Spring 2016

Jake Moore
Professor Stone

CONTRACTS SECTIONS, RESTATEMENTS, AND CASES

Intent to Contract

Rest. § 17- Manifestation of Mutual Assent

 Objective Intent is usually used to see if the parties intended to K
Rest. § 19- Conduct as Manifestation of Assent
Rest. § 21- Intention to be Legally Bound
Homan v. Earle- Intent should be determined from totality of conduct, not just spoken words.
Embry v. Hargadine- court used objective intent approach. It didn’t matter that the subjective
intent of the employer was not to rehire the employee because a reasonably prudent person
would think that the K was renewed.
Tolmie v. UPS- a reasonably prudent person would not have thought that a new K was formed
because the boss’s words were ambiguous and vague. Tolmie left the boss’s office with a vague
assurance, not a formal offer.
Rest. § 20- Effect of Misunderstanding
 Mutual ambiguity= no meeting of the minds, no K
Konic v. Spokane Computer- “Fifty-six twenty” case. Both parties attributed different meaning
to the term “fifty-six twenty”. No K.
 When there is a word or phrase where both parties have a different definition, intent is
destroyed because the latent ambiguity shows no meeting of the minds.
Peerless- Good ship Peerless case. Each party had a different ship in mind at the time of the K,
so latent ambiguity destroys intent.
Economic view: each party should look out for their own economic self-interest and be precise
about what they mean in their terms.
Rest. § 71- Requirement of Exchange
 To constitute consideration, a performance or return promise must be bargained for.
Rest. § 231- Criterion for Determining when Performances are to be Exchanged Under an
Exchange of Promises
 Performances are to be exchanged under an exchange of promises if each promise is at
least part of the consideration for the other and the performance of each promise is to
be exchanged at least in part for the performance of the other.

Interpretation

Frigaliment Importing v. BNS- Chicken case. Court takes economic approach. PL has the burden
to prove that the parties mean “young chicken” when they say “chicken” because he has the
most incentive to be clear. Held for DF- chicken means any chicken.
 Rule: whenever a party wants to establish a specific definition or meaning to a particular
term, that party has the burden. of providing that definition
  Look at 4 things when we want to define intent: 1. What the terms of the K say. 2.
General Meaning of the terms. 3. Special Meaning of the terms- party that wants a
special meaning must provide it. 4. Trade usage or prior course of dealing.

Rest. § 202- Rules in Aid of Interpretation

 Words and other conduct are interpreted in light of all the circumstances.
Rest. § 203- Standards of Preference in Interpretation
 Four-part test when interpreting K terms: 1. Express terms of the K. 2. General meaning
of the term. 3. Special meaning of the term- party that wants special meaning must
provide the definition. 4. Trade usage or prior course of dealing- what did the terms
mean when these parties K’d in the past?
Rest. § 204- Supplying an Essential Omitted Term
 If they’re missing, courts will fill in minor terms routinely, and will occasionally fill in
major terms.
Rest. § 205- Duty of Good Faith and Fair Dealing
Rest. § 206- Interpretation Against the Draftsman
 The party that supplies the K terms has the burden to specify or define ambiguous
terms.
U.S. Naval Institute v. Charter- DF relied on common industry practice in completing
performance, PL claims they didn’t know the industry practice. Court says trade usage prevails.
PL needs to learn the industry customs and usages or get out of the industry.
Action Ads v. Judes- rule: the terms of the K must be certain enough to ascertain the rights and
duties of the parties.
Oglebay Norton v. Armco- after a trade journal went out of publication that both parties relied
on to supply K terms, court used gap-fillers but based them on what the trade journal would’ve
done, and hired experts to help determine prices.
Rest. § 223- Course of Dealing
 A course of dealing between the parties gives meaning to, supplements, or qualifies
their agreement.
Joseph Martin Deli- a mere agreement to agree is unenforceable.
*Texaco v. Pennzoil- court holds that a written memo was a valid K because sufficient evidence
was provided that the jury could make an inference that the parties intended to be bound by
the memo of agreement.
 Argue no K- the memo was only preliminary negotiations per Rest. § 26, and that a
sophisticated business deal like this would have a formally written K.
Rest. § 26- Preliminary Negotiations
 Preliminary negotiations are not a formal K and do not bind the parties.
Rest. § 27- Existence of K where Written Memo is Contemplated
 Manifestations of assent to K will not be prevented from so operating just because they
are in a memo and not a formal written K.

