Contracts:

1. Law
a. Common law
b. UCC
c. Mixed deals
2. Formation
a. Offer & Termination of Offer
b. Acceptance
c. Consideration &Promissory Estoppel
3. Defenses
a. Statute of Frauds
b. Lack of Capacity
c. Mistake
d. Misrepresentation
e. Fraud
f. Duress
g. Unconscionability
Introduction to K Law:
- Contracts is the use of individual agreements to order lives
- Contractual obligation is voluntary and it is NOT imposed by law

- Contract law is:

o An enterprise subjecting promises – it is a body of rules about legally binding promises
o Found in the common law – stare decisis binds parties and future parties
o UCC – The Uniform Commercial Code
 Act adopted by state legislatures – a “model statute” adopted in same or similar form in 49
states and D.C.
 Binding on courts which have adopted it – Courts interpret the UCC
 We focus only on Article II of the UCC – Sale of Goods Contracts
 UCC 2-105(1): “‘Goods’ means all things (including specially manufactured goods)
which are movable at the time of identification to the K for sale other than the money
in which the price is to be paid, investment securities… and things in action”
 Background to the UCC – if the UCC does not state a rule, the common law rule continues to
apply – for example, there is no UCC definition of an offer:
 UCC 1-103: “Unless displaced by the particular provisions of this act, the principles
of law and equity… shall supplement its provisions.”

- Why do we have Contract Law?

o Consistent with moral values – people should do what they promise
o Self – interest – we want people to rely on you in the future, reputation at stake
o Economics: we want predictable rules and each party beneifts
 Credit is essential for the economy
o Preclude litigation:

- Opposing Contract Doctrines:

o Formalism:
 Logical application of axiomatic principles (rules)
 Syllogistic
 Court should not consider policy (Aside from policy contained in the rule)
 Cons: Rigid
 Pros: predictable, incentivize good behavior of following rules
o Realism:
 “The Life of the law has not been logic, it has been experience” Oliver Wendell Holmes
 Court should consider which result makes most sense as a matter of social policy
 The UCC is motivated by Realism
o We oscillate between the two
 Today is “New Formalism”
 K law contains both formalist and realist doctrines

- Contracts: The Law of Promises

o Restatement is a secondary source written by the American Law Institute to codify common law, it
is not binding, but it may be persuasive
o Restatement (2d) §1: K: “A K is a promise or a set of promises for the breach of which the law
gives a remedy, or the performance of which the law in some way recognizes as a duty”
o Restatement (2d) §2: Promise: “A manifestation of intention to act or refrain from acting in a
specified way, so made as to justify a promisee in understanding that a commitment has been made.”
 A contract is a promise which is demonstrated/expressed/declared and is NOT internal
  Made for the FUTURE
 Promise is a commitment that the listener is justified/reasonable to understand
o As a general matter, K law looks to objective, not subjective intent
 We ask: What would a reasonable person understand the promisor to intend
 Benefits: predictability in law and business for planning
o Allows for efficiency and cost savings
o Promoting certainty in business

- There are 3 types of promises:

o The Express Promise:
 a promise manifested by words – does not need to be written
o The Implied-in-Fact Promise:
 Intention is manifested by conduct, not by words
 Test: What would a reasonable person assume in the circumstances?
 Ask: What meaning does the party’s conduct imply in the circumstances
 Example: an auction
o In itself, raising one’s hand is ambiguous – doesn’t manifest any intention
o In context of an auction, raising one’s hand manifests an intention to bid
o The Implied-in-Law (Quasi-Contract):
 There is no manifestation of intent, either express or implied in fact
 Legal Fiction: The law infers a promise in the interests of justice – it is a social contract
 The party did not intend to make a promise, but should have
 Restitution is the remedy given
 Elements:
 (1) π confers a benefit on the Δ
 (2) Appreciation by the Δ
o Δ knew about benefit and did not decline it
o If defendant is unconscious – this is an excuse for not appreciating
 (3) Unjust for Δ to retain the benefit without reimbursing the π
o It is not unjust if the π was a volunteer (Bailey v. West)

- Contracts are Sticky

o There is no excuse for failure to perform
o Even if circumstances change and deal is less than desirable, you hav eto stay in it, the change of
circumstances is not an excuse
 Bolin Farms v. American Cotton Shippers Association – just because circumstances changed
and the price of cotton went up, the π farmers are stuck, they understood the risk of prices
dropping
o When should a promisor be excused?
 UCC 2-615: “if performance as agreed has been made impracticable by the occurrence of a
contingency the non-occurrence of which was a basic assumption on which the contract was
made or by compliance in good faith with any applicable foreign or domestic governmental
regulation or order whether or not it later proves to be invalid.”
 Astroid principle
 Possibility vs. probability

- Damages – What happens in a breach of Contract?

o Contractual remedies are compensatory and not punitive
o Expectation measure:
 Put the injured party in as good a position as if the K had been performed
o Reliance measure:
 Put the injured party in as good a position as if the K had not been made
  Usually a smaller amount than expectation, because expectation usually includes profits
 Considered a #2 remedy
o Restitution measure:
 Restore the π the value of any benefit π has conferred on the Δ
 Used for implied-in-law contracts
 Repay the value of any benefit
o Injunction: requirement of performance – rare
o Sullivan v. O’Connor Hypotheticals:
 If the value of a Hedy Lamar nose is $100
 If the value of Sullivan’s nose before surgery is $50
 If the value of the botched nose is $0
 Expectation measure – recover $100 (Hedy Lamar nose – botched nose)
 Reliance Measure – Recover $50 (Nose before surgery – botched nose)
The Objective Theory of K Law
- A K depends on the mutual agreement of the parties
o Restatement (2d) §17(1): “The formation of a K requires a bargain in which there is a manifestation
of mutual assent to the exchange”
o Compare to: Restatement (2d) §2(1): “A promise is a manifestation of intention to act or refrain
from acting in a specified way, so made as to justify a promisee in understanding that a commitment
has been made”
o Both rely on objective test and objective meaning
 What would a reasonable person understand in the position of the parties?
 Words are meaningless without context
o Particularity of focus: What would a reasonable person in this position understand with knowledge
of history and negotiations
 Objective standard with subjective context
 Asymptote – get closer and closer to subjective without ever asking what the party actually
thought
o ARGUE BOTH SIDES ON THE FINAL
o Embry v. McKittrick: tells boss he will quit immediately (during the holiday season) unless he is
given employment – boss says “you’re alright” – Embry is fired.
 There was a K – they manifested a meeting of minds (Boss kept him for 3 months)
 It is NOT relevant that McKittrick did not intend
 We hope that inner and outer intent align
 the only relevant intention is “such intention as the words or acts of the parties indicate, not
one secretly cherished which is inconsistent with those words or acts”
o Lucy v. Zehmer: If words or acts, judged by a reasonable standard, manifest an intention to agree, it
is immaterial what may be the real but unexpressed state ofmind
 Zehmer: a reasonable person in Lucy’s position would not understand a K
 Court: this is a real K
 Argument for Zehmers:
 A reasonable person would not think we were serious – it was a Christmas party, we
were tipsy and having fun
 I didn’t sell it before when you asked
 I did not accept the $5 “downpayment
 We wrote it on a cocktail bill
 I didn’t even think you had the money
 Arguments for Lucy:
 A reasonable person in the circumstances would understand a K had been made
 There was 40 minutes of discussion and negotiation
 There were 2 drafts of the K
o We asked Mrs. Zehmer to sign and convey it
 The terms are complete “title satisfactory to buyer”
 K’s are made in social settings all the time
 It can be less formal because we are friends

- The implied-in-fact K is consistent with the objective theory of Contracts:

o Wrench LLC v. Taco Bell: π came up with Pscyho Chihuahua – says that after their negotiations, TB
breached the implied-in-fact K
 There was an understanding that if TB used Chihuahua they would pay P
- The Objective Theory of Ks: Three Propositions
o Objective meaning of parties’ language – what a reasonable person would understand, UNLESS:
o Parties share a subjective intent that differs from the objective meaning of their language; or
 Lucy v. Zehmer
o Parties’ language bears more than one reasonable interpretation (and neither party is at fault for the
ambiguity)
 Raffles v. Wichelhause: “Peerless” one left in Oct and one in Dec – subjective intent differs
here so no K exists
 Caveat – 1 party is at fault if they realize the ambiguity and do nothing
 Then we interpret the K according to the other party’s understanding
o This is incentive to avoid later law suits and clear up ambiguity when it is
realized

