Contracts I Outline Fall 2007

Text: Studies in Contract Law, Sixth 6th Edition, Murphy, Speidel, Ayres (2003) • When approaching a contracts question, first ask what is the applicable law? o If for sale of goods, look at UCC o Otherwise look at the common law (case law, then R2k) Afterward, look at formation of the contract o Offer o Acceptance o Consideration o Intent to be bound o Promise Then look at the terms of the contract Then look at performance Then look to see if performance excused in any way

• • •

Promise I. The Restatement (2nd) on Promise, Agreement and Contract Defined • §1 - A contract is a promise for the breach of which the law gives a remedy, or the performance law recognizes as a duty. • §2 – A promise is manifestation of intent to act or forbear, made so promisee understands a commitment has been made. • §3 – An agreement is a manifestation of mutual assent. A bargain is an agreement to exchange promises or performance. • § 4 - A promise may be oral or written, or may be inferred from conduct. • §5 – (1) a term is part that relates to a specific matter II. UCC - Definitions a. §1-201 (3) - "Agreement" –the bargain of the parties as found in their language or by other implications from custom or conduct. b. §1-201(11)"Contract" means the total legal obligation of the parties. c. §2-103 – (1) Buyer - person who buys or contracts to buy goods, (2) Good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade, (a)"Receipt" of goods means taking physical possession of them. (b)"Seller" means a person who sells or contracts to sell goods. d. §2-106(1) – "contract" and "agreement" limited to the present or future sale of goods. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price. A "present sale" means a sale which is accomplished by the making of the contract. e. §2-102 – UCC article 2 applies to transactions in goods f. §2-105 – Definitions i. "Goods" – are all movable things, other than money, investment securities, and things in action. ii. "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract. iii. "Commercial unit" means such a unit of goods as by commercial usage. Can be a single unit, but also can be a set of articles if necessary.


Contracts I Outline Fall 2007

g. §2-104. Definition of merchant – a person who deals in goods, or by his occupation holds himself to have knowledge or skill of specific goods or practices h. §2-209(1) an agreement modifying a contract needs no consideration to be binding.


Contract is an enforceable Promise (not all promises are enforceable) a. Bailey v West– No implied in fact contract b/c no agreement since he didn’t know who he was making contract with; no intent from D; no previous dealings. Implied in fact Contract formed by manifestations of assent, other than language. Intention can be proved by words and/or conduct. No quasi contract. Quasi contract is not a contract. Created by courts to avoid unjust enrichment (to do justice), although the parties did not intend to be bound. Permits plaintiff to recover the benefit the defendant rec’d. It requires: i. a benefit conferred upon defendant by plaintiff (D didn’t want horse) ii. appreciation by defendant of such benefit, and (D didn’t know) iii. retention by defendant of such benefit under circumstances that it would be inequitable to retain benefit without payment of value thereof. (P suffered detriment, but P rec’d no benefit). iv. Generally, there is no legal duty to pay compensation for performance rendered without request thereof. (D didn’t request, P volunteer)

b. Bolin Farms v Cotton – Parties intended to be bound. Rest §2 says A promise is a

manifestation of intention. Intent to contract is required to enforce a contract. The contract's validity and enforceability was upheld, even if there are unforeseen events (since parties are well-informed of all risks when entering into fwd contracts).

Consideration Elements of Consideration I. Bargained For and Given in Exchange –

i. Detriment induces the promise (promisor bargains for detriment in exchange for

ii. Promise induces a detriment (promisee acts or forbears b/c of the promise, there
must be knowledge of the promise)

iii. Legal Detriment to the promisee or benefit to the promisor. • •
Restatement §17 – Formation of a contract requires a bargain, where there is a manifestation of mutual assent to the exchange and a consideration. Restatement §71 – To constitute consideration, a performance or return promise must be bargained for. This is done only if it is sought by the promisor in exchange for his promise, and is given by the promisee in exchange for that promise.

Restatement §75 – a promise is consideration, but only if the performance promised would be consideration.


Contracts I Outline Fall 2007

iv. Langer v. Superior Steel Corp – Consideration here, not a gift; the promise
($100/mo) induced the detriment (forbears from legal right to work from competitor). So, there was a detriment to promisee and benefit to promisor (former employee wouldn’t work for competitor).

v. Bogigian v Bogigian - No consideration b/c the signed release was not
bargained for (must have been offered by one party and accepted by another – the signor didn’t know what she was signing).

b. Gift – not enforceable because there is no consideration. i. The act or forbearance by the promisee must be a benefit to the promisor –
it’s not enough that the promisee’s incurs detriment; the detriment must be the price of the exchange. If the promisor’s motive was to induce the detriment, it will be treated as consideration.

1. Kirksey v. Kirksey – Though there was detriment to promisee (giving up
her land & moving), her detriment gives nothing beneficial to the promisee, which is a condition for consideration. (Could use promissory estoppel here, but the theory was not used at the time.)

ii. The benefit to the promisor doesn’t have to be an economic benefit. Peace of
mind, or gratification that promisee did or didn’t do something is sufficient.

1. Hamer v Sidway (vices) – Consideration here, not a gift; the promise
($5k) induced the detriment (forbears from legal right - vices). So, there was a detriment to promisee and benefit to promisor (satisfaction). Promisor’s benefit doesn’t have to be an economic benefit, as long he got what he wanted. iii. Mixed Motives

1. Thomas v Thomas (dying wish) – There was a promise (fulfillment of
brother’s dying wish for widow to have home), and there was a consideration (she paid £1/yr & kept home in good shape). The motive was for it to be a gift, but it didn’t matter because there was a valuable consideration, even if it was not bargained for.

a. Restatement § 81 – Consideration as Motive or Inducing
Cause: (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. (2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.