Offer and Acceptance

Elements of an Offer:
  1. Intent to Make an Offer- need words of intent. Rest. §§ 24, 26; Nebraska Seed.
 2. Certainty of Terms- terms must be reasonably certain enough as to ascertain the
rights and duties of the parties. Rest. §§ 33, 34; Moulton v. Kershaw.
 3. Communication- must have a properly communicated offer. Rest. §§ 50, 52; Izadi v.
Machado Ford.
Rest. § 24- Offer Defined
 An offer is a manifestation of assent to enter into a bargain, so made as to justify
another person in manifesting assent in return by some action, either a promise or
performance.
*Nebraska Seed- Intent to make an offer. The letter did not use the words “offer” or “sell”. The
letter shows that it was not intended as a final proposition, but as a request for bids.
Rest. § 33- Certainty
 Terms of the K must be reasonably certain. Terms are reasonably certain if they provide
a basis for determining the existence of breach and giving an appropriate remedy.
Rest. § 34- Certainty and Choice of Terms
 The terms of a K may be reasonably certain even though it empowers one or both
parties to make a selection of terms in the course of performance.
*Moulton v. Kershaw- Certainty of terms. A notice was meant to be a business circular and was
addressed generally to those that were interested in the salt trade. It was not an offer that the
acceptance of which would bind the parties.
 Rule: to constitute intent to make an offer, there must be words of intent that are
definite and certain, per § 33.
 Orders are also usually offers.
Fairmount Glassworks- RULE: generally, we only look at the words and conduct of the offeror,
but Fairmount says look at all the correspondence. This is troublesome because the offeror is
supposed to be the master of his offer and we don’t look at the conduct of the offeree.
 Fairmount 2 Part Rule:
- 1. Offer must be reasonably definite and certain.
- 2. Intent may be found from correspondence as a whole.
Rest. § 50- Acceptance of Offer Defined
 Acceptance of an offer is a manifestation of assent to the terms made by the offeree in
a matter invited or required by the offeror. Acceptance by performance requires at least
part performance or tender. Acceptance by a promise requires offeree to complete
every act essential to making the promise.
Rest. § 52- Who May Accept an Offer
 An offer can only be accepted by a person whom it invites to furnish the consideration.
Lefkowitz v. Minneapolis Surplus- status quo is that ads are not treated as offers. Ad here is
treated as offer, though. This is because the court said the ad left no room for negotiation, so it
must be treated as an offer.
*Izadi v. Machado- court found an offer in an ad because they want to stop misleading ads.
They use the Deceptive Trade Practice Statutes to hold that the ad was an offer. The small print
does not control, only the big print, according to the court. Ads governed by statutes that make
them offers will be held to be offers.
Rest. § 60- Acceptance of Offer Which States Place, Time, or Manner of Acceptance
  An acceptance of this type of offer must comply with its terms in order to create a K.

*The Mailbox Rule

 The black letter rule is that in the absence of an express specification be the offeror, an
acceptance is effective when it is put into the mail
 All other communications- offers, counteroffers, rejections, revocations- are only
effective when received.
 This is a default rule.
Rest. § 63- Time When Acceptance Takes Effect
 Unless the offer provides otherwise, a proper acceptance takes effect as soon as it is put
out of the possession of the offeree. But, an acceptance under an option K is not
operative until it is received by the offeror.

