y. Standard Oil Co. as both parties must have intended that at all events it should have. Co. But in determining the intention of the parties the promise has a value. L. Filtrine Mfg. Wilson v. supra. has approved. 37 N.Y. The plaintiff goes on to promise that he will account monthly for all moneys received by him. the transaction cannot have such business “efficacy. Jacquin v. W. Belcher.Y. 276.. of course.B. 14 P. supra. Mineral Spring Co.. Mechanical Orguinette Co. and that he will take out all such patents and copyrights and trade-marks as may in his judgment be necessary to protect the rights and articles affected by the agreement. Mueller v. 157 N. We are told at the outset by way of recital that: The said Otis F. v.G. But the contract does not stop there. Id. 64. 202 N. McIntyre v.. For this conclusion the authorities are ample. Paoli. 728. Mfg. & I. his promise to account for profits or take out copyrights would be valueless.. 496. 686.] 654.B. supra. 170 N. Lady Duff-Gordon. Her sole compensation for the grant of an exclusive agency is to be one-half of all the profits resulting from the plaintiff’s efforts. that if he was under no duty to try to market designs or to place certificates of indorsement. she could never get anything. v. 368  CONTRACTS  . Unless he gave his efforts. Baker Transfer Co. 542. Supp.J. Wood possesses a business organization adapted to the placing of such indorsements as the said Lucy. Supp. supra.” Bowen.. Co. in The Moorcock.Y. Requirements & Exclusive Dealings  of the agreement point the same way. v.. Merchants’ R. It helps to enforce the conclusion that the plaintiff had some duties. 68. The implication is that the plaintiff’s business organization will be used for the purpose for which it is adapted.Outputs.. 18.Y.S. Bannerman.Y. City of N. Without an implied promise. His promise to pay the defendant one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly was a promise to use reasonable efforts to bring profits and revenues into existence. Devonald v.D. as the Appellate Division has said. 35 N. Moran v.

pending final disposition of the case.  U. Inc.Wood v. On March 8. Eastern did not suffer the damages alleged in its complaint. antitrust. JJ. concur.. McLaughlin. alleging that because the preliminary injunction was granted as Eastern had prayed. 1975) James Lawrence King.J. This controversy involves the threatened disruption of that historic relationship and the attempt. Eastern Air Lines. By agreement of the parties. alleging tort. 429 (S. by Eastern. Gulf Oil Corp. Eastern responded by filing its complaint with this court. Gulf successfully moved to strike those counts from the complaint. requiring Gulf to perform its contract and directing Eastern to pay in accordance with the contract terms. and Chase and Crane. 1974. dissent. and Gulf Oil Corporation. Lady Duff‐Gordon  The judgment of the Appellate Division should be reversed. contained other counts. a preliminary injunction preserving the status quo was entered on March 20.. JJ. Supp. alleging that Gulf had breached its contract1 and requesting preliminary and permanent mandatory injunctions requiring Gulf to perform the contract in accordance with its terms. have enjoyed a mutually advantageous business relationship involving the sale and purchase of aviation fuel for several decades. hereafter Eastern.D. District Judge.S. Fla. and as subsequently amended. Hiscock. and FEA violations.. District Court for the Southern District of Florida 415 F. Cuddeback. to enforce the most recent contract between the parties. v. 1974 the correspondence and telex communications between the corporate entities culminated in a demand by Gulf that Eastern must meet its demand for a price increase of Gulf would shut off Eastern’s supply of jet fuel within fifteen days. CHAPTER FOUR: MUTUAL ASSENT  369  . Inc. Eastern Air Lines. hereafter Gulf. with costs in the Appellate Division and in this court. and Andrews. C. Lucy. 1 Eastern’s complaint as filed. and the order of the Special Term affirmed..

in addition to answering the complaint. 370  CONTRACTS  . indeed. consideration of the counterclaim was deferred pending disposition of Eastern’s breach of contract count. should 2 Gulf also. in recent months. Fla. filed a counterclaim. Gulf’s counterclaim would stand dismissed as moot. furthermore. was executed by the parties in June. to expire January 31. dated 1959. The contract is Gulf’s standard form aviation fuel contract and is identical in all material particulars with the first contract for jet fuel. Following several months of negotiation. on June 27. §§ 672. alleging that the contract was not a binding requirements contract. was void for want of mutuality. Requirements & Exclusive Dealings  Gulf answered Eastern’s complaint. was to provide the basis upon which Gulf was to furnish jet fuel to Eastern at certain specific cities in the Eastern system.Outputs. 1972. consolidating and extending the terms of several existing contracts. By agreement of counsel. 1972. as its predecessor. 1977. was “commercially impracticable” within the meaning of Uniform Commercial Code § 2-615. seeking to preserve its historic relationship with Eastern. an agreement was signed by the parties which. asking the court to set a price for jet fuel to be provided under the contract. It is similar to contracts in general use in the aviation fuel trade.2 The extraordinarily able advocacy by the experienced lawyers for both parties produced testimony at the trial from internationally respected experts who described in depth economic events that have. between Eastern and Gulf and. it being understood that if Eastern prevailed on its claim. with aviation fuel contracts antedating the jet age. Gulf approached Eastern more than a year before the expiration of the then-existing contracts between Gulf and Eastern. had approximately one year remaining prior to its expiration. 1972. The parties agreed that this contract. Stat. profoundly affected the lives of every American. and. The contract was drafted by Gulf after substantial arm’s length negotiation between the parties. the contract. Said agreement supplemented an existing contract between Gulf and Eastern which. THE CONTRACT On June 27.614 and 672. as amended.615.

West Texas Sour specifically. 30. Shell Oil Company. It involves the physical placement at a public location of a price bulletin reflecting the current price at which an oil company will pay for a given CHAPTER FOUR: MUTUAL ASSENT  371  . Gulf Oil Corp. and hence the price of jet fuel. The previous Eastern/Gulf contracts contained a price index clause which operated to pass on to Eastern only one-half of any increase in the price of crude oil. i. were “a way of life”. as well as a means to relate anticipated increased cost of raw material (crude oil) directly to the price of the refined product sold.e.. and Pan American Petroleum Corporation”. Accordingly. The indicator selected by the parties was “the average of the posted prices for West Texas sour crude. As the government authorized increased prices of crude those increases were in turn reflected in the cost of jet fuel. Eastern. the parties selected an indicator (West Texas Sour). Inc. 1972 to the fall of 1973. Both parties regarded the instant agreement as favorable. government imposed price controls which at once controlled the price of crude oil generally. in part. while Gulf found a long term outlet for a capacity of jet fuel coming on stream from a newly completed refinery. a crude which is bought and sold in large volume and was thus a reliable indicator of the market value of crude oil. because it offered immediate savings in projected escalations under the existing agreement through reduced base prices at the contract cities. crude oil. Eastern has paid a per gallon increase under the contract from 11 cents to 15 cents (or some 40%). there were in effect various forms of U.0-30. v. in direct proportion to the cost per gallon of jet fuel.9 gravity of Gulf Oil Corporation.Eastern Airlines.  provide a reference to reflect changes in the price of the raw material from which jet fuel is processed. The posting of crude prices under the contract “shall be as listed for these companies in Platts Oilgram Service-Crude Oil Supplement …” “Posting” has long been a practice in the oil industry.S. Both parties knew at the time of contract negotiations that increases in crude oil prices would be expected. and intended that those increases be borne by Eastern in a direct proportional relationship of crude oil cost per barrel to jet fuel cost per gallon. From June 27.

It was during late 1973 that the Mid-East exploded in another war. In recent years. particularly from the “OPEC” nations3 most of which are in the Middle East. been mailed to those persons evincing interest therein. Mr. in addition to being displayed publicly. the United States has become increasingly dependent upon foreign crude oil. Unlike domestic crude oil. publishers of a periodical of interest to those related to the oil industry.Outputs. are only some of the more dramatic examples of a trend that began years ago. OPEC was formed in 1970 for the avowed purpose of raising oil prices. During 1970 domestic United States oil production “peaked”. By 1969 “the handwriting was on the wall” in the words of Gulf’s foreign oil expert witness. accompanied by an embargo (at least officially) by the Arab oil-producing nations 3 “Organization of Petroleum Exporting Countries” 372  CONTRACTS  . and. Requirements & Exclusive Dealings  barrel of a specific type of crude oil. were generally lower than domestic crude oil prices in 1971 and 1972. among others. and has become an increasingly cohesive and potent organization as its member nations have steadily enhanced their equity positions and their control over their oil production facilities. by late 1973 foreign prices were generally several dollars per barrel higher than controlled domestic prices. The closing of the Suez Canal and the concomitant interruption of the flow of Mid-East oil during the 1967 “Six-Day War”. foreign crude oil has never been subject to price control by the United States Government. during 1973 foreign prices “crossed” domestic prices. Those posted price bulletins historically have. Blackledge. Platts Oilgram. including sellers of crude oil. since then it has declined while the percentage of imported crude oil has been steadily increasing. uncontrolled by the Federal Government. customers whose price of product may be based thereon. Nationalization of crude oil resources and shutdowns of production and distribution have become a way of life for oil companies operating in OPEC nations. which has been subject to price control since August 15. particularly in the volatile Middle East. Foreign crude oil prices. 1971. and Libya’s nationalization of its oil industry during the same period.

until the imposition of an embargo upon the exportation of crude oil by certain Arab countries in October. The price of “old” oil then is frozen by the government at a fixed level. Gulf Oil Corp. since the imposition of “two-tier” in August of 1973. from a well which in May of 1972. 1974. 1973. that increased production is deemed “new” oil.  against the United States and certain of its allies. in the fall of 1973. Mindful of that situation and for various other reasons concerning the nation’s economy. produced 100 barrels of oil. 1973. For example. World prices for oil and oil products increased. with the implementation of price controls known as “twotier”. In practice “two-tier” can be described as follows: taking as the bench mark the number of barrels produced from a given well in May of 1972. however. Those countries deemed sympathetic to Israel were embargoed from receiving oil from the Arab oil producing countries. Increased productivity to 150 barrels would result in 50 barrels of “new” oil and 50 barrels of “released” oil. The United States was among the principal countries affected by that embargo. and January 15. To the extent that the productivity of a given well can be increased over the May. that number of barrels is deemed “old” oil.” Following closely after the embargo. The implementation of “two-tier” was completely without precedent in the history of government price control action. be “old” oil. OPEC (Oil Producing Export Countries) unilaterally increased the price of their crude to the world market some 400% between September. all of the production of that well would. the government authorized the release from price controls of an equivalent number of barrels from those theretofore designated “old” oil. the United States government began a series of controls affecting the oil industry culminating. with the result that it experienced an immediate “energy crises. was nominal. For each barrel of “new” oil produced.Eastern Airlines. v. 1972. Inc. Its impact. with the result that 100 barrels of the 150 barrels produced from the well would be uncontrolled by the “two-tier” pricing system. Since the United States domestic production was at caCHAPTER FOUR: MUTUAL ASSENT  373  . while the 50 remaining barrels of “old” would remain government price controlled. production.

it is vague and indefinite. are the subject of supplemental bulletins which are likewise posted by the oil companies and furnished to interested parties.e. Shell Oil Company and Pan American Petroleum. 1974. $5 a barrel. the companies designated in the agreement. The information which has appeared in Platts since the implementation of “two-tier” with respect to the price of West Texas Sour crude oil has been the price of “old” oil subject to government control. Since imposition of “two-tier”. I THE “REQUIREMENTS” CONTRACT Gulf has taken the position in this case that the contract between it and Eastern is not a valid document in that it lacks mutuality of obligation. 1973 to January 15. including those of Gulf Oil Corporation. Platts.. entered in this cause by agreement of the parties. known as “premiums”. and that it renders Gulf subject to Eastern’s whims respecting the volume of jet fuel Gulf would be required to deliver to the purchaser Eastern. Approximately 40 gallons of finished jet fuel product can be refined from a barrel of crude. since the institution of “two-tier” has not published the posted prices of any of the premiums offered by the oil companies in the United States. including Platts Oilgram. moving from approximately $5 to $11 a barrel from September. New and released oil (uncontrolled) soon reached parity with the price of foreign crude. Under the court’s restraining order. it was dependent upon foreign crude to meet its requirements.Outputs. Those prices. the price of “old oil” has remained fixed by government action. and subject to government controls. i. Against this factual background we turn to a consideration of the legal issues. Eastern has been paying for jet fuel from Gulf on the basis of the price of “old” West Texas Sour crude oil as fixed by government price control action. 374  CONTRACTS  . with the oil companies resorting to postings reflecting prices they will pay for the new and released oil. Requirements & Exclusive Dealings  pacity.

requirements contracts were found invalid for want of the requisite definiteness. This is the construction the parties themselves have placed on the contract and it has governed their conduct over many years and several contracts. case law generally held requirements contracts binding. Inc. Gulf Oil Corp. (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith. 1300. Gulf must make the necessary arrangements to supply Eastern’s reasonable good faith demands at those same locations. 1139. Conversely. Many such cases are collected and annotated at 14 A. receive and pay for their requirements of Gulf Jet A and Gulf Jet A-1 at the locations listed … . specifically approves requirements contracts in F.” CHAPTER FOUR: MUTUAL ASSENT  375  . In early cases.Eastern Airlines. and Eastern agrees to purchase. or on the grounds of lack of mutuality.S. must be bought from Gulf.2d 1099.L. adopted in Florida in 1965.306 (U.R. See 26 A. there developed rather quickly in the law the view that a requirements contract could be binding where the purchaser had an operating business. § 2-306(1)). Therefore.R. As reflected in the foregoing annotation. v. well prior to the adoption of the Uniform Commercial Code. The Uniform Commercial Code Official Comment interprets 4 “Gulf agrees to sell and deliver to Eastern. The “lack of mutuality” and “indefiniteness” were resolved since the court could determine the volume of goods provided for under the contract by reference to objective evidence of the volume of goods required to operate the specified business.C.L.  The contract talks in terms of fuel “requirements”.4 The parties have interpreted this provision to mean that any aviation fuel purchased by Eastern at one of the cities covered by the contract. 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. The Uniform Commercial Code.C. 672.

The parties have consistently over the years relied upon each other to act in good faith in the purchase and sale of the required quantities of aviation fuel specified in the contract. The essential test is whether the party is acting in good faith. A shut-down by a requirements buyer for lack of orders might be permissible when a shutdown merely to curtail losses would not.C. 1939). During the course of the contract.. Oklahoma Portland Cement Co.Outputs. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. Similarly. since the advent of the petroleum allocations programs.A 10. a sudden expansion of the plant by which requirements are to be measured would not be included within the scope of the contract as made but normal expansion undertaken in good faith would be within the scope of this section. Requirements & Exclusive Dealings  § 2-306(1) as follows: 2. Florida requirement. v. Under this Article. the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. One of the factors in an expansion situation would be whether the market price has risen greatly in a case in which the requirements contract contained a fixed price. discussions of estimated requirements have been on a 376  CONTRACTS  .2d 630 (C. Some of the prior Gulf-Eastern contracts have included the estimated fuel requirements for some cities covered by the contract while others have none. various estimates have been exchanged from time to time. and. The particular contract contains an estimate for Gainesville. 102 F. under this section. a contract for output or requirements is not too indefinite since it is held to mean the actual good faith output or requirements of the particular party. Nor does such a contract lack mutuality of obligation since. Reasonable variation of an extreme sort is exemplified in Southwest Natural Gas Co.

Comment 3 provides: 3. as Official Comments 2 and 3 indicate.Eastern Airlines. § 2-306. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity.C. v. If an estimate of output or requirements is included in the agreement. Similarly where the Gulf station was comparatively cheaper. Gulf Oil Corp. the practice could have reduced liftings there by lifting fuel in excess of its actual operating requirements at a prior station.C. or it may include estimates. and thereby not loading fuel at the succeeding high price Gulf station. Requirements can vary from city to city depending on whether or not it is economically profitable to freight fuel. In any case.C. The court however. The relevant 5 A requirements contract under the U.  monthly (or more frequent) basis. the agreed estimate is to be regarded as a center around which the parties intend the variation to occur. This fuel freighting practice in accordance with price could affect lifting from Gulf stations by either raising such liftings or lowering them.C. or it may contain maximums and minimums.C. Inc. § 1-201(19). II BREACH OF CONTRACT Gulf suggests that Eastern violated the contract between the parties by manipulating its requirements through a practice known as “fuel freighting” in the airline industry. “good faith” means “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade”. no quantity unreasonably disproportionate to it may be tendered or demanded. U. Between merchants. § 2103(1)(b) and Official Comment 2 of U.C.5 The court concludes that the document is a binding and enforceable requirements contract. Comment 2 is set out in the text above. § 2-306. the consequences are the same. finds that Eastern’s performance under the contract does not constitute a breach of its agreement with Gulf and is consistent with good faith and established commercial practices as required by U.C.C. In similar fashion. “Good Faith” means “honesty in fact in the conduct or transaction concerned” U. If the price was higher at a Gulf station. an aircraft might load more heavily at the Gulf station and not load at other succeeding non-Gulf stations.C. CHAPTER FOUR: MUTUAL ASSENT  377  . may speak of “requirements” alone.C.

as they are affected by weather. requested 500. local airport conditions. airlines’ liftings of fuel by nature have been subject to substantial daily. without protest from Gulf.” “courses of dealing” and “usages of trade.000 gallons.000 to more than 3. on one occasion. Some of the “swings” were explained by the fueling of a single aircraft for one flight. and ultimately. All these factors are. ground time.000.” U. including 30 years of dealing between Gulf and Eastern. fuel price.C. Requirements & Exclusive Dealings  commercial practices are “courses of performance. § 1-205(2) defines “usage of trade” as “any practice or method of dealing having such regularity of observance in a place.” U.C. § 1-205(1) defines “course of dealing” as “a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. known to oil companies. weekly. the judgment of the flight captain as to how much fuel he wants to take. and for years have been. aircraft load.” U.C. fuel taxes.000. Gulf never complained of this practice and apparently accepted it as normal procedure. The evidence establishes that Eastern. and that Eastern increased its requirements at another station more than 50 percent year to year. Gulf’s witnesses at trial pointed to certain examples of numerically large “swings” in monthly liftings by Eastern at various Gulf stations. The court concludes that fuel freighting is an established industry 6 U. passenger convenience.Outputs. or by the addition of one schedule in mid-month. including Gulf.C. whether the flight is on time or late. economy and efficiency of operation.”6 Throughout the history of commercial aviation.C. size of aircraft.C. from less than 2. into-plane fuel service charges. schedule changes.000 additional gallons for one month at one station.C. and taken into account by them in their fuel contracts. availability of fueling facilities. § 2-208(1) defines “course of performance” as those “repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other. vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” 378  CONTRACTS  . § 2-208(2) provides that “express terms shall control course of performance and course of performance shall control both course of dealings and usage of trade. again. without Gulf objection. monthly and seasonal variations.C.

the seller might be excused from performance if the buyer suddenly and without warning should descend upon him and demand his entire inventory. Gulf Oil Corp. similarly. v. Rather. the court is reminded of Official Comment 1 to U.Eastern Airlines. § 2-306 protects the seller and. would allow him to refuse to deliver unreasonable amounts demanded (but without eliminating his basic contract obligation).C.C. in the appropriate case. The practical interpretation given to their contracts by the parties to them while they are engaged in their performCHAPTER FOUR: MUTUAL ASSENT  379  . if a customer repeatedly had no requirements at all. and the basic contract itself all show that the matters complained of for the first time by Gulf after commencement of this litigation are the fundamental given ingredients of the aviation fuel trade to which the parties have accommodated themselves successfully and without dispute over the years. in an appropriate case. and had to have an assured source of supply. The very reason Eastern initially desired a fuel contract was because the airline planned to take on fuel.C. The evidence clearly demonstrated that the practice has long been part of the established courses of performance and dealing between Eastern and Gulf. U. § 2-208: The parties themselves know best what they have meant by their words of agreement and their action under that agreement is the best indication of what that meaning was. according to the uncontradicted testimony. There is no suggestion here that Eastern is operating at certain gulf stations but taking no fuel at all. but the court is not called upon to decide those cases here.  practice. From a practical point of view. Inc. the established usages of the trade. If a customer’s demands under a requirements contract become excessive.C. As the practice of “freighting” or “tankering” has gone on unchanged and unchallenged for many years accepted as a fact of life by Gulf without complaint. “freighting” opportunities are very few. the case here is one where the established courses of performance and dealing between the parties. as the airline must perform its schedules in consideration of operating realities. inherent in the nature of the business.

App. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification.C. is one of the best indications of their true intent. for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. Manhattan Life Ins. 1973).615). 284 So. Spindler v. Requirements & Exclusive Dealings  ance. c) The seller must notify the buyer seasonably that there will be delay or nondelivery and. Eastern had specific notice of Gulf’s intention to rely on this section when Gulf filed its memorandum of law in opposition to Eastern’s motion for summary judgment in the summer. Accord. Wright. 672. local crop failure.C.Outputs. 87 (8th Cir. The former does not require notice while the latter does.S. and courts that adopt and enforce such a construction are not likely to commit serious error. 1974. Gulf also raised this section as an affirmative defense when it filed its answer in the fall. Official Comments 4 and 8 to U. when allocation is required under paragraph (b). Eastern argues that U. and before any controversy has arisen concerning them.S. unforeseen shutdown of major sources of supply or the like. 82. The court concludes that Eastern has not violated the contract. Kushner.614) and 2-615 (F.2d 481 (Fla. 1974 and is therefore entitled to a ruling. § 2-615 provide: 4. which either causes a marked increase in cost or alto380  CONTRACTS  .C. Co. 1903). At worst. III COMMERCIAL IMPRACTICABILITY Gulf’s commercial impracticability defenses are premised on two sections of the Uniform Commercial Code specifically §§ 2-614 (F.C. But a severe shortage of raw materials or of supplies due to a contingency such as war. of New York v. of the estimated quota thus made available for the buyer. 126 F. however. 672. embargo. § 2-615 is procedurally in applicable as Gulf did not give Eastern the notice mandated by the section.

C.B.).. Cas.B. v.  gether prevents the seller from securing supplies necessary to his performance. K. 93 (1962). § 2-615 to apply there must be a failure of a pre-supposed condition. 226.m.H. Inc. S. Ltd. (See Ford & Sons. V/O Sovfracht (The Eugenia). Those cases offered little encouragement to those who would wield the sword of commercial impracticability. StulmanEmrick Lumber Co. 348 (1960). and the risk of which was not specifically allocated to the complaining party. v.C. 1945). CHAPTER FOUR: MUTUAL ASSENT  381  . arising out of the various closings of the Suez Canal and the consequent increases in shipping costs around the Cape of Good Hope.A. Thus the exemptions of this section do not apply when the contingency in question is sufficiently foreshadowed at the time of contracting to be included among the business risks which are fairly to be regarded as part of the dickered terms.b.D. and Caparanoyoti & Co. A. The modern U. (See Madeirense Do Brasil. 147 F.” Ocean Tramp Tankers v. for U.. 1973).B. commercial interpretation from the circumstances. E. It must be positively unjust to hold the parties bound. Gulf Oil Corp. 239 (1964).) 8. As a leading British case arising out of the 1957 Suez closure declared. § 2-615 doctrine of commercial impracticability has its roots in the common law doctrine of frustration or impossibility and finds its most recognized illustrations in the socalled “Suez Cases”. 2 Q.A. Ocean Air Tradeways. Ltd. is within the contemplation of this section.. The provisions of this section are made subject to assumption of greater liability by agreement and such agreement is to be found not only in the expressed terms of the contract but in the circumstances surrounding the contracting.2d 1112. v. 480 F..C. Inc. Ltd. in trade usage and the like. the unforeseen cost increase that would excuse performance “must be more than merely onerous or expensive. v. 2 Q. v. which failure was unforeseeable. which was an underlying assumption of the contract.2d.). The burden of proving each element of claimed commercial impracticability is on the party claiming excuse. aff’d.C. Arkay Realty Corp. 1117 (9th Cir. In short.Eastern Airlines. Noblee Thore G. To the same effect are Tsakiroglou and Co.C..T.C. 399 (C. v. 21 Com. 2 Cir. 55 (1915. Ltd.. either consciously or as a matter of reasonable. Henry Leetham & Sons.

Natus Corp. the Seventh Circuit has stated: “The fact that performance has become economically burdensome or unattractive is not sufficient for performance to be excused.2d 784 (Sup. Whitlock Corp. 131. 382  CONTRACTS  . United States. which gave specific consideration to U. 1969). Shell International Marine Ltd. Inc. Requirements & Exclusive Dealings  Green. See also. in Transatlantic Financing Corp. v. v. Supp. 407 F. but the evidence does not establish that it was impossible. one case found no U. v. § 2-615. v.C.. 606 (1958)..S. 1 Q...C. To the same effect are American Trading and Production Corporation v. 352 N. Sisters of Charity. Maple Farms. That is the purpose for which such contracts are made.C. A mere showing of unprofitability.. Gulf’s argument on commercial impracticability has two strings to its bow.” Schafer v. City School District. Other recent American cases similarly strictly construe the doctrine of commercial impracticability. 363 F. 97 (1957). For example. 266 Or. without more. Inc. Basic Construction Co. 319 (1966). 453 F. the court stating. 294 (7th Cir. These British precedents were followed by the District of Columbia Circuit. defense... [T]he buyer has a right to rely on the party to the contract to supply him with goods regardless of what happens to the market price. 448 (1973). 508 F. 1972).2d 283. 148 (1959). 293. and the second tier being the unregulated oil. We will not allow a party to a contract to escape a bad bargain merely because it is burdensome. 360 F. 1974).Y.H. United States. will not excuse the performance of a contract. Gulf contends that the escalator indicator does not work as intended by the parties by reason of the advent of so-called “two-tier” pricing under Phase IV government price controls. Champlain Oil Co. Sunset Packing Co. United States v.2d 1137 (4th Cir.2d 939 (2d Cir. v.2d 312.” NealCooper Grain C. Perry v. Comment 4. Recently. Ltd. United States. “It may have been unprofitable for defendant to have supplied the pickers. 371 F. 602. 1966). Ct. even though costs had doubled over the contract price.B. 101 N.7 Sec7 One tier being “old” price-controlled oil.C. 256 Or. 159 F. First. 1974). Ballou v..Outputs. and Portland Section of Council of Jewish Women v. Texas Gulf Sulfur Co. Wegematic Corp.2d 674 (2d Cir.2d 450 (1967). 539 (1970).

Gulf has never attempted to follow the prescribed remedy. as a result. The intent of the parties is clear from the four corners of the contract. with Platt’s ceasing to publish either in toto or in regard to the specified postings. which is published today. The Proviso deals.  ond. has been triggered. is without merit. CHAPTER FOUR: MUTUAL ASSENT  383  . is that the language of the contract is clear and unambiguous. including notice and substitution of other indicators. the proviso contains its own prescription for remedial action in the case of suspension. v. which has been published at all times material here. thus its argument fails for procedural as well as substantive reasons. neither of which is the case here. The contract does not require interpretation and requires no excursion into the subjective intention of the parties. 10 Gulf’s contention that the publication of the postings has been “suspended” and therefore that a proviso of Article II of the contract. Gulf’s expert witness Mr. just as they are today and have been at all times in between.8 The short and dispositive answer to Gulf’s first argument under U. Furthermore. § 2-615. they intended to be bound by the specified entries in Platt’s.C. In addition. 9 The parties have stipulated that Eastern has been paying prices mandated by the contract terms. in the clearest of terms. including Gulf.Eastern Airlines.10 It should be noted that Platt’s Oilgram Crude Oil Supplement states on its face that its postings since the advent of “two-tier” are basically comparable to the postings historically quoted in Platt’s. and that postings listed in Platt’s were price controlled at the time of negotiation and execution of the contract. and. Coates testified that oil companies. Prices under the contract can be and still are calculated9 by reference to Platt’s publication. that performance of the contract has become commercially impracticable. continue to use “old oil” prices (the prices reported in Platt’s) for 8 The average price paid by Eastern to Gulf has risen more than 40% over the life of the contract. and which prints the contract reference prices. Gulf Oil Corp. declaring the consequences of “suspension”. that the price escalation indicator (posting in Platt’s Oilgram Crude Oil Supplement) no longer reflects the intent of the parties by reason of the so-called “two-tier” pricing structure. Inc.C. Gulf alleges that crude oil prices have risen substantially without a concomitant rise in the escalation indicator.

Finally.C. However. Requirements & Exclusive Dealings  contracts between themselves. some 60 percent of Gulf’s 1974 domestic production was old oil. either now or at the inception of the contract. With regard to Gulf’s contention that the contract has become “commercially impracticable” within the meaning of U. and about $9. as to the indicator crude (West Texas Sour) there is no showing that the Platt’s postings do not reflect that market price for that oil today. since most of the production in that field is “old” oil.00 currently. With respect to foreign crude oil. with respect to domestic oil. the court finds that the tendered defense has not been proved. The testimony is in substantial dispute but the court finds. Gulf’s claimed “costs” of an average barrel of crude oil at Gulf’s refineries (estimated by Gulf’s witness Davis at about $10. In the absence of any evidence to the contrary it may be reasonably inferred that virtually all transactions in West Texas Sour Crude Oil take place at the postings reflected in Platt’s. or will suffer. losses in performing his contract. Gulf’s witnesses testified that they could not make such a computation. or at any time in between. because of the increase in market price of foreign crude oil and certain domestic crude oils. On this record the court cannot determine how must it costs Gulf to produce a gallon of jet fuel for sale to Eastern.C. whether Gulf loses money or makes a profit on its sale of jet fuel to Eastern. § 2615. Gulf presented evidence tending to show that its “costs” of crude oil have increased dramatically over the past two years.Outputs. the “costs” to which Gulf adverts are unlike any “costs” that might arguably afford ground for any of the relief sought here. The record here does not substantiate Gulf’s contention on this fundamental issue.50 during 1974) include intra-company profits. as the oil moved from Gulf’s overseas and domestic produc384  CONTRACTS  . domestic prices were considerably lower than imported price at the beginning of the period in question so that the West Texas Sour Crude postings unquestionably did not reflect foreign crude oil postings. The party undertaking the burden of establishing “commercial impracticability” by reason of allegedly increased raw material costs undertakes the obligation of showing the extent to which he has suffered.

but the record discloses that Gulf’s overseas subsidiaries have enjoyed substantial profits from crude oil transactions and that those profits are included in the “average” crude oil “costs” of which Gulf now complains. one year earlier. During the discovery process. Inc. as documents from the committee reveal.88 per barrel compared with profits of $0.” the record shows that at the very time Gulf was in the process of repudiating its contract with Eastern (January 1974).88 respectively. Gulf Oil Corp.11 That margin may now have declined.92 and $0. With respect to Gulf’s foreign crude oil “costs. The “transfer” prices at which Gulf “sells” its foreign oil to its domestic subsidiaries are set by a pricing committee in Gulf’s Pittsburgh home office. CHAPTER FOUR: MUTUAL ASSENT  385  .Eastern Airlines. The magnitude of that profit was not revealed. Gulf developed for Eastern certain “cost” figures. Mr.  tion departments to its refining department. v. In like manner. Internal memoranda from the pricing committee introduced into evidence showed for instance that the committee had before it the view of one of its tax experts that every $1 increase in Nigerian oil prices resulted in a 50 to 90 cent benefit to the company. through intercompany sales. Intracompany profit can be and is allocated among those 400-plus corporate subsidiaries of Gulf. the “per barrel” cost calculations which Gulf introduced at trial reflect “in house” profits from Gulf’s domestic production. there are memoranda reflecting a policy of charging the highest prices possible to the United States. other memoranda describe how profits might be assigned.43 to $3. to optimize overall benefit to the corporation. Gulf’s profit margin on foreign crude oil brought into the United States (Cabindan and Nigerian) was approximately $4. Those data show that a Gulf-produced barrel of domestic crude oil is reflected on Gulf’s books at a cost of 11 Gulf’s international oils expert. Similarly. largely through the transfer price device. Blackledge testified that foreign oil costs were up four-fold during 1973-74 but Gulf’s profits also went up four-fold in that period. to various other offshore subsidiaries to obtain favorable tax treatment for the purpose of maximizing the advantages to the corporation for the benefit of the parent corporation.

was Gulf’s best year even. To the extent “old oil” postings are reflected in the domestic oil “transfer price”. “new” oil “transfer prices” would include an even larger profit margin. the record clearly establishes that 1973. Requirements & Exclusive Dealings  approximately $2. these are not the kinds of “costs” against which to measure hardship. Gulf used. Again. On the contrary. the year in which the energy crises began.44 for the nine-month period ending September 30. However. Gulf estimated that some 70 percent of domestic oil going into Gulf’s refineries was its own proprietary production. these factors cannot be ignored in approaching Gulf’s contention that it has been unduly burdened by crude oil price increases. real or imagined. Yet.44 actual booked cost. in which it recorded some $800 million in net profits after taxes. as one Gulf witness so aptly put it. No such hardship has been established. No criticism is implied of Gulf’s rational desire to maximize its profits and take every advantage available to it under the laws.Outputs.065.76 per barrel. measured against the $5.000. not its “costs” inflated by its internal profits at various levels of the manufacturing process and located in various foreign countries.20 posting listed in Platt’s for West Texas Sour Crude. not the $2. the intra-company profit would be on the order of $2. Gulf’s claim of hardship giving rise to 12 Gulf stipulated in the parties’ pretrial stipulation that it had the capability to perform the contract. Gulf’s 1974 year was more than 25% better than 1973’s record $1. 1974.50 for that period). but a “transfer” price. for purposes of computing an overall average “cost” to Gulf of a barrel of crude oil for trial purposes (estimated by Gulf’s economist witness Davis on the stand at about $9. under the Uniform Commercial Code.000 profits were booked by Gulf in 1974 after paying all taxes. The burden is upon Gulf to show what its real costs are. moving from the left-hand to the right-hand. 386  CONTRACTS  . Under no theory of law can it be held that Gulf is guaranteed preservation of its intra-company profits.12 For the foregoing reasons. equal to “postings” and including intra-company profit.

1964). because the party disadvantaged by fruition of the contingency might have protected himself in his contract. subsequent to the contract. the court would be justified in taking judicial notice of the fact that oil has been used as a political weapon with increasing success by the oil-producing nations for many years.. (this) does not relieve the promisor. Nutex Oil Co. If a contingency is foreseeable. the record shows that domestic crude oil prices were controlled at all material times. that Gulf foresaw that they might be de-controlled. Ellwood v.2d 862 (Tex. § 2-615. and though performance.  “commercial impracticability” fails. it and its consequences are taken outside the scope of U.C. App. id. But even if Gulf had established great hardship under U. and particularly where he might have foreseen the difficulty and impossibility (citing cases).C. v.W. 489 (5th Cir..C. with the result that the oil company came to receive a far smaller share of the royalties than it would them have been able to obtain on the market.2d 485. may become difficult or even impossible. Gulf Oil Corp. The foreseeability point is illustrated by Foster v. § 2-615. and repeated interruptions and interference with the normal commercial trade in crude oil.C. with approval.. Inc. and Gulf was well aware of and assumed the risk that the OPEC nations would do exactly what they have done. Citing Ellwood. which it has not. and that Gulf was constantly urging to the Federal CHAPTER FOUR: MUTUAL ASSENT  387  . Even without the extensive evidence present in the record. There an oil company sought release from a gas royalty contract because the royalty provisions of the contract did not contain an escalation clause. 1941). 329 F. 148 S.Eastern Airlines. the arbitrary power of host governments to control the foreign oil market. The record is replete with evidence as to the volatility of the Middle East situation. Gulf would not prevail because the events associated with the so-called energy crises were reasonably foreseeable at the time the contract was executed. must be held to perform it (citing cases). the Fifth Circuit answered the oil company’s argument as follows: [O]ne who unconditionally obligates himself to do a thing possible of performance. Atlantic Refining Co. With respect to Gulf’s argument that “two-tier” was not “foreseeable”. Civ.

