Contracts Outline Prof.

Chang Fall 2002

Legal Basis for a Claim

• Breach of K
• Promissory Estoppel / Reliance
• Restitution: a) in the absence of promise
b) promissory restitution

Types of Ks
• Bilateral K: mutual promises of performance – benefit/detriment test
• Unilateral K: exchange of a promise for performance – once offeree begins
performance, offer becomes irrevocable

• Express K: standard K, stated in words, either oral or written, express in words

• Implied-in-Fact K: an implied promise by social norms (ex. sitting at a
restaurant, bill comes) or where words + conduct = K per court
• Implied-in-Law K: (quasi-K) no agreement established by words or actions (ex.
emergency aid)

Damages
• Monetary damages are awarded when an action sounds in law – when $$ will
make the non-breaching party whole.
• Specific damages (equitable remedies) are awarded when an action only
sounds in equity (does not sound in law) – when $$ will not make the non-
breaching party whole.

I. CONTRACT FORMATION (CLASSICAL CONTRACT THEORY):

When determining contract formation, ask 3 questions:
• Was there mutual assent?
• Was there consideration?
• Are there any defenses to K formation?

A. MUTUAL ASSENT: “meeting of the minds” – 1st requisite of a K

Valid Offer + Valid Acceptance = Mutual Assent

1. The Objective Standard:

a. Court determines mutual assent by an objective standard: Would a

reasonable person in the offeree’s shoes think there had been an offer
which they had accepted, forming a contract?

b. A subjective standard is not sufficient – you do not need a “literal”

meeting of the minds, only the outward (objective) manifestation of
mutual assent.
(1) Ray v. Eurice (1952): D claimed he didn’t know what he had
signed when he signed K with P. P’s argument: duty to read &
understand what you sign, hence must be bound. RULING: P wins,
overruling TC’s application of a subjective standard in negating
mutual assent. *A unilateral mistake does not negate mutual
assent.*

Knapp 1 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

2. Offer (§24): An offer is the manifestation of willingness to enter into a

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

a. Intent: Language of commitment

(1)ex. “I will” (offer) v. “I may” (not an offer)

b. Content: Relatively complete and definite terms:

(1) identity of the parties
(2)description of subject matter (including quantity if more than one
unit)
(3)price
(4)time for performance

c. Communicated to the party such that a reasonable person in their

position would believe that their assent was invited and would close
the deal.
(1)Offer must be communicated to offeree so offeree will have the
power to accept.
(a) Just because one overhears an offer directed to someone else
does not mean an offer has been made to that person, otherwise
multiple liability could result if everyone in earshot said yes.
(2)No further negotiations or assent are required to close the deal.

d. EXCEPTIONS (Not offers):

(1) Lack of Intent: “I am interested in...” contains no language of
commitment; “I want to buy…” merely expresses interest in buying
but not actual intent to buy
(2)Estimates: typically not offers; but one may accept an estimate as
an offer under certain circumstances. Ex. A tells B that he estimates
the cost of the plumbing job to be $10,000. B says “Go ahead.”
After the performance, A tells B that the real cost is $12,000. A
may recover full amount ($12,000), unless B had said: “Go
ahead and do it at that price.”
(3) Quotes: typically not offers, unless there is further language for
immediate acceptance: ex. “We quote you Mason fruit jars, in one
dozen boxes, delivered in LA: $4 pints, $5 half gallons, shipment no
later than May 10, cash in ten days.” That is an offer.
(4) Preliminary Negotiations (§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.
(5)Surrounding Circumstances (Bluffing, Joking, Intoxicated,
etc): A jokingly promises to sell B his car for $10. B reasonably
understood offer to be serious. Then statement is an offer

Knapp 2 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

because it is interpreted objectively. But if A and B understand

the statement to be a joke, the promise is not legally enforceable
(6)Advertisements are not offers – they are mere invitations to
negotiate.
(a) Lonergan v. Scolnick (1954): Buyer relied on seller’s
newspaper ad and subsequent correspondence as an offer to sell
property and sued for breach of K when seller sold property to 3rd
party. RULING: Seller wins b/c there was no offer, hence buyer
did not have power to accept an offer, hence no K.
(b)EXCEPTION: If language of ad can be construed as
containing a promise, terms are certain and definite, and
offeree(s) is clearly indicated, then it is an offer. Ex. Store
advertises coat worth $100 on sale for $1 on a “first come, first
served” basis. This is a valid offer to first person accepting on
this basis as nothing was left open for negotiation.
(7)Use of Broad Communications Media: the broader the
communicating media, the more likely the courts will view the
communication as merely a solicitation of an offer (except for
reward offers).

3. What terminates an offer? (§36)

a. Lapse of time: failure to accept within:

(1)stated expiration time/date; OR
(2)reasonable period of time (time to receive, consider, and reply)
(3)Note: reasonableness of period of time depends on circumstances;
courts vary. Ex. Offer to sell bananas: time period would be short
because bananas are perishable and price may fluctuate depending
on supply & demand. Offer to sell diamonds: time period may be
long because item is not perishable and price is not volatile.

b. Revocation by offeror (effective upon receipt):

(1) Direct revocation: communication from the offeror saying “I
revoke” or other words expressing he is no longer willing to go
through with the deal
(2) Indirect revocation: §43:
(a) Offeror takes definite action inconsistent with intention to
enter into proposed K; AND
(b)Offeree receives reliable information to that effect.
(3) Note: offeror may see the offeree approach and know that an
acceptance is contemplated. If the offeror can say, “I revoke”
before the offeree accepts, however brief the interval of time
between the two acts, the offer is terminated.
(4)Offeror CANNOT revoke when an option K exists.

c. Rejection by offeree (§38) (effective upon receipt)

Knapp 3 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

(1)Express rejection: “I reject”

(2)Counter offer (§39):
(a) acts as a rejection of original offer: KILLS ORIGINAL OFFER;
original offer is now GONE
(b)terminates offeree’s original power of acceptance
(c) acts as a substitute for original offer
(d)EXCEPTION: you can use qualifying language to keep original
offer open while negotiating (I am still considering your offer of
$10K; but will you take $9K?)
(e) Rejection to an option K has no effect.

d. Termination by death or insanity of either party (before

acceptance) or by death or destruction of the good(s) (prior to
acceptance)
(1)EXCEPTION: Option Ks survive death of offeror or offeree.