General Rule Look to objective meaning of parties’

language – what a reasonable person might
understand (Embry)
Exception Unless parties share a subjective meaning
that differs from objective meaning of
language
Exception OR more than one reasonable
interpretation exists and neither party is at
fault (Peerless Doctrine)
Rationales for objective theory do not apply
here – the dangers that the objective theory is
designed to protect are not present
Objective theory does not work when there
are two reasonable meanings
Offer
- Offer is sort of a promise - it is a manifestation of intention to commit (see restatement §2)
o Restatement (2d) §24: “An offer is a 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.”
o What is not an offer?
 Restatement (2d) §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”
o Offer creates a power of acceptance in the offeree
 A promise that justifies a person in thinking he could have a K merely by assenting
 Offeror is the master of the offer – can set terms and fashion power of acceptance
o It is the next to last communication in the formation of a K
 The last communication is acceptance
o TEST FOR THE OFFER: Would a reasonable person understand a commitment?
o Public Policy:
 In close cases, courts are reluctant to find an offer
 Want to be very clear before imposing K liability on someone unless they wanted it
 Freedom to K is also a freedom not to K
 Harsh punishment to enforce a K on someone
 Lonergan v. Scolnik: sale of land “this is a form letter” – a reasonable person in the π’s
position would have understood that the Δ was not committing himself to a K
 There was a general audience to the form letter

- What about advertisements?

o General Rule: advertisement is not an offer
 Advertisements are addressed to the public at large and do not express a commitment
 Terms are open and general
 A reasonable person would not understand a K addressed specifically to them
 We interpret ads as an invitation for offers (solicitations)
 Leonard v. Pepsico: this was a humorous advertisement and a reasonable person would
understand that this is a joke and we are not offering a jet
o Exception: where the terms of an advertisement are clear, definite, explicit, and limited in scope (to
a specific audience) and leave nothing open for negotiation, it may constitute a valid offer
 Lefkowitz v. Great Minneapolis Surplus Store: “First come first served” limited the audience
– there was only 1 – limited specific quantity for a specific price
 Specified audience, price, and quantity – definite and nothing up for negotiation
 Carbolic Smoke Ball: a reasonable person looking at the ad would consider it to be a
commitment by the company – money in the bank

- Auctions (Implied-in-fact K)
o With reserve: auctioneer may withdraw the goods at any time until he announces completion of the
sale
o Without reserve: auctioneer may not withdraw the goods once he has called for bids, unless no bid
is made within a reasonable time
o Presumption: unless an indication to the contrary, auction is with reserve
Termination of Offer
- Offeree’s power to accept – termination:
o Offeree’s power of acceptance may be terminated by:
 Rejection or counter-offer by offeree: i.e. Lederle
 Lapse of time
 Ever Tite
 Terminates within a “reasonable time”
 Not a limitation on the offeror
 Revocation by offeror (Hendricks v. Behee)
 Death of incapacity of offeror or offeree
 Ks do not lapse but offers do
 Non-occurrence of condition

- Termination/Revocation must be made before acceptance

o Revocation is not effective until the offeree receives notice
o It is not necessary for the offeror himself to revoke
o Indirect Revocation of Offer –
 Restatement (2d) §43: “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 acquires reliable information to that effect”
 Dickinson v. Dodds:
 Although π thought offer for him was left open until Friday morning, once he
received reliable information that the land had been sold, he no longer had the power
to accept (indirect revocation)
o Also there was no consideration for the promise to be left open – revocation
could be made before Friday morning
 This is consistent with the objective theory of K’s: if a reasonable person would understand
from offeror’s conduct that the offer had been revoked, then it is revoked

- Courts tend to find in favor of Revocation: Freedom to Contract

- Option Contracts:
o An independent promise, supported by consideration, that limits offeror’s power to revoke the offer
 The option does not have to be paid
 It is a collateral K, a separate and enforceable K
 The offeree can propose new terms, can do whatever until the offer runs
o Offeree has the power to accept within the stated time
 Even if offeree rejects offer: keeps the offer open
 1 exception: when offeror materially and reasonably relies on the rejection
 Unless offeror materially relies on offeree’s rejection
o Humble Oil v. Westside: when adequate consideration is given, an option K is not revocable until its
term has expired – even though Humble Oil sent a conditional offer and a counter offer would
normally terminate the offer, the offer stays open, because it was an option K
o Damages in an Option K:
 Offeror cannot revoke
 Offeree can sue for breach of K and can ALSO sue for breach of the underlying K
 Damages would be for breach of underlying K if there was acceptance
- Merchant’s Firm Offer Provision:
o UCC 2-205:
 “Offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if no time is stated for a reasonable time
 Period irrevocability may not > 3 mos
 Term on form supplied by offeree must be separately signed offeror”
o UCC does not have a consideration requirement
 A promise to keep option open is enforceable despite no consideration
 The signed writing is enough to take place of consideration – also given the fact that they are
merchants

- Acceptance and Part Performance:

o Part performance and Unilateral K’s: Restatement (2d) §45:
 (1) Where an offer invites an offeree to accept by rendering a performance and does not
invite a promissory acceptance, an option K is created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
 (2) The offeror’s duty of performance under any option K so created is conditional upon the
completion or tender of the invited performance in accordance with the terms of the offer.
 Part performance is a question of FACT
 It is a substitute for consideration
 Part performance vs. preparation to perform
 Preparation gets you NOTHING
 §45 gets you expectation measures
o Unilateral K
 1) Offer
 2) Begin to perform
 3) offer is irrevocable  have to give you a chance to complete performance
 Has to be completed within a reasonable time
 4) Remedy – implied-in-law
o Traditional Rule: promise in exchange for an act – no acceptance until performance
 Marchiando: seller hires broker to sell his property for commission in 6 days – morning of
the 6th day, the seller revokes –
 This was a unilateral K
 Once partial performance is begun, a K results, a K with a condition of completion
 We do not know if he gave “part performance” this is to be determined by the jury
o Contemporary Rule: part performance by offeree renders offer irrevocable for the time stated or for a
reasonable time, in the interest of fairness

o Bilateral K’s: revocation only upon notice

 Traditional Rule: Baird Co v. Gimbel Bros: main contractor relies on a bad bid from a
subcontractor: court found no K because revocation before acceptance
 General contractor should have made the offer irrevocable
 P.E. is not for a commercial setting
 Modern Rule: Drennan v. Star Paving Co: general contractor relied on subcontractor bid –
court find promissory estoppel – the Δ’s offer induced reasonable reliance on part of the π
 Δ should have known his bid would be used – can no longer revoke
 Reliance created an option K and the Δ could no longer revoke
 Reliance and Option K’s: Restatement (2d) §87(2):
 “An offer which offeror should reasonably expect to induce action or forbearance of a
substantial character by offeree before acceptance and which does induce such action
or forbearance is binding as an option K to the extent necessary to avoid injustice”
  Preparation or part performance
 Can use §87 for both bilateral and unilateral Ks
o But §87 only gets you reliance measures – why we distinguish it from §45

Mailbox Rule
- Acceptance and delayed Media:
o Default Rule:
 Restatement (2d) §63(a): “Unless the offer provides otherwise, acceptance made in a
manner and by a medium invited by an offer is operative as soon as put out of the offeree’s
possession, without regard to whether it ever reaches offeror”
o Adams v. Lindsell: wool merchant – offer by mail – before acceptance by mail reaches the Δ, they
sell to someone else - court says acceptance made when it is mailed

- Mailbox rule only applies to acceptance (revocation is effective upon receipt)

o Rationale: offeror is the master of the offer, mailbox rule eases the mind of the offeree
 The offeror has the power to contract around the mailbox rule – this default rule protects the
offeree
 If the offeror was never bound then offeree is never bound (circular problem)
o Delayed media – takes time
 This does not come up with face to face negotiations
 Email? It is instantaneous, not delayed
 Therefore mailbox rule does not apply
o USING ONE FORM OF COMMUNICATION IN YOUR OFFER IMPOLIES ACCEPTANCE IN
THE SAME FORM