C. Government price regulations were confused. to the blocking by governmental interference with the contemplated mode of monetary exchange. such increases are a fact of life for the future. The court is of the view that it is bound thereby. therefore all suppliers have such anticipation. Even those outside the oil industry were aware of the possibilities.C. Eastern’s principal contract negotiator advised his superior in recommending this contract to him: While Gulf is apparently counting on crude price increases.. 1975 is the year during which the full effect of energy shortages will be felt in the United States according to most estimates. Requirements & Exclusive Dealings  Government that they should be de-controlled. except as the government may inhibit by price controls. and uncertain during the period of the negotiation and execution of the contract. If delivery has already been taken. Gulf drafted the contract and tied the escalation to certain specified domestic postings in Platt’s. oppressive or predatory. Knowing all the factors. It is clear that this section dealing with “means or manner of payment” speaks. § 2-614(2) is not applicable to this case. The court is further of the opinion that U. During that time frame. including some of its trial witnesses. were in constant repeated contact with officials and agencies of the Federal Government regarding petroleum policies and were well able to protect themselves from any contingencies. constantly changing. by way of illustration. the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent.g. high ranking Gulf executives. when a contract provides for payment in gold specie and the government subsequently forbids payment in gold). It provides: (2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation. payment by the means or in the manner provided by the regulation discharges the buyer’s obligation unless the regulation is discriminatory. (e.Outputs. No 388  CONTRACTS  .

the court makes the following ultimate findings of fact and conclusions of law: CHAPTER FOUR: MUTUAL ASSENT  389  . and it would be a vain. In the circumstances.Eastern Airlines. 321 F. This case is a particularly appropriate one for specific performance.C. Under the U. 932 (N. Associated Metals & Minerals Corp. CONCLUSIONS For the foregoing reasons. the issues are squarely framed. Kaiser Trading Co. a more liberal test in determining entitlement to specific performance has been established than the test one must meet for classic equitable relief. and that no defenses have been established against it. The Uniform Commercial Code provides that in an appropriate case specific performance may be decreed. 1971). v.2d 1364 (9th Cir. It has previously been found and concluded that Eastern is entitled to Gulf’s fuel at the prices agreed upon in the contract. useless and potentially harmful exercise to declare that Eastern has a valid contract.C. The parties have been operating for more than a year pursuant to a preliminary injunction requiring specific performance of the contract and Gulf has stipulated that it is able to perform. Cal.C. the preliminary injunction heretofore entered is made a permanent injunction and the order of this court herein.D.C. should be enforced. Inc. IV REMEDY Having found and concluded that the contract is a valid one. Gulf Oil Corp. Supp. 1970).000 gallons of fuel annually or 10 percent of Eastern’s total requirements. If Gulf ceases to supply this fuel. 923.  such issue appears in the case at bar and U. § 2-716(1). U..C. § 2-614 is inapposite here. the result will be chaos and irreparable damage. appeal dismissed per curiam 443 F. there remains for consideration the proper remedy. they have been clearly resolved in Eastern’s favor. The parties are before the court.000. Accordingly. Gulf presently supplies Eastern with 100.C. a decree of specific performance becomes the ordinary and natural relief rather than the extraordinary one. v. but leave the parties to their own devices.

 Domenico  U. _________________________________________________  MODIFICATION & DISCHARGE  _________________________________________________  Alaska Packers’ Ass’n v. On December 31. Florida this 20th day of October. and Eastern has performed its obligations thereunder.Outputs. and the preliminary injunction heretofore issued. Eastern is entitled to enforcement of the contract. 4. The libel in this case was based upon a contract alleged to have been entered into between the libelants and the appellant corporation on the 22d day of May. 1902) Ross. at Pyramid Harbor. Alaska. The contract was performed by the parties in accordance with its terms up to and including December 31. on its part. 99 (9th Cir. 1900. 1975. averred that it was 390  CONTRACTS  . The contract at issue is a valid requirements contract.S. Requirements & Exclusive Dealings  1. In its answer the respondent denied the execution. of the contract sued upon. among other things. Gulf breached the contract by declaring it no longer to be in effect. the sum of $100 for services rendered and to be rendered. 5. 6. Miami. and Eastern has continued so to perform since that time. The court has jurisdiction over the parties and the subject matter of this litigation. 2. 1973. The contract is not lacking in mutuality nor is it commercially impracticable. Circuit Judge. 1973. by which it is claimed the appellant promised to pay each of the libelants. 117 F. requiring specific performance according to the terms of the contract. 3. Court of Appeals for the Ninth Circuit. be and the same is hereby made permanent. Done and ordered in chambers at the United States Courthouse for the Southern District of Florida.

’ By the terms of this agreement. at the city and county of San Francisco.Alaska Packers’ Ass’n v. and two cents for each red salmon in the catching of which he took part. the appellant agreeing to pay them therefor the sum of $60 for the season. each of the libelants was paid by the respondent the full amount due him thereunder. and for a third defense alleged that the work performed by the libelants for it was performed under other and different contracts than that sued on. On the 15th day of April. and also bound themselves to perform the same work for the appellant provided for by the previous contract of March 26th. agreeing to do ‘regular ship’s duty. a vessel chartered by the appellant for the voyage between San Francisco and Pyramid Harbor.000 invested in a salmon cannery. Alaska. 1900. and began to unload the vessel and fit up the cannery. May 19th. where the appellants had about $150. in consideration of which each of them executed a full release of all his claims and demands against the respondent. and return. instead of the sums stipulated for CHAPTER FOUR: MUTUAL ASSENT  391  . 1900. prior to the filing of the libel. and to do any other work whatsoever when requested to do so by the captain or agent of the Alaska Packers’ Association. to wit. Domenico  without consideration. both up and down. the libelants entered into a written contract with the appellants. Under these contracts. and to work for the appellant during the fishing season of 1900. and two cents each for each red salmon in the catching of which they should respectively take part. the appellant was to pay each of the libelants $50 for the season. and that. whereby they agreed to go from San Francisco to Pyramid Harbor. at Pyramid Harbor. on board such vessel as might be designated by the appellant. A few days thereafter. they stopped work in a body. discharging and loading. The libelants arrived there early in April of the year mentioned. as sailors and fishermen. the libelants sailed on board the Two Brothers for Pyramid Harbor. The evidence shows without conflict that on March 26. 21 of the libelants of the libelants signed shipping articles by which they shipped as seamen on the Two Brothers. and demanded of the company’s superintendent there in charge $100 for services in operating the vessel to and from Pyramid Harbor.

of those contracts. and refused to pay other than as provided for by the contracts of March 26th and April 5th. or to in any way alter the contracts made between them and the company in San Francisco. consulted counsel. and that it was on that account that they demanded increased wages. and the others paid at the office of the company. respectively. stating that unless they were paid this additional wage they would stop work entirely.Modification & Discharge  in and by the contracts. also receipting in full for their demands. so far yielded to their demands as to instruct his clerk to copy the contracts executed in San Francisco. substituting. testifying that he at the time told the libelants that he was without authority to enter into any such contract. when the company denied its validity. after endeavoring for several days without success to induce the libelants to proceed with their work in accordance with their contracts. Some of the libelants. respectively. the season short and just opening. and the court below found. so that. the sum of $100. and. On that point. The evidence showed. was signed by the libelants before a shipping commissioner whom they had requested to be brought from Northeast Point. the place being remote. that it was impossible for the appellant to get other men to take the places of the libelants. On the trial in the court below. which document. and return to San Francisco. however. Upon the return of the libelants to San Francisco at the close of the fishing season. the evidence was substantially conflicting. the libelants undertook to show that the fishing nets provided by the respondent were defective. on the 22d day of May. they demanded pay in accordance with the terms of the alleged contract of May 22d. for the $50 and $60 payments. at least. after receiving his advice. the company’s superintendent. the superintendent. executing in consideration thereof a release in full. including the words ‘Alaska Packers’ Association’ at the end. those of them who had signed the shipping articles before the shipping commissioner at San Francisco went before that officer. and received the amount due them thereunder. and the finding of the court was against the libelants the court saying: “The contention of libelants that the nets provided them were rotten and unserviceable is not sustained by the evi392  CONTRACTS  . so prepared.

will not be disturbed. The real questions in the case as brought here are questions of law. Co. Domenico  dence. and. It follows from this finding that libelants were not justified in refusing performance of their original contract. and in which enterprise the appellant had a large amount of money invested. 633. it is highly improbable that the defendant gave libelants rotten and unserviceable nets with which to fish. after having entered upon the discharge of their contract. and. The Glendale. The case shows that they willfully and arbitrarily broke that obligation. was. 56 Fed. 243. it will be necessary to consider but one of those. Assuming that the appellant’s superintendent at Pyramid Harbor was authorized to make the alleged contract of May 22d. in the view that we take of the case. for certain stated compensation. 554. the libelants. v. The Lucy. 621. who heard and saw the witnesses. 81 Fed.. The evidence being sharply conflicting in respect to these facts. without consideration. Emery-Bird-Thayer Dry Goods Co. it will have been seen that the libelants agreed in writing. under such circumstances. 77 Fed. and none other. for the reason that it was based solely upon the libelants’ agreement to render the exact services. was it supported by a sufficient consideration? From the foregoing statement of the case.Alaska Packers’ Ass’n v. In view of this self-evident fact. absolutely refused to continue the services they were under contract to perform unless the appellant would consent to pay them more money. Gorham Mfg. 572. and the large capital invested therein. and at a time when it was impossible for the appellant to secure other men in their places. in our opinion. The defendants’ interest required that libelants should be provided with every facility necessary to their success as fishermen. for on such success depended the profits defendant would be able to realize that season from its packing plant. 744. The Alijandro. Consent to such a demand. 74 Fed. if given.” 112 Fed. to render their services to the appellant in remote waters where the season for conducting fishing operations is extremely short. 104 Fed. that they were already under contract to render. without any valid cause. The Coquitlam. the conclusions of the court. As a CHAPTER FOUR: MUTUAL ASSENT  393  . and that he executed it on behalf of the appellant.

upon the record in this case. where the promise is simply a repetition of 394  CONTRACTS  . it would be strange.a contract mutually beneficial to all the parties thereto. they were liable to the appellant in damages. Surely it would be a travesty on justice to hold that the party so making the promise for extra pay was estopped from asserting that the promise was without consideration. 482: “No astute reasoning can change the plain fact that the party who refuses to perform. made on its behalf the contract sued on. if he had no power to change the original. in that it gave to the libelants reasonable compensation for their labor. 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.. of course. and the testimony is uncontradicted that its superintendent at Pyramid Harbor.. The circumstances of the present case bring it. A party cannot lay the foundation of an estoppel by his own wrong. it cannot be justly held. 61 Minn. and enabled the defendant to employ to advantage the large capital it had invested in its canning and fishing plant. and enter into the contract sued upon.” Certainly. as suggested by the court below in its opinion. The company itself knew nothing of such breach until the expedition returned to San Francisco.Modification & Discharge  matter of course. and it is quite probable. that they may have been unable to respond in damages. directly within the sound and just observations of the supreme court of Minnesota in the case of King v. and it would. he would have no authority to waive any rights thereunder. in these words: “Under such circumstances. takes an unjustifiable advantage of the necessities of the other party. if the law would not permit the defendant to waive the damages caused by the libelants’ breach. distinctly informed the libelants that he had no power to alter the original or to make a new contract. Railway Co. follow that. it is claimed. But we are unable to agree with the conclusions there drawn. who. indeed. that there was any voluntary waiver on the part of the appellant of the breach of the original contract. we think. from these facts.

’ of which Jungenfeld was president. Under the new promise. Domenico  a subsisting legal promise. Brewing Co. and another company put up the refrigerating machinery. What benefit was to accrue to Wainwright? He was to receive the same service from Jungenfeld under the new. That a promise to pay a man for doing that which he is already under contract to do is without consideration is conceded by respondents. To permit plaintiff to recover under such circumstances would be to offer a premium upon bad faith. The promise cannot be legally enforced. The rule has been so long imbedded in the common law and decisions of the highest courts of the various states that nothing but the most cogent CHAPTER FOUR: MUTUAL ASSENT  395  . New in what? Jungenfeld was bound by his contract to design and supervise this building. he was not to do anything more or anything different. 103 Mo.Alaska Packers’ Ass’n v. that Jungenfeld was bound to tender under the original. There can be no consideration for the promise of the other party.” In Lingenfelder v. What loss. and invite men to violate their most sacred contracts that they may profit by their own wrong. said: “It is urged upon us by respondents that this was a new contract. contract. the court. as an architect. Nor had he even the flimsy pretext that Wainwright had violated any of the conditions of the contract on his part. Jungenfeld himself put it upon the simple proposition that ‘if he. on the refrigerator plant as the condition of his complying with his contract already entered into. put up the brewery. although the other party has completed his contract in reliance upon it.. trouble. in holding void a contract by which the owner of a building agreed to pay its architect an additional sum because of his refusal to otherwise proceed with the contract. and there is no warrant for inferring that the parties have voluntarily rescinded or modified their contract. or inconvenience could result to Jungenfeld that he had not already assumed? No amount of metaphysical reasoning can change the plain fact that Jungenfeld took advantage of Wainwright’s necessities. it would be a detriment to the Empire Refrigerating Company. and extorted the promise of five per cent. 578.

is one of the eight cases relied upon by the court below in support of its judgment in the present case. that. could recover on a promissory note given for the increased price. and will not lend its process to aid in the wrong. when a party merely does what he has already obligated himself to do.75 per ton. Linn. the defendant then had the right to sue for damages. The learned counsel for respondents do not controvert the general proposition. he obtains a promise for more. the law will regard it as nudum pactum. by a debtor. and is not convincing. when Jungenfeld declined to go further on his contract. 1879. While it is true Jungenfeld became liable in damages for the obvious breach of his contract. of a part of his debt then due. would constitute a defense to a suit for the remainder. and afterwards in May.” The case of Goebel v. (Citing a long list of authorities. of any other where the common law prevails. we are still of the opinion that his decision is not in accord with the almost universally accepted doctrine. by taking advantage of the necessities of his adversary. he cannot demand an additional compensation therefor. … What we hold is that. declined to deliver any more ice unless the brewery would give it $3 per ton. do we think. 47 Mich. and the circuit court agreed with them. at $1. we do not think it follows that defendant is estopped from showing its promise was made without consideration. 489. Profound as is our respect for the distinguished judge who delivered the opinion. They contention is. and certainly so much of the opinion as holds that the payment. 1881. until January 1.Modification & Discharge  reasons ought to shake it. Linn. 489. but having acceded to his demand for the additional compensation defendant cannot now be heard to say his promise is without consideration. in Goebel v. 1880. nor. five of which are by the supreme court of Massachu396  CONTRACTS  . and not having elected to sue Jungenfeld. is not the law of this state. 47 Mich. It is true that as eminent a jurist as Judge Cooley. and although. held that an ice company which had agreed to furnish a brewery with all the ice they might need for their business from November 8. and so inherently just and right in itself.) But it is ‘carrying coals to Newcastle’ to add authorities on a proposition so universally accepted.

28 Vt. could not have recovered anything for it. Domenico  setts. and the coal was delivered. if the master of a ship promise his crew an addition to their fixed wages in consideration for and as an incitement to. and upon the faith of it. 25. the voluntary performance of an act which it was before legally incumbent on the party to perform being in law an insufficient consideration.Alaska Packers’ Ass’n v. in other words. The defendant agreed to do so. and. Locomotive Works. as authority for its decision. 272. 264.. but not illegal. their extraordinary exertions during a storm. it is insufficient. and. which was one of the three cases cited by the court in Moore v. On suit being brought for the price. one by the supreme court of Vermont. and the promise. above all. where it was held that: “A promise by a party to do what he is bound in law to do is not an illegal consideration. if the defendant had insisted upon strict performance of the contract.” The doctrine of that case was impliedly overruled by the supreme court of Vermont in the subsequent case of Cobb v. The Vermont case referred to is that of Lawrence v. 273. 14 Mich. the court said: “Although the promise to waive the contract was after some portion of the coal sought to be recovered had been delivered. and so delivered that probably the plaintiff. and that he should deliver no more unless the defendant would pay for the coal independent of the contract. 14 Mich. and is merely void. yet. the delivery of coal after this agreement to waive the contract. will be a sufficient consideration to bind the defendant to pay for the coal already received. the agreement to waive the contract.that of Moore v. and plaintiff then informed the defendant that he could not deliver at those rates. or in any other emergency of the voyage. and so it would be in any other case where the only consideraCHAPTER FOUR: MUTUAL ASSENT  397  . Thus. Locomotive Works. In that case there was a contract to deliver coal at specified terms and rates. A portion of it was delivered. if the latter intended to take advantage of it. but is the same as no consideration at all. 40 Vt. Cowdery. he should not deliver any more. and one other Michigan case. this promise is nudum pactum. nevertheless. 266. Davey.