Contracts I Outline Fall 2007

iv. UCC §2-203: Seal inoperative. The seal is no longer used to enforce a
contract/writing, just because it had a seal affixed. The writing/seal would still have to show consideration. II. Legal value – that which is bargained for must constitute a benefit to the promisor or a detriment to the promisee.

a. Adequacy of Consideration – If there is consideration courts will normally not look into
the adequacy of it. Freedom of contract; laissez-faire attitude (Peppercorn Theory).

i. Haigh v. Brooks (paper) – There was a promise (to pay £9995), and CS (paper
of guaranty). There was a bargain, and thus it shows D had value assigned to the paper, that he would bargain for it. Value of what is exchanged is established by the value the party places on it; this is sufficient for consideration.

ii. Apfel v. Prudential-Bache Securities, Inc. (novelty) – There was a promise
(P to pay for the technique) and there was consideration (D telling them the technique). Showing of novelty is not required to validate the contract for purchase of idea, only that the idea is valuable. There was a bargain, and P got value out of it.

iii. Fiege v. Boehm (baby mama) – There was a promise (to pay childbirth costs)
and consideration (forbearance from pursuing legal claims). Forbearance from pursuing legal claims counts as valuable consideration, even if the legal claims are no longer valid, as long as at time K was made, there was good faith & reasonable belief that she could pursue those legal claims.

b. However, courts may still look into the adequacy of consideration if they think there is an
objective disparity. The purpose of consideration is to police unfair bargaining - to ensure that promise has not been extracted by unfair illegitimate means.

i. Jones v. Star Credit Corp. (freezer) – The CS (the price paid for the freezer),
was unfair. K unconscionable b/c unequal bargaining power. Under UCC-2302, court may refuse to enforce K if unconscionable.

1. § 2-302. If K unconscionable at time it was made, court may refuse to
enforce it, or part of it, or limit its application so as to avoid an unconscionable result. Purpose of this provision is to prevent oppression and unfair surprise. It is a defense to enforcement. ii. Token consideration – where the consideration is something minimal, or of no value, courts say it indicates that this was a gift. iii. Nominal or sham consideration – where the consideration was $1 or sum insignificant sum. Many times, this amt is not paid, and never intended to be paid.

1. In Re Green (illicit) – Promise (to pay per K), made in consideration of
(1) release from illegal promise of marriage, (2) for past illicit relationship (past CS no good), (3) $1 CS (nominal), and (4) other CS (didn’t exist).

Contracts I Outline Fall 2007

Although parties intended to be bound & make valid agreement, if there’s no valid CS, there’s no K. a. Restatement §71 Comment(b) “[…] a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal


Preexisting Legal Duty – A preexisting, enforceable duty cannot count as consideration for the purposes of contract formation (and is thus not binding)

a. UCC §1-107 - Waiver or Renunciation of Claim or Right after Breach. - Any claim or right
arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

i. Levine v. Blumenthal (sweep) – There was a K. There was a new promise
(landlord to accept less rent), but no consideration for the new promise (like sweeping); there was a preexisting duty from original K to pay what they did pay. A new or different CS is necessary to make a change to an original contract binding; it is immaterial how slight the change is

ii. Alaska Packers’ Association v. Domenico (salmon) – There is a K; then a
new promise is made, but no CS, b/c there was a preexisting duty from original K.

b. Existing debt - payment of smaller sum than what is due is not sufficient as consideration
for relieving the debt (if debt is $1k and agreement to only pay $500, this is not consideration, debtor can still enforce for $1k). However, if the consideration is in any way new or different, then ok (like paying earlier). c. Modification

i. Angel v Murray (garbage) – There is a K. New promise due to unforeseen
events, but no new CS. R2K 89 – modification ok. Modern trend recognizes necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance of a contract, even though there is no CS for the modification, as long as parties voluntarily agree, it is fair, and made in good faith. 1. Restatement §89 – Modification of K - 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; or b. To the extent provided by statute; or c. To the extent that justice requires enforcement in view of material change of position in reliance on the promise. d. 5 ways to avoid preexisting duty rule:


Contracts I Outline Fall 2007

i. Terminate old K; make new K ii. New or additional CS iii. UCC § 2-209 - no CS needed to if waived iv. R2K § 89 - if the modification is fair, it's enforceable v. Full performance of modification, complete transfer (including payments already paid)


Mutuality of Obligation – Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory. An agreement where one party has been bound but the other has not lacks mutuality, since at least one of the promises is “illusory.” Without mutuality of obligation there is no consideration because consideration is a promise bargained for and given in exchange for a promise. Only applies to bilateral, not unilateral contracts.

i. Rehm-Zeiher Co. v. Walker Co. (whiskey, discretion) - K to sell goods
(whiskey). Discretion up to P if for any “unforeseen reason” they couldn’t complete the K, & therefore not liable for breach. If one party is not bound to the contract because of the terms of its agreement, then the contract has no mutuality of obligation, and is therefore not enforceable.

b. Mutuality can still be found to exist in certain situations even though the promisor has
some choice or discretion. Here, CS exists. Promisor is suffering a legal detriment; he has parted with a legal right to buy (or sell) the goods he may need (or manufacture) from (or to) another source.

i. Requirements contracts - promises to buy all that I will require ii. Output contracts - promises to sell all that I manufacture 1. If you fail to state qty under the UCC (2-201) then the contract will fail for
indefiniteness; the exception is requirements and output contracts. However, the quantities subject to these contracts may not be unreasonably disproportionate to what is expected.

iii. McMichael v. Price (sand, requirement K) –Buyer will buy all that seller can
sell, provided good quality (output K). Although there is some discretion, buyer has a good faith obligation so would still be liable for breach. If both parties can be held liable for breach of contract, then mutuality of obligation exists and the contract is enforceable (UCC §2-306(2).