4. What constitutes acceptance?

a. Offeree must have the power of acceptance created by offeror

extending a valid offer.

b. Acceptance must be unequivocal and unconditional; it must mirror

the offer (mirror image rule).
(1)common law: Acceptance must be completely unequivocal and
unconditional.
(2)modern rule: Minor, unimportant changes to offer permitted,
provided they are not material, nor do they alter any remedies that
would be available under original offer.
(3)EXCEPTION: UCC 2-207: between merchants, when acceptance
includes additional terms that do not “materially alter” the terms of
the agreement and do not call for separate acceptance become part
of the contract.

c. Acceptance must be timely (reasonable time to receive, consider, and

reply).

d. Mailbox Rule §40 & §63: Acceptance is effective upon dispatch.

(1) An acceptance becomes binding the moment it leaves the
offeree’s possession.
(2) Acceptance must be transmitted in either the same
manner as the offer was transmitted or in a better (quicker,
more reliable) manner.
(3)Transmittal information (fax number, mailing address) must be
complete and correct for offeree to gain protection of rule.
(4)Where a rejection has been mailed by the offeree, and the latter
then dispatches an acceptance which reaches the offeror before
the rejection, the acceptance is valid and will control.

Knapp 4 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

e. Grumbling Acceptance: an acceptance accompanied by an

expression of dissatisfaction is effective as an acceptance as long as it
stops short of actual dissent. Ex. “Well, I’d prefer to pay less, but I
agree to your terms.”

f. Silence (§69): normally silence is not acceptance except for:

(1)When prior dealings between the parties make it reasonable for
offeror to expect the offeree to give notice of rejection.
(2)If an offeree accepts something like property/services with a
reasonable ability to return them, and does not. Ex. A leaves a gift
basket on B’s doorstep. B takes the basket, opens it, and consumes
the candy inside. B has given silent acceptance.

g. Request for clarification of terms does not amount to a rejection or

a counter offer.

5. Unilateral Ks – Formation Differences:

a. Offer: A unilateral K offer is offering a promise in exchange for a

performance (or forbearance). Ex. “I will pay you $5 if you mow my
lawn”.

b. Acceptance: only method for accepting a unilateral K offer is

performing the requested act.
Full performance = unilateral K formation

c. Revocation: a unilateral K offer can be revoked anytime before

acceptance (full performance).
(1)common law: Unilateral offer is revocable until full performance.
(2)modern rule: Most courts say no revocation once performance has
begun.
(3)§45: Once performance has begun an option K has been created,
remaining open for the duration of the time set or if none, for a
reasonable time.
(4)§87: If a person is merely preparing to perform (as opposed to
actually beginning performance), the offer may be revoked.

d. Employee Handbooks: Employee handbooks or other policy

statements create enforceable unilateral contractual rights if the
traditional requirements of K formation are present. MAJORITY rule is
to treat employee handbooks as rising to the level of contractual
obligation.
(1)Duldulau v. St. Mary’s (1987): P is terminated w/o proper notice
& claims that employee handbook gave rise to enforceable
contractual rights. RULING: P wins b/c handbook was offer,
containing complete terms & language of commitment such that
her continued employment and awareness of handbook constituted
acceptance.

Knapp 5 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

e. Reward offers:
(1)A reward offer is a unilateral K offer.
(2)The offer is generally open to all.
(3)Once one person performs, K is formed and offer is terminated to
others.
(4)If someone performs who didn’t know about offer, there is no K.

6. Unilateral K v. Bilateral K

a. Test:

(1)If at the time K is formed, each party has a right and a duty, K is
bilateral.

(2)If at the time K is formed, one party only has a right and the other
party only has a duty, K is unilateral.

b. Construe Ambiguous Offers as Bilateral: Courts will construe an

ambiguous offer as a bilateral offer b/c bilateral Ks provide immediate
rights and protection for both parties.

c. Allow Acceptance by Act or Promise: Unless an offer expressly

limits acceptance to an act, the UCC and Restatement provide that
offer may be accepted by performing the requested act or by a timely
promise to do so.

7. Option Ks (4 types):

a. Express Option K
(1)An express option K is supported by consideration and also requires
mutual assent (I will pay you $10 for you to hold your offer to sell
me your car for $5,000 open for a period of one week).
(2)The effect is a Super Offer – it is resistant to revocation, rejection or
death.
(3)Normile v. Miller (1985): P receives D’s offer (w/time provision) to
buy P’s house. P made changes to offer, resulting in a counter offer
which D snoozed on accepting, thinking D had option K to accept P’s
counter within his time provision. In D’s lapse, P sold house to third
party. RULING: P wins b/c time provision did not become a part of
counter offer, and hence no option K, hence P had power to revoke
and sell to third party.

b. Unilateral Option K (§45)

(1) Unilateral Option K is created when a unilateral offer is following
by beginning (majority rule) or substantial (minority rule)
performance.