Death of Offers

1. Revocation- Rest. §§ 41-43. Withdrawal of the offer, offeror kills his own offer. This can
be done with lapse of time. (Dickinson v. Dodds).
2. Rejection- Rest. 38. Offeree kills by refusing the offer.
3. Counteroffer- Rest. 39. Offeree kills by substituting the old offer with a new one that has
new terms. Then, the offeree becomes the offeror and vice versa.
Rest. § 38- Rejection
 An offeree’s power of acceptance is terminated by his rejection of the offer, unless the
offeror has manifested a contrary intention.
Rest. § 39- Counteroffer
 A counteroffer is an offer made by an offeree to the original offeror that relates to the
same subject matter as the original offer. It is a substituting bargain that differs from the
original offer.
*Dickinson v. Dodds- Seller offers buyer land to buy. Seller then sells land to a third party.
Original buyer learns about the sale indirectly through an outside agent, but learns about the
sale before he accepts. Held that there is no K between seller and buyer 1 because seller
revoked his original offer by selling to a third party, and because buyer 1 learned about the sale
(revocation) before he accepted the offer.
 Rule: a revocation is effective if received by the offeree before he accepts.
Rest. § 41- Lapse of Time
 An offeree’s power of acceptance is terminated at the time specified in the offer, or at
the end of a reasonable time if no time is specified. What is a reasonable amount of
time is a question of fact, depending on all the circumstances when the offer and
attempted acceptance were made.
 Reasonable time:
- If communicating face to face or via telephone or email, a reasonable time does not
extend past the end of the conversation.
- Where Ks involve the the purchase or sale of goods that fluctuate rapidly in price, a
reasonable time is very short.
Rest. § 42- Revocation by Communication From Offeror Received by Offeree
 An offeree’s power of acceptance is terminated when he receives a revocation from the
offeror.
Rest. § 43- Indirect Communication of Revocation
 An offeree’s power of acceptance is terminated when the offeror takes definite action
inconsistent with an intention to enter into the proposed K and the offeree requires
reliable info to that effect.
Rest. § 68- What Constitutes Receipt of Revocation, Rejection, or Acceptance
 These are received when the writing comes into possession of the person addressed, or
of some person authorized by him to receive it, or when it is deposited in some place
that he has authorized for this or other similar communications to be deposited for him.
Humble Oil v. Westside- court held that choosing to negotiate before accepting an option does
not repudiate the option K. The option is an independent completed agreement and gave the
optionee the right to purchase within the specified time.
 Rule: clear intent by the optionee to terminate will terminate the option. Conditional
acceptances (counters) in option Ks are considered preliminary negotiations.

Auctions and Construction Bid Ks

1. With Reserve- bids as offers? Auctioneer can reject the highest bid and refuse to sell.
2. Without Reserve- bids as acceptance? Auctioneer must sell to the highest bidder.
Well v. Schoeneweis- the fundamental rule at common law of auctions is that a bid constitutes
an offer, the fall of the hammer constitutes acceptance, and a K is then made.
Specialty v. Rosen- auctioneer sent out brochures for an auction that was vague as to whether it
was with or without reserve. The court held that a jury could infer that experienced auction
goers, to whom the brochures were given, would know the law and customs of the trade and
would assume the auction was with reserve.
 The default rule is that auctions are conducted with reserve.
Rest. § 46- Revocation of General (Public) Offer
 Where an offer is made by ad in a newspaper or other general notification to the public,
the offeree’s power of acceptance is terminated when a notice of termination is given
publicity by ad or other general notification to the public.
 Usually applies to rewards.
James Baird v. Gimbel Bros.- (Judge Hand approach). General contractor used sub’s bid to bid
on a construction job. PA Dept. of Highways accepted general’s bid. Sub then realized that its
bid was too low because of an error and wanted to revoke their bid. Sub was allowed to revoke
his offer because he had a bilateral promise for a promise K with the general.
 Rule: General’s use of the sub’s bid is NOT treated as acceptance by the courts. Instead,
the sub’s bid is used as an offer which can only be accepted by a return promise by the
general.
Drennan v. Star Paving- (Judge Traynor- opposite of Baird). Almost the same facts as Baird.
However, the court here finds a unilateral K and part performance on the part of the general.
The part performance of the general was the act of the general using the sub’s bid to secure the
general K. Court says general relied on sub’s bid to make the general K and finds justifiable
reliance.
 Rule: where there is an offer for unilateral K, if part performance occurs, the offeror
cannot revoke if the offeree justifiably relies on the offer.
Rest. § 45- Option K Created by Part Performance or Tender
 Where an offer invites the offeree to accept by performance, an option K is created
when the offeree tenders or begins the invited performance.