1. UCC § 2-306 (2): A lawful agreement by either the seller or the buyer
for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.


Contracts I Outline Fall 2007

iv. Wood v. Lucy, Lady Duff-Gordon (fashions) – K where P has “exclusive right”
to make profit for D. K doesn’t specify P’s duties. A contract does not necessarily have to explicitly state the duties of the parties that are needed for mutuality, as long as you can imply a duty of good faith from terms of the contract (exclusivity), and from the parties’ actions (UCC §2-306(2)).

v. Omni Group, Inc. v. Seattle-First National Bank (Feasibility report) – K
where sale of property conditional on a P’s satisfaction based on feasibility report. Although K conditional on P’s discretion, Omni is acting in good faith (can only cancel K if not satisfactory- can be determined through evidence), if not will be in breach. Making a promise dependant on a condition does not necessarily make it illusory (unless discretion is absolutely reserved to promisor), because the promisor is assumed to be acting in good faith.


Moral Obligation: Promise plus Antecedent Benefit - Past or Moral Consideration is not sufficient to satisfy the “bargain” requirement. It was not given in exchange for the promise when made.

a. Restatement §86 – (1) promise made for past benefit (CS) binding only to extent
necessary to prevent injustice, (2) A promise is not binding if (a) intended to be a gift or promisor hasn’t been unjustly enriched, or (b) to extent that value is disproportionate to the benefit.

b. Mills v. Wyman (sick son) – Father only has moral obligation to pay for, but no legal
duty. Father had only a moral obligation to pay, no legal duty. Moral obligation in the absence of material benefit to the promisor is not sufficient consideration.

i. A moral obligation may only form consideration for an express promise in three
cases (none of these were the case here, so cannot be used): 1. Debts barred by statute of limitations

2. Debts incurred by kids (son was 25)
3. Debts previously discharged by bankruptcy

c. Manwill v. Oyler (free land) – P paid for D’s land, and gave D land. P later promised to
pay. Past or moral CS not sufficient to support a K, and no other CS existed. Also, P failed to prove he reasonably expected to be compensated, so it looks like a gift.

d. Harrington v. Taylor (my hand! axe) – P butted her nose (or hand) into domestic
fight. Injured hand. D promises to pay P. A voluntarily performed humanitarian act is not a legally recognized consideration for a later promise.

e. Webb v. McGowin (hero employee) – P saves employer, who later promises to pay P.
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.


Contracts I Outline Fall 2007

i. Use of the “material benefit” rule: if you get a direct antecedent benefit, it is
sufficient consideration for a subsequent agreement to pay for the service.

ii. Direct material (antecedent) benefit + moral obligation + Subsequent promise =
consideration. f. Exceptions: i. If a past obligation would be enforceable except for some technicality (like statute of limitations), the courts will enforce a new promise if it is in writing or has been partially performed. ii. If acts have been previously performed by promisee, at the promisor’s request, a new promise will be enforceable. Also, sometimes unrequested acts ok if rendered during an emergency iii. Most courts will apply the terms of the new promise, not the original.


Promissory Estoppel: Promise plus Unbargained-For Reliance – Promise w/ no CS, but reliance. The greater the strength of commitment by promisor, the greater the reliance of the promisee.

a. Restatement §90 –
(1) a promise is enforceable to the extent necessary to prevent injustice if: 1. The promisor would reasonably expect to induce action or forbearance 2. the promisee reasonably relied on the promise; and 3. the promise induced such action or forbearance (2) A charitable subscription or a marriage settlement is binding without proof that the promise induced action or forbearance.

b. Ricketts v. Scothorn (grandfather) – Promise to pay induced P to quit her job. A

promise can be enforceable without consideration, if the promisee has acted in reliance to their detriment. c. Feinberg v. Pfeiffer Co. (sick old lady) – Promise to pay pension (gift) for past loyalty. Induces detriment to P (she retired early & didn’t look to work anywhere else, then she got sick & couldn’t work). Reasonable reliance, promissory estoppel. d. Grouse v. Group Health Plan, Inc. (interview) – The promise (for a job) induces reliance (P quit job; declined another; lost $). Promissory estoppel – P’s reliance reasonable & foreseeable, and induced detriment. Note: “at will” so he could be fired at any time, but employer must have given him an opportunity. e. Cohen v. Cowles Media Co. (candidate) - Promise of confidentiality induced P’s disclosure. EP. The reporters expected to and did induce Cohen’s disclosure, and some remedy is necessary to avoid injustice. Even though there’s no intention to K, there’s an intention to induce reliance.


Contracts I Outline Fall 2007

f. All-Tech Telecom, Inc. v. Amway Corporation (telecharge warranty) – There was g.
a K, no warranty though (mere puffing). Cannot go with EP b/c a K exists. Alleghany College v. National Chautauqua Bank of Jamestown (charity) – Promise to give to charity. There was CS (college had to name in her honor), and college had a duty b/c already partially paid. Don’t need EP here, but R2K§ 90(2) – a charitable subscription is binding without proof that a promise induced a detriment.