App. Ed. The plaintiff having refused to perform that contract.J. Spencer v. 841. but wrong on principle. the law. Railroad Co. he afterward went on. The court said that whether the oral contract was without consideration – “Depends entirely on the question whether the first contract was waived. Perkins.) 50 Atl. Taylor (N. App. Robinson v. Schreyer. Nugent.” The Massachusetts cases cited by the court below in support of its judgment commence with the case of Munroe v. 3 Kent. Linn. Com. App.” The case of Goebel v. Cont. (10th Am. if he would do so. he had concluded to abandon it. (N. 489.) 47 Pac. 87. and finished the work. something which he was previously bound in law to do. Moran v.Modification & Discharge  tion for the promise of one party was the promise of the other party to do. 305. Ayres v. 116 N. Sullivan v. 53. 2 C. Stillwell.) 512. Sullivan. Cont. 3 Ellis & B. Chit. Westcott v. 139. and resumed work on the oral contract of the defendants that. Finding his contract a losing one. Hatton. 21. 25 Ind. taking it as establishing the precise rule adopted in the Massachusetts cases. they would pay him what the work was worth without regard to the terms of the original contract.E. 769. Reynolds v. In addition to the Minnesota and Missouri cases above cited. Law 54. and proceed on a new agreement. subjecting himself to such damages as the other parties might show they were entitled to recover. the plaintiff had agreed in writing to erect a building for the defendants. 47 Mich. Conover v. 99 Cal. Carpenter v.B. we think. Carter. 9 Pick. presented some unusual and extraordinary circumstances. the following are some of the numerous authorities holding the contrary doctrine: Vanderbilt v. But. as he might do. 398  CONTRACTS  . would not prevent it.Y.Y. In that case. 392.) 58 N. Mitchell (Me. we think it not only contrary to the weight of authority.) 50 N. 185. 559. 34 N. Harris v.) 51.S. 91 N. Harris (Colo. upon the faith of the new promise. Smith. This was a sufficient consideration. Harris v. 72 Ill. Jewett. which really seems to be the foundation of all of the cases in support of that view. or his actual doing. Frazer v. McLean (Ind.Y. If Payne and Perkins were willing to accept his relinquishment of the old contract. Peace. 52 Iowa 478. 40.. 328.E.

Cont. Chief Justice. sitting without a jury. It results from the views above expressed that the judgment must be reversed. Mining Co. Ferguson v. Langd.E. (5th Ed. the city of Newport. Harris (S. Skinner v. who entered a judgment ordering Maher to repay the sum of $20. 1 Pars.) 96 Fed. Maher. Cont. The record discloses that Maher has provided the city of Newport with a refuse-collection service under a series of five-year contracts beginning in 1946. and James L.000 per year in return for collecting and removing all combustible and noncombustible waste materials generated within the city. 782. 735.C. Cont. Robinson. and the cause remanded. Murray  Supreme Court of Rhode Island 322 A. 230.C.000 to the city of Newport. Maher and the city entered into another such contract for a period of five years commencing on July 1. Director of Finance of the City of Newport. Jr. with directions to the court below to enter judgment for the respondent. 1964. § 54.) 17 S.2d 630 (R. 1964. with costs.I. Domenico  187. Maher's testimony.000 per year from the city council because there had been a substantial increase in the cost of collection due to an unexpected and unanticipated increase of 400 new dwelling units. Angel v. 1974) Roberts. The contract provided.) 457. that Maher would receive $137. (C. Maher is now before this court prosecuting an appeal. Murray..Alaska Packers’ Ass’n v. § 166. indicates the 1964 contract had been predicated on the fact that since 1946 there had been an average increase of 20 to CHAPTER FOUR: MUTUAL ASSENT  399  . 1 Beach. and terminating on June 30.000 by the Director of Finance and praying that the defendant Maher be ordered to repay the city such sum. 104 Cal. among other things. On March 12. 1969. alleging that Maher had illegally been paid the sum of $20. Blyth v. This is a civil action brought by Alfred L. which is uncontradicted. In June of 1967 Maher requested an additional $10. The case was heard by a justice of the Superior Court. Angel and others against John E.

is premised on two independent grounds. and thus there was no consideration for the two additional payments. First. After a public meeting of the city council where Maher explained in detail the reasons for his request and was questioned by members of the city council. The trial justice further found that these 400 additional units were within the contemplation of the parties when they entered into the contract. The first ground upon which the trial justice appears to have based his decision is that the action of the city council in amending the 1964 contract so as to provide for the additional compensation violated § 9-23 of the Charter of the City of Newport.Modification & Discharge  25 new dwelling units per year. I. he found that Maher was not entitled to extra compensation because the original contract already required him to collect all refuse generated within the city and. 1968. and the city council again agreed to pay an additional $10.000 payment was made in violation of law. Said § 9-23 goes on to provide specifically: “ALTERATIONS IN ANY CONTRACT ENTERED INTO may be made when authorized by the council on the written recommendation of the manager. as we understand it. and gives the council power to reject all bids and to advertise for new bids. His decision. § 9-23 of the charter mandates that the purchase of or contract for supplies. Second. materials.” 400  CONTRACTS  .000 for the year ending on June 30.000 shall be awarded to the lowest responsible bidder after public notice. It appears that he based this portion of the decision upon the rule that Maher had a preexisting duty to collect the refuse generated by the 400 additional units. he found that the additional payments were unlawful because they had not been recommended in writing to the city council by the city manager.000 for the year ending on June 30. included the 400 additional units. or equipment shall be on the basis of competitive bidding and that all contracts in which the amount involved exceeds $1. Generally. therefore. 1969. The trial justice found that each such $10. Maher made a similar request again in June of 1968 for the same reasons. the city council agreed to pay him an additional $10.

in our opinion. in adopting the pertinent provision of § 9-23 of the charter. the charter makes clear the supremacy of the city council in the exercise of all of the powers of the city. We are unable to agree. Public Utilities Commission. Mason v. 84 R. Bowerman Bros. However. We have consistently subscribed to the principle that a legislative enactment should be given what appears to be the meaning most consistent with its policy or obvious purposes. apply also when this court is called upon to construe the provisions of a municipal charter. The provision of § 1-2 of the charter grants the city comprehensive powers. however.I. we reiterated our well-settled rule of statutory construction that this court will not undertake to read an enactment literally if to do so would result in attributing to the Legislature an intention that is contradictory of or inconsistent with the evident purposes of the act. 425 (1963). Zannelli v. A literal reading of the pertinent provision of § 9-23 does appear to give the city manager power to prevent the city council from amending an existing contract. DiSandro. in Rhode Island Consumers' Council v. we conclude that. After closely scrutinizing the provisions of the charter in the light of the above-stated rule. These rules of statutory construction. also clear that neither award for additional compensation was made on the basis of a written recommendation therefor by the city manager.I. both express and implied. 107 R. 284 (1970). 95 R. however comprehensive might be the city council's knowledge of the compelling need for such an amendment. Section 1-1 thereof provides that “… all powers of the city shall be vested in an elective council. The trial justice found specifically that the pertinent language of § 9-23 constitutes a limitation on the authority of the city council to amend an existing contract in that this section mandates that the authority to amend an existing contract can be exercised only when such action is recommended in writing by the city manager. It is. hereinafter CHAPTER FOUR: MUTUAL ASSENT  401  .. the people of Newport did not intend therein to limit in any way the authority of the city council to amend an existing contract. Murray  The record discloses that the original contract for refuse collection executed in 1964 was awarded after full compliance with the bidding provisions of § 9-23.Angel v.I. 76 (1956). In the first place.

” The power to remove the city manager from office is vested in the city council by the provisions of § 5-2. in adopting § 9-23 the people intended to require the city manager to make recommendations to the city council for action but not to preclude the city council from acting on its own where 402  CONTRACTS  . Thus. will be kept fully informed by the various municipal departments of the status of their operational affairs and of the financial condition of the city. 5-1 and 2.Modification & Discharge  referred to as ‘the council. In such circumstances he ordinarily would be aware of conditions that would warrant his bringing to the attention of the city council the need for the alteration of an existing contract in the city's interest. then. 88 R. and appoint the city manager. at 455. determine policies. which also provides that “[t]he relationship between the city and the city manager shall be contractual and not that between a municipality and a civil officer. The concept of intellectual consistency inhibits our subscribing to the view that the people of Newport intended to confer on the city manager a power to thwart the city council in the matter of amending existing contracts and at the same time in the same charter deny him even minimal tenure in his employment. that in adopting the charter. adopt budgets.I. 446.” In Nugent this court held: “Nowhere in the charter is there any language which persuades us that the status of the relator is anything but that of a mere employee subject to engagement and removal by the council in accordance with the procedure set forth in secs. pursuant to the provisions of § 5-4. who shall execute the laws and administer the government of the city. It is obvious that the charter contemplates that the city manager.” The power to appoint or engage a city manager is provided for in § 5-1 of the charter. We are persuaded. the people intended to make the city manager an administrative arm of the city council and to charge him with the performance of such duties as could more conveniently be performed by him than by the city council. Leys. and in Nugent ex rel.” Id. as distinguished from a civil officer and could be removed at the pleasure of the council. we held that under the Newport charter “… the people of Newport intended that the city manager should be an employee. Beck v. 454455 (1959).’ which shall enact local legislation.

1967. See Angel v. 155 F..Y. therefore.Y. we are still confronted with the question of whether the additional payments were illegal because they were not supported by consideration. 216 N. Contracts § 130A at 543 (Jaeger 3d ed. A. 50 R. 1 Williston. 381 (1866).2d 448. 66 A. Mun. our decision regarding the second payment (Part B. Gold. Ct. infra) is fully applicable to the first payment. See Salvas v. 75 (1929). 558 (1972). § 93. Hines v. the presence or absence of consideration for the first payment is unimportant because the city council's agreement to make the first payment was fully executed at the time of the commencement of this action. We. Young Foundation Corp. II. 1949). In Rose v.C. Since consideration is only a test of the enforceability of executory promises. Inc. Jussaume. 214 Cal. 74 (1931). Simpson. A As previously stated. 1957). Contracts § 58 at 102 (2d ed. since both payments were made under similar circumstances. City of Newport. v. The first was made in June of 1967 for the year beginning on July 1.S. Sloan. B It is generally held that a modification of a contract is itself a contract. Murray  the circumstances would warrant such action.I.S. the money had been paid by the city council.2d 685 (1961).I. 8 R.I. and Maher had collected all of the refuse. 1968.000 payments. the modification was completely executed. 1946).E. Sloan v. App.2d 799 (D. See Simpson. supra. aff'd 222 N.2d 257 (7th Cir. That is. Julian v. which is unenforceable unless supported by consideration. However. Daniels. by the time this action was commenced in October of 1968. conclude that § 9-23 does not operate to limit the authority of the city council to amend an existing contract. Having found that the city council had the power to modify the 1964 contract without the written recommendation of the city manager.Angel v. 109 R. Ottaviano.. the city council made two $10. Ward Baking Co. this court held that an agreement by a debtor with a creditor to disCHAPTER FOUR: MUTUAL ASSENT  403  . and ending on June 30. Thus. 1965).

. Annot. They threatened to return to San Francisco if Domenico did not agree to their demand. Munroe v. supra. Since it was im404  CONTRACTS  . Rose is a perfect example of the preexisting duty rule. Lieberman. See Swartz v. The primary purpose of the preexisting duty rule is to prevent what has been referred to as the “hold-up game. however. for example. See Calamari & Perillo. find that there is consideration for a promise to perform what one is already legally obligated to do because the new promise is given in place of an action for damages to secure performance.Modification & Discharge  charge a debt for a sum of money less than the amount due is unenforceable because it was not supported by consideration. 12 A. In Rose there was no consideration for the new agreement because the debtor was already legally obligated to repay the full amount of the debt. has been widely criticized as an anomaly.L. § 61. supra. See Calamari & Perillo. Contracts §§ 171-72 (1963). a small minority of jurisdictions. 26 Mass. Domenico. 117 F. 85-90 (1950).2d 78. Swartz is premised on the theory that a promisor's forbearance of the power to breach his original agreement and be sued in an action for damages is consideration for a subsequent agreement by the promisee to pay extra compensation. A classic example of the “hold-up game” is found in Alaska Packers' Ass'n v. 109 (1948). (9 Pick. 99 (9th Cir.R. § 130. 1A Corbin. § 171.R. Massachusetts. the men stopped work and demanded an additional $50. Annot.L. Subsequent to their arrival at Pyramid Harbor. Alaska. 1902). The contract specified that each man would be paid $50 plus two cents for each red salmon he caught. Perkins. Under this rule an agreement modifying a contract is not supported by consideration if one of the parties to the agreement does or promises to do something that he is legally obligated to do or refrains or promises to refrain from doing something he is not legally privileged to do. Although the preexisting duty rule is followed by most jurisdictions. 12 A.. This rule.” See 1A Corbin. There 21 seamen entered into a written contract with Domenico to sail from San Francisco to Pyramid Harbor.) 298 (1830).2d 78 (1950). They were to work as sailors and fishermen out of Pyramid Harbor during the fishing season of 1900. supra. 1 Williston. Contracts § 60 (1970). 323 Mass.

. 136 (1942).R.L. For example. cf. 1450 (1923). 497 (1914).Angel v. Domenico refused to pay the men an additional $50. See. 106 Md. a contractor will refuse to complete work under an unprofitable contract unless he is awarded additional compensation. supplemented by Annot.. Michaud v. 220 (1907). 103 Mo. Connelly v.g.. Ford & Denning v.W. abandoned. MacGregor.I. 570 (1871). Devoe. 37 Conn. 55 A. 61 Minn. Murray  possible for Domenico to find other men. Lingenfelder v. the courts have found that the original contract was rescinded. 1333 (1928). The court found that the subsequent agreement to pay the men an additional $50 was not supported by consideration because the men had a preexisting duty to work on the ship under the original contract.. Linz v. or waived. the courts have been reluctant to apply the preexisting duty rule when a party to a contract encounters unanticipated difficulties and the other party. 36 R. Schuck. one legal scholar has stated: “There has been a growing doubt as to the CHAPTER FOUR: MUTUAL ASSENT  405  . The courts have generally held that a subsequent agreement to award additional compensation is unenforceable if the contractor is only performing work which would have been required of him under the original contract. See also cases collected in Annot. Shepard Co.. he agreed to pay the men an additional $50. Another example of the “hold-up game” is found in the area of construction contracts. With regard to the preexisting duty rule. voluntarily agrees to pay additional compensation for work already required to be performed under the contract. e.L. and Annot. 63 N.R. 25 A. which is a leading case in this area. 138 A.R. 479 (1895). After they returned to San Francisco. and thus the subsequent agreement was unenforceable.. 198. These examples clearly illustrate that the courts will not enforce an agreement that has been procured by coercion or duress and will hold the parties to their original contract regardless of whether it is profitable or unprofitable. 578 (1891).L. not influenced by coercion or duress. Although the preexisting duty rule has served a useful purpose insofar as it deters parties from using coercion and duress to obtain additional compensation. Frequently. However. Wainwright Brewing Co. it has been widely criticized as a general rule of law.

These chapters. Director of the Institute. It should never use it as the major premise of a decision. Herbert Wechsler. as long as the parties agree voluntarily. at least without giving careful thought to the circumstances of the particular case. were published by the Institute in 1973 in a hard-cover edition. § 61. … In certain classes of cases. which has been adopted by 49 states. supra. supra. this rule is in process of growth and change. The result of this is that a court should no longer accept this rule as fully established. and to the social feelings and interests that are involved.Modification & Discharge  soundness of this doctrine as a matter of social policy. in their actual decisions. The modern trend appears to recognize the necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance of a contract. in a foreword to this edition indicates that although these sections are 406  CONTRACTS  . or to ignore it. Like other legal rules. the process being more active here than in most instances. even though there is no consideration for the modification. § 2-209(1). The modern trend away from a rigid application of the preexisting duty rule is reflected by § 89D(a) of the American Law Institute's Restatement Second of the Law of Contracts. Under the Uniform Commercial Code. “[a]n agreement modifying a contract (for the sale of goods) needs no consideration to be binding. to the moral deserts of the parties. which include §§ 1-255. § 171. see also Calamari & Perillo. It is certain that the rule.1 which pro1 The first nine chapters of the Restatement Second of the Law of Contracts were given tentative approval by the American Law Institute at successive meetings from 1964 to 1972. is no longer so well-settled that a court must apply it though the heavens fall.1956 (1969 Reenactment) § 6A-2-209(1). this doubt has influenced courts to refuse to apply the rule.L. Although at first blush this section appears to validate modifications obtained by coercion and duress.” 1A Corbin. and a modification obtained by extortion without a legitimate commercial reason is unenforceable. stated in general and all-inclusive terms. the comments to this section indicate that a modification under this section must meet the test of good faith imposed by the Code.” See G.

The new agreement is binding.. Absent such limitation..” We believe that § 89D(a) is the proper rule of law and find it applicable to the facts of this case.200. See. Murray  vides: “A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made … . duress.R..L. Annot. Unlike many other jurisdictions.Y. A is employed by B as a designer of coats at $90 a week for a year beginning November 1 under a written contract executed September 1.L. it is unlikely that any further changes will be made. The Historical Foundastill tentative and await final approval. and A completes the job. Solid rock is unexpectedly encountered and A so notifies B.3 See generally Horwitz.000.Angel v. 234 N. See Arnold v. a city or town may modify an existing contract in precisely the same manner as a private individual as long as the modification is reasonable and proper. and Annot.000. The fact that these additional payments were made by a municipal corporation rather than a private individual does not. simultaneously tearing up the prior contract. 2. 15. After ascertaining that other suppliers would charge more.R. Mayor of Pawtucket. The drafters of § 89D(a) of the Restatement Second of the Law of Contracts use the following illustrations in comment (b) as examples of how this rule is applied to certain transactions: 1. supplemented by Annot. 136 (1942). 377 (1923). Later A discovers that he made an error as to the type of material to be used and should have bid $1.I. City of New York. 55 A. 21 R. A is offered $115 a week by another employer and so informs B. By a written contract A agrees to excavate a cellar for B for a stated price. 19 (1898). B is bound to pay the increased amount.L. e. 1333 (1928). A and B then orally agree that A will remove the rock at a unit price which is reasonable but nine times that used in computing the original price.. there is no constitutional or statutory restriction in this state limiting the power of a city or town to award extra compensation to a private contractor. 138 A. 1450 (1923). affect the outcome of this case. 25 A. in our opinion. CHAPTER FOUR: MUTUAL ASSENT  407  2 3 . or extortion but also fulfills society's expectation that agreements entered into voluntarily will be enforced by the courts. 3. A offers to supply the chute for $1.2 It not only prohibits modifications obtained by coercion. McGovern v. eliminating overhead and profit. The new contract is binding.R. A contracts with B to supply for $300 a laundry chute for a building B has contracted to build for the Government for $150.g. A and B then agree that A will be paid $100 a week and in October execute a new written contract to that effect. B agrees.