Acceptance

Petterson v. Pattberg- DF agrees to reduce PL’s debt if PL pays early. PL arrives at DF’s home
and tenders the payment, which DF refused to accept. The court doesn’t see acceptance. They
see the act of trying to accept, but since PL merely tendered payment, he didn’t complete the
act of paying to accept the unilateral K.
 Basic rule of law: offer for unilateral K can only be accepted by the completion of the
required act.
Rest. § 58- Necessity of Acceptance Complying with Terms of Offer
 An acceptance must comply with the requirements of the offer as to the promise to be
made or the performance to be rendered.
 *Mirror Image Rule
Unilateral K- when an act is wanted in return for a promise, a unilateral K is created only when
the act is done.
Bilateral K- both parties are bound from the moment their promises are exchanged in a
promise for a promise K.
Brackenbury v. Hodgkin- modern view, opposite of Petterson. Mother made proposal to her
daughter and her husband that if they would come take care of her for the remainder of her
life, she would give them the place when she passed away. PLs moved from MO to ME in
reliance thereof and started performance on the K. After a falling out, the mother conveyed the
property to her son. Court here held that the PLs accepted the offer by moving to ME and
taking care of the mother, and that their part performance created a valid unilateral K.
 Rule: unilateral K can be created through part performance or tender of performance. §
50(2).
 Part performance because the unilateral K called for care for the remainder of the
mother’s life, and she was still alive at the time of the court’s ruling. The performance
wasn’t complete, goes against old common law.
Sunshine v. Manos- court held that expenditure of time and effort is sufficient consideration to
make a unilateral K binding and irrevocable. The unilateral K ripened into a binding K.
 Rule: expenditure of time and effort is sufficient consideration to make a unilateral K
irrevocable.
Davis v. Jacoby- White asked his niece, Davis, for her and her husband to come and take care of
him and his wife and settle their financial matters. White promised them his estate in return
(offer). Davis accepts and promises to come down in 2 weeks. White commits suicide before
then. Davis and her husband then went and took care of Mrs. White in the hospital until she
died a month later. They then found that the estate was left to the Whites’ nephew. Court
found that White’s offer to Davis and their promise to come and help him constituted a
bilateral K.
 Supreme court says that a bilateral K is presumed in cases of doubt. A bilateral K
protects the reasonable expectations of both parties.