Contracts I Outline Fall 2007

Statute of Frauds – requires certain K to be in writing I. Does the contract fall within the statute of frauds? (not all contracts do) a. If yes, then look at the requirements of the statute of frauds. Are these requirements satisfied? i. Must be in writing ii. Must be signed by party against whom enforcement is sought (defendant) iii. Must indicate that a contract has been made iv. For non-goods - Must say with reasonable certainty the essential terms of unperformed promises v. For goods – specify the term of qty (see exceptions under UCC §2-201) vi. Can also be satisfied by full performance b. Is there a statute of frauds defense? Defense against enforcement of this type of agreement. II. What is covered under the statute of frauds? (MYLEGS – Marriage, Year, Land, Executor, Goods, Surety) a. Marriage - promise in consideration of marriage (something more); something to do in addition to promise to marry b. Year - Service contract not being able to be performed one year from the making of the contract c. Land - Real estate transfer - lease/mortgage - usually that go on for more than 1 year d. Executor - executor paying expenses out of own pocket e. Goods - Sales of goods for $500 or more (changed to $5000, but no state has adopted this $5k threshold). (see also UCC §2-201 contracts for sale of goods) f. Surety - Promises to answer for debts of another (guarantor). Not just promise to pay, but promise to pay if someone else does not (exception: if promise benefits the promisor) III. The “One Year” Clause - There must not be the slightest possibility that the service can be fully performed within one year for Statute of Frauds to apply. a. Restatement §130. Contract Not to Be Performed Within a Year i. Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance. ii. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties. b. North Shore Bottling Co. v C. Schmidt & Sons, Inc. (MYLEGS goods) – oral service K, defense invoking SOF. K allowed termination of K within a yr of formation. SOF doesn’t apply b/c allowing discontinuation at any time meant that performance within one year was possible. c. Crabtree v Elizabeth Arden Sales Corp (memo; payroll) – K for service for 3 years; SOF applies. Unsigned memo stating terms + (2) signed payroll records supporting memo. Sufficient under parole evidence b/c all refer to same transaction, so connection can be made . IV. Contracts for the Sale of Goods a. UCC §2-201 (Exception to the Statute of Frauds) i. For goods $500+ (says $5k, but no state has adopted that amt yet), falls under statute of frauds. Needs writing, signed, etc. Says a record is not insufficient if it omits or inaccurately states a term agreed upon, but contract only enforceable for qty of goods shown in the record.


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ii. Btwn merchants – doesn’t need to be in writing if record of confirmation rec’d in reasonable time, as long as receiver has reason to know of its contents, and unless receiver sends notice of objection to sender within 10 days after rec’d. iii. A contract can also be enforceable (& does not satisfy section 1) if: 1. For specially manufactured goods, not good to sell to anyone else, and the seller has reasonably begun a substantial part of the manufacture, or process to manufacture. 2. If defendant admits to the contract (in testimony or under oath), but only enforceable for qty of goods admitted 3. For goods where payment made & accepted or rec’d & accepted iv. A contract enforceable under this section is not unenforceable just b/c it can’t be performed within one year or any other period of its making. b. Note: Electronic “writings” sufficient under Statute of Frauds. Now, they use the word “record” instead of “writings.” Effect of Noncompliance – If an oral contract falls within the statute of frauds, but the requirements of the statute not met, the contract is not void, just unenforceable. a. DF activities corp. v Brown (chair) – Sale of goods over $500, SOF applies. Oral contract, SOF not satisfied. P wants to use UCC§ 2-201(b)(2) (if parties admit, doesn’t have to be in writing), wants jury trial to prove there was a K. But improbable D would admit to perjury by changing statement during trial. So since SOF not met, and no exceptions met under 2-201, not enforceable. b. Restatement §139 (similar to §90) Courts haven’t really upheld this yet.*** i. A promise that reasonably induces reliance is enforceable despite not having satisfied the Statute of Frauds, if injustice can be avoided. ii. To determine if (i) has been met, courts will consider: 1. the availability and adequacy of other remedies 2. the definite and substantial character of the action or forbearance in relation to the remedy sought; 3. if the action or forbearance is directly resulting from promise 4. the reasonableness of the action or forbearance; 5. the extent to which the reliance on promise was foreseeable c. Restatement § 140 - The Statute of Frauds does not invalidate defenses based on the plaintiff's failure to perform a condition of his claim or defenses based on his present or prospective breach of the contract he seeks to enforce.


Contracts I Outline Fall 2007

The Agreement Process: Manifestation and Mutual Assent I. Ascertainment of Assent: The “Objective” Test – Subjective test previously used, but could lead to problems, and court starts using (cautiously) the objective test. "It is not the meeting of the minds of the parties, but the expression of their mutual assent that *** is the culmination of the contract-making process***." a. Restatement § 18 - Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. b. Embry v Hargadine, McKittrick Dry Goods (Get your men out!) – P makes promise but didn’t intend to. The subjective intent of def doesn’t matter; it’s the objective intent that determines whether or not a contract was made. President may not have intended to form a contract, but in the context of the conversation, a reasonable man would understand it as a contract. c. Lucy v Zehmer (drinking) – K formed while friends out drinking. Does not matter that Zehmer was joking or not, but only that a reasonable person would believe a contract was made, and Lucy did not know it was a joke (reasonable for him to believe K formed). i. Restatement §21 - Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. d. Cohen v Cowles Media Company (candidate) – if nobody’s intending to be bound, then both parties can walk away without liability.

e. Restatement §22 - (1) the manifestation of mutual assent to an exchange ordinarily
takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.