000 per year for the duration of the contract. 917 (1974). where Maher explained in detail his reasons for making the request. L. and (3) the modification is fair and equitable. (2) the underlying circumstances which prompted the modification were unanticipated by the parties. Section 89D(a). and B pays for 1. does not compel a modification of an unprofitable or unfair contract. The new agreement is binding.000 castings for lawn mowers at 50 cents each. of course. 87 Harv. This request was made at a public meeting of the city council. it appears this contract 4. B protests but is forced to agree to the new price to keep its plant in operation. the modification was made in June of 1968 at a time when the five-year contract which was made in 1964 had not been fully performed by either party. Rev. the city council voted to authorize the Mayor to sign an amendment to the 1964 contract which provided that Maher would receive an additional $10. After partial delivery and after B has contracted to sell a substantial number of lawn mowers at a fixed price.Modification & Discharge  tions of Modern Contract Law. The modification is not binding. A notifies B that increased metal costs require that the price be increased to 75 cents. Having determined the voluntariness of this agreement. it only enforces a modification if the parties voluntarily agree and if (1) the promise modifying the original contract was made before the contract was fully performed on either side. A contracts to manufacture and sell to B 2. A thereafter manufactures and delivers 1. Substitute castings are available at 55 cents. Second. and A and B agree orally to increase the price to $70 per roof. 408  CONTRACTS  . 1969. The evidence.000 for the year beginning on July 1. which is uncontradicted.000 steel roofs for corn cribs at $60. 1968. First. we turn our attention to the three criteria delineated above. Thereafter. although the 1964 contract provided that Maher collect all refuse generated within the city. increasing the selling price of the corn cribs by $10. reveals that in June of 1968 Maher requested the city council to pay him an additional $10. 5.700 of the roofs. Under such circumstances we have no doubt that the city voluntarily agreed to modify the 1964 contract.500 of them at the increased price without protest. A contracts to manufacture and sell to B 100. Before A begins manufacture a threat of a nationwide steel strike raises the cost of steel about $10 per roof. and ending on June 30. but only after several months delay.

We are persuaded that the portion of sec. 2(a) of the 1964 contract precluded Maher from recovering extra compensation for the 400 additional units. found that this section required that any losses incurred in the performance of the contract were Maher's responsibility. the circumstances which prompted the city council to modify the 1964 contract were unanticipated. 2(a) specifically referred to by the court refers to losses resulting to Maher from some action or omission on the part of his own agents or employees. in carrying out the contract. his agents or employees. its agents and employees harmless from all suits and claims arising from the use of any invention. material. Furthermore.” Clearly. the evidence does indicate that it was a “substantial” increase.000 increase was not fair and equitable in the circumstances. whether a result of affirmative action or some omission or neglect on the part of Maher or his agents or employees. patent. and bear. the Contractor. that any losses that resulted from an increase in the cost of collecting from the increased number of units generating refuse in no way resulted from any action on the part of either Maher or his employees. In our opinion. 2(a) when read in its entirety. haring made his proposal after his own examinations and estimates. The trial justice. the trial justice overlooked the thrust of sec. shall take all responsibility for. any losses resulting to him in carrying out the contract.” (Emphasis added). or patent rights. the evidence is uncontradicted that the 1967-1968 increase of 400 units “went beyond any previous expectation. It is clearly a contractual provision requiring the contractor to hold the city harmless and to defend it in any litigation arising out of the performance of his obligations under the contract. however. 2(a). although the evidence does not indicate what proportion of the total this increase comprised. by or from any act. labor or implement. Rather. In light of this. It cannot be disputed. Murray  was premised on Maher's past experience that the number of refusegenerating units would increase at a rate of 20 to 25 per year. quoting the italicized portion of sec. omission or neglect of. CHAPTER FOUR: MUTUAL ASSENT  409  . however. and hold the City. we cannot say that the council's agreement to pay Maher the $10.Angel v.4 Third. and shall assume the defence of. Section 2(a) provided: “The Contractor. whatever losses he did entail by reason of the requirement of such extra collection resulted from actions completely be4 The trial justice found that sec.

which is incorporated in Delaware and has its principal place of business in Illinois. Although a division may. The judgment appealed from is reversed.  National Metal Crafters  U. sue and be sued in its own name. This is a diversity breach of contract case.S. the state of which it is a citizen for purposes of determining diversity is the state of which the corporation that owns the division is a citizen. whether the parties are indeed citizens of different states. The diversity statute deems a corporation a citizen of any state in which it is incorporated and also of the state in which it has its principal place of business. Hence the complaint adequately alleges that the defendant is a citizen of Delaware and Illinois.2d 528. v. Inc. Assuming for the moment 410  CONTRACTS  . 1985). is a division of Keystone Consolidated Industries. the complaint alleges that the corporation that owns it is a citizen of Maryland but fails to allege in what state it has its principal place of business.2d 1280 (7th Cir. see Fed.Modification & Discharge  yond his control and thus unanticipated. S. a corporation incorporated in Maryland and having its “principal offices other than in the State of Wisconsin. Circuit Judge. Co.. 28 U.M. So far so good. P. and the cause is remanded to the Superior Court for entry of judgment for the defendants. § 1332(c).. Wisconsin Knife Works. National Metal Crafters. and before getting to the merits we must decide. & R. is a division of Black & Decker (U.). 1986) Posner. if state law permits. however. though neither party contests the point.C. R. also a division rather than a corporation.” and that the defendant.S.S. Civ. Inc. Wisconsin Knife Works v.. 755 F. Court of Appeals for the Seventh Circuit 781 F. Casio. Inc. An allegation of citizenship proper in form and not contested establishes a party’s citizenship for purposes of diversity jurisdiction. The complaint alleges (and the answer admits) that the plaintiff. and the jurisdictional allegations were not contested here. 17(b). Regarding the plaintiff. 530 (7th Cir.

The first thing a federal judge should do when a complaint is filed is check to see that federal jurisdiction is properly alleged. Because federal judges are not subject to direct check by any other branch of government-because the only restraint on our exercise of power is self-restraint-we must make every reasonable effort to confine ourselves to the exercise of those powers that the Constitution and Congress have given us. That leaves open the possibility that it is a citizen of Illinois or Delaware. however.. Jurisdiction ought to be readily determinable. 755 F. In the absence of any reason to think that Black & Decker’s principal place of business might be in Illinois or Delaware. we look for the corporation’s brain. 1984). Vandalia Warehouse Corp. Miller & Cooper. Celanese Corp. See 13B Wright. to continue the neurological metaphor. There are cases where a corporation’s headquarters may be divided between states and cases where the nominal headquarters CHAPTER FOUR: MUTUAL ASSENT  411  .2d at 529-30. 1178 (7th Cir.2d 1176. supra. that there is diversity of citizenship. in which event the parties are not diverse and the suit must be dismissed. National Metal Crafters  that “principal offices” is an inartful attempt to allege principal place of business. the fact that its headquarters is in Maryland warrants an inference that the parties are of diverse citizenship. 1970). The record shows and counsel confirmed at argument that Black & Decker’s headquarters is in Maryland. usually it is. v. S. The test in this circuit for principal place of business is “nerve center. we are satisfied.M. the two states of which the defendant is a citizen. still all the complaint tells us is that Black & Decker is not a citizen of Wisconsin.. In this case. and. and ordinarily find it where the corporation has its headquarters. 1981). Compare Casio. Federal Practice and Procedure § 3625 (2d ed. 620 (7th Cir. & R. 644 F. Some courts use a vaguer standard. We prefer the simpler test. They look not just to where the corporation has its headquarters but also to the distribution of the corporation’s assets and employees. 424 F.2d 594.Wisconsin Knife Works v. despite the deficiency in the pleadings. and although the state in which a corporation has its headquarters is not always the state of the corporation’s principal place of business (hence the complaint should not have used the term “principal offices”).” In re Air Crash Disaster Near Chicago. Co. Inc. of America v.

But Wisconsin Knife Works did not immediately declare a breach. National Metal Crafters was eager to be that source. Buyer shall have the right to make changes in the Order by a notice. it issued a new batch of purchase orders (later rescinded). 1981) by letters that said. shall be binding upon Buyer [Wisconsin Knife Works] unless made in writing and signed by Buyer’s authorized representative. cancel the contract. having some unused manufacturing capacity. but we are satisfied that this is not such a case. 1982. There were no written acknowledgments of the last four orders (placed several weeks later. Wisconsin Knife Works. and those cases could give trouble even under a simple “nerve center” test. or seek damages for late delivery. to the merits of the appeal.” A list of “Conditions of Purchase” follows. By December 1982 Na412  CONTRACTS  . and Wisconsin Knife Works had to find a source of supply for these blanks. Wisconsin Knife Works wrote in the delivery dates that National Metal Crafters orally supplied after receiving purchase orders in which the space for the date of delivery had again been left blank. We come. “No modification of this contract. in writing. Delivery was due in October and November 1981. including drills. on September 10. National Metal Crafters acknowledged the first two orders (which had been placed on August 21. constitutes an unqualified agreement to the following. decided to try to manufacture spade bits for sale to its parent. A spade bit is made out of a chunk of metal called a spade bit blank. after receiving the acknowledgments. After some negotiating. to Seller. then. a large producer of tools. Wisconsin Knife Works filled them in. of which the first is.” There were six purchase orders in all. Indeed. The purchase orders had left those dates blank. Black & Decker. on July 1. either by acknowledgment or performance.Modification & Discharge  isn’t really the directing intelligence of the corporation. 1981). “Please accept this as our acknowledgment covering the above subject order. “Acceptance of this Order. each with the identical conditions. Wisconsin Knife Works sent National Metal Crafters a series of purchase orders on the back of each of which was printed. with the dates that National Metal Crafters had supplied in the acknowledgments.” followed by a list of delivery dates. National Metal Crafters missed the deadlines.

The judge ruled that there had been a contract but left to the jury to decide whether the contract had been modified and. The parties later stipulated that the amount of these damages was $30. and the effect on it of our remanding the case for further proceedings on Wisconsin Knife Works’ claim will have to be resolved on remand.000 spade bit blanks that Wisconsin Knife Works had ordered in the six purchase orders had been delivered. National Metal Crafters replied that the delivery dates had not been intended as firm dates. charging that National Metal Crafters had violated the terms of delivery in the contract that was formed by the acceptance of the six purchase orders. But on January 13. The jury found that the contract had been modified and not broken. The theory on which the judge sent the issue of modification to the jury was that the contract could be modified orally or by conduct as well as by a signed writing.000 on its counterclaim. Wisconsin Knife Works has appealed from the dismissal of its suit. The principal issue is the effect of the provision in the purchase orders that forbids the contract to be modified other than by a writing signed by an authorized representative of the buyer.000 of the more than 281. if so. It also counterclaimed for damages for (among other things) the breach of an alleged oral agreement by Wisconsin Knife Works to pay the expenses of maintaining machinery used by National Metal Crafters to fulfill the contract. National Metal Crafters had presented evidence that Wisconsin Knife Works had accepted late delivery of the spade bit blanks and had cancelled the contract not because of the delays in CHAPTER FOUR: MUTUAL ASSENT  413  . whether the modified contract had been broken.Wisconsin Knife Works v. The appeal papers do not discuss the counterclaim. Wisconsin Knife Works brought this breach of contract suit. National Metal Crafters  tional Metal Crafters was producing spade bit blanks for Wisconsin Knife Works under the original set of purchase orders in adequate quantities. Judgment was entered dismissing Wisconsin Knife Works’ suit and awarding National Metal Crafters $30. though this was more than a year after the delivery dates in the orders.000. Wisconsin Knife Works notified National Metal Crafters that the contract was terminated. By that date only 144. 1983.

Modification & Discharge  delivery but because it could not produce spade bits at a price acceptable to Black & Decker. But if so the force of the proviso (“but except as between merchants …”) becomes unclear. There was no such signature here. for it contemplates that between merchants no separate signature by the party sought to be bound by the requirement is necessary. Section 2-209(2) of the Uniform Commercial Code provides that “a signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.) The meaning of this provision and its proviso is not crystalline and there is little pertinent case law. White & Summers. by National Metal Crafters. Of course there must still be a “signed agreement” containing the clause forbidding modification other than by a signed writing. which these were. A possible reconciliation.” Although in ordinary language a manufacturer is not a merchant. but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.” (As several other subsections of section 2-209 are relevant to the appeal. National Metal Crafters’ signed acknowledgments of the first two purchase orders signified its assent to the printed conditions and naturally and reasonably led Wisconsin Knife Works to believe that National Metal Crafters meant also to assent 414  CONTRACTS  . “between merchants” is a term of art in the Uniform Commercial Code. that is. 1980)). but there was that (see definition of “agreement” and of “signed” in UCC §§ 1-201(3). as well as of the contract in which the clause appears. though not one we need embrace in order to decide this case. this was a contract “between merchants. but it doesn’t matter. is to read the statute to require a separate signing or initialing of the clause forbidding oral modifications. Handbook of the Law Under the Uniform Commercial Code 345 (2d ed. (39)). rather than by the party imposing the requirement. It means between commercially sophisticated parties (see UCC § 2-104(1). One might think that an agreement to exclude modification except by a signed writing must be signed in any event by the party against whom the requirement is sought to be enforced. we have printed the entire section as an Appendix to this opinion.

and which showed new target dates for delivery.” Although in instructing the jury on modification the judge did not use the word “waiver. signed by National Metal Crafters.Wisconsin Knife Works v. and National Metal Crafters argues that the engineering drawings containing those modifications are the written modification that section 2-209(2). We conclude that the clause forbidding modifications other than in writing was valid and applicable and that the jury should not have been allowed to consider whether the contract had been modified in some other way. The fact that the delivery dates were not on the purchase orders when received by National Metal Crafters is nothing of which it may complain. This may. however. if applicable. Section 2-209(4) of the Uniform Commercial Code provides that an “attempt at modification” which does not satisfy a contractual requirement that modifications be in writing nevertheless “can operate as a waiver. Those subsequent orders were accepted. National Metal Crafters  to the same conditions should they appear in any subsequent purchase orders that it accepted. In fact these particular modifications seem to fall within the clause of the contract that allows the buyer (Wisconsin Knife Works) to modify the specifications by notice. forming new contracts on the same conditions as the old. The “pert charts” which National Metal Crafters supplied Wisconsin Knife Works. do not purport to modify the contract and were not signed by Wisconsin Knife Works. calls for. Here is the relevant instruction: CHAPTER FOUR: MUTUAL ASSENT  415  . So there was an agreement. it was given carte blanche to set those dates.” maybe he gave the substance of a waiver instruction and maybe therefore the jury found waiver but called it modification. by performance-that is. covering all the purchase orders. have been a harmless error. When National Metal Crafters had difficulty complying with the original specifications for the spade bit blanks. by National Metal Crafters’ beginning the manufacture of the spade bit blanks called for by the orders. Wisconsin Knife Works modified them. See UCC § 2-207(3). But in any event there was no modification of the delivery dates. The context of this clause makes clear that such notice is not the written modification to which the previous sentence refers.

then you may conclude that the parties have assented to a modification of the original terms of the contract and that the parties have agreed that the different mode of performance will satisfy the obligations imposed on the parties by the contract. e.. B might therefore go to A and say. but that the modified performance was satisfactory and acceptable as equivalent. the most important thing which that law does is to facilitate exchanges that are not simultaneous by preventing either party from taking advantage of the vulnerabilities to which sequential performance may give rise. To determine whether this was in substance an instruction on waiver we shall have to consider the background of section 2-209. You shall answer this question yes only if you are convinced to a reasonable certainty that the parties modified the contract. “If you don’t reduce your price I’ll refuse to pay and put you to the expense of suit”. a right to sue for breach of contract. and the plaintiff by conduct or other means of expression induced a reasonable belief by the defendant that strict enforcement was not insisted upon.g. and A might knuckle under. See. If you determine that the defendant had performed in a manner different from the strict obligations imposed on it by the contract. is not a completely adequate remedy. If such modifications are allowed. people in B’s position will find it harder to make such contracts in the future.Modification & Discharge  Did the parties modify the contract? The defendant bears the burden of proof on this one. If A contracts to build a highly idiosyncratic gazebo for B. being costly to enforce. Even then. A may be in a bind-since the resale value of the gazebo may be much less than A’s cost-except for his right to sue B for the price. Alaska 416  CONTRACTS  . and everyone will be worse off. and when A completes the gazebo B refuses to pay. one party may find himself at the mercy of the other unless the law of contracts protects him. Indeed. the Code provision on modification and waiver. Because the performance of the parties to a contract is typically not simultaneous. The common law dealt with this problem by refusing to enforce modifications unsupported by fresh consideration. payment due on completion.

. were traps for the unwary. See White & Summers. buried in the fine print of form contracts. as in our hypothetical case. a kitten. 390 Pa.” Wagner v. 1902). since common law courts inquire only into the existence and not the adequacy of consideration. a requirement of fresh consideration has little bite.2d 924. a sense that they were unnecessary because only modifications supported by consideration were enforceable. The common law did not enforce agreements such as section 2209(2) authorizes. But they did another thing as well. Blakeslee-Midwest Co. National Metal Crafters argues that two subsections later they took back this grant of power by allowing an unwritten modification to operate as a waiver. Thus in the hypothetical case just put B could not have enforced A’s promise to accept a lower price.Wisconsin Knife Works v. In section 2-209(2) they allowed the parties to exclude oral modifications. “The most ironclad written contract can always be cut into by the acetylene torch of parol modification supported by adequate proof. It may have reflected a fear that such clauses. 448 (1957). National Metal Crafters  Packers’ Ass’n v. and then the modification would be enforceable and A could no longer sue for the original price. 117 Fed. 99 (9th Cir. 445.. official comment 2. See UCC § 2-209. Contracts 271-78 (1982). it is a conclusion disguised as a metaphor. supra. Graziano Construction Co. B might give A a peppercorn. But this solution is at once overinclusive and underinclusive-the former because most modifications are not coercive and should be enforceable whether or not there is fresh consideration. v. and a disinclinaCHAPTER FOUR: MUTUAL ASSENT  417  . The draftsmen of the Uniform Commercial Code took a fresh approach. Farnsworth. The “reasoning” was that the parties were always free to agree orally to cancel their contract and the clause forbidding modifications not in writing would disappear with the rest of the contract when it was cancelled. This is not reasoning. 704 F. 927 (7th Cir. Domenico. 1983). at 47. discussed in Selmer Co. the latter because. by making modifications enforceable even if not supported by consideration (see section 2-209(1)) and looking to the doctrines of duress and bad faith for the main protection against exploitive or opportunistic attempts at modification. or a robe in exchange for A’s agreeing to reduce the contract price.