Knapp 6 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

(2)Unilateral Option K AROSE: Cook v. Coldwell Banker (1998): D

offers bonus program to realtor; P performs earning out of all
commission bonus levels; D changes terms after her performance
and refuses to pay P. RULING: P wins b/c once substantial
performance is rendered, offer cannot be revoked – P’s performance
constituted acceptance.
(3)Unilateral Option K DIDN’T ARISE: Petterson v. Pattberg (1928):
D owned P’s mortgage; D made unilateral offer for P to pay off
mortgage early at a reduced rate. P attempts to pay but D revokes
before P can pay & P sues for breach of K. RULING: D wins b/c P had
not BEGUN to perform when D revoked (i.e. did not lift his arm to
begin performance of paying). But CHANG thinks opinion is
incorrect.

c. Option K arising from Reliance (§87(2))

(1)If offeree relies on the offer to their legal detriment, an option K has
been created and can’t be revoked by the offeror.
(2)Law arose based on Drennan decision. Only applies to GC/SC
situation in which GC relied on SC’s bid, hence option K arose and
SC has no power to revoke. GC, on the other hand, has the power
to revoke or reject because they are offeree.

d. Option K arising by Statute (only applies to merchants who sell

goods)
(1)UCC 2-205: Firm Offers: offer by a merchant to buy or sell goods in
a signed writing which gives assurance offer will be held open is not
revocable (despite lack of consideration) during time stated, or if no
time stated, for a reasonable period of time – neither of which can
exceed 3 months.
(2)NOTE: 3 month period only applies to period of irrevocability – not
acceptance. Offeree CAN accept firm offer AFTER 3 months if
offeror hasn’t revoked.
(3)Government Ks: When a GC is making a bid to the government,
once the bids are open, GC may not revoke and an option K arises.

e. Option Ks can only be TERMINATED by the lapse of the term

(time) specified in the option K. If the offeror or offeree attempts to
revoke or reject during the period of the option K, the attempted
revocation or rejection is ineffective.

8. EXCEPTIONS TO MUTUAL ASSENT: the following can negate mutual

assent

a. Fraud: Reliance upon misrepresentation must be reasonable in order

for fraud to negate mutual assent.
(1)Park 100 v. Kartes (1995): P used misrepresentation to obtain D’s
signature on personal guaranty by disguising it within the lease
agreement. RULING: D wins b/c although a party must use ordinary

Knapp 7 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

care and diligence to guard against fraud (when relying on

another’s representation), the law will not ignore an intentional
fraud practiced on the unwary.

b. Duress: (“I’ll kill you if you don’t sign this K.”)

c. Mutual Mistake: If both parties err on the terms of the agreement,

the contract is not binding.

d. Rejected Unilateral Mistake: Under special circumstances,

unilateral mistakes can negate mutual assent (ex: mechanical
miscalculations).

e. Lack of capacity: the following parties lack capacity in entering Ks:

(1)Minors (under 18): minors can enter into a K, but a child can hold a
K against the adult but an adult cannot hold K against the child
(2)Mentally incapacitated: only if person’s mental capacity is so
deficient that he doesn’t understand the implications of the K.
(3)Extremely Intoxicated or Drugged: you must be drunk or
drugged to the point that you don’t understand the implications of
the K you are entering into.

(f) Illegality of K: If you enter into a contract for a good or service that is
illegal, the K cannot be enforced in court.

(g)Ambiguity of a term that goes to the heart of the K itself: If both

parties are innocent regarding an ambiguous K term, then the courts
will not punish anybody – just restore the parties back to their original
positions.

B. CONSIDERATION: BARGAINED FOR EXCHANGE: Consideration is a test

for enforceability of promises.

Consideration Test §71 (applied at the moment of K formation)

1. Promise made must be seeking the (exact) Return Promise or
Performance (act, forbearance, creation/modification/destruction of legal
relation)
2. Return Promise or Performance must be given in exchange for (or induced
by) the Promise.
3. Return Promise or Performance must be a legal detriment to the
Promisee.

1. Steps to identify consideration:

Knapp 8 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

a. Identify the promise the suing party is trying to enforce

b. Look for candidates for consideration (a return promise or

performance)

c. Can the return promise or performance be characterized as a legal

detriment to offeree (or legal benefit to the offeror)?

d. Was it bargained for?

2. Relationship between promise and return promise or

performance

a. Promise must be seeking the (exact) return promise or performance

b. Return promise or performance must be given in exchange for (or

induced by) promise
(1)Baehr v. Penn-O-Tex (1960): P leased gas stations to 3rd party
who assigned them to D; D promised to pay rents to P, but didn’t so
P sued D, claiming his consideration was his forbearance to sue D.
RULING: D wins because the court found that the forbearance was
not bargained-for.

3. Promisor is either seeking the performance or a return promise of

a performance

a. Performance (or return promise to perform) must take the form of:
(1)an act
(2)a forbearance OR
(3)the creation/modification/destruction of a legal relationship
(a) ex. marriage, separation, employer/employee, divorce,
adoption, doctor/patient

b. If it is hard to tell whether the promise is seeking a performance or a

return promise, the court will interpret the promise as seeking
promissory acceptance (the return promise to perform).

c. The forbearance of an invalid claim will count as consideration IF

the validity of the claim was uncertain due to facts or law OR IF
forbearing party believed the claim was valid (good faith forbearance).
(§74)

4. Return Promise or Performance must be a LEGAL DETRIMENT to

the Promisee

a. Legal Detriment When Party Gives up Legal Right: Ex.