Offer: Creation of Power of Acceptance a. To distinguish whether an offer or not (LARD) i. Language used ii. Addresses – if indefinite, less likely to be an offer (ad); if specific, more likely iii. Reasonable person standard (what would reasonable person think) iv. Definiteness of proposal (the more definite, the more likely to be an offer) b. R2K §24 – An offer is a manifestation of the offeror’s willingness to enter into a bargain, and gives the offeree power of acceptance. c. R2k § 26 – the manifestation is not an offer if offeree knows or has reason to know that offeror doesn’t intend to conclude bargain until offeror makes further manifestation of assent (comment b - generally, advertisements are not offers. You would have the burden to prove they are). d. R2k § 30 – The offeror may stipulate any manner of acceptance he chooses. If offeror doesn’t specify, then an acceptance should be reasonable under the circumstances. e. R2k § 32 – an acceptance can be by promise or performance f. R2k § 33 – (1) even if manifestation is intended to be an offer, it won’t be legally enforceable if the terms are not certain. (2) terms are reasonably certain if they provide a basis for determining the existence of a breach & for giving appropriate remedies (3)when one or more terms are left open or uncertain, it may show that it was not intended as an offer.

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g. Lonergan v Scolnick (land sale by mail) – No K b/c offers must be sufficiently
clear and definite to count. Offers cannot be too ambiguous, they must be really obvious (fixed purpose test). The ad was a request for an offer (rest. §26), and the letter only gives additionally info, with no definite offer (too vague – rest. §33), only a warning that plaintiff needed to act fast. It was still in negotiations, not an offer yet. h. Lefkowitz v Great Minneapolis Surplus Store (fur coat) – ad, “first come, first serve”, was an offer b/c requires specific performance. 1st ad too indefinite (no price), so unenforceable. 2nd ad sufficiently definite, so enforceable. i. Leonard v Pepsico (Jet) – Ad for exchange of pepsi point for jet. A reasonable person would know it was a joke. Ad too indefinite. No acceptance of payment. j. Southworth v Oliver (neighbor) – It was an offer b/c letter incl. # acres, price, payment method, sufficiently detailed. Definite, and the objective intent was to sell the land, where a reasonable person would believe he had the power to accept. k. Bretz v Portland General Electric (don’t count your eggs) – Language in the offer (receptive to an offer) intended further negotiations ony. P unreasonably relied. l. Equitable Life Assurance Society of U.S. v First National Bank (auction) – Auction ad doesn’t specify w/o reserve, so revocable be4 auction ends. i. R2k §28 – at an auction, unless a contrary intention is manifested, (1) the auctioneer invites offers which he may accept or reject, (2) if made w/o reserve, goods cannot be withdrawn unless no bid made in reasonable time, (3) if w/ or w/o reserve, bidder may withdraw his bid until time when sale is completed, but bidder cannot revive bid once its been retracted. (4) bids embody terms made known by ads, and bidders should be aware of this. Acceptance: Exercise of Power of Acceptance a. Acceptance by Promise i. La Salle National Bank v Vega (trustee signature) – Offeror master of the offer. If someone does not have the power to ultimately accept, it is not an offer. When the language of the offer governs the mode of acceptance, no other mode may be used. Offer specifies trustee must sign offer, not signed, offer not enforceable. ii. Hendricks v Behee (revokation communicated to agent) – D revoked offer before acceptance communicated. Acceptance of the offer is effective upon it leaving your possession (mailbox rule). Until acceptance is communicated to offeror, offeror has power to revoke. iii. Ever-Tite Roofing v green (part-performance) – K didn’t specify manner to accept, so can be by performance or promise. Part-performance rendered, so acceptance made be4 revocation was communicated. Reasonable time standard is used when the contract does not specify the amount of time for acceptance. 1. Restatement § 62 – (1) if acceptance can be made by promise or performance, beginning of performance is an acceptance; (2) such an acceptance becomes a promise for complete performance. iv. UCC §2-206 - Offer and Acceptance in Formation of Contract. 1. (A) Offer to K invites acceptance in any manner reasonable unless offer says otherwise (B) offer to buy goods for prompt or current shipment invites acceptance by prompt or current shipment of conforming or nonconforming goods. But if for nonconforming goods, not an acceptance if seller seasonably notifies buyer that shipment is an accommodation. 2. If beginning of requested performance is reasonable mode of acceptance, If acceptance is not seasonable, then the offer lapses.


Contracts I Outline Fall 2007

3. No acceptance if not a definite expression of acceptance (but if definite,
ok even if it contains added or diff terms) buy goods for prompt shipment. Nonconforming goods shipped, noted it as an accommodation, and gave power to buyer to cancel order. (UCC§2206(1)(b)) vi. Restatement § 57 – if notice of acceptance by promise is required, the offeror is not bound by an acceptance of ambiguous terms unless he reasonably understands it as an acceptance. vii. Restatement § 58 – acceptance must comply with the terms of the offer. b. Acceptance by Performance i. For Unilateral Contract, acceptance by performance: 1. No notice required unless specifically asked for 2. Acceptance can be by performance 3. There must be knowledge of the offer before performance is rendered; the offer must invoke the performance. Subjective intent doesn’t matter ii. Carlill v Carbolic Smoke Ball (ad) – Ad is very specific as to who can accept, and intent to be bound shown by money placed in bank. No notice of acceptance required b/c offeror did not ask for it (acceptance to be through performce specified). Court says ad is a promise, not puff. 1. Restatement § 54 – (1) where offeror invites acceptance by performance, no notification of acceptance necessary unless offeror asks for it, (2) if offeree is accepting by performance, and knows offeror has no way of knowing of his acceptance within a reasonable time, contractual duty of offeror is discharged unless (a)offeree makes sure to tell offeror, (b) offeror learns of it in reasonable time, or (c)offer indicates no notice is necessary iii. Glover v Jewish War Veterans of U.S. (reward) – P gave info about identity of murderer, then finds out there’s an offer for reward out. Can’t collect b/c it is impossible that there should be an acceptance unless the offeree knows of the existence of the offer; the offer didn’t invoke the performance. iv. Industrial America v Fulton (broker; merger) – P knew of D’s offer b/c of an ad. D didn’t intend to pay commissions to P, but doesn’t matter D’s subjective intent. P wins. v. Restatement § 36 – Offeree’s power of acceptance may be terminated by (1) rejection or counter-offer by the offeree, (2) lapse of time (see rest §41), (3) revocation by the offeror, or (4) death or incapacity by offeror or offeree. Also by nonoccurrence of any condition under the terms of the offer. vi. Restatement § 41 – Lapse of time (1) power of acceptance terminated by lapse of time specified in terms of offer, or if not there, reasonable time, (2) reasonable time is a question of fact, and depends on circumstances existing when O & A are made, (3) an offer was seasonably accepted if the acceptance was mailed out by midnight of the same day offer was received. vii. Restatement § 50 – (1) acceptance is manifestation of assent to terms made in a manner invited or required by offeror, (2) acceptance by performance requires that at least part of the requested performance was made, & and includes acceptance by a performance which operates as a return promise, (3)acceptance by promise requires that offeree complete every act essential to the making of the promise.