- Mailbox rule does not apply in Option Ks

Counter Offers
- The counter-offer terminates an offer:
o Restatement (2d) §39: “An offer made by Offerree to offeror relating to the same matter as the
original offer and proposing a substituted bargain differing from that proposed by the original offer –
the counteroffer terminates offerree’s power of acceptance, unless offeror manifests a contrary
intention or unless the counteroffer manifests a contrary intention of offeree”
o Courts insist on total congruence: The Mirror Image Rule
 Even a non-material difference is a counter-offer
 Grumbling acceptance is still an acceptance
 This is still the common law rule, but not the rule in the sale of goods
 Minneapolis and St. Louis RR v. Columbus Rolling Mill Co: a counter-offer for a different
amount of steel tons was a rejection of the offer, when they tried to revive the old offer they
could not
o Last Shot Rule: seller sends counter offer with conflict terms, buyer gets the goods – accepts them –
and the seller’s last K becomes operative
 Implied-in-fact K – actions indicate acceptance
Battle of the Forms
- Legal Realists attempt to solve the problem of businesses failing to adhere to the Mirror Image Rule and do
not write a final version of their sale of goods – they each use standard forms and the forms conflict
o Under the formalist rule, there is no agreement on terms to the K
o Under UCC 2-207 a K exists and is preserved in broad terms
 This is to reflect that people in business do not worry about the details

- UCC 2-207: Basic Idea – it is not a counter offer unless expressly made conditional

o (1)“A definite and seasonable expression of acceptance…operates as an acceptance even though it

states terms additional to or different from those offered…unless acceptance is expressly made
conditional on assent to the additional or different terms”

o (2)“The additional terms are to be construed as proposals for addition to the K. Between merchants
such terms become part of the K unless:
 (a) the offer expressly limits acceptance to the terms of the offer;
 (b) they materially alter it; or
 (c)notification of objection to them has already been given within a reasonable time after
notice of them is received

o (3) “Conduct by both Ps 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
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 Act.”

o DTE Energy v. Briggs Electric Inc: a K exists under 2-207(1) go to 2-207(2) to decide terms – a
forum selection clause would become part of the K unless it is material, the court find it is material –
so it is not binding and drops out
o Textile Unlimited v. ABMH: There was no K – so we look to 2-207(3) to decide if an implied in K
is suggested; the conduct suggests a K – parties do not disagree – so we take the terms which they
agreed and couple with standadd provisions – there is no standard provision for arbitration – so it
drops out

- One way to resolve legal issues: Formalism (Classical Ks Law)

o Resolve legal disputes by application of formal rules
 Abstract, logical, syllogistic
 Mirror-image rule as an example
 Mills v. Wyman as a great example of Formalism’s harsh results
o Rationales:
 Predictability
 the rules apply the same in every case
 perfectly just
 Security of Transactions
 We know the answer and can advise our clients accordingly
 People will make more Ks – economic incentive
 Create good incentives for parties
 People become self-reliant and honor expectations
 We have a psychological impulse for order in life
- Second way to resolve legal issues: Pragmatism (Legal Realism)
o Resolve legal disputes by selecting the outcome that makes sense, practical sense
 Immanent law – law that is inherent in the situation
 Not imposed from above
 Organic development
 UCC 2-207 as an example
 We want the law to reflect the reality of the governed
o Rationales:
 Law should conform to the real world
 Security of transactions
 Predictability
 The common law is much less predictable because it does not conform with reality
 Formalism is based on the idea that everyone knows the rules, then formalism
becomes the trap
o Formalism would say “do a better job next time, the law is a good teacher”

- Cognitive Psychology:
o Based on behavioral economics
o People systematically err in their evaluation of choices – people are not as rational as we would
assume
 Optimism bias – people do not think bad things will happen to them
 Salience Bias
 People overestimate the occurrence of something bad that just happened will happen
to them – like a plane crash
 Endowment Effect – people ascribe more value to things, just because they own them
Shrinkwrap & Browsewrap
- THINK ABOUT THE OBJECTIVE STANDARD OF K LAW
o “a reasonably prudent internet user”

- Shrinkwrap:
o Buyer gets a camera and brings it home and opens the box, she finds a piece of paper in the box that
sets out the return policy
o This is the shrinkwrap term, because it is included it he box or container and not likely to be seen by
the buyer until after he has bought the goods, torn the evitable protective shrinkwrap off the box and
opened it
o Problems:
 The terms are not known to the buyer at the time of the contract
 General rule: once a K is concluded, one of the parties cannot unilaterally add terms to or
change the terms of the contract
 Any change in the terms must be agreed to by both parties
o Hill v. Gateway: Hill buys a computer – in the box is a K with an arbitration clause – Acceptance
occurs when the offeree declines to return within the 30 days

- Browsewrap:
o Buyer buys camera online – before purchase is complete, the website refers her to the seller’s
standard terms, which contain the policies
 May be on the web page itself or on a link or in a pop-up window
 Does not have to click “I accept”
o The user does not have to take deliberate action to manifest assent, the conclusion that the user did
assent to the term is not as compelling
o Klocek v. Gateway: approaches this a 2-207 case, 5 day return policy - consumer made the offer this
time and Gateway’s extra terms and arbitration clause should not be binding
o Specht v. Netscape: plaintiff had to click through multiple sites to get the terms or could download
without even being directed to them – P is not bound – a reasonable person would not have
understood acceptance (not UCC, this is software not a moveable good)
o Cairo v. Crossmedia: bots visit websites and take sales info, even though a website has terms on
their page forbidding this – told them to cease and desist – Cairo continued to do it
 A reasonable person would understand they are bound to these terms

- Clickwrap:
o Buyer buys camera online – before purchase is complete, the website refers her to the seller’s
standard terms, which contain the policies
 May be on the web page itself or on a link or in a pop-up window
 Has to click “I accept”
o Buyer has a duty to read the terms if they are available at the time of contracting
o It can also be embedded in software that the buyer has purchased – and may not have been available
o Specht v. Netscape: Communicator – plaintiff was held because had to click to agree to the terms
o “a reasonably prudent internet user would not be aware of hidden license terms”
Indefinite Agreements
- THESE PROBLEMS ARE VERY FACT SPECIFIC

- Problem arises when a K fails to specify all the terms to the agreement
o The essential/material terms to a K must reasonably definite
 Failure to specify a material term means K is not enforceable
 If a material term is indefinite – the entire K is indefinite
 Recovery is quantum meruit – quasi K – be compensated for the benefit conferred
o Varney v. Ditmars: action for wrongful discharge of an employee – Varyney was told he would get
more pay and a “fair share” of the profits – Court says it is not enforceable
 Compensation is a material to an employment K and “fair share” is too vague and uncertain
 There is no objective standard to look at to determine what it would be
o Contemporary understanding of Indefiniteness
 Restatement (2d) §33(2): “The terms of a K are reasonably certain if they provide a basis
for determining the existence of a breach and for giving an appropriate remedy”
 Courts are willing to save parties from themselves – enforcement is more lenient
o Oglebay v. Armco: relational contract – price mechanisms fail but there is an external standard
 The parties both manifested an intention to be bound even if the price mechanisms failed
 Normally a price term would be too indefinite – but here expert testimony gives the price
 Outlier K because it was a relational K and the parties were very close

- What about in the sale of goods?

o UCC “Gap Fillers”
 UCC Provides “gap fillers” (Default terms) for many open K terms
 Presumed intent
 If the parties don’t say otherwise, they must want what reasonable parties in the
circumstances would want
 UCC 2-204(3): “Even though one or more terms are left open a K for sale does not fail for
indefiniteness if the parties have intended to make a K and there is a reasonably certain basis
for giving an appropriate remedy”
 Efficiency justification – save on transaction costs
o Open price term: UCC 2-305 “The parties if they so intend can conclude a K for sale even though
the price is not settled. In such a case, the price is a reasonable price at the time for delivery if:
 Nothing is said as to price
 Price is left to be agreed by the parties and they fail to agree
 External price mechanism fails”
o Price to be supplied by party: UCC 2-305(2): “A price to be fixed by the seller or by the buyer
means a price for him to fix in good faith”
 Good faith is both subjective and objective
o THE UCC WILL NOT FILL IN QUANTITY (maybe if it is a relational K)