Forbearance from an act the party has a legal right to perform.

Knapp 9 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

(1)Hamer v. Sidway (1891): Uncle promised nephew that if nephew

forbore in drinking, smoking, swearing & gambling, that uncle would
give him $5,000. RULING: Nephew wins b/c there was consideration
(forbearance by the nephew) even though it constituted no legal
benefit to the uncle because there was a legal detriment to nephew
because he had a legal right to drink, smoke, swear & gamble.

b. Legal Detriment When Party’s Position is Changed: A change in

(legal) position counts as a legal detriment.
(1)Ex. Employee retires after being offered a generous pension and
financially relies on pension. Company stops paying pension;
employee sues for breach of K; company asserts no consideration.
Since employee’s position has changed from being employed to not
being employed – that change of position counts as consideration to
enforce a breach of K claim.

c. Legal Duty (§73): If promisee is under a legal obligation or duty to

perform or promise in return, then no consideration
(1) Examples with legal duty (NO CONSIDERATION):
(a) Police: Officer is under a legal duty to catch criminals. If an
officer catches a criminal where there is a reward, the officer has
no K because there can be no consideration.
(2)Examples lacking legal duty (CONSIDERATION):
(a) Finding Lost Kitten: a good Samaritan is not under a legal
duty/obligation to find a lost kitten, so it does qualify as a legal
detriment
(b)MULTIPLE MOTIVES are OK. Ex. Just because you love pets
doesn’t mean that are under a legal duty to rescue them. As
long as one of the motives qualifies as a legal detriment, the act
can qualify as consideration.

d. Economic Benefit not Required

(1)Employee is offered a pension in exchange for a new position which
entails a high salary and increased responsibilities. Although new
position (because of higher salary) seems like a legal benefit not a
legal detriment, employee can argue that increased responsibilities
are a detriment and win.

5. NOT CONSIDERATION:

a. Donative or Gratuitous Gift Promises:

(1)A promises to pay B $5,000. If B gives up nothing, court will not
enforce A’s promise. These promises are often made by family
members and are informal.
(a) Dougherty v. Salt (1919): Aunt gave nephew promissory note
“for value rec’d” for $3,000 and nephew tried to collect against
estate. RULING: Estate wins b/c there was no consideration; note
was unenforceable donative promise lacking bargained for

Knapp 10 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

exchange (she didn’t want anything from him). NOTE: If note

said “in consideration for my nephew being good until he is 21”,
aunt would have to pay b/c his “being good” would qualify as
consideration. If note said “in consideration of my nephew being
good for the last 10 years”: aunt would not have to pay since
nephew’s performance had already taken place.
(2)EXCEPTION: If B relies on A’s promise to his legal detriment, he may
pursue a claim of Promissory Estoppel against A.
(3)Once a donative gift has been given, it is irrevocable.

b. Past Consideration: prior acts do not constitute consideration

(1)Plowman v. Indian Refinery (1937): Elderly workers are promised
a life long pension in light of their past service to the company &
after 2 yrs payments cease. RULING: Company wins b/c past
performance is past consideration and doesn’t qualify to enforce
promise of pension.
(2)NOTE: When promisor has been unjustly enriched with material
(significant) benefit previously received (ex. You saved my life so I
will pay you $1,000,000), a court will enforce the promise to pay
under Promissory Restitution.

c. Moral consideration:
(1)A promise motivated by a sense of honor or moral obligation is not
“valuable” because the bargain element is missing.
(a) Mills v. Wyman (1825): Promise by father to reimburse Good
Samaritan for expenses incurred in treating the final illness and
burying an adult child. RULING: Father wins b/c promise is not
enforceable – there was no bargain and moral obligation does
not count as consideration.

d. Mere Recital of Consideration:

(1)I’ll give you $1 for $500 – this is not consideration.
(2)Promissory notes fall under this category.

e. Conditions of Promise:
(1)The Tramp Hypo: Gentleman says to a tramp, “If you go around the
corner to the clothing shop there, you may purchase an overcoat on
my credit”. The act of going around the corner is a condition to
receive a gift, not consideration for a promise.
(2)Plowman v. Indian Refinery (1937): Elderly workers are promised
a pension in light of their past service to the company and assert
that obligation to pick up pension checks at personnel office counts
as consideration. RULING: Company wins b/c obligation to pick up
check is a condition of the a gratuitous promise and doesn’t count
as consideration.

f. Sham Consideration:

Knapp 11 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

(1)Court may declare that consideration given was a sham. It has the
form of consideration, but it’s really a pretense. Ex. Father wants to
give $1000 to his son. Son knows about contract law & says I will
give you $1 for the $1000 you are giving me so we have
consideration – but this is a sham.

g. Illusory Promise (§77) (empty promise)

(1)Return promise must have content – w/o content it is illusory.
(2)“I will forbear until I want the money.” (so party is really not
forbearing at all)
(3)In a bilateral K where both promises have content consideration is
double sided: Promise A supports Promise B AND Promise B
supports Promise A.

h. Adequacy of Consideration (§79)

(1)As a general matter, court will not look or inquire into the adequacy
of the consideration unless there is an obvious discrepancy, which
court may declare as a sham.

II. PROMISSORY ESTOPPEL / RELIANCE: A promise which is not supported by

consideration may be enforced if promisee justifiably relied upon it to his
detriment.

Promissory Estoppel Test:

1. Promise made and broken by promisor.
2. Promisee acts or forbears in reasonable or justifiable reliance upon the
promise.
3. Reliance was foreseeable by the promisor.
4. Injustice can only be avoided by enforcement of the promise.