v. Corinthian Pharmaceutical v Lederle Labs (accommodation) – Offer to


Contracts I Outline Fall 2007

viii. Restatement § 51 – Unless the offeror manifests a contrary intention, an
offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance. ix. Restatement § 53 – Acceptance by Performance (1) an offer can be accepted by performance if the offer invites such an acceptance, (2) performance doesn’t constitute acceptance if within a reasonable time offeree notifies offeror of nonacceptance, (3) where offer invites acceptance by performance (but not by promise), the performance doesn’t constitute acceptance if before offeror performs his promise, offeree manifests intent not to accept. c. Acceptance by Conduct or Silence i. Russell v Texas (roadway) – P offers D use of roadway and says your continued use of roadway constitutes as an acceptance. Even if you don’t subjectively intend to accept, if you lead an offeror to reasonably believe that you accepted through your conduct, then you accepted. This can be through silence or inaction. ii. Ammons v Wilson (shortening) – Previous dealings order shipped within a week. 2 weeks passed be4 D rejected the acceptance. Where an offeree fails to reply to an offer, his silence can operate as an acceptance where because of previous dealings or otherwise, the offeree has given the offeror reason to understand that the silence is intended by the offeree as a manifestation of assent, and the offeror does so understand (rest. §69). But silence is too ambiguous; better to set the terms of acceptance rather than letting the court decide. 1. Restatement § 69 – Silence or inaction can operate as acceptance only if (1) offeree takes the benefit when he had a chance to reject them, and knew offeror expected compensation, or (2) offeror has stated or given offeree a reason to believe that silence can act as acceptance, or (3) because of previous dealings, it is reasonable for offeree to notify offeror if he intends not to accept. d. Time when Acceptance is Effective: Mailbox Rule i. Adams v Lindsell (delay mail offer) – D mailed offer, but by D’s mistake got delayed. P mailed acceptance same day they rec’d offer. Because of the delay, D sold to someone else (but P mailed acceptance be4 this). Mailbox Rule says an acceptance of an offer is valid once it’s mailed. 1. Mailbox Rule - it’s a default rule to gives some definiteness to the formation of the contract. Parties can set their own rules, but if not specified, court will use this rule. a. Offer effective upon receipt b. Acceptance effective on dispatch c. Rejection/Counteroffer effective on receipt d. Revocation effective on receipt (min. view says on dispatch) e. Rejection followed by Acceptance i. Rejection effective if it gets there first ii. Acceptance effective if it gets there first f. Acceptance followed by rejection i. Acceptance effective unless (a) rejection gets there first, and (b) Offeror detrimentally relies on the rejection. ii. Restatement § 63 – Unless offer says otherwise, (a) an acceptance is effective upon dispatch (Mailbox rule), even if offeror never gets it (b) an acceptance under an option contract is not effective until offeror receives the acceptance iii. Restatement §64 – rules of acceptance by telephone or teletype uses same rules as when parties are in each other’s presence

Contracts I Outline Fall 2007

iv. Restatement §65 – medium of acceptance is reasonable if same as that used
by offeror, or is customary, unless circumstances indicate otherwise which offeree knows. v. Restatement §66 – acceptance must be properly dispatched, reasonable precautions have to be taken to ensure safe delivery. vi. Restatement §67 – if acceptance is improperly sent, or not in manner offeror asked, it is only treated as accepted when dispatched if it arrives at same time it would have if it were properly sent. vii. Restatement §68 – a written revocation, rejection, or acceptance is rec’d when it comes into possession of person addressed, or other authorized person or place. Nature and Effect of Counter Offer (p 325-336) a. Restatement §39. Counter-Offers i. It is an offer made by offeree to offeror relating to the original offer, but proposing substituted or diff terms ii. Offeree’s power of acceptance is terminated by counter-offer (unless offeror manifests a contrary intention or if the counteroffer manifests a contrary intention of the offeree). 1. Note: an inquiry or comment about terms is not a counter-offer. b. Minneapolis & St. Louis Railway v Columbus Rolling-Mill (mirror-image) – D makes offer to P. P accepts but with different qty. D rejects counteroffer and P accepts original offer. The mirror-image rule says acceptances must be the mirror image of offers; if not, they are considered counteroffers and destroy the offer. Once a counter-offer has been made, the original offer is destroyed. Mirror-image rule rarely used. See rest. §59, and UCC 2-207. c. UCC 2-207. Additional Terms in Acceptance or Confirmation. i. Acceptance sent in reasonable time still acceptance even if there are added or diff terms, unless acceptance made conditional on acceptance of the terms. ii. The additional terms are proposals for addition to the contract. Between merchants such terms become part of the contract unless: 1. the offer expressly limits acceptance to the terms of the offer; 2. they materially alter it; or 3. notification of objection given in reasonable time iii. There’s still a K if both parties recognize its existence, even if writings do not establish a K. Where there is a discrepancy, the terms of K are those that both parties’ writings agree to, along w/ other suppl. iv. Notes on UCC § 2-207: 1. Eliminates the “mirror” rule – it lets you have different terms 2. Eliminates the last shot rule - whoever sends the last paperwork, the terms stick, if no one objects. 3. 2-207 only applies if response to an offer is considered an acceptance. Doesn’t apply to a counter-offer. Doesn’t apply if performance (section 3). d. Leonard Pevar v Evans Products (last shot; warranty clause) – Alleged oral contract; must go to jury to determine. Then court will use 2-207(3). P sends P.O., D sends back conf, with added terms. Court rejects this last shot rule. Use 2-207(3) to find out the terms of the K, court uses “gap-filler” where terms don’t match (battle of forms). e. Restatement § 59 – a reply to an offer which accepts, but is conditional on something is a counteroffer f. Restatement § 61 – an acceptance requesting additional or diff terms is not a counteroffer unless acceptance is conditional on offeror’s assent to the new terms.