- The Cavalry: Promissory Estoppel:

o Blinn v. Beatrice Hospital: Gets competing job offer – “we’ve got 5 more years of work to do” –
court finds there is no K – but what about P.E?
 In Nebraska a promise for PE does not need to be as definite as a promise for consideration
 Logical issue here
Pre-Contractual Liability

- Agreement to Agree
o This is an agreement to reach a conclusion
 rarely enforced by the courts
o MGM v. Scheider: K for TV series – left out start date for filming the pilot and would “agree later”,
an essential term in the industry – court holds K exists and fills in gap with reference to something
certain
o Martin, Delicatessen v. Schumacher: “annual rent to be agreed upon” – court says the K is not
enforceable, material term must be definite and the parties voluntarily chose this
 Court is stricter because this is a real estate transaction
 Enforcing a K where intent is not clear seems to be problematic
 Want to respect private autonomy
o Hoffman v. Red Owl: Hoffman wants to be a Red Owl franchisee, they string him along but never
give him an offer – should be end of the case under classical K law theory
 Hoffman is entitled to relief under Promissory Estoppel
 This is very controversial, there was no definite promise to make an offer
 Logical issue
 Gets back reliance interests - not lost profits as that is expectation measure

- Agreement to Negotiate
o Agreement to at least talk to the other party
 Is often enforced by courts because a party can walk away if they cannot come to an
agreement
o Harder to tell if there is a breach
 Sometimes people just play hardball
o What about damages:
 At most – reliance
 Never expectation
o IN K LAW THERE IS NO DUTY TO NEGOTIATE IN GOOD FAITH (ABSENT AGREEMENT),
NO DUTY TO TRY AND REACH AN AGREEMENT
 But there is a duty to perform in good faith
o Dixon v. Wells Fargo: WF tells the dixons to withhold their mortgage payments before you can
modify your mortgage
 Defaulted and then WF forecloses
 Turns to PE – there was never a promise or offer to modify the loan
 MA law is unclear whether or not PE can be less definite than an offer
 Allows PE here due to the foreclosure crisis and in the interest of fairness

- Letter of Intent:
o It is a letter that is looking toward agreement, but there are still things to be worked out
 It gives general terms of a transaction
 Gives a flow chart or organization for the negotiation that will come
 Signals seriousness and shows good faith
o Structures the negotiations
o Generally NOT ENFORCEABLE – a reasonable person would not understand a commitment had
been made with a single letter of intent
o Empro v. Ballco – Empro created a letter of intent and Ballco drops out of the negotiation – Empro
says they have a deal – but Ball co had a right to back out
Acceptance
- The Acceptance is the final communication after the offer
o Restatement (2d) §50(1): “Acceptance of an offer is a manifestation of assent to the terms thereof
made by the offeree in a manner invited or required by the offer”
o Offer creates in the offeree the power to create a K by manifesting assent (acceptance)
o Offeror is the “master of the offer”
 Can set terms of the K (price/quantity/etc)
 Can create ways acceptance can be given
 Offeror has complete control over the offer and may condition acceptance to the terms of the
offer
 La Salle National Bank v. Mel Vega: the only mode by which Mel’s offer could be accepted
was through execution by the trust – the trust did not execute – no K
 The bank reserved to itself the power to accept
o You cannot accept something that isn’t an offer
 Bretz v. Portland General Electric Co
 PGE asks for a resubmission of an offer – Bretz accepts – but PGE did not give an
offer, there was no manifestation of commitment to the terms – the letter was asking
for further communication

- Acceptance in Bilateral Ks:

o Bilateral K – promise for a promise
 Must manifest an intent to commit
o Notification is a default rule: objective standard, common sense, fair and efficient
o The offeree must communicate acceptance for it to be valid
 Unless the offeror stipulates that notice is not necessary
o Unless the offer is supported by consideration, an offeror may withdraw his offer at any time before
acceptance and communication of that fact to him
 Hendricks v. Behee:
 The Smiths signed the agreement but did not notify the seller Behee before he
withdrew by notifying their real estate agent
 Therefore, no K – no notification in a bilateral K

- Acceptance in Unilateral Ks
o Acceptance made by performance
 Notification of acceptance is not necessary, unless K specifies otherwise
 This makes business sense: I don’t want a note that says you accept to do the job, I want you
to just do the job
 Carlill v. Carbolic Smoke Ball: π bought the ball and used it as directed – that was
acceptance - getting sick was just a condition to the promise by Carbolic Smoke ball
 There was a K whether or not she got sick
 But there was no duty to pay until and unless she got sick
 Industrial America v. Fulton:
 Broker matches two companies and then gets cut out – motive in manifestation of
assent is not important – there are many motives – doing the act is sufficient
acceptance – Fulton’s offer invited acceptance by performance
o Think Thomas v. Thomas
- Acceptance in the Sale of Goods
o Default Rule: UCC 2-206(1)(a): “Unless otherwise unambiguously indicated by language or
circumstances, an offer to make a K shall be construed as inviting acceptance in any manner and by
any medium reasonable in the circumstances.”
o Exception: UCC 2-206(1)(b): “Unless otherwise unambiguously indicated by language or
circumstances
 An offer to buy goods for prompt or current shipment invites acceptance either by prompt
promise or prompt or current shipment of conforming or non-conforming goods
 But shipment of non-conforming goods does not mean acceptance if seller seasonably
notifies buyer that it is only an accommodation”
o Corinthian v. Lederle Labs: the seller sent 50 vials of a vaccine (non-conforming) said it was an
accommodation – the shipment of non-conforming goods under 2-206 was not acceptance of the
buyer’s offer – it was an accommodation

- What if someone didn’t know about the offer?

o You cannot accept without knowledge of the offer
o Often comes into play with rewards – private rewards are governed by K law
 Glover v. Jewish War Veterans of US: ad in newspaper for reward on information of the
murderer, Glover told information then learned of the reward and tried to enforce it
 this is a unilateral K: performance of the act without knowledge of the offer is not a K

- You cannot withdraw your offer after acceptance:

o Ever-Tite Roofing Co v. G.T. Green:
 Offer: “binding upon written acceptance or commencing work”
 There was a time lag between the time from the offer to acceptance
 Delay was reasonable in the circumstances
 Acceptance made by commencement of work, the homeowner could no longer revoke
 Movs: by implication of “commencement of performance” must mean that notice is not
necessary”

- Exercise of Dominion over property as Acceptance:

o Restatement (2d) §69(2):
 “An offeree who does any act inconsistent with the offeror’s ownership of offered property is
bound in accordance with the offered terms unless they are manifestly unreasonable
 But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.”
o Example: Offer: you can have my car for $5000, if you accept – drive it home
 Offer says nothing, drives the car home – implication of acceptance
o Russel v. Texas Co: implied-in-fact K – π presents Texas Co with license for $150/day to use land –
“your continued use of my land constitutes your acceptance”
 They continued to use the land – was acceptance
 Texas co never intended to accept but Russell was reasonable to understand acceptance
o What about unsolicited merchandise?
 FTC Act – treat unordered merchandise as a gift, does not mean you have to pay

- Silence as Acceptance
o Courts generally do not regard silence alone as acceptance
o There are 3 circumstances where silence can be acceptance:
 Offeree takes services with reasonable opportunity to reject them and reason to know offeror
expected compensation
 Offeror indicates that assent may be manifested by silence and offeree intends to accept
 Previous dealing or other circumstances make it reasonable for offeree to notify offeror if he
does not intend to accept
 o Ammons v. Wilson co: Agent booked an order – waited 12 days and then declined to accept the
offer – shortening price went up - Tweedy could not silence as acceptance due to past course of
business there was usually no answer and then the goods were shipped in a week

- Agent’s Authority: all about K law – there is a contractual relationship between principal and agent
o Actual Authority: based on principal’s representations to Agent
 Express: spelled out in P’s directions to A
 Implied: implied from P’s directions, circumstances, etc.
o Apparent Authority: based on principal’s representations to third parties
 P has done or permitted A to do acts that would lead Ts reasonable to think A has authority
P is bound by acts of a is apparent authority is met in an objective standard
Consideration: The Bargain Requirement