A. General

1. You must rule out the possibility of a breach of contract claim first, before
you pursue a claim based on promissory estoppel.

2. Damages under promissory estoppel claims are less than under breach of
contract claims.

3. Most promissory estoppel claims fail. A party may be allowed to assert

such a claim, but judges often decide against them.

B. Promisee Acts or Forbears in Reliance Upon the Promise

1. Look for a “change in position”.

Knapp 12 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

a. Change in position does not have to be economically

detrimental: Employee is offered a pension in exchange for a new
position which entails a high salary and increased responsibilities.
Although new position (because of higher salary) seems like a legal
benefit not a legal detriment, employee can argue that increased
responsibilities are a detriment and win.

2. Reliance must be detrimental (substantial in nature).

3. Detriment must be caused by the promise.

a. Pitts v. McGraw-Edison (1964): Pitts was informed that the company

had retired him and would pay him a pension thereafter. RULING: Pitts
did not elect to retire on the promise of any payment, so he could not
recover under the doctrine of promissory estoppel because there was
no action taken by Pitts in reliance on the promise.

C. Reliance is Foreseeable by the Promisor / Inducement by Promisor

to Rely

1. Promisor should have known that his promise would induce the promisee
to rely on the promise.

a. Kirksey v. Kirksey (1845): D promised his sister-in-law, P, a house to

live in and land to farm after her husband died. P left her home (not
consideration, leaving was a condition not sought by the promisor) and
moved to the land, only to be thrown off later. RULING: Court sided
with D and decided no K had been formed. Case predated Doctrine of
PE/R – if decided today, P would have prevailed.

b. Shoemaker v. Commonwealth Bank (1997): Mortgagee told

mortgagor to renew her homeowner’s insurance or they would renew it
for her, which they did although they let it lapse months before home
was burnt to ground. HOLDING: Mortgagor wins b/c her reliance on
mortgagor’s action induced her forbearance to act.

D. Injustice Can Only Be Avoided by Enforcement of the Promise

1. Courts will only enforce the promise to the extent that the promisee is
returned to their original position prior to the promise being made.

2. Katz v. Danny Dare (1980): Since P didn’t want to retire despite his bad
performance due to job-related injury, D promised generous pension to
induce P to retire. 3 yrs later, D rehired P to work part time but then cut
pension in half. RULING: P wins b/c he relied on D’s promise to his
detriment (quitting in the first place – change in position).

E. History of Promissory Estoppel / Reliance:

Knapp 13 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

1. Doctrine of PE evolved out of court’s desire to enforce certain promises

despite their lack of consideration such as gratuitous promises to convey
land, gratuitous promises for someone to hold something (bailment),
gratuitous charitable promises, and gratuitous promises from family
members.

III. RESTITUTION/ UNJUST ENRICHMENT (In the Absence of a Promise)

A. In the absence of a contract or promise, when A has been unjustly

enriched at the expense of B, B can recover under restitution.

Elements of Unjust Enrichment:

1. The person has received a direct material benefit at the expense of the
other.

2. To overcome the presumption of gratuitousness, there must have been

an intent to charge, OR the benefit conferred must have been extremely
burdensome or onerous.

3. The enrichment must not have been imposed on the recipient. (Ex: violin
player in street).

4. The retention of the benefit by the beneficiary w/o compensation to the

benefactor would be UNJUST.

1. Watts v. Watts (1987): P & D were unmarried cohabitants w/ child. They

had joint bank accounts, same name, and P contributed to the wealth of
the relationship. Post-breakup, P sued D for restitution and breach of
an implied-in-fact K, claiming he was retaining the material benefits he’d
received from her. RULING: P wins on restitution claim b/c D’s retention
of the direct material benefits would be unjust. D’s “promise to take care
of her” may qualify as an “implied-in-fact” K.

2. Note: When parties are in a close relationship with one another, it is

generally assumed that any benefits were given gratuitously.

B. EMERGENCY SITUATIONS – PRESERVING ANOTHER’S LIFE/HEALTH

1. Test for Unjust Enrichment in the Emergency Situation of

Preserving Another’s Life/Health (§116): A person who confers a
benefit to save another’s life or health is entitled to restitution if:

a. He acted inofficiously – he did not impose his services on another.

b. He intended to charge (the person must have the expertise in that field
to perform the services, i.e., a doctor).

Knapp 14 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

c. The services rendered were necessary to prevent the other from

suffering serious bodily injury or pain.

d. The person would have consented to the service had they been in a
position to do so, and

e. Advance assent was impractical.

2. Ex. Doctor v. Victim: Doctor sees victim unconscious on the side of the
road & administers emergency treatment & victim survives. Doctor never
formally entered into a contract with Victim, but Doctor has a claim for
recovery of fees for her services (had the Victim been conscious to enter
into a K). Victim should not receive the benefits of these services for free,
so the court makes up a fictional K, a quasi-K, which is a K implied-in-
law.

3. An officious intermeddler is someone who acts without the request of

another.

C. EMERGENCY SITUATIONS – PRESERVING ANOTHER’S PROPERTY

1. Test for Unjust Enrichment in the Emergency Situation of

Preserving Another’s Property (§117): A person who has preserved
the property of another from damage or destruction is entitled to
restitution if:

a. He was in the lawful possession or custody of the things; i.e. he did not
cause the person’s property to be in a position of danger.

b. It was impossible to communicate with the owner of the goods before

the person saved them.

c. He had no reason to believe that the owner did not want him to act.

d. He intended to charge for his services.