Contracts I Outline Fall 2007

g. Textile Unlimited v BMH (defective yarn; counteroffer) – P sends D P.O. (offer)
for goods, and D sends back conf w/added terms. The added terms constituted a counteroffer. There is no express assent because the arbitration term was not included in the contract. h. Hill v Gateway 2000 (30days, phone) – Order placed via telephone, & comp shipped. Terms in box, if not returned within 30 days, it would be in effect. Contract binding. Buyer expected more terms (no sense for cust. rep to recite over phone). UCC 2-207 doesn’t apply b/c only 1 offer, no counteroffer. i. Klocek v Gateway (store-bought, 5day) – In this case the return period is only 5 days and the buyer knew nothing about more terms coming (Gateway couldn’t prove they informed cust, & it was purchased in person). Held that express assent is necessary. Court says added terms constitute counteroffer so they apply 2-207. Assent in Electronic Commerce (p 349-360) a. Specht v Netscape (scroll & click) – free SW provided by clicking through. Terms under button to go on, so user would have to scroll down to look for it. No assent to the terms because the terms were too obscure. Termination of Offer: Destruction of Power of Acceptance a. Restatement § 38 – (1) power of acceptance terminated by rejection, (2) manifestation of intention not to accept is a rejection, unless offeree manifests he is still considering it b. When does a revocation take effect? i. Has to be before acceptance of the offer is communicated ii. The offeree must receive notice of the revocation iii. There must be an unambiguous statement of revocation by the offeror to the offeree c. Hendricks v Behee (revocation; to agent) –There is no contract until acceptance of an offer is communicated to the offeror. An offeror may withdraw his offer at any time before acceptance and communication of that fact to him. i. Restatement § 42 – power of acceptance terminated when offeree receives offeror’s revocation d. Dickinson v Dodds (reliable source)– D finds out about P’s intent to revoke from his agent, then tries to accept. An offer can be revoked at any time before communication of acceptance. The revocation while it must be communicated to the offeree, need not be personally communicated by the offeror. Communication need only be from a reliable source. i. Restatement § 43 – power of acceptance terminated when offeror takes definite action inconsistent with intention to enter into contract, & offeree acquires reliable info to that effect e. Restatement § 40 – rejection or counteroffer sent by mail not effective until rec’d. (see mailbox rule) f. Restatement § 46 – when offer is made to general public, power of acceptance terminated when offeror revokes in the same or comparable manner as the offer Irrevocable Offer: Option Contracts a. Humble Oil v Westside ($50) – There is offer, then option K created for offer w/CS. Counteroffer for k1 doesn’t terminate offer. Option contracts create an obligation of the offeror to keep the option open for a specified time. Offeree is not barred from negotiating within that time; as long as terms of option contract are met (it’s a separate contract). i. Restatement § 37. Under Option contract, power of acceptance is not terminated by counteroffer, rejection or revocation. b. Marchiondo v Scheck (commission) – Unilateral K accepted by performance. There’s part-performance, and then revocation. Offeror could not revoke the offer