- There are two competing theories of consideration:

o Formalist theory of Freedom of Contract: Courts should enforce promises that are the product of
bargains (normative)
 Free market is the essence of contract law
 Facilitate market exchanges of goods and services among rational actors
 Substance of the exchange is irrelevant (terms of the deal do not matter)
 Formal bargain is the only requirement – and they should be enforced
 Just need a quid pro quo
 Gifts are not enforceable
 Strong consideration requirement: Was there a bargain?
o Realist Theory of Substantive Fairness: Courts should enforce substantively “fair” bargains
 Presence of formal bargain is not determinative
 We do not enforce unfair bargains – is it “reasonable” to hold promisor to his promise?
 The major question: Was this adequate exchange?
 Finds substitutes for consideration: Was there reasonable reliance on a promise?
o So which do we use?
 Courts insist on a bargain, but also enforce promises in the interest of fairness when there is
not a bargain
 Default: freedom to contract

- There are two types of bargains (two kind of contracts)

o Unilateral K: a promise exchanged for a performance
 A “performance” is a completed act
 The K exists when you perform and not before
o Bilateral K: Exchange of a promise for a promise
 The K exists the moment we exchange promises
 The bargain is an exchange of promises – more common in business contracts
o The law enforces only promises with consideration:
 A bargained-for exchange
o Why do we have a bargain requirement?
 Cautionary function: ensure that the parties do not incur liability accidentally or impulsively
 Evidentiary function: proof that the contract was deliberate
 Protect the parties from themselves
 We want the trier of fact to have evidence that a contract was entered into
 Channeling function: gifts are not a function of market
 Bargains increase wealth: gifts do not
 Exchanges increase economic wealth on both sides: aggregate wealth

- There are two elements to consideration:

o Restatement (2d) §71:
 (1) to constitute consideration, a performance or a return promise must be bargained for
 (2) a performance or return promise is bargained for if it is sought by the promisor in
exchange for the promise and is given by the promisee in exchange for that promise
o Consideration = Bargain + Legal Detriment
 Bargain: the thing is sought by the promisor in exchange for his promise and given by the
promisee in exchange for that promise (unilateral or bilateral bargain)
 Legal Detriment: the promisee either:
 Does or promises to do something he has no legal obligation to do
 Refrains or promises to refrain from something he has a legal right to do
 o YOU HAVE TO HAVE BOTH BARGAIN AND LEGAL DETRIMENT TO HAVE
CONSIDERATION
 Kirksey v. Kirksey – brother-in-law: “if you come down and see me, I will let you have a
place to riase your family” - there was no consideration because there was no bargain, the π
(sister-in-law) neither promised nor did something for a promise and the Δ received nothing
from π
 The promisor must get something in return
 Hamer v. Sidway – uncle promises to pay nephew if he does not drink, use tobacco, swear, or
play cards – the bargain was the unilateral promise to pay for act of not smoking – the legal
detriment was the nephew refraining from smoking/etc which he has a legal right to do
 Kirksey and Hamer are in tension with one another
 Kirksey – no bargain – no benefit to brother, the house was a gift
 Hamer – Yes, bargain – uncle got the “warm fuzzies” of satisfaction – court does not
explain the benefit
 So, we must ask: does it look like the thing that was asked of the promisee benefit the
promisor?
o Professor Williston: “to determine whether something is a bargain or a gift,
we must determine if promisor benefited from the exchange”
 If there is a benefit, there is a bargain, and there is a K
 Langer v. Superior Steel: Langer, π, former employee of Δ suing for breach of K – Upon
retirement, Δ sent a letter to give pension of $100/mo as long as you live given: (1) you
preserve the loyalty to company; (2) do not become employed in a competitive occupation.
 Court enforces the K – the Δ received the benefit from π refusing to work elsewhere
 Conditional gift

- Black Letter Law: Intent to contract is not sufficient or necessary

o Nominal (Sham Consideration): when parties assert nominal (minimal) consideration, it cannot be
asserted as consideration – it appears more like blackmail than a contract
 Restatement (2d) §71 cmt b: “A mere pretense of a bargain does not suffice, as where there
is a false recital of consideration or the purported consideration is merely nominal”
o Insufficiency of consideration: even though the parties intended to have a K, nominal consideration
is insufficient
 Sufficiency does not equal adequacy
 Intent is neither necessary nor sufficient – you can be bound without intent and with sham
consideration you can be not bound with intent
 In Re Greene: adulterous affair  enter into a “contract” paying rent, life insurance, if she
pays him $1  the woman tries to enforce – but a $1 consdieration cannot be asserted
 It is too lopsided and it is not the K that appears
 Cautionary theory of Contracts: they went through a great deal to make this
enforceable but it still did not work
o Intent to K – Restatement (2d) §21: “Neither real nor apparent intention that a promise be legally
binding is essential to the formation of K, but a manifestation of intention that a promise shall not
affect legal relations may prevent the formation of a K”
 Cohen v. Cowles Media: Cohen is a campaign operative with damaging information to the
other side – goes to 2 reporters to give info if they promise not to reveal the name – they
reveal – Cohen says breach of K; Circumstances here say he was not intending to enter into a
legally binding agreement
 With restatement – Cohen, in this context, manifested an intent that this agreement
will not affect their legal relationship given the parties’ context in the agreement
 Objective theory: Reasonable people in these circumstances would not think they are
entering into a legally binding K – Newspapers, would not assume courts to be
involved
 o He should have explicitly said this is legally binding
o Presumption: Intent to make a legally binding agreement neither necessary nor sufficient
 Exception: Manifestation of intention not to be bound legally  no K (maybe)
o Motive is not relevant either – only the formal bargain
 Restatement (2d) §81:
 (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 a return promise
does not prevent the performance or return promise from being consideration for the
promise.
 Thomas v. Thomas: brother-in-law of π allows her to live in a house for $1/year and keep
repairs after her husband dies, due to her husband’s death bed wish. The motive was to give
her a place to live and keep agreement with dead brother/husband. The motive makes it look
like a gift, but consideration was the rent and promise to upkeep building
 Do not mix motive and consideration
 Why do we not pay attention to motives?
 Evidentiary function: subjective/interior is hard to prove – how do we even find the
motives or trust them in court?
 Motives might be mixed – there are many reasons why someone would enter into a K
 Cautionary principle of consideration: we cannot say K was a surprise if there was
valid consideration despite the motives
Consideration: Adequacy of Exchange
- The Peppercorn Theory:
o Courts will not investigate the adequacy of exchange, you can agree to sell your mansion for a
peppercorn
o Formalist view: substantive fairness not important – we do not care if the outcome is ridiculous, only
the forum of the constract matters
 Browning v. Johnson
 2 contracts
o Contract 1) Browning agrees to sell practice to Johnson
o Contract 2) Browning will pay Johnson $40,000 to give up Contract 1
o Later finds out that contract 1 was unenforceable because it was too indefinite
 He had no reason to give $40,000 for a worthless act
 Court says the $40,000 for Johnson giving up a worthless contract is
sufficient consideration – adequacy is not relevant.
 The case stands for the fact that adequacy does not matter – we only care about the
formal process of bargain
 Apfel v. Prudential Bache Securities:
 Δ paying for the use of a bond-selling technique that was already freely available,
says there is no consideration – but court says, yes, there is consideration
o Adequacy does not matter, only the sufficiency of formality of consideration
o Court seems to think the purchase was valuable to the corporation anyway
o Rationales:
 Libertarian/Party Autonomy: we let the parties decide the values
 Efficiency: hard to see what has value and what doesn’t – we don’t want court to decide
 Skepticism about relative values
o The court has general uneasiness about enforcing the peppercorn theory
 In Re Greene: exception – if it is too lopsided consideration that the parties are disguising an
agreement as something else, it is not a contract – Green had sham consideration

- What if the contract is unconscionable?

o UCC 2-302(1): “If a court finds a K to be unconscionable at the time it was made, the court may
refuse to enforce the K, or it may enforce the remainder of the K without the unconscionable clause,
or it may limit the application of the unconscionable clause to avoid any unconscionable result”
o There are two elements to unconscionability:
 1) The terms seem unreasonably fair to 1 party (lopsided agreement)
 2) the process of bargaining was unfair or involuntary on the party who got the bad deal
o This is NOT fraud, fraud is not necessary to establish unconscionability
 It is to be a rare exception with a gross inequality of bargaining power
o Jones v. Star Credit Corp: (pushing the envelope)
 Sellers persuaded buyers to pay $1200 for a freezer with a value of $300
 Court found unconscionability
 Remedy: you already paid $600, this is enough (solomonic)
o Presumption: Adequacy of exchange is irrelevant
 Exception: Nominal consideration is not sufficient (Greene), unconscionable exchange is
unenforceable (Star Credit)