Rest. § 32- Invitation of Promise or Performance

 Offeree chooses unilateral or bilateral in cases of doubt.
Rest. § 62- Effect of Performance by Offeree Where Offer Invites Either Performance or
Promise
 Where an offer invites the offeree to choose between performance or promise, the
beginning or tender of the invited performance is an acceptance by performance. Such
an acceptance operates as a promise to completely perform.
 Mere preparation is not enough.
Empire Machinery v. Litton Telephone- Litton was seller and had a form with a section that said
it shall become effective upon approval, acceptance, and execution by Litton. Empire sent back
the signed form with a down payment deposit. Litton cashed the check. Empire sued for breach
of K because Litton did not deliver goods. Empire argues that they waived the section
mentioned above, and that this waiver was assented to by Litton when they cashed the check.
Court agrees and finds that Empire becomes the offeror, and that Litton becomes the offeree,
and chooses performance (§ 62) as their acceptance.
 Lesson: just because you draw up the form doesn’t mean that you’ll retain control of it.
Bishop v. Eaton- notice of acceptance. PL sent notice of acceptance (completion of required act)
of a unilateral K to DF in the mail, but the letter was lost in the mail and DF never got it. PL sues
DF for payment for the completion of the act. Court says that the K was unilateral, and that the
moment of dispatch of notice constituted constructive notice, which is acceptable per the
mailbox rule and § 63, and § 54(2)(a).wes
Rest. § 54- Necessity of Notification to Offeror
 Where an offer invites acceptance by performance, no notice is necessary to make
acceptance effective unless the offeror requests it. As long as the offeree exercises
reasonable diligence to notify the offeror if the offeree has reason to know that the
offeror has no adequate means of learning of the performance, the offeror’s contractual
duty will NOT be discharged.
Acceptance of Rewards
Newman v. Schiff- DF Schiff offers a unilateral K on a tv show that airs for one hour. The next
day, PL sees a re-airing of the show and completes the required task, accepting and completing
the unilateral K. Court says PL did not accept in a timely manner because he didn’t call in during
the original hour airing of the show. Rest. § 41 Lapse of Time killed the offer.
Acceptance by Silence or by Acceptance of Benefits
Hobbs v. Whip Co.- PL sent DF eel skins to make whips. PL had done this in a similar fashion four
or five times before (prior course of dealing). DF had a standing offer for such skins. DF didn’t
respond as to the acceptance of the skins, and retained them for long enough to render them
useless. Court here found acceptance by silence because prior dealings with PL constituted a
duty to respond, which means his silence is treated as acceptance.
 General rule is that mere silence is not treated as acceptance.
  Certain circumstances can make silence acceptance: conduct expressing intent to accept
(using the goods), prior course of dealing, or trade usage.

Rest. § 69- Acceptance by Silence or Exercise of Dominion

 Silence will be treated as acceptance if the offeree uses the offered property, or if the
offeror has notified the offeree that silence will mean acceptance, or if the parties have
a prior course of dealings.
Roberts v. Buske- Rule: one prior course of dealing is not enough to constitute acceptance by
silence.
Ransom v. Penn Mutual- court treats the acceptance of insurance premiums and the filing of an
application to be insured as acceptance by silence, and forces the insurance co. to cover the
dead applicant. Applicant, however, did not get the medical exams required by the co. for them
to decide if they wanted to accept the applicant or not.
 This is the minority view.
 Court created an insurance binder, which creates risk for insurance cos. because they’ll
be liable between time of tender by applicant and rejection by insurance co.

Mailing of Unordered Merchandise

 Unordered merchandise that is mailed to people may be treated as a GIFT.
 39 U.S.C. §3009

Counteroffer

Houston Dairy- Houston Dairy had seven days to return a commitment letter to secure a loan.
They didn’t respond until 17 days later, and also sent a cashier’s check. Lender cashed the
cashier’s check. If Houston Dairy had responded within seven days, their sending of the
commitment letter and the check would’ve been considered a counteroffer, but the court holds
that no K exists because Houston Dairy’s power of acceptance expired after the stated time
period. Mere silence does not mean acceptance here because there’s no prior course of dealing
between the parties.
 Mirror Image Rule: any communication in response to an offer that attempts to accept
must conform precisely the terms of the offer; any purported acceptance that varies any
term of the offer will be treated as a counteroffer. Rest. § 58, 59.
Roto-Lith v. Bartlett- relaxed mirror image rule. PL Roto makes an offer to buy from DF. DF
makes a counter which contained a warranty provision that said that buyer PL expressly
excluded any and all warranties.
 Rule: a response to an offer which does not in all respects correspond to the original
offer is still an acceptance to the extent it corresponds to the offer. The additional terms
will be treated as a counteroffer.
 PL became bound by the counteroffer (warranty provision) by acceptance by silence-
they used the goods. Rest. § 69.
  UCC 2-207: Additional Terms in Acceptance or Confirmation= relaxation of the mirror
image rule. Additional terms in an acceptance which do not materially alter the offer will
still be treated as an acceptance.
Itoh v. Jordan- strengthening of the mirror image rule. Acceptance of DF called for arbitration to
settle disputes. The form that DF sent to PL said that their acceptance was expressly conditional
on PL’s assent to the additional or different terms- including the arbitration clause. PL never
assented. Court here stated that DF’s form was a counteroffer which was never accepted by PL.
The acceptance by DF was still valid because the parties completed performance of the K, but
the arbitration clause was not part of the K because PL never assented to the express condition.
Daitom v. Pennwalt- attempted acceptance contained directly conflicting terms with the offer.
Court used the knock-out rule of UCC 2-314 and 315, and stated that the conflicting terms
cancel each other out and are knocked out of the K. This is the preferred method.
 Other alternatives: 1. The different terms are treated as additional terms under 2-
207(2). 2. The offeror’s terms control and the offeree’s additional terms merely fall out.
2-207 cannot save these terms because it only applies to additional terms, not different
terms.