2. Glenn v. Savage (1887): P saw D’s building material fall into river and
his crew rescued D’s property from being carried away. P’s services cost
$20 & P sued to recover $. RULING: D wins b/c this case was before
Doctrine of Restitution. Since D did not request P’s services in advance &
never offered to pay for them, P’s act was a voluntary act of courtesy.

IV. PROMISSORY RESTITUTION

A. Prior Benefit + Later Promise = Promissory Restitution

B. Promissory Restitution Test (§86):

Knapp 15 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

1. The promisor has been unjustly enriched by a benefit previously

received from the promisee.
2. The benefit was not given as a gift.
3. The promisor subsequently makes a promise in recognition of the
benefit.

C. The justification for giving relief is bolstered by a promise made after

the receipt of a benefit. This appears as “past consideration” and
recovery would be unattainable from a breach of K claim.

D. Where no pre-existing obligation exists, a subsequent promise can be

enforceable when the promisor receives a DIRECT MATERIAL BENEFIT.

1. Webb v. McGowin (1935): P seriously injured himself by physically

making sure a block of lumber didn’t fall on his boss (D). After saving D’s
life, D promises to pay P a pension for the rest of P’s life, but yrs later D
died and estate refused to pay. RULING: P wins b/c the direct material
benefit rec’d by D is sufficient consideration to support pension promise.

E. Promises to Pay Indebtedness:

1. Statute of Limitations (§82): When a debtor makes a subsequent

promise to pay an earlier unenforceable debt barred by the statute of
limitations, the promise is enforceable due to moral obligation and there
is no need for new consideration.

2. Bankruptcy (§83): When a debtor becomes bankrupt, the balance of

the debts are discharged and creditors are forbidden to collect. However,
moral obligation validates a later promise by the debtor to pay the
discharged debt.

F. When parties are in a close relationship with one another, it is generally

assumed that any benefits were given gratuitously.

V. OBLIGATION IN THE ABSENCE OF COMPLETE AGREEMENT

A. PRE-ACCEPTANCE RELIANCE: There are certain rare circumstances in

which an offeree has relied on an offer and changed her position in reliance
on the offer remaining open for her to accept, only to have the offeror revoke
his offer before she has made an acceptance. In these cases, the court may
limit the offeror’s power to revoke, giving the offeree the benefit of the deal.

1. Test for Pre-Acceptance Reliance:

a. An offer

Knapp 16 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

b. Offeror should reasonably expect to induce action or forbearance of a

substantial character on the part of the offeree before
acceptance

c. Action or forbearance that is substantial in character is taken before

acceptance by the offeree

d. Is binding as an option contract to the extent necessary to avoid

injustice.

2. Option K arising from Reliance (§87(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 K to
the extent necessary to avoid injustice. (Modeled upon Drennan decision).

a. Minority Rule: James Baird v. Gimbel Bros (1933): GC relied on SC’s

offer when making final bid to O. O accepted GC’s bid but then SC
revoked its offer and GC had to find another SC consequently paying a
much higher price. RULING (Hand): SC wins b/c GC’s bid to O did not
constitute a formal acceptance, SC was free to revoke; doctrine of
promissory estoppel applies to promises, not offers.

b. Majority Rule: Drennan v. Star Paving (1958): Same fact pattern as

Baird case. RULING (Traynor): GC wins b/c SCs expect their offers to
be used in GC’s bids and hence, GC’s reliance on bid was reasonable
and foreseeable.

3. Note: BE CAREFUL WHEN USING §87 (2). This has rarely been applied
outside of the SC bid to the GC context. Courts are reluctant to allow
reliance upon an offer to create an option contract unless you have a
similar scenario where an offer is made by A to B and A wants and
expects B to rely on it.

B. OPTION K IRREVOCABLE BY STATUTE: THE “FIRM OFFER”

1. Firm Offers (UCC 2-205): An offer may be made irrevocable by statute,

creating an option K when dealing with the sale of goods by a
merchant. 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 for the
stated time, or if no time is stated for a reasonable time, but in no event
may such period of irrevocability exceed three months.

a. Test for Firm Offer under 2-205:

(1)An offer to buy or sell goods

Knapp 17 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

(2)By a merchant

(3)In a signed writing

(4)Which gives an assurance that it will be held open during the time
stated, OR if no time is stated, for a reasonable time, but in no
event exceeds three months. Any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror.

2. UCC Definitions:

a. Goods (2-105): Goods means all things which are moveable at the
time of the contract for sale, investment securities, and things in
action. Goods also includes the unborn young of animals and growing
crops and other identified things attached to realty. Property is not a
good.

b. Merchant (2-104): A merchant is one who by trade deals with the

goods of the kind, OR someone who by their occupation represents
that he has the skill or knowledge in regard to the goods or the
transaction. Someone whose dealings in the goods is casual or
inexpert is not a merchant.

c. Time effective: A firm offer becomes effective the moment it is put

into writing (from that day forth).

d. Requirements K: where the buyer contracts to purchase only from

the buyer and no others.

e. Output K: where the seller contracts to sell only to the buyer and no
others.

f. “For valuable consideration” does not mean that valuable

consideration has been exchanged. A mere recital of consideration is
fine according to § 87 (1). But courts are very reluctant to adopt this. A
mere statement of consideration is not enough

3. Mid South Packers v. Shoney’s (1985): D agreed to purchase meats

from P & agreed on price. P promised 45 day notice of any increase in
price, but 4 months later P increased price w/o notice, which D refused to
pay. RULING: P wins b/c firm offer (not to increase price w/p notice)
lapsed after 90 days.