- Is forbearing to bring a lawsuit legal detriment?

o You have a right to bring a law suit – so giving up that right is legal detriment
 This is assuming the claim was valid
o 3 approaches if the the claim was invalid – the law is split on this
  View 1: No Consideration (In Re Greene)
 View 2: Consideration if honest and reasonable belief that claim is valid
 First restatement
 View 3: Consideration if honest belief that claim is valid
 Restatement (2d) §74 – Settlement of Claims:
o (1) Forbearance to assert or the surrender of a claim or defense which proves
to be invalid is not consideration unless
 (a) the claim or defense is in fact doubtful because of uncertainty as to
the facts or the law, or
 (b) the forbearing or surrendering party believes that the claim or
defense may be fairly determined to be valid
o Presumption: Forbearing to bring an invalid claim is not legal detriment (no legal right to bring
invalid claims)
 Exception: Forbearing to bring an invalid claim is legal detriment if honest and reasonable
(or maybe just honest) belief that claim is valid
Consideration: Pre-Existing Duty
- The Pre-Existing Duty Rule is a corollary to the legal detriment doctrine
o Promise to perform a preexisting legal duty does not constitute consideration
o No legal detriment if the promisee does (or promises to do) something he already has a duty to do
 Duty imposed by public law
 Hypo: Police officer: “If you promise to protect my store I will pay you $150/week”
o No consideration because there is no legal detriment – he already has an
obligation to protect the store
 Duty imposed by prior conduct
 Hypo: I will pay you $50 if you promise to paint my house – agree – comes back, I
will only paint your house for $100 – Okay – paint the house – get paid $50
o The promise to pay $100 is not supported by consideration – the preexisting
duty existed by contract – a promise to do the same job is no legal detriment
 Logic: you cannot suffer legal detriment for doing something you are legally obliged to do
 There is a sense of coercion or extortion to require something additional
o Notion of duress, if we enforce the extra money it puts a premium on bad faith
 Alaska Packers v. Domenico: fisherman go on strike and demand higher wages to do the
same work
 The superintendent yields and agrees to pay them a higher wage
 At end of season, refuses to pay the extra money
 Court: insufficient consideration to pay you the extra money
o Makes it seem as though the fisherman are coercing the company
 FREQUENT PRE-EXISTING DUTY FACT PATTERN
o If the promisee agrees to a new duty, preexisting duty rule does not apply – there is consideration
 What if the sailors agreed to do a dance for the extra money?
 Could be an argument that a new duty was created – they have no obligation to dance
o But the contract calls for them to do “any work requested”
o The promise to pay part of an outstanding debt is not legal detriment – the promise to forgive a
payment of a debt for partial payment is not enforceable
 Levine v. Blumenthal: tenant/landlord during Great Depression – tenant advised landlord
they can barely pay the present rent and will not be able to pay increase for the additional
year of rent – landlord agrees to no increase – changes mind and sues for remainder
 Court upholds – his promise to forgive the increase in rent price lacked sufficient
consideration
o The tenants had a preexisting duty to pay the rent plus the extra
o No legal detriment with the additional promise
 Bolin Farms – general economic activity does not change duty
 Hypo: what if tenants said, if you forgive rent, we will not file for bankruptcy – they have a
legal right to file bankruptcy and would be foregoing a valid claim
 This might be a new duty

- What about making a modification to an existing K?

o This is an exception to the pre-existing duty rule and goes against the formalist theory
o Restatement (2d) §89(a): “a promise modifying a K not fully performed on either side is
binding…if the modification is fair and equitable in view of circumstances not anticipated by the
parties when the K was made…”
 Modification must be voluntary (this is a question of fact)
 Must be done in good faith and not in duress/coercion
 Angel v. Murray: trash collector wants an additional $10,000 for his trash collecting
deal due to an increase in costs – the K did not specify the number of houses, he was
 to collect all of the trash in the city regardless of the number of houses – there was an
increase of 400 houses in one year (the agreement only anticipated 20-25 a year)
o Unanticipated circumstances arose, and the city voluntarily agreed to second
deal
o The modification should be enforced and the pre-existing duty rule does not
hold
o THIS WAS AN EXECUTORY K: NOT FULLY PERFORMED
 Would look like a hold-up game if the K was already full performed
o Presumption: Promise to perform a pre-existing duty is not enforceable
 Exception: K modifications are enforceable in some circumstances – good faith in light of
unanticipated circumstances, etc.

- Modification under the UCC:

o UCC 2-209(1): “An agreement modifying a contract within this Article needs no consideration to be
binding”
o UCC 1-304: “Every contract or duty within (the UCC) imposes an obligation of good faith in its
performance”
 UCC 1-201(b)(20) “‘Good faith’ …means honesty in fact and the observance of reasonable
commercial standards of fair dealing”
 This is objective – reasonable commercial standards of fair dealing
 Subjective – honesty in fact
o 2-209 is subject to 1-304: Modifications under the UCC must be made in good faith, must be honest
and reasonable
Consideration: Illusory Promises
- Reminder:
o Promise: Restatement (2d) §2(1) “A promise is a manifestation of intention to act or refrain from
acting in a specified way, so made as to justify a promisee in understanding that a commitment has
been made.”

- Illusory promises arise in BILATERAL K where the legal detriment is a promise

o Illusory promise is when any one of the parties can escape the contract under foreseeable
circumstances

- Formalist view: Illusory Promises are NOT enforceable:

o Unless the promisor commits himself, there is no legal detriment and it is not enforceable
o Illusory promises show no manifestation of intent to enter into a promise
 Freedom of contract: if there is no binding promise, we do not hold someone to it
o Examples: “I promise to pay you if I feel like it”
o Rehm Zeiner: Requirement K
 The “unforeseen circumstances” clause in the K meant the buyer could have backed out of
the K at any time and was not obligated to buy.
 K was never binding in the first place

- Pragmatist view: Exceptions to the Illusory Promise – Implied Promises

o If an illusory promise implies another promise, it makes it a real commitment
o Implied commitments make what appears to be illusory binding
 Implied Good Faith
 Implied Best Efforts
o Common law and the UCC: an implied promise to use good faith and best efforts in an agreement
for exclusive dealings furnishes the necessary condition
o Good Faith:
 Requirement K: I promise to buy from you all the X you can sell
 Could be an illusory promise, but when the buyer says this, he means requirements
that he has in good faith, in the normal course of business
o McMichael v. Price – I will buy as much sand as you can sell me.
 Common sense: the buyer is going to re-sell the sand, there is an
implication that the buyer did not say: I commit to sell sand
 They both want money
 Output K: Seller commits to sell all the goods he produces
 I promise to sell you everything I produce
 This could be illusory (What if I don’t produce anything)
o Seller is making an implied good faith promise to sell
 Satisfaction Clause: Implied promise to exercise good faith in determining whether
performance is “satisfactory”
 Could be illusory but an implied promise to use good faith in determining whether it
is satisfactory
 Commitment depends on the circumstances:
o Objective satisfaction: commercial settings
o Subjective satisfaction: matters of taste (artwork)
 Omni Group v. Seattle First National Bank: real estate sale subject to an engineering
report – if the report is satisfactory to the Δ, the Δ shall purchase the property
o Looks illusory, like the K is in control of the Δ and Δ has not committed
o The purchaser implies to use good faith to determine satisfaction
  Output and Requirement K’s UCC 2-306(1): “A term which measures the quantity by the
output of the seller or the requirements of the buyer means such actual output or
requirements as may occur in good faith…”
o Best Efforts:
 Wood v. Lucy: Δ is a fashion designer, marketing her celebrity – employed π to be her
exclusive marketing agent – she said that he did not make an express promise to sell her
products – only promised that she would get profits
 Court: There is consideration
o Common sense: the point of this K is to make money, there was an implied
implicit promise he would use his business to help her
 Obvious rejection of formalism – understanding the implicit commitments
 Best Efforts in Sale of Goods K UCC 2-306(2): “A lawful agreement…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.”
 Best efforts means reasonable diligence

o Presumption: A statement that does not expressly commit the promisor is illusory promise and does
not qualify as legal detriment
 Exceptions: Implied promise to act in good faith
 Exceptions: Implied promise to use best efforts
Consideration: Moral Obligation
- Moral Obligation: Traditional View:
o Promise to pay for a benefit conferred in the past is unreasonable and is unenforceable
o Rationale: no consideration
 No bargain
 Cautionary
 Moral Skepticism
 Channeling
o Mills v. Wyman: Father promises to pay Good Samaritan for taking care of his son
 The promise is no good – a promise to pay for a past benefit is unenforceable
 Cautionary function of Ks: there was “transient gratitude” but does not create a K
 Channeling: court does not have resources to enforce all promises made
 No Quasi K – no appreciation by father