Pre-Contractual Liability

Kearns v. Andree- PL orally agrees to sell a house to DF. DF requests repairs to the house as a
condition to complete the K. PL performs the repairs but DF refuses to buy. Court allows PL to
recover damages for the cost of repairs.
 Recovery here is not based on part performance because the repairs were seen as
conditional to performance- pre-contractual.
 Recovery is based on reliance. Rest. §§ 90 and 139.
Hoffman v. Red Owl- PL was told by DF Red Owl that if he did certain things, he would be able
to obtain one of Red Owl’s grocery store franchises. PL gets multiple loans, sells his bakery,
buys land, and moves all upon request by DF. DF then refuses to give PL a franchise. PL sues on
reliance because there’s no K and no K offer. Court finds for PL on equitable basis (reliance),
and DF has pre-K liability under the theory of promissory estoppel. PL gets reliance damages,
which included the cost of selling his bakery. Doesn’t get expectancy damages because there’s
no K, only gets restitution.
 Rule: one may in some circumstances come under a duty to bargain in good faith,
breach of which duty may result in liability for damages, at least to the extent of
compensating the detrimental reliance of the injured party.
st
Rest. 1 § 90- Promise Reasonably Inducing Action or Forbearance (Reliance)- Three Elements
1. Was the promise one which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promisee?
2. Did the promise induce such action or forbearance?
3. Can injustice be avoided only by enforcement of the promise?
Wheeler v. White- where the promisee has failed to bind the promisor to a legally sufficient K,
but where the promisee has acted in reliance upon a promise to his detriment, the promisee is
to be allowed to recover no more than reliance damages measured by the detriment sustained.
Mistake, Misrepresentation, Impossibility, and Frustration

Sherwood v. Walker- landmark case on mutual mistake. Cow case. Parties enter into a K for a
cow which DF seller believed was barren. The cow was actually pregnant. When DF found this
out, he refused to transfer the cow to PL. Court says DF is allowed to rescind because mistake
as to quality of subject matter K’d for may be grounds for rescission.
 This is the minority view.
 Three requirements from Rest. §§ 152 and 154 to establish mutual mistake: 1. The
mistake goes to a basic assumption on which the K was made. 2. The mistake has a
material effect on the agreed exchange of performances such that the resulting
imbalance is so severe that one party cannot be fairly held to carry it out. 3. The mistake
is not one of which that party bears the risk. § 154.
Rest. § 152- When Mistake of Both Parties Makes a K Voidable
 Where a mistake of both parties at the time a K was made as to a basic assumption on
which the K was made has a material effect on the agreed exchange of performances,
the K is voidable by the adversely affected party unless he bears the risk of mistake.
Rest. § 153- When Mistake of One Party Make a K Voidable
 The K is voidable if one party makes a mistake, and that party does not bear the risk of
mistake, and the effect of the mistake would make the enforcement of the K
unconscionable, or the other party had reason to know of the mistake or his fault
caused the mistake.
 Relief is almost never granted for unilateral mistake.