C. BATTLE OF THE FORMS: UCC 2-207 (See flow chart)

1. Common Law Rules

Knapp 18 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

a. Mirror Image Rule: Acceptance must be unequivocal and

unconditional; it must mirror the offer.
(1)Poel v. Brunswick Co. (1915) An offer was sent from P to D; D
responded with a PO that had the exact same terms except it asked
for acknowledgement. RULING: Pre-UCC court found that the
transactions between the parties did not meet the mirror image
rule, therefore no K.

b. Last Shot Rule: Whatever term is in the last communication before

performance becomes part of the K. If there’s an initial order, counter
offer, counter offer , then performance, then K is based on terms in
LAST counter offer b/c the other party performed in agreement upon
last counter offer.

2. UCC 2-207 (what to do with different or additional terms)

a. 2-207 (1) applies where there is an offer for the sale of goods and
where 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, unless acceptance is expressly
made conditional on assent to the additional or different terms.

b. Acceptance / 2-207 (2): Additional terms are construed as

proposals for addition to the K. Between merchants such terms
become part of the K unless:
(1)the offer expressly limits its acceptance to the terms of the
offer,
(2)they materially alter it, or
(3)notification of the objection to them has already been given or
is given within a reasonable time after notification of them is
received.

c. Counteroffer / 2-207 (3): Conduct by both parties which recognizes

the existence of a K is sufficient to establish a K although the writings
of the parties do not otherwise establish a K. In such case the terms of
the particular K consist of those terms on which the writings of the
parties agree, together with any supplementary terms incorporated
under any other provisions of the UCC.
(1)Test for Conduct: Are both parties acting as though there is an
agreement? (i.e., sending and cashing a check, sending and
receiving goods?)

3. Unless Rule & Express Assent:

a. In order to invoke unless rule, 2-207 requires you to says “our

acceptance is expressly conditional to your assent to these
terms”.

Knapp 19 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

(1)Brown Machine v. Hercules (1989) D’s employee sued P because

of injuries incurred with machine D bought from P. P’s form request
indemnity, D’s form was silent. RULING: D wins b/c there was no
express assent to indemnity clause and hence it did not become
part of K.

b. The following DO NOT qualify to invoke the unless rule:

(1)“Subject to” is not the same as expressly conditional upon your
assent.
(2)Acceptance expressly subject to all of the terms and conditions.
(3)Acceptance expressly conditional to all the terms on front and back
of this form.

c. What counts as express assent?

(1)Express assent = “I agree to that term.”
(2)Conduct does not count as express assent.

4. Material Alteration:

a. TEST: a term is a material alteration if it would produce unfair surprise

OR hardship. If term had a significant effect on each party’s risk, then
it’s likely to be a material alteration.

b. Dale Horning v. Falconer Glass (1990): D’s (SSC) error forced P (SC)
to spend extra $$ in order to meet GC’s deadline. RULING: P wins b/c
implied warranty of merchantability would materially alter the K and
would result in a hardship on P.

5. Notice of objection:

a. Majority Rule: Express notice of objection is required.

b. Minority Rule: If your term contradicts another term, that is an

objection. (All different terms contradict a term in the offer though, so
there’s always a prior objection. If notice of objection always applies,
then the offeror’s terms always control.

6. Different Terms (3 approaches):

a. Minority Rule: Treat different terms like additional terms.

b. Leading Minority Rule: The offeror’s terms control.

c. Majority Rule: Knockout rule: Any terms that differ between forms get
knocked out of K.

7. Oral Agreements followed by Written Confirmations:

Knapp 20 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

a. DIFFERENT / CONFLICTING TERMS: If confirmation includes a different

or conflicting term (compared to oral K), it does not become part of K
(because it is not what was expressly agreed upon).

b. ADDITIONAL TERMS: If confirmation includes an additional term (to the

oral K), apply 2-207(2).

c. Note: Terms are compared from oral K to written confirmation – not

between written confirmations.
(1)EXCEPTION: Oral K followed by 2 written confirmations:
(a) Oral K is silent on a term but both confirmations include the
same term. Even though technically each is an additional term to
oral K, since they coincide and oral K was silent, the term
becomes part of K.
(b)Majority Rule: If Oral K agreed on 1% interest, but both
confirmations say 1.5%, what you orally agreed upon should
override what forms say even if forms agree with each other.
(Chang agrees w/ majority.)
(c) Minority Rule: Other courts say even though you orally agreed
upon it, since forms agree, we’ll make it 1.5%.

8. Gap Fillers: Default rules or provisions (most are found in the UCC).

a. Warranty (UCC 2-314): implied warranty of merchantability

b. Arbitration: no UCC gap filler for arbitration

c. Consequential Damages (UCC 2-715): Seller is liable for any

consequential damages (ex: during shipping) which seller could have
reasonably prevented.

D. Agreements to Agree

An Agreement to Agree includes:

1. one or more terms left to a future agreement
2. parties contemplate a formal written K and draft a “letter of intent”

1. Agreements to agree are not enforceable.

a. Walker v Keith (1964) Renewal provision in lease K didn’t specify

rental amount nor a finite method for determining one. RULING: An
agreement to agree is not enforceable and court refused to make up a
term that parties didn’t agree to.

VI. STATUTE OF FRAUDS (SOF)

Is K within SOF? (LOGS)

1. Land

Knapp 21 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

2. One Year Provision

3. Goods: UCC 2-201
4. Suretyship

If no, SOF defense not applicable. If yes, have the requirements of SOF been
met?

Requirements:
1. written memorandum evidencing agreement
2. identifying parties & subject matter
3. containing material terms & conditions
4. signed by party to be charged

If requirements have been met, SOF defense not applicable UNLESS there is an
applicable exception. If requirements have not been met and there is no
applicable exception, SOF defense is applicable.