We can see that in this case.Modification & Discharge  tion to allow parties in effect to extend the reach of the Statute of Frauds. both provisions become superfluous and we are back in the common law-only with not even a requirement of consideration to reduce the likelihood of fabricated or unintended oral modifications. An equally important point is that with consideration no longer required for modification. as part and parcel of rejecting the requirement of consideration for modifications. it was natural to give the parties some means of providing a substitute for the cautionary and evidentiary function that the requirement of consideration provides. If section 2-209(4). A conceivable but unsatisfactory way around this result is to distinguish between a modification that substitutes a new term for an old. then from a grant of power to include a clause requiring modifications to be in writing and signed. where seamen attempted to enforce a contract modification that raised their wages. which as we said provides that an attempted modification which does not comply with subsection (2) can nevertheless operate as a “waiver. and a waiver. which requires only some types of contract to be in writing. while 418  CONTRACTS  .” is interpreted so broadly that any oral modification is effective as a waiver notwithstanding section 2209(2). Whether the party claiming modification is seeking to impose an onerous new term on the other party or to wriggle out of an onerous term that the original contract imposed on it is a distinction without a difference. which merely removes an old term. must have believed that the protection which the doctrines of duress and bad faith give against extortionate modifications might need reinforcement-if not from a requirement of consideration. On this interpretation National Metal Crafters could not enforce an oral term of the allegedly modified contract but could be excused from one of the written terms. which had proved ineffective. National Metal Crafters. but would not take care of the functionally identical case where seamen sought to collect the agreed-on wages without doing the agreed-on work. and the means chosen was to allow them to exclude oral modifications. But the framers of the Uniform Commercial Code. This would take care of a case such as Alaska Packers. must have rejected the traditional view.

Farnsworth. has relied. But this is small comfort to Wisconsin Knife Works. it makes one put one’s money where one’s mouth is. The path of reconciliation with subsection (4) is found by attending to the precise wording of (4). Reliance. section 2-209(2) becomes very nearly a dead letter. is not seeking damages for that breach. 1982). Whether called modification or waiver. if reasonably induced and reasonable in extent. 277. in part because it adds something in the way of credibility to the mere say-so of one party. L.Wisconsin Knife Works v. U. The main purpose of forbidding oral modifications is to prevent the promisor from fabricating a modification that will let him escape his obligations under the contract. what National Metal Crafters is seeking to do is to nullify a key term other than by a signed writing.” It does not say in what circumstances it can operate as a waiver. We find support for our proposed reconciliation of subsections (2) and (4) in the secondary literature. it says that “it can operate as a waiver. 58 Wash. then both sections 2-209(2) and 2-209(4) can be given effect. This provision CHAPTER FOUR: MUTUAL ASSENT  419  . It is true that 2 Anderson on the Uniform Commercial Code § 2-209:42 (3d ed. But it is a risky course and is therefore less likely to be attempted than merely testifying to a conversation. Oral Modification of Sales Contracts Under the Uniform Commercial Code: The Statute of Frauds Problem. but he does not explain his conclusion or provide any reason or authority to support it. at 476-77. supra. National Metal Crafters  claiming that Wisconsin Knife Works broke their contract as orally modified to extend the delivery date.Q. 6 Corbin on Contracts 211 (1962). If it can get away with this merely by testimony about an oral modification. which thought it had a binding contract with fixed delivery dates. 298-302 (1980). It does not say that an attempted modification “is” a waiver. See Eisler. opines that reliance is not necessary for an attempted modification to operate as a waiver. is a common substitute for consideration in making a promise legally enforceable. but if an attempted modification is effective as a waiver only if there is reliance. and the danger of successful fabrication is less if the promisor has actually incurred a cost. There is of course a danger of bootstrapping-of incurring a cost in order to make the case for a modification.

it means the same thing. however. courts should be careful not to allow the protective features of sections 2-209(2) and (3) to be nullified by contested parol evidence. but there was no issue of reliance in that case. 522 F. 488 F. which allows a waiver to be withdrawn while the contract is executory. a waiver may be found. in (5) there can be no tincture of reliance. v.. at p. 1973). “if clear factual evidence other than mere parol points to that conclusion [that an oral agreement was made altering a term of the contract].2d 469. though this is not an issue we need definitively resolve today. it applies. But the section has a different domain from section 2-209(4). provided there is no “material change of position in reliance on the waiver.. McLouth Steel Corp. 295 (3d Cir. to an express written and signed waiver.2d 292.” (Footnote omitted.. Uniform Commercial Code Series § 2-209:05. before the seller has relied. 1975). we have no reason to think that such a retraction would not satisfy section 2-209(5). v. 2 Hawkland. the whole point of the section is that a waiver may be withdrawn unless there is reliance. but the effect of an attempted modification as a waiver under (4) depends in part on (2). retracts it in writing.” Granted. The statute could be clearer. Suppose that while the contract is still executory the buyer writes the seller a signed letter waiving some term in the contract and then. provided only that the contract is still executory. 472-73 (7th Cir. for example. Milwaukee & Fox River Valley Ry. Girard Trust Bank.Modification & Discharge  was quoted along with other material from Anderson in Double-E Sportswear Corp. Chemetron Corp.138 (1985). In the normal case. It is not limited to attempted modifications invalid under subsections (2) or (3). 220 (1917). Hirsch Rolling Mill Co.) The instruction given by the judge in this case did not comply with this test.” Our approach is not inconsistent with section 2-209(5). e. but in any event we think a requirement of reliance is clearer than a requirement of “clear factual evidence other than mere parol. the next day. See.g. but the draftsmen were making a 420  CONTRACTS  . In any event we are not suggesting that “waiver” means different things in (4) and (5). which (4) (but not 5)) qualifies. 165 Wis. remarks. Waiver and estoppel (which requires reliance to be effective) are frequently bracketed. v.

S. Rose v. at 450 (section 2-316(3)(a)). In holding that that section allows the retraction of a waiver of the Statute of Frauds. See Appendix II to the 1978 Official Text of the Uniform Commercial Code. v. Another case of gap-filling in Article 2 is discussed in White & Summers. 488 F.. U. 42 N. e. Cases from other jurisdictions are diverse in outlook. v. v. App. “We have found it necessary to fill the interstices of the code.” because of “a drafting oversight. Pillow.. National Metal Crafters  big break with the common law in subsections (1) and (2).2d 338.2d 1108. Others allow oral waivers to override such clauses.” Our interpretation gives effect to this purpose. See. Spa Realty Associates. See Jason’s Foods. 1982).W. supra.. Inc. 1985) (section 2-509(2)). aff’d. cf.7. South Hampton Co.. supra. e. It is also consistent with though not compelled by the case law. 509 F. 1979) (where this feature of the case is emphasized).g. 460 (E.” We know that the draftsmen of section 2-209 wanted to make it possible for parties to exclude oral modifications. Inc.D. 1984) (Texas law). The innovations made in Article 9 of the UCC were so novel that the article had to be comprehensively revised only ten years after its promulgation. v. 79-80 (Tenn.2d 966 (Fla. 582 S. App. Gold Kist. Inc. 423 So. Peter Eckrich & Sons.2d 214 (7th Cir. 1117-18 (5th Cir. 358 F.2d at 297 n.g. v. Inc. But as a matter of fact we need go no further than section 2-209(5) to illustrate the need for filling gaps in Article 2. 343-44 CHAPTER FOUR: MUTUAL ASSENT  421  . Some take a very hard line against allowing an oral waiver to undo a clause forbidding oral modification. 733 F. Standard Hardware Co. 1975) (Pennsylvania law). Fibres.2d 1043 (6th Cir. There are no Wisconsin cases on point. but of course its draftsmanship was not flawless-what human product is? Just a few months ago we wrestled with the mysterious and apparently inadvertent omission of key words in the middle subsection of another section of Article 2. 1972).. They did not just want to give “modification” another name-”waiver. but in most of these cases it is clear that the party claiming waiver had relied to his detriment. Article 2 was less innovative. Inc. Mich. the Third Circuit said in Double-E Sportswear Corp.Y. Supp. 774 F. Proctor & Schwartz. See. Stinnes Corp. Linear Corp. and naturally failed to foresee all the ramifications of the break.2d 77. v. Girard Trust Bank. 449..Wisconsin Knife Works v.

. The purpose of the parol evidence rule is to defeat efforts to vary by oral evidence the terms of a written instrument that the parties intended to be the fully integrated expres422  CONTRACTS  . In cases not governed by the Uniform Commercial Code. 77 Wis. does National Metal Crafters argue that reliance was shown as a matter of law. they are unlikely to recur in a new trial. e. National Metal Crafters must have incurred expenses in producing spade bit blanks after the original delivery dates. But of course the Code. S&M Rotogravure Service.g. Baer. And although there is evidence of such reliance. it naturally was not a focus of the case. which is in force in Wisconsin as in every other state (with the partial exception of Louisiana). that is. was intended to change this rule for contracts subject to it. It may be significant that the stipulated counterclaim damages seem limited to the damages from the breach of a separate oral agreement regarding the maintenance of equipment used by National Metal Crafters in fulfilling the contract. which does not require reliance to be enforceable. since the issue was cast as one of completed (not attempted) modification.Modification & Discharge  (1977). indeed. the party with the burden of proof on the issue. We do however point out that Wisconsin Knife Works’ objections to the introduction of parol evidence have no merit once the issue is recast as one of waiver. Missing from the jury instruction on “modification” in this case is any reference to reliance. Nor. in the hope of selling them to someone else. The question of reliance cannot be considered so open and shut as to justify our concluding that the judge would have had to direct a verdict for National Metal Crafters. See. Inc. to the incurring of costs by National Metal Crafters in reasonable reliance on assurances by Wisconsin Knife Works that late delivery would be acceptable. v. Maybe National Metal Crafters would have continued to manufacture spade bit blanks anyway.2d 454. but whether these were reliance expenses is a separate question. 468-69 (1977). There is no need to discuss most of the other alleged errors in the conduct of the trial. Wisconsin follows the common law rule that allows a contract to be waived orally (unless within the Statute of Frauds) even though the contract provides that it can be modified only in writing.

J. NCR Corp. The only other issue that merits discussion is Wisconsin Knife Works’ contention that the judge should not have let in evidence about its high costs of manufacturing spade bits..2d 315. but we do not want to exclude the possibility that it might be found to be so. what amounts to the same thing. If the damage of which the promisee complains would not have been avoided by the promisor’s not breaking his promise. Lincoln Nat’l Life Ins. See. 320 (7th Cir. v. though to a different issue. 1978). it shows either that Wisconsin Knife Works sustained no damage from the alleged breach of contract..2d 524. If Wisconsin Knife Works couldn’t have made any money from manufacturing spade bits no matter how promptly National Metal Crafters delivered the blanks for them. the failure to make prompt delivery caused no legal injury and cannot provide the foundation for a successful damage suit even if the late delivery was a breach of the contract. 1985). Obviously National Metal Crafters has a strong case both that it relied on the waiver of the delivery deadlines and that there was no causal relationship between its late deliveries and the cancellation of CHAPTER FOUR: MUTUAL ASSENT  423  . As in tort law.. without the need for a new trial. On the basis of the record before us we cannot say that the error in allowing the jury to find that the contract had been modified was harmless. But it is relevant. v. that the alleged breach was not causally related to that damage. When a jury instruction is erroneous there must be a new trial unless the error is harmless. e.g. on motion for summary judgment or otherwise. so in contract law. National Metal Crafters argues that it did Wisconsin Knife Works a favor by its slow delivery of the spade bit blanks because Wisconsin Knife Works was unable to manufacture spade bits at anywhere near the cost at which Black & Decker could buy them from its existing supplier. Co. National Metal Crafters  sion of their contract. Groves & Sons Co. Warner Co. or. S. 527 (3d Cir. which it says is irrelevant to whether National Metal Crafters broke the contract. If the argument is correct. it has no application when the issue is whether one of the parties later waived strict compliance with those terms. 576 F.Wisconsin Knife Works v. the breach cannot give rise to damages. causation is an essential element of liability. 772 F.

Modification & Discharge  the contract. The majority demonstrates that the clause of the contract requiring all modifications to be in writing is enforceable against National Metal Crafters. There was no modification by a “signed writing. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.” Yet § 2-209(4) of the Uniform Commercial Code. Circuit Rule 18 shall not apply on remand. unless the retraction would be unjust in view of a material change of position in reliance on the waiver. provides that “an attempt at modification” that is ineffective because of a modification-only-in-writing clause “can operate as a waiver. but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. Reversed And Remanded. (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. UCC § 2-209 APPENDIX (1) An agreement modifying a contract within this Article needs no consideration to be binding. dissenting.” The majority holds that no “attempt at modification” may be a “waiver” within the meaning of § 2-209(4) unless the party seeking to enforce the waiver has relied to its detriment. which Wisconsin has adopted. We just are not prepared to say on the record before us that it is such a strong case as not to require submission to a jury. Circuit Judge. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded. I do not think that detrimental reliance is an essential element of waiver under § 2-209(4). Easterbrook. 424  CONTRACTS  . (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived.

Double-E Sportswear Corp. The introduction of a reliance requirement into a body of law from which the doctrine of consideration has been excised is novel. like the second. would be effective only if there had been no CHAPTER FOUR: MUTUAL ASSENT  425  . citing 1 Anderson. the law of “consideration” imposed something like a reliance rule. 1973). 1982). At common law “waiver” means an intentional relinquishment of a known right. states that reliance is unnecessary. A person may relinquish a right by engaging in conduct inconsistent with the right or by a verbal or written declaration. The parties did not even mention the question in their briefs.” So far as I can tell.2d 292. The clause. Neither party suggested that reliance is essential to waiver. like Corbin. He opines: “It would be possible to give an expansive meaning to the term waiver in these provisions and thereby reach results similar to those reached in cases decided under the common law rule.Wisconsin Knife Works v. and often the law of consideration is expressed in terms of detriment.” the majority inserts a reliance requirement in § 2-209(4) to prevent what it sees as potentially serious damage to § 2-209(2). 6 Corbin. Id. True. Girard Trust Bank. at § 2-209:42 (3d ed. which concentrated on the meaning of “signed agreement. The third edition of Anderson. or constitutional-in which a renunciation of a legal entitlement is effective only if the other party relies to his detriment. then. 295296 (3d Cir. payment of a pine nut (the peppercorn of nouvelle cuisine) is a tiny bit of detriment. Corbin’s position is that § 2-209(4) and (5) should prevent § 2-209(2) from doing “serious damage. Contracts § 1295 at 211-12 (1962). but I read it as a reference to § 2-209(5). The word “reliance” does appear in Corbin’s discussion. But § 2209(1) of the UCC provides that consideration is unnecessary to make a modification effective. I do not know of any branch of the law-common. no court has held that reliance is an essential element of waiver under § 2-209(4). 488 F. v. National Metal Crafters  “Waiver” is not a term the UCC defines. is hostile to § 2-209(2).).* * The sources the majority cites for the contrary position do not offer much support. statutory. One has intimated that reliance is not essential. Farnsworth. Corbin’s treatise on contracts views § 2-209(2) as a regrettable inroad on the flexible construction of contracts. Uniform Commercial Code Series § 2-209:05 (suggesting that reliance on a waiver by course of performance is unnecessary). Uniform Commercial Code § 2-209:8 (2d ed. See also Hawkland.

under § 2-209(5) a waiver may be effective prospectively only if there was also detrimental reliance. it is a proposal to make “the clause”-the modification-only-in-writing clause-effective only if there has been reliance. The majority tries to reconcile the two subsections by stating that they have different domains. Section 2-209(4) deals with oral waivers. to express written waivers. usually die out quickly. 58 Wash. § 2-209(3). at 280-81. L. for example.” Section 2-209(1) lifts the requirement of consideration.” This distinction implies that subsection (4) applies to a subset of the subjects of subsection (5). Subsection (4) says that an attempt at modification may be a “waiver. although legal novelties. Section 2-209(5) states that a person who “has made a waiver affecting an executory portion of the contract may retract the waiver” on reasonable notice “unless the retraction would be unjust in view of a material change of position in reliance on the waiver. Things are the other way around. Under § 2-209(4) a waiver may be effective. written. or a “signed writing” requirement of a clause permitted under § 2209(2). like biological mutations. Eisler would like to use reliance as part of a waiver because she wants to change § 2-209. 426  CONTRACTS  . or implied from conduct. A “signed writing” is binding as a modification under § 2-209(2) without the need for “waiver. This novelty encounters an obstacle within § 2-209.” and subsection (5) qualifies the effectiveness of “waivers” in the absence of reliance. be they oral. U. and a reliance rule is a step in that direction. but this gets things backward. She thinks that oral modifications of any contract should require consideration. provided only that the contract is executory. The majority suggests that § 2-209(5) also applies to signed waivers.” Section 2-209 therefore treats “waiver” and “reliance” as different. 300-01. This does not look like a proposal to make waiver depend on reliance. See comment 4 to § 2-209. despite § 2-209(1). it applies.” Contracts 476-77 (1982) (emphasis in original). so a signed pledge not to enforce a term of a contract may not be revoked under § 2-209(5) unless the pledge reserves the power of revocation.Modification & Discharge  Not all novel things are wrong. reliance. The two have the same domain-all attempts at modification. that do not satisfy the Statute of Frauds. Q. while § 2-209(5) “is not limited to attempted modifications invalid under subsections (2) or (3).