- Pragmatic Exception to Formalism

o Webb v. McGowin: the two worked together and Webb saved McGowin’s life – McGowin promises
to pay Webb because he is crippled now and cannot work
 Pretzels the case to make it work – that there is a “material benefit” Webb gave McGowin by
saving his life
 Under §86, McGowin will likely be found to be a gift
o Restatement (2d) §86:
 (1) A promise made in recognition of a benefit previously received by promisor from
promisee is binding to the extent necessary to prevent injustice.
 (2) A promise is not binding under (1)
 (a) if promisee conferred the benefit as a gift or for other reasons promisor has not
been unjustly enriched; or
 (b) to the extent that its value is disproportionate to the benefit
o Presumption: A promise to pay for a past benefit (Moral Obligation) is unenforceable for lack of
consideration
 Exception: a promise made in recognition of a benefit previously received is binding to the
extend necessary to prevent injustice (Restatement (2d) §86)
Consideration: Promissory Estoppel
- Promissory Estoppel is the great exception to the Bargain theory
o “death of the K”
o Basic principle: reasonable reliance – the K is enforced if P relied reasonably to his detriment even if
no bargain happened
o Historically used in limited categories such as family promises
 Ricketts v Scothorn: Grandpa will pay Katie if she quits her job
 She quits her job – after grandpa died, Katie sues estate executor
 Formalist: this was a promise to make a gift and is not enforceable
 But she relied on his promise and he induced her to quit – Grandpa should have
reasonably known she would rely on his promise - So court enforces his promise
o Restatement (2d) §90: “A promise which promisor should reasonably expect to induce action or
forbearance on the part of the promisee…and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of the promise. The remedy granted for
breach may be limited as justice requires.”

- 2nd development in Promissory Estoppel History: Charitable Subscriptions

o A promise made to a charity is binding even without consideration
o Restatement (2d) §90(2): “A charitable subscription…is binding under [§90(1)] without proof that
the promise induced action or forbearance.”
 Allegheny College: College brings suit against estate of Mary Johnston to collect the money
she promised him – Cardozo finds an implicit promise that the college will make a fund in
her name
 Says there was a bargain
 Promises to charities should be enforceable even if charity did not do anything in
exchange because that’s what public policy wants
o Policy judgment – we support charities in the USA
 Exception: Still need to know that injustice can only be avoided by enforcing promise,
though
 Congregation Kadimah Toras-Moshe: promise to pay congregation for a library, but
all the congregation had done was put the money into their budget, there was no
showing that they relied to their detriment – it would be more unjust to enforce the
promise

- More to Understand from Section 90

o It is a vague provision with broad language:
 3 questions must be answered:
 1) Was there a promise?
 2) Should promisor expect to induce reliance?
 3) Did the promisor rely?
 4) Can injustice be avoided only by enforcing promise?
o Remedies
 “The remedy granted for breach [of the promise] may be limited as injustice requires
 BEFORE: (under first restatement) use expectation measures (Ricketts/Allegheny)
 TODAY: (under second restatement) presume reliance – put P in position as if the K had not
been made – status quo ante
 NEVER: restitution
o Presumption: Consideration is required; only bargained for promises are enforceable
 Exception: Promissory Estoppel: promises enforceable on basis of promisee’s reliance, even
if no bargain
Presumption
 Adequacy of K is irrelevant (Peppercorn Theory)
 Intent to make a legally binding agreement is
neither necessary nor sufficient
 For bearing to bring an invalid claim is not legal
detriment (no legal right to bring invalid claims)
 Promise to perform pre-existing duty is not good
consideration and is unenforceable
 A statement that does not expressly commit the
promisor is illusory promise and does not qualify
as legal detriment
 A promise to pay for a past benefit (Moral
Obligation) is unenforceable for lack of
consideration
 Consideration is required; only bargained for
promises are enforceable
Exception
 Nominal Consideration is not sufficient (Greene),
unconscionable exchange is unenforceable (Star
Credit)
 Manifestation of intent not to be bound legally
means no K exists (maybe)
 For bearing to bring an invalid claim is legal
detriment if honest and reasonable (or maybe just
honest) belief that claim is valid
 K Modifications are enforceable in some
circumstances – good faith in light of
unanticipated circumstances, etc
 Implied promise to act in good faith
 Implied promise to use best efforts
 A promise made in recognition of a benefit
previously received is binding to the extent
necessary to prevent injustice (Restatement (2d)
§86)
 Promissory estoppel: promises enforceable on
basis of promisee’s reliance, even if no bargain
Statute of Frauds
- Ks that fall “Within the Statute”
o K’s by executors to answer for duty of decedent
o Ks in consideration of marriage (prenup)
 Not a K to marry
o Ks to convey interests in real property (includes leases)
o Ks to serve as surety (promise to pay the debt of another)
 Exception: if the surety’s main purpose was to benefit himself
 i.e. backing a car loan because he is using it to get around
o Ks not to be performed within one year
 Helps with memory
 Indefinite Ks must be written down if K could extend beyond 1 year
 10 months – No
 10 month K that starts in 5 months – Yes
 “for life” by terms COULD be performed in less than a year
o Ks for the sale of goods ≥ $500 (UCC 2-201)
 What about mixed K’s (service + a good)
 Is it covered by the UCC?
o We look to the predominate factor in the K – the sale? Or installation?
 What is the “jist” of the agreement
 Price is a good indication but not only indication

- UCC 2-201(1) Formal Requirements; Statute of Frauds

o “Except as otherwise provided in this section a K for the sale of goods for the price of $500 or more
is not enforceable…unless there is some writing sufficient to indicate that a K for sale has been
made between the parties and signed by the party against whom enforcement is sought…”
 UCC 2-105(1): “‘Goods’ means all things (including specially manufactured goods)
which are movable at the time of identification to the K for sale other than the money
in which the price is to be paid, investment securities… and things in action”

- Exceptions to Writing Requirement in UCC 2-201 (ONLY SALE OF GOODS)

o UCC 2-201(3): Specially manufactured goods:
 “if the goods are to specially manufactured for the buyer and are not suitable for sale to
others in the ordinary course of Seller’s business AND
 Seller, before notice of repudiation is received and other circumstances which reasonably
indicate that the goods are for Buyer,
 Has made either a substantial beginning of their manufacture or commitments for their
procurement.”
 ALL THESE MUST BE MET
o UCC 2-201(2) Written Confirmation between Merchants
 Between merchants if within a reasonable time a writing in confirmation of the K and
sufficient against the sender is received
 And the party receiving it has reason to know its contents,
 It satisfies the requirements of (1)…unless written notice of objection to its contents is given
within 10 days after it is received”
o UCC 2-201(3)(b): Admissions
 A K which does not satisfy 2-201(1) is nonetheless enforceable if:
 “the party against whom enforcement is sought admits in his pleading, testimony or
otherwise in court that K for sale was made,
 
But the K is not enforceable under this provision beyond the quantity of goods
admitted”
 DF Activities Corp v. Brown: Brown owns a chair that DF wants – Brown denies the
existence of a K to sell the chair – DF tries to depose her to get her to admit under oath
 Court does not allow it – she signed an affidavit – if she changed her mind it would
be perjury
o UCC 2-201(3)(c) Part Payment
 “with respect to goods for which payment has been made and accepted or which have been
received and accepted”
o Remember SWAP
 Specially manufactured Goods
 Written confirmation by a merchant
 Admission in Court
 Performance through receipt and acceptance (part performance)

- What qualifies as a writing?