Contracts I Outline Fall 2007


once it was partially performed; partial performance of a unilateral contract creates an option (b/c unilateral contract is accepted by full performance). Offeree must be given opportunity to fully perform (within reasonable time – this is contextual). i. Restatement § 87: Option Contract: (1) offer binding as option contract if (a) contract w/ consideration (ok if nominal here) in writing & signed by offeror, proposes an exchange in fair terms under reasonable time or (b) is if made irrevocable by statute. (2) an offer which reasonably induces reliance (which must be substantial & foreseeable) is binding as an option contract to extent necessary to avoid injustice c. James Baird v Gimbel (bids, unreasonable) – Offer of bid says P must accept. D unreasonably relied; P revoked offer be4 P accepted. No PE either – although there was reliance, prom estop. not used for bilateral contracts b/c there is an offer of exchange, and offer not intended to become a promise until consideration is received. d. Drennan v Star Paving (bids, reasonable, custom) – P accepts D’s bid and relies. The D revokes be4 P can accept. PE, b/c he reasonably relied, based on industry custom, D should have known. P’s reliance was reasonable, so a reliance option is created (open for reasonable time). (rest. 87(2)). e. SKB Industries v Insite (reasonable reliance on bid) – Same idea with bids. SKB submitted the bid to Insight for the express purpose of allowing that bid be used in Insite's bid to Beers. It was also foreseeable that Insite would suffer damages. f. UCC § 2-205: Firm Offers (same as option contract, but UCC refers to as firm offers) i. Offer by merchant (in a signed writing) where terms assure it will be held open is not revocable for lack of consideration (for stated time or reasonable time – up to 3 mos). If offeree supplies this assurance, it must be signed by offeror. The purpose is the intent of offeror to make a firm offer. Verbal still revocable. Insufficient Agreement: Indefinite, Incomplete or Deferred Terms a. Defective Formulation and Expression of Agreement (p 391-400) i. Raffles v Wichelhaus (Peerless)– Parties thought diff ship the subject of K. Ship material term b/c of timing & market value. No meeting of the minds if parties attach diff meanings to a material term. Meeting of the minds necessary for contract formation. 1. Restatement § 20 - There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and neither knows or has reason to know the meaning attached by the other, or if both parties know what the other’s meaning. If one party knows & other doesn’t, there is mutual assent. ii. Konic v Spokane ($56.20) – P says price is fifty-six twenty. D understands $56.20, P meant $5,620. Price is a material issue here, since it’s such a big diff in what each party understood. No meeting of the minds if parties attach diff meanings to a material term. Meeting of the minds necessary for contract formation. (rest. §20) iii. Mistake 1. Restatement § 151 – Mistake is a belief that is not in accord with the facts. 2. Restatement § 152 – (1) if both parties mistaken, contract voidable by adversely affected party 3. Restatement § 153 – if one party is mistaken, they can void the contract if he does not bear the risk of the mistake, and it would be unfair to enforce it or the other party knew or should have known of the mistake

Contracts I Outline Fall 2007

4. Restatement § 154 – A party bears the risk of mistake when (a)risk
allocated to him in agreement, or (b) he knows he only has limited knowledge, but thinks its sufficient (conscious ignorance), or (c) court allocates to him if reasonable under circumstances 5. Restatement § 155 – when a written agreement has a mistake, court may reform the writing to reflect the actual agreement (to an extent that it doesn’t hinder 3rd parties). b. Indefinite Agreement i. Varney v Ditmars (fair share of profits) – K to give fair share of profits. The words “fair share” were too vague and uncertain, and amount couldn’t be computer from anything either party said. Contract never consummated, and left to will of D for further negotiation. The only thing P could collect was for the value of the work he actually did. 1. Restatement § 33 – (1) terms of a contract have to be reasonably clear to accept, even if offeror intended to make the offer, (2) Clarity is determined if there is a basis for determining if there is a breach & for giving a remedy, (3) the fact than terms are left open may show that it was not intended as an offer or acceptance 2. Dissent (Cardozo) – disagrees, says were not too vague, an amount could be calculated, as long as made with contractual intent. Even though not for sale of goods, Cardozo mentions 2-204 (3). ii. Lefkowitz v Great Minneapolis Surplus Store (fur) – An ad can count as an enforceable offer if it is clear, definite, and explicit, leaving no room for negotiation; an ad is especially likely to count if it specifies who can accept. c. Incomplete and Deferred Agreement i. UCC §2-204 Formation in General. 1. K for sale of goods can be made in any manner to show agreement (O&A, conduct) 2. Agreement sufficient for contract even if moment of making is undetermined. 3. Even if 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. 4. (a) Contract ok if formed by electronic agents, even if no individual was aware of the agreement made. (b) Contract ok if btwn electronic agent & individual. Contract formed if the individual takes actions that the he is free to refuse to take or makes a statement, and the individual has reason to know that the actions or statement will: a. (i) cause the electronic agent to complete the transaction or performance; or b. (ii) indicate acceptance of an offer, regardless of other expressions or actions by the individual to which the electronic agent cannot react. ii. Metro-Goldwyn-Mayer, Inc. v Scheider (actor)– Parties agreed that D would star in a TV series, but left open the starting date. This was industry practice, which both parties aware of. Even though there was an indefinite matter, there were enough agreement on enough terms (made in good faith), so contract is enforceable. (UCC §2-204(3)). iii. Joseph Martine, Jr. Deli v Schumacher (lease renewal) – Lease provision has renewal clause, “to be agreed upon.” D wants to charge more than fair market value. Court says the contract is too indefinite on how to find rent price


Contracts I Outline Fall 2007

d. e. f. g. h.

and parties hadn’t agreed on method. Parties are free to contract, court shouldn’t impose. Court doesn’t want to use UCC, b/c not goods, and real estate more susceptible to market. Dissent says court should fix a reasonable rate so as to avoid injustice. iv. Oglebay Norton v Armco (iron ore) – Parties enter into service contract for P to ship goods for P, based on reasonable price, and gives 2 ways to calculate this. The parties intended to be bound b/c of long-standing and close relationship. The methods in contract to calculate price are no longer available, but court says since they intended to be bound, so still enforceable, and court will apply a reasonable rate, and a mediator for future agreements. Court can do this since they intended to be bound, and court is only helping them carry out their contractual duties. Court analogizes UCC§ 2-204 (though not for goods), for gap-fillers court can imply. UCC § 1-205 – Reasonable time under UCC depends on circumstances. An action is taken seasonably if taken at or within agreed time, or within reasonable time. Restatement § 178 – A term may be unenforceable on grounds of public policy. To figure this out, look at interest in enforcement of the term, and weighing public policy against enforcement of the term. (Balancing of interests). Restatement § 179 – public policy against enforcement of some term because of legislation or need to protect public welfare Restatement § 249 – Payment can be made in legal tender or other manner ok in the context, unless oblige demands legal tender, and gives reasonable time to procure it. Restatement § 362 – Specific performance or injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order.


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