Then § 2-209(5) deals with a subset of these “waivers. it cannot be right to treat a successful effort to modify (a signed writing) as a “waiver” governed by subsection (5). It was written under the guidance of a few people. Section 2-209 of the UCC is not a slapdash production or the work of competing committees unaware of each other’s words. however. We know from the language and structure of § 2-209 that there is a difference between waivers that affect the executory portions of contracts and waivers that do not. all careful drafters. no one could see all of the problems that would come within its terms. and adopted en bloc by the states. A legislature has many minds. “Waiver” in § 2-209(4) and “waiver” in § 2-209(5) are six words apart. the more so because amendments may be added to a statute after other portions have been bargained out. which is not so great a gap that the mind loses track of meaning. But “waiver” did not call for finesses. “Waiver” therefore ought to mean the same in subsections (4) and (5). and § 2-209 was drafted and discussed as a single unit. Vague and uncertain in places the Code is.” the subset that affects the executory portion of the contract. there is no difference. Waivers affecting executory provisions are enforceable or not depending on reliance. The subsections read well together if waiver means “intentional CHAPTER FOUR: MUTUAL ASSENT  427  . No waiver is effective without detrimental reliance. and in some cases foreseen problems were finessed rather than solved. and as years pass these different people may use the same word in different ways.Wisconsin Knife Works v. so.” Repair work of this kind sometimes is necessary. too. however. The UCC is one of the most carefully assembled statutes in American history. the shifting coalitions that create a complex statute may contribute to it multiple meanings of a single word. Unsuccessful attempts at modification may be waivers under § 2-209(4). Under the majority’s reading. It is as if the majority has eliminated § 2-209(4) from the UCC and rewritten § 2-209(5) to begin: “A party who has made [an ineffectual attempt at modification] affecting [any] portion of the contract may retract … . National Metal Crafters  Because “waiver” is some subset of failed efforts to modify. debated for a decade by the American Law Institute and committees of commercial practitioners.

It is not necessary to vary the meaning of the word to make sense of each portion of the statute. The majority makes reliance an ingredient of waiver not because the structure of the UCC demands this reading. But for § 2. Section 2-209(4) says that a failed attempt at modification may be a waiver and so relinquish a legal entitlement (such as the entitlement to timely delivery). and therefore is able to obtain a concession. however. but the drafters meant to leave loopholes.209(2) the oral waiver could affect the executory portion of the contract even without reliance. § 2209(5) adds that a waiver cannot affect the executory portion of the contract (the time of future deliveries. The effect of such conduct as a waiver is further regulated in subsection (5). Comment 4 to § 2-209 states: “Subsection (4) is intended. A person who has his contracting partner over a barrel. but because it believes that otherwise the UCC would not deal adequately with the threat of opportunistic conduct. to prevent contractual provisions excluding modification except by a signed writing from limiting in other respects the legal effect of the parties’ actual later conduct. but its principal function is to make it easier for business to protect their agreement against casual subsequent remarks and manufactured assertions of alteration. the Code does not allow the clause to be airtight.Modification & Discharge  relinquishment of a known right” in both. A modification-only-in-writing clause may permit the parties to strengthen the requirement of commercial good faith against the careless opportunist. See § 2-103 and comment 2 to § 2-209. Even so. for example) if the waiving party retracts. unless there is also detrimental reliance. can get the concession in writing. In almost all of the famous cases of modification the parties reduced the new agreement to writing. The modificationonly-in-writing clause has nothing to do with opportunism. The majority’s observation 428  CONTRACTS  .” In other words. The drafters of the UCC chose to deal with opportunism not through a strict reading of waiver. but through a statutory requirement of commercial good faith. The writing will be the least of his worries. the UCC made modification-only-in-writing clauses effective for the first time. It strengthens the Statute of Frauds. despite the provisions of subsections (2) and (3).

and it did not surrender its legal remedies by trying to mitigate. accepting belated deliveries without protest. National Metal Crafters  that waiver under § 2-209(4) could nullify some benefits of clauses permitted under § 2-209(2) is true. Perhaps Wisconsin Knife CHAPTER FOUR: MUTUAL ASSENT  429  . On this story. The reading I give to waiver also affords substantial effect to modification-only-in-writing clauses. which Wisconsin Knife Works presses on us. is that there was no modification and no “attempt at modification” within the meaning of § 2-209(4). The second characterization is that when National Metal Crafters ran into trouble producing on schedule. but it is not a reason for adding novel elements to “waiver. National Metal Crafters and Wisconsin Knife Works discussed the problem and agreed that National Metal Crafters could have more time in order to get the job done right.Wisconsin Knife Works v. Wisconsin Knife Works had to decide whether to give up on National Metal Crafters (and collect any damages to which it may have been entitled) or ask National Metal Crafters to keep trying. Waiver implied from performance is less prone to manipulation. This method of protecting modification-only-in-writing clauses gives waiver the same meaning throughout the statute. or issuing new orders (or changing the specifications of old orders) while existing ones are in default. National Metal Crafters promised to deliver the blanks in the fall of 1981. but it had a head start on anyone else Wisconsin Knife Works might have asked to make the blanks. When it fell behind. consider three characterizations of the dealings between Wisconsin Knife Works and National Metal Crafters. Wisconsin Knife Works wanted both to preserve its rights and to minimize its damages. for the claim of waiver here is largely based on the course of performance. To see this.” It might be sensible to treat claims of oral waiver with suspicion and insist on waiver by course of performance-for example. but it does not help Wisconsin Knife. The first. It was entitled to throw up its hands in January 1983 and collect damages from National Metal Crafters for nonperformance. Wisconsin Knife Works valued a high quality product and a successful business relation more than it valued its legal right to prompt performance. National Metal Crafters may have been slow.

and National Metal Crafters is entitled to damages-at a minimum profits lost on blanks scheduled for delivery through April 1983. 1977). On my view this would be a waiver under § 2-209(4). The parties would simply walk away from the contract. The latest modification occurred when National Metal Crafters gave Wisconsin Knife Works a “pert chart” indicating realistic dates for quantity shipments. This implies that when Wisconsin Knife Works declared the relationship at an end in January 1983. 252 N. When National Metal Crafters took more time than Wisconsin Knife Works could stomach. As the parties went along they modified their understandings and accommodated each other’s needs. it breached the contract (as modified). and it retracted the waiver. and people at Wisconsin Knife Works said that these dates and quantities were acceptable. which did not have formal terms. The purchase orders were parts of a larger joint venture.W. Instead Wisconsin Knife Works and National Metal Crafters embarked on joint operations to find a new way to make spade bits. Wisconsin Knife Works announced that too much is enough. Section 2-209(2) puts this third position out of court. Having retracted the waiver. The third story would be a thoroughgoing reshaping of the obligations. for it was not ready to turn the blanks into spade bits and did not want blanks piling up in warehouses. Wisconsin Knife Works could declare National Metal Crafters in breachbut because the waiver excused National Metal Crafters’s performance until January 1983. which 430  CONTRACTS  . See Dangerfield v.D. National Metal Crafters tells us that the purchase orders never were the “real” contract. So Wisconsin Knife Works told National Metal Crafters to take the time to do it right. The dates ran into April 1983.2d 184. 191-93 (N. perhaps even profits National Metal Crafters anticipated through continuation of this relationship for a longer run.Modification & Discharge  Works did not even want performance so soon. Section 2-209(5) allowed it to do just this unless National Metal Crafters had relied to its detriment on Wisconsin Knife Works’s words and conduct. Wisconsin Knife Works could not collect damages for delay. The third characterization is the one National Metal Crafters presses here. Markel.

Wisconsin Knife Works vigorously argued at trial that at all times it stood on its rights but went along with delayed delivery as a second-best solution. “Attempts at modification” generally are not enforceable prospectively-and if there is commercial bad faith (that is. There is no serious remaining problem to which a reliance element in the definition of waiver is a solution. they are not enforceable at all. The jury’s finding that Wisconsin Knife Works and National Metal Crafters modified their contract-in the words of the instruction. This treatment of § 2-209(5) solves. proof that National Metal Crafters had already manufactured the blanks scheduled for delivery in April 1983. The jury’s finding that Wisconsin Knife Works and National Metal Crafters “modified” their contract.” The “pert chart” is not such a writing because Wisconsin Knife Works. resolves this dispute. Because § 2-209(2) and (5) eliminate National Metal Crafters’s principal position. and therefore Wisconsin Knife Works was entitled to cancel the contract and walk away in January 1983 free from liability save for goods furnished or expenses incurred in reliance before January 1983. the party sought to be bound. that Wisconsin Knife Works “by conduct or other means of expression induced a reasonable belief by [National Metal Crafters] that strict enforcement was not insisted CHAPTER FOUR: MUTUAL ASSENT  431  . we are left with the first two-either Wisconsin Knife Works stood on its entitlement to timely delivery but stuck with National Metal Crafters to mitigate damages.Wisconsin Knife Works v. opportunistic conduct). though an answer to a legally erroneous question. the problem of fabricated claims of modification. or Wisconsin Knife Works waived the requirement of timely delivery but in January 1983 rescinded the waiver. National Metal Crafters has not argued that it had the sort of reliance that would enable it to enforce the executory portion of any modification. or had bought equipment with no alternative use. National Metal Crafters  could not occur unless reflected in a “signed writing. The discussions could be at most “an attempt at modification” under § 2-209(4). for the most part. did not sign it. Under § 2-209(5) Wisconsin Knife Works could rescind its waiver prospectively unless that “would be unjust in view of a material change of position in reliance on the waiver”here. for example. and therefore could be a waiver.

as the spade bit blanks do. has found enough to support a judgment discharging National Metal Crafters from liability to Wisconsin Knife Works.1975). which Wisconsin Knife Works may and did revoke. some reliance is close to a certainty. A requirement of reliance will not make a difference very oftencertainly not in this case. it would be necessary to determine whether National Metal Crafters detrimentally relied on Wisconsin Knife Works’s waiver. We are left with “an attempt at modification” that may operate as a waiver. Still. I doubt that National Metal Crafters would have produced the same goods in the same quantity but for a belief that Wisconsin Knife Works wanted to have them. v. This requires us to affirm the judgment. But National Metal Crafters does not want damages for work to be performed after January 1983.. it is better not to ask unnecessary questions even when the questions have ready answers. It simply wants to defeat Wisconsin Knife Works’s claim for damages for belated delivery.Modification & Discharge  upon. If National Metal Crafters were claiming damages for lost profits. (It also sought and received $30.2d 469. but that the modified performance was satisfactory and acceptable as equivalent”-necessarily rejects Wisconsin Knife Works’s version of events. 432  CONTRACTS  . A change of position in reliance on the frequent discussions is all the majority requires.000 for reliance expenditures before January 1983. Summary judgment cannot be far away. When the goods have a custom design. which is not problematic under my construction of § 2209.) The jury. Any waiver that is more than a condonation of an existing default will induce some reliance. The buyer who asks a seller of fungible goods to defer delivery induces reliance even though the waiver of timely delivery will not affect the production of the goods. 472 (7th Cir. although improperly instructed. The evidence was sufficient to permit the jury to reject this version. 522 F. which defines the elements of waiver much as the district court’s instruction defined modification. See also Chemetron Corp. McLouth Steel Corp.

1953) Fuld. 124. Johns. 148  UCC § 2‐201  _________________________________________________  THE WRITING  _________________________________________________  Crabtree v. who had apprised him of the possible opening. 2d §§ 110.000 a year for each of those years. 130 through 137. When Miss Arden finally indicated that she was prepared to offer a two-year contract.000 for the second year. based on an annual salary of $20. Elizabeth Arden Sales Corp. $25. looking toward his employment as sales manager.  CHAPTER FIVE  STATUTE OF FRAUDS  Rest. the corporation’s president. In September of 1947.000 for the first six months. Interviewed on September 26th. plus expenses of $5. Crabtree requested a three-year contract at $25. And he repeated his desire for a contract for three years to Miss Elizabeth Arden.  Court of Appeals of New York 110 N.E. Judge. Explaining that he would be giving up a secure well-paying job to take a position in an entirely new field of endeavor which he believed would take him some years to master he insisted upon an agreement for a definite term. Nate Crabtree entered into preliminary negotiations with Elizabeth Arden Sales Corporation. Miss Arden thereupon had her personal sec433  . executive vice-president and general manager of the corporation. Crabtree replied that that offer was “interesting”.000 for the second six months and $30.Y.2d 551 (N. 139. manufacturers and sellers of cosmetics.000 a year. by Robert P.

... per annum Next six months of . Crabtree’s “Job Classification” and.. $20...The Writing  retary make this memorandum on a telephone order blank that happened to be at hand: EMPLOYMENT AGREEMENT WITH NATE CRABTREE Date Sept.000.. a “pay-roll change” card was made up and initialed by Mr.. it specified the names of the parties.. he accepted the “invitation to join the Arden organization”.000 to $25. but the further specified 434  CONTRACTS  .. contained the notation that This employee is to be paid as follows: First six months of employment . in addition.000. and then forwarded to the payroll department......000......25.. per annum After one year of employment ... per annum Approved by RPJ (initialed) After six months of employment.... Crabtree “phoned Mr. Reciting that it was prepared on September 30.. When he reported for work.30. per year Expense money (2 years to make good) Arrangement with Mr Crabtree By Miss Arden Present Miss Arden Mr John Mr Crabtree Miss OLeary A few days later. 26-1947 6: PM At 681-5th Ave … Begin 20000... 5000. 6 months 30000.. and was to be effective as of October 22d. 1947.. and Miss Arden wired back her “welcome”. Crabtree received the scheduled increase from $20.. Johns and telegraphed Miss Arden”....000.. Johns.. 6 months 25000.

Y. Both Mr. Carstens. subscribed by defendant. Personal Property Law. “per contractual arrangements with Miss Arden”. Strong.Y. is of no consequence. to satisfy the statute of frauds.Y. 147 N. and the Appellate Division.S. defendant denied the existence of any agreement to employ plaintiff for two years. after further fruitless discussion. also. affirmed. refused to approve the increase and. 582. it is enough. and. Contracts. Lowenstein.000 to $30.Crabtree v. to meet the statute’s demands. that they were signed with intent to authenticate the information contained therein and that such information does evidence the terms of the contract.000 a year. CHAPTER FIVE: STATUTE OF FRAUDS  435  . or that they came into existence subsequent to its execution. 138.Y.1 Each of the two payroll cards the one initialed by defendant’s general manager. § 31. The latter. considered the other points argued. 346. supra. see. 655. supra. also. Lowenstein. to which his signature is appended. 1 While our opinion is limited to treatment of that question. 2 Corbin on Contracts (1951). we have. §§ 209. of course. Elizabeth Arden Sales Corp. with that in mind. 138. Bayles v. the primary question for decision is whether there was a memorandum of its terms.Y. Spiegel v. and further contended that. Johns and the comptroller of the corporation. 226 N. That they were not prepared or signed with the intention of evidencing the contract. told Crabtree that they would attempt to straighten out the matter with Miss Arden. 226 N. 185 N.  increase at the end of the year was not paid. 214. Cowdin. 658. 147 N. however.S. 658.000. Mr. Cowdin. Restatement. even if one had been made. The trial court found against defendant on both issues and awarded plaintiff damages of about $14. the comptroller prepared another “pay-roll change” card. At the ensuing trial. 655. see Marks v. Since the contract relied upon was not to be performed within a year. 145. the statute of frauds barred its enforcement. See Marks v. two justices dissenting. plaintiff left defendant’s employ and commenced this action for breach of contract. 210.Y. affirming 93 N. see.S. the other signed by its comptroller unquestionably constitutes a memorandum under the statute. Spiegel v. noting that there was to be a “Salary increase” from $25.

1682-1683. they refuse to permit consideration of the latter in determining whether the memorandum satisfies the statute. the position that plaintiff was to assume. sufficiently designates a period of employment.” Marks v. of varying degrees of specificity. 763-764. little if any difficulty is encountered.g. 436  CONTRACTS  .. Phelps. 19 Conn. Accordingly. Osborn v. The statute of frauds does not require the “memorandum … to be in one document. That conclusion is based upon a construction of the statute which requires that the connection between the writings and defendant’s acknowledgment of the one not subscribed. 91 Mass. The other position which has gained increasing support over the years is that a sufficient connection between the papers is established simply by a reference in them to the same subject matter or transaction. 138. supra.Y. pp. Where. 2 Williston... ed. The courts of some jurisdictions insist that there be a reference. Marks v. supra. also. Hewett Grain & Provision Co. and. Spear. if so. 608. may be supplied by reference to the earlier unsigned office memorandum. the length of the contract. Where each of the separate writings has been subscribed by the party to be charged. in the signed writing to that unsigned. and. e. we must consider whether that item. 412. connected with one another either expressly or by the internal evidence of subject-matter and occasion. 176 Cal. p. if there is no such reference. 226 N. Those two writings contain all of the essential terms of the contract the parties to it.g. v.g.1671. op cit. 222 Mich. subd. some writings have been signed.. e.Y. The statute is not pressed “to the extreme of a literal and rigid logic”.732-733. 1936). 691. It may be pieced together out of separate writings. e. 2 Williston on Contracts (Rev. see. appear from examination of the papers alone. without the aid of parol evidence. Cowdin. See. Restatement. See.The Writing  pp. (a). the salary that he was to receive except that relating to the duration of plaintiff’s employment. 138. 63. Contracts. 145. and others have not as in the case before us there is basic disagreement as to what constitutes a sufficient connection permitting the unsigned papers to be considered as part of the statutory memorandum. whether its notation. Lerned v. “2 years to make good”. Cowdin. § 208. See. Wannemacher. Alward. however.. Frost v. 144-145. 226 N.