A. SOF is a defense to K enforcement. If an SOF defense is applicable,

K cannot be enforced.

1. Policy: to minimize the likelihood of fraud being successful. Con is SOF

has the potential for denying enforcement of many nonperjured and
nonfraudulent claims as well.

2. REQUIREMENTS:

a. Written memorandum evidencing agreement.

(1)Writings need not be executed at time of K formation. K formation

could occur, then memo is written and signed after to memorialize
it.
(2)So long as there is a sufficient connection between pieces of
writing, they can be bunched together.
(a) Strict jurisdictions require signed writing refers to unsigned
writing (before they will bring in unsigned document).
(b)Lenient jurisdictions (such as Crabtree) hold that reference to
same subject matter or transaction is sufficient. Crabtree v.
Elizabeth Arden: P produced evidence of several writings that
created all of the elements to satisfy the statutes requirement of
evidence of an agreement in writing. The writings identified the
parties and subject matter. RULING: P wins b/c all of the writings
together could satisfy the elements of the requirement for the
SOF.

b. Writing must identify parties & subject matter.

c. Writing must contain material terms & conditions.

Knapp 22 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

d. Writing must be signed by party to be charged.

(1)Party to be charged is the person against whom K
enforcement is sought. (In most cases, this is the D being sued.)
(2)Signing must be by the person who is asserting the SOF as a
defense. Not all parties must sign. Signature requirement is intent
to authenticate. Use of company letterhead can satisfy
requirement (even if it’s unsigned) if it shows an intent to
authenticate. Letterhead on it’s own is not enough.

B. GENERAL EXCEPTIONS: If an exception applies, SOF fails as a

defense.

1. Equitable Estoppel (reliance on a misrepresentation of facts).

Statement, “There is a writing”, or “There will be a writing,” that is
reasonably relied upon.

2. Promissory Estoppel: Promise to put it in writing that is reasonably

relied upon.

a. Narrow view: I will not use SOF or I will produce a signed writing.

b. Broad view (§139): PE (foreseeable reliance on K) can negate SOF

defense. Remedy will be limited as justice requires.

c. Alaska Democratic v. Rice: Breached oral K w/D was reasonably

relied upon by P to her detriment. P proves 1 year provision w/ part
performance (quitting her job and moving). RULING: P wins b/c
Promissory Estoppel is an exception to SOF defense.

d. Not all jurisdictions follow §139.

C. LAND

1. Definition: Any K for a sale of interest in land (leases included).

2. Clause Specific Exception: If an exception applies, SOF fails as a

defense.

a. Part Performance
(1)Payment alone: most courts say no.
(2)Possession alone: some courts yes, many courts say no.
(3)Payment + Possession: some courts yes, some courts say no.
(4)Possession + Improvements: enough to constitute exception.

b. Buffaloe v. Hart: P had oral K to purchase 5 tobacco barns from D. P

sent D first payment of $5000, which D then returned, completely torn
up. RULING: P won b/c although court found that the check did not
satisfy the SOF because the writing was not signed by the party upon

Knapp 23 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

which enforcement was being sought, court found that P satisfied the
partial performance requirement of the SOF b/c he made a partial
payment, sold the property to others, advertised the sale, paid the
insurance premiums.

D. ONE YEAR PROVISION

1. Definition: K that cannot be fully performed w/in one year falls

within one year provision.

a. One year begins from K formation not from the beginning of

the term of K.

b. Short term leases (one year or less) are only under one year
provision – not under land.

c. NOTE: Unilateral K formation takes place AFTER full

performance.

d. FULL PERFORMANCE: Termination or excuse DO NOT EQUAL full

performance (majority rule). If it might be terminated within one year,
it’s not fully performed, so it’s within SOF.
(1)If language doesn’t specify that K will be terminated if X,
then X’s occurrence will be an excuse.
(2)Doesn’t matter offeror or offeree – BOTH performances have to
capable of completion within one year.

e. ALTERNATIVE PERFORMANCE: K for A or B. A can’t be performed in

a year but B can be = out of SOF.

2. Clause Specific Exception: If an exception applies, SOF fails as a

defense.

a. Part Performance: Full performance by one party

(1)Winternitz v. Summit Hills: D reneged on oral K to renew the
lease. P had paid new higher rent and relied on ability to assign
lease to new buyer. D asserted SOF, but P asserted part
performance. RULING: P loses b/c he was suing for compensatory
damages & part performance exception is only available for specific
damages.

E. GOODS – UCC 2-201

1. Definition: UCC 2-201: SOF for sale of goods greater than or equal to
$500.

Knapp 24 5/12/2011
 Contracts Outline Prof. Chang Fall 2002

a. It’s ok if writing incorrectly states a term, although it must include the

quantity of items being sold. K will only be enforced to the quantity
included in writing.

2. Clause Specific Exceptions: If an exception applies, SOF fails as a

defense.

a. 2-201(2) Merchants Exception: not tested on midterm. (Bazak v

Mast)

b. 2-201(3): Three parts:

(1)Specialty manufacturing / custom made goods
(2)Admission in testimony
(3)Part Performance – payment or shipment.

F. SURETYSHIP

1. Definition: A promise to a creditor to guarantee or pay another’s

obligation.

2. Clause Specific Exception: If an exception applies, SOF fails as a

defense.

a. Main Purpose/Leading Object: If it can be established that the main

purpose of making the promise (or suretyship) is for the promisor’s
benefit, then it is an exception to SOF and defense fails and K can be
enforced.

Knapp 25 5/12/2011