Y.Y.Y.. also. The view last expressed impresses us as the more sound. op. and we now definitively adopt it. None of the terms of the contract are supplied by parol. indeed although several of our cases appear to have gone the other way.  Marks v. the one establishing a contractual relationship between the parties. Contracts. Blank.. § 208. See Beckwith v.g. and. and at least one writing. Speyers. cf. 537. 230. 95 U. 56 N. 289.Y. 144. must bear the signature of the party to be charged. e. permitting the signed and unsigned writings to be read together.S.Y. Oliver v.Y. Cowdin. unless … some note or memorandum thereof be in writing. True.. D. 80 N. 201. (b). the CHAPTER FIVE: STATUTE OF FRAUDS  437  . see. e. (iii). Vandemark.g. All of them must be set out in the various writings presented to the court. See. §§ 512-518. 208-209.. 29. 138. Newbery v. Elizabeth Arden Sales Corp. as a matter of law. Wilson v. see. is at a minimum in a case such as this.Y. 235 N. to the contents of the one unsigned. unaided by oral testimony. of the party to be charged. Personal Property Law. 226 N. Lewiston Mill Co. while the unsigned document must on its face refer to the same transaction as that set forth in the one that was signed.Y. Wall. The danger of fraud and perjury. 484. 2 Corbin. Delaware Mills v. Raubitscheck v. 205.S.Y. it is within the province of the judge to conclude. par. 44 Ch. and oral testimony is admitted to show the connection between the documents and to establish the acquiescence. affirming 193 N. supra. Peabody v. 150 N. 99 N. The language of the statute “Every agreement … is void. Carpenter Bros. provided that they clearly refer to the same subject matter or transaction. or does not show assent to the unsigned paper. Restatement.. Coe v. Hunting. generally attendant upon the admission of parol evidence.Crabtree v. that the statute has not been satisfied. 116 N. this court has on a number of occasions approved the rule. 314. 478. to the contents of the one unsigned. If that testimony does not convincingly connect the papers. Talbot. 65 N. cit. Parol evidence to portray the circumstances surrounding the making of the memorandum serves only to connect the separate documents and to show that there was assent. Peck v. § 31does not impose the requirement that the signed acknowledgment of the contract must appear from the writings alone. and subscribed by the party to be charged”. 273. by the party to be charged. Tough. subd.

708-709. the general rule should be enforced. an agreement never in fact made may occasionally be enforced under the subject matter or transaction test. Ritz. see. 95 U. If there is ground for any doubt in the matter. 10 Cir. 257. Brashier. the evidence as to the conduct of the parties at the time it was prepared persuasively demonstrates defendant’s assent to its terms. supra. The corroborative evidence of defendant’s assent to the contends of the unsigned office memorandum is also convincing. Prepared by defendant’s agent. its enforcement would aid. and the paper signed by the comptroller Carstens it is apparent.The Writing  possibility still remains that. “There may be cases in which it would be a violation of reason and common sense to ignore a reference which derives its significance from such (parol) proof.S. 259. than to deny enforcement to all agreements. It is better to run that risk. Gall v. Even more. the courts below were fully justified in finding 438  CONTRACTS  . there is little likelihood that that paper was fraudulently manufactured or that defendant had not assented to its contents. 154 Mass. Miss Arden’s personal secretary.Y. 2 Corbin. instead of discouraging. As the United States Supreme Court declared. in sanctioning the admission of parol evidence to establish the connection between the signed and unsigned writings. merely because the signed document made no specific mention of the unsigned writing. 292. Raubitschek v. op. Freeland v.. § 512. cit. are all identically set forth. by fraud or perjury.2d 704. the salary to be paid him. that all three refer on their face to the same transaction. Talbot. the card signed by Carstens notes that it was prepared for the purpose of a “Salary increase per contractual arrangements with Miss Arden”. The parties. fraud. That certainly constitutes a reference of sorts to a more comprehensive “arrangement. 478. supra.” and parol is permissible to furnish the explanation. the payroll change form initialed by the general manager Johns. though. and most patently. 289. also. Under such circumstances. the position to be filled by plaintiff. Furthermore. and cases there cited. 169 F. Turning to the writings in the case before us the unsigned office memo. Blank. But where there is no ground for doubt. 80 N.” Beckwith v. it is hardly possible that such detailed information could refer to another or a different agreement.

is a cryptic and ambiguous statement. 138. McKinley.     CHAPTER FIVE: STATUTE OF FRAUDS  439  . Elizabeth Arden Sales Corp. See Martocci v. 340. Desmond. Dye and Froessel. 63. is hard to imagine. Without it. 2 Corbin.Y.Y. is set out.Crabtree v. the course of the negotiations and plaintiff’s insistence upon security of employment. with costs. as the courts below decided. parol evidence is admissible to explain its meaning.Y. Nor can there be any doubt that the memorandum contains all of the essential terms of the contract. 57. Conway.J. Quite obviously. The September 26th office memorandum contains the notation. 121.. § 576. Loughran. “2 years to make good”. Having in mind the relations of the parties. other than to denote the length of the contract term... Only one term. that type of arrangement is hardly consistent with the hypothesis that the employment was meant to be at will. Co. § 527. 226 N. Friedman & Co. The most that may be argued from defendant’s standpoint is that “2 years to make good”. the purpose of the phrase or so the trier of the facts was warranted in finding was to grant plaintiff the tenure he desired. is in dispute. he would be subject to discharge.. v.Y. New York Life Ins. concur. C. Greater New York Brewery.E. Holding Co. the employment would be at will. What purpose. after which. op. And examination of other parts of the memorandum supports that construction. a scale of wages. The judgment should be affirmed. 148 N. 117. 255 N. 143-144. 40. see Martin v. a certain and definite term. v. Newman.. such a notation could have. But. supra. if plaintiff did not “make good”. 2 Williston. See N. Throughout the writings. op.Y. and its inclusion may not be treated as meaningless or purposeless. the phrase signifies that the parties agreed to a term. Marks v. cit.  that the three papers constituted the “memorandum” of their agreement within the meaning of the statute. cit. 246 N. 301 N. the length of the employment.D. and Lewis. in such a case. increasing plaintiff’s salary periodically. Cowdin.. JJ. of two years.

when Fisher would pay the remaining half of the purchase price and Cohn would presumably transfer title. Fisher then phoned Cohn and submitted an offer of $4.C. Cohn notified Fisher that he would hold him to his agreement to pay the full purchase price by Saturday.C. The controversy concerns an alleged breach of contract for the sale of Cohn’s boat by Fisher. (temporarily assigned). Upon learning the location of the sailboat. Both agreed to meet the next day at Cohn’s office in Paterson. sloop. At the meeting on Monday. In his suit for breach of contract Cohn is seeking damages of $1. Law Division 287 A.000. May 19. Cohn then re-advertised the boat and sold it for the highest offer of $3. At this point relations between the parties broke down.650. A motion for summary judgment is designed to provide a prompt and inexpensive method of disposing of any cause which a discriminating search of the merits in the pleadings. 1968.The Writing  Cohn v. depositions and admissions on file. Fisher gave Cohn a check for $2.679. Plaintiff Albert L. which Cohn accepted. Cohn (hereinafter Cohn) moves for summary judgment against defendant Donal L. Fisher (hereinafter Fisher). Fisher  Superior Court of New Jersey. Fisher proceeded to the boatyard and inspected the sloop. D’Arc Wind. A few days later Fisher informed Cohn that he would not close the deal on the weekend because a survey of the boat could not be conducted that soon.” Both parties agreed to meet on Saturday.50 representing the difference between the contract price with Fisher and the final sales price together with the costs incurred in reselling the boat.2d 222 (N. J. 1972) Rosenberg. May 20. On Sunday. together with the affidavits submitted on the mo440  CONTRACTS  . full amount $4.J.325 and affixed on same: “deposit on aux. Fisher inquired of Cohn’s advertisement in the New York Times for the sale of his 30-foot auxiliary sloop. Super. Fisher stopped payment on the check he had given as a deposit and failed to close the deal on Saturday.650. May 25.

4:46-2 was there set forth by Justice Brennan: The standards of decision governing the grant or denial of a summary judgment emphasize that a party opposing a motion is not to be denied a trial unless the moving party sustains the burden of showing clearly the absence of a genuine issue of material fact.S. the standards are to be applied with discriminating care so as not to defeat a summary judgment if the movant is justly entitled to one.J.J. may raise such an issue. This court holds that it may render a decision on the applicable law involved since the movant has clearly excluded any reasonable doubt as to the existence of any genuine issue of material fact. (at 74) Defendant contends in his answer that there was no breach of contract since the agreement of sale was conditional upon a survey inspection of the boat. of Westfield.A. However.Cohn v. Fisher  tion. including CHAPTER FIVE: STATUTE OF FRAUDS  441  . Peoples Bank & Trust Co. in his depositions defendant candidly admits that neither at the time the offer to purchase was verbally conveyed and accepted nor on the following day when he placed a deposit on the boat did he make the sale contingent upon a survey. clearly shows not to present any genuine issue of material fact requiring disposition at a trial. In the present litigation dispute arises only to the elements of mutual assent and formality of memorialization. 74 (1954). Judson v. Summary judgment procedure pierces the allegations of the pleadings to show that the facts are otherwise than as alleged. 67. standing alone. 12A:2-204(1) states that “A contract for sale of goods may be made in any manner sufficient to show agreement. For. legality of object. supra: Nor is summary judgment to be denied if other papers pertinent to the motion show palpably the absence of any issue of material fact. as noted by the court in Judson. The test for determining whether to grant or deny a motion for summary judgment under R. consideration. At the same time. N. although the allegations of the pleadings. capacity of the parties and formality of memorialization. 17 N. (at 75) The essentials of a valid contract are: mutual assent.

Leitner v. See Looman Realty Corp. Under the objective theory of mutual assent followed in all jurisdictions.S. 12A:2-201 (exclusive of those sections dealing with merchants) are: (1) Except as otherwise provided in this section a con442  CONTRACTS  . 1958). otherwise by the law of contracts (12A:1-103). Thus.J.A. The applicable sections of N. he still asserts that the survey was a condition precedent to the performance of the contract.J. 51 N. As to the element of formality of memorialization.J. N. Broad St. 31 (App. 12A:2-201 requires that a contract for the sale of goods for the price of $500 or more. 12A:1201(3) defines “agreement” as meaning: … the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this Act (12A:1-205 and 2-208). to be enforceable. Nat. Super. it is entirely immaterial.The Writing  conduct by both parties which recognizes the existence of such a contract. Div. Braen.J. To the extent that his real. Whether an agreement has legal consequences is determined by the provisions of this Act. The express language of the contract. Div. Super. if applicable. 71 (App.A.A. N. secret intention differs therefrom. Bank of Trenton. v.S. a contracting party is bound by the apparent intention he outwardly manifests to the other contracting party. failing to manifest an intention to make the sale of the boat conditioned on a survey. the issue arises as to the nature of the bargain agreed upon by the parties. 1962).J. 74 N. this court concludes that the agreement between the parties was exclusive of a condition precedent for a survey of the boat.” Although defendant has admitted to the court that at no time did he condition his offer to purchase the boat upon a survey inspection. must comply with the statute of frauds.S. and defendant failing to present evidence that the condition of a survey was implied under any section of the Uniform Commercial Code or in the general law of contracts.

Thus in the present case. but the contract is not enforceable under this provision beyond the quantity of goods admitted. testimony or otherwise in court that a contract for sale was made. Ample authority for resolving the issues is found in the notes provided by the framers of the Code and in the decisions of our sister states. Fisher  tract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.J.J. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. N.S.S.S. 12A:2-201(1) the check may constitute a sufficient written memorandum. 1963. or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (12A:2-606).Cohn v.A. With regard to the question of whether the check satisfies the statute of frauds as a written memorandum. 12A:2-201(3)(b) defendant’s testimony in depositions and his answers to demands for admission may constitute an admission of the contract or (3) under N. The above issues. arising under the Uniform Commercial Code adopted by this State on January 1. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable (b) if the party against whom enforcement is sought admits in his pleading. there are three alternatives by which the contract could be held enforceable: (1) under N. For such reason this court will determine the enforceability of the contract under each of the alternatives.S.J. are novel to the courts of New Jersey.A. (2) under N. 12A:2-201(3)(c) payment and acceptance of the check may constitute partial performance.A.J. 12A:2-201(1) CHAPTER FIVE: STATUTE OF FRAUDS  443  .A.

would be in conflict with the case law of New Jersey. however. (2) signed by the party to be charged. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.J. As noted in the New Jersey Study Comment to § 12A:2-201. under both the Uniform Sales Act and the Uniform Commercial Code a sales contract not in writing is not unenforceable if there is a memorandum of the agreement in writing signed by the party to be charged or his authorized agent.The Writing  requires (1) a writing indicating a contract for sale. and it expressly states the quantity term (the D’Arc Wind). time and 444  CONTRACTS  . would comply with the requirements of the statute of frauds under N. and (3) the quantity term must be expressly stated. with the exception of the quantity term.. D’Arc Wind). 3. that “A writing is not insufficient because it omits or incorrectly states a term agreed upon … .S.L. 101 N. the courts of New Jersey had restrictively interpreted “memorandum” to mean a writing containing the Full terms of the contract. payee) and the purchaser (Donal Fisher. 12A:2-201(1).S. N. the price ($4. 364. 1925).&A. part of the purchase terms-50% Down (deposit of $2. and by inferentially identifying the seller (Albert Cohn. Victory Catering Co. such a change was clearly intended: The required writing need not contain all the material terms of the contract and such material terms as are stated need not be precisely stated. Thus the check. 370 (E.J. full amount $4. The back of the check in question bore the legend “deposit on aux.” Thus the check seems to Prima facie satisfy the requirements in that: it is a writing which indicates a contract for sale by stating the subject matter of the sale (aux.” clearly changes the law in New Jersey as to the requirements of the memorandum exception to the statute of frauds.650). Such a result. … The price. See Bauer v. in stating. par.650. although not a sales contract. 1. sloop. As evidenced by the Uniform Commercial Code Comment to § 12A:2201.J. D’Arc Wind.A. Although the Uniform Sales Act was silent as to the required terms for a satisfactory memorandum.A. it is signed by the party against whom enforcement is sought (Donal Fisher). drawer). par. sloop. 12A:2-201(1).325).

Thus. 1112. Inc.Cohn v.A.L. 363. There the court held that where a purchaser of real estate gave the seller’s agent a check which bore the notation that it was a deposit on specific premises in accordance with a listing agreement.2d 785 (N. 203 (Ct. Div. It therefore appears to the satisfaction of this court that the check in the case at bar satisfies the requirements of N. 12A:2-201(1) to constitute a memorandum of the agreement. In holding that the check in the present litigation sufficiently satisfies the requirements of N. Only three definite and invariable requirements as to the memorandum are made by this subsection. and a contract for the sale of goods which does not require incorporation by reference on a check. 1965). App.” a word which includes any authentication which identifies the party to be charged. it must evidence a contract for the sale of goods.R. Ct. First. has been clearly drawn. Herzog required that an outside agreement be incorporated by reference. 12A:2-201(1) and thereby CHAPTER FIVE: STATUTE OF FRAUDS  445  . See 20 A. Blayton. this court is not without judicial authority. 119 Ga. endorsed and cashed said check. Accordingly.A. This distinction between a contract for the sale of land which requires that a check refer to a written agreement. as in the present case. this court concludes that by the adoption of the Uniform Commercial Code in New Jersey. In Herzog v. 67 N. it must be “signed. 1961).J. or any particular warranties may all be omitted. Coffee of Columbia. But this distinction is due to the fact that the sale in Herzog involved real estate rather than goods. it must specify a quantity..L. See Mason v. the case law concerning the sufficiency of memorandum has been changed.S. the notation together with the endorsement of seller’s authorized agent would be sufficient to satisfy the requirements of the statute of frauds. Tidaback. the court took a half step in such a direction. in order for a check to satisfy the memorandum exception. Fisher  place of payment or delivery. the general quality of the goods. second. The decisions under the Uniform Commercial Code involving a contract for the sale of goods are to the effect that a check alone is sufficient to constitute a writing in compliance with the statute of frauds.Y. Torreggiani v.R.J. 14 (Ch. and where the seller’s agent accepted.J. 1969). City Civ. 49 Misc. App. Super. and third.S. 153 A.

but rather to aid a party who did not make a contract. The statute of frauds was not designed to protect a party who made an oral contract. 12A:2-201(3)(c) provides that although the requirements of N. 12A:2-201(1) have not been met. Zlotziver v.A. This court is of the opinion that if a party admits an oral contract. 299 (Sup. Had the check not satisfied the requirements of N. 12A:2-201(3)(b). points out that “The cases from other states are in disagreement on the question of giving effect to admissions in court for purposes of satisfying the statute of frauds.S.” See Padgham v. 3 Wis.S.S. 1946). the contract would be held enforceable under the statute of frauds.2d 363 (Sup.A.J.J. Zlotziver.J. Ct. 7. As noted in the New Jersey Study Comment to § 2-201. under N. in effect. 12A:2-201(3)(b). 31 (1958). though one is claimed to have been made orally with him. par. that where the requirements of 12A:2-201(1) have not been satisfied. The New Jersey Study Comment to § 12A:2-201. Such a contract would be enforceable only with respect to the quantity of goods admitted. and.A. N.” Hawkland. may satisfy N. 446  CONTRACTS  . 12A:2201(1).J.A.S. he should be held bound to his bargain. an otherwise valid contract will be held enforceable if the party charged admits that a contract was made. together with defendant’s admission of an oral contract. Wilson Music Co.A. Ct.. 12A:201(3)(c) the check may constitute partial performance of the contract in that payment for goods was made and accepted.S.S.A. The theory behind the dissension under § 2201(3)(b) seems to be that “… the defendant should be privileged not to make the admission if it has the legal effect of depriving him of the defense of the Statute of Frauds. Sales and Bulk Sales. or (2) which have been received and accepted. 8. as such. par. would constitute an enforceable contract under N. 1958).The Writing  renders the contract enforceable under the statute of frauds. the check.J. This court would therefore hold that the check. an otherwise valid contract will be held enforceable with respect to goods (1) for which payment has been made and