o The writing need not be a formal document
o Restatement (2d) §132: “The memorandum may consist of several writings if one of the writings is
signed and the writings in the circumstances clearly indicate that they relate to the same transaction”
 Crabtree v. Elizabeth Arden Sales Corp: the employment K writing consisted of 3 documents
put together to give the essential terms
 Does not have to be formal documents (in this case it was memos and payroll cards)
o Can be pieced together from several writings
o Requirements:
 Signature
 K must be “signed” by or on behalf of the party against whom enforcement is sought
 At least one document must be signed
o Unsigned documents must relate to the same transaction
 Electronic signatures count
 Contents:
 Must reasonably identify the subject matter of the K
 Must reasonably establish that K has been made
 Must state with reasonable certainty the K’s essential terms
o This is where most litigation occurs
o UCC 2-201 – essential term is quantity
o In SOF cases, we acknowledge the agreement and the K exists, but if there is not a sufficient writing,
we say the K is not enforceable because memorial of a writing is lacking

- General Exception to the Statute of Frauds: Part Performance

o What do you need?
 Establish a K was entered into – evidence must be clear and convincing
 The party seeking to enforce the K must have partially performed
 Performance must be induced by misrepresentation which can include acquiescence or
silence
 A misrepresentation is a material false assertion of facts
o Serves an evidentiary function: no one would partly perform if an agreement did not exist
o Restatement (2d) §139: “a promise which promisor should reasonably expect to induce action or
forbearance on the part of the promisee… and which does induce such action or forbearance is
enforceable notwithstanding the statute of frauds if injustice can be avoided only by enforcement of
the promise”
  “The remedy granted for breach is to be limited as justice requires”
 This means reliance measure – sounds a lot like section 90
o Sullivan v. Porter: sale of real property (why it is within the statute); there is no writing and nothing
signed by the Δ, π wins, why?
 They let them work on land, accepted payment, and never told them they weren’t interested
in selling the land
o This is not promissory estoppel – this relies on a misrepresentation
o Remedy: specific performance

- What about part performance with the sale of goods?

o Reliance and UCC 2-201
 “Except as otherwise provided in this section”
 A K for the sale of goods for $500 or more is not enforceable unless there is a writing
 2-201 doesn’t provide an exception for reliance
 But courts are divided on whether reliance can overcome the writing requirement
under the UCC
Capacity

- Voidable K:
o Party may avoid the obligations created by the K – or ratify them
o Rescission (Cancellation) of K
 This is an equitable remedy
o K is enforceable against the other party (asymmetry)
o Rationale: problem with party’s consent
 Defenses are based on uneasiness about consent/bargaining process in which the K was
formed
 Consent was not valid and worthy of respect/enforcement
 It was not a choice at all so we do not enforce it

- Void K:
o K cannot be enforced by either party
o E.g. K to commit a crime, K against public policy
o Rationale: social good overrides parties’ consent
 We do not care if there was valid consent
 This is a rare exception in K law – there is a higher social good than your K to murder

- First Defense: Lack of Capacity

o This is qualitative not quantitative
 There are always differential capacities in a K – someone is smarter or better
o Minors/Infants
 Natural persons under 18 years old (completely categorical)
 The adult is assumed to know that the minor is below age – even if minor is silent
 Risk is on the adult to ascertain the age of the person he contracts with
 Ks are voidable at the election of the minor (not the adult)
 Even if adult has fully performed
 If minor chooses to go through, then the adult is bound
 ONLY A MINOR CAN WITHDRAW
 This is out of the desire to protect minors from unscrupulous business people and also
to protect minors from themselves (paternalistic)
 Restoration, not restitution
 Just has to bring back what is left of the good or the K
 Exception to no restitution: a K for Necessaries
o When a minor makes a K for necessaries (determined case by case), he is
bound to pay a reasonable price
o Rationale – we want to extend credit to minors in need but also do not want
adults to take advantage of minors
 Exception to the restitution – they still do not enforce the K, but minor
received a benefit for which he should pay
 Ratification by minor
 Minor can ratify K at the age of majority
 If silent on ratification – a minor must disaffirm within a reasonable time or silence
counts as a ratification
o Bowling v. Sperry: Larry purchases a car from the deaeler – “discovers the bearing is burned out” =
brings the car back and demands money – court upholds it because he is a minor
 Even though his aunt was with him, the dealer knew he was making the K with Larry
Mistake

- Mistake – equitable doctrine to make a K voidable by a party

o A mistake is a belief not in accord with the FACTS
 Vs. “misunderstanding” (think Peerless)
 Misunderstanding goes to meaning and interpretations
 Vs. “mistake in expression”
 They wrote it down incorrectly and did not catch the typo
 Vs. bad prediction
 Mistake does not go toward future events or changed circumstances (Bolin farms)
o Mistake as to a basic assumption as to which parties make a K
o Voidable by the mistaken party
 Rescission/cancellation allowed as a matter of equity
o UCC DOES NOT HAVE A PROVISION ON MISTAKE (interstitial with common law)

- Unilateral Mistake
o One party - Most often comes up with bids to a contract
o Key question: did the non-mistaken party know or have reason to know about the mistake?
 If yes, mistaken party can avoid (palpable mistake)
 If no, party cannot avoid the K
o Amorphous and vague purposefully for equity
o Unilateral Mistake –
 Restatement (2d) §153 “Where a mistake of one party at the time a contract was made as to
a basic assumption on which he made the contract has a material effect on the agreed
exchange of performances that is adverse to him, the contract is voidable by him if he does
not bear the risk of the mistake…and
 (a) the effect of the mistake is such that enforcement of the K would be
unconscionable; or
 (b) the other party had reason to know of the mistake or his fault caused the mistake”
o Boise Junior College v. Mattef: Mattef submitted a bid to the school that was off by 14%, the court
holds this is a material error – no gross negligence – ordinary care was given – Mateff is allowed to
rescind because the college would not be put in a worse position

- Mutual Mistake
o Both parties make same mistake
o Mutual Mistake
 Restatement (2d) §152(1): “Where a mistake of both parties at the time a contract was made
as to a basic assumption on which the contract was made has a material effect on the agreed
exchange of performances, the contract is voidable by the adversely affected party unless he
bears the risk of the mistake…”
o How do you “bear the risk”?
 If the mistake were hidden such that non-mistaken party did not have reason to see it
o Beachcomber Coins v Ron Boskett: both parties believed the dime is worth $500, but buyer finds out
it is counterfeit and worth only a dime, the court allows the buyer to give it back and get money back
 It had a material adverse impact
 According to customs within coin dealing – the buyer does not bear the risk
 K is cancelled
o Sherwood v. Walker: K to buy cow for $80 both parties believed she was barren – turns out to be
with calf and worth around $750 – sell can avoid the K because the mistake when to the basic
assumption on which the K was made
 o Lenawee County Board of Health v. Messerly; buyers want out of a sale for land, both parties
thought this land was rentable but there was a sewage problem leaving it indemnified
 Buyers could not get out – bore the risk in the “as is” clause in the K

- Qualitative vs. Quantitative Mistake:

o A qualitative mistake can excuse a K
 A qualitative mistake is a “difference in kind” and supports rescission
 Apples vs oranges
 A barren cow versus a fertile cow
 An apartment you can live in versus an apartment you cannot live in
 A dime versus a rare coin worth $500
o A quantitative mistake cannot excuse a K
 A difference in degree
 Think Apfel
o Paradox: a large quantitative difference can be evidence of a qualitative difference
 Can reflect underlying qualitative differences
 Gives lots of room for arguments on both sides – no categorically right answer
Mistake of Fact in Expression
- Mutual Mistake in Expression: occurs when an agreement is met but there is a mistake in writing
o the writing does not accurately reflect their agreement
o the parties are not asking for rescission, rather, they are asking for Reformation
 the court to reform the K and show the actual agreement
 this is an equitable remedy
o Requirements:
 Court has discretion to reform a writing to make it express the parties’ actual agreement
 Clear and convincing evidence that, because of a mutual mistake in expression, the writing
does not correctly state the parties’ agreement
o This is an exception to the parol evidence rule
o OneBeacon v. Travelers: their K makes “insured” seem like it extends to all lessees, but they want it
to be more narrow – they allow affidavits and testimonies to change the K to reflect the agreement

Mistake of Fact in Transmission

- Does the sender of the mistake in transmission bear the risk?

o Ayer v. Western Union Telegraph: π wants to sell wood at two-ten – puts in Telegraph through
Western Union – Western Union puts in two (not two-ten) – K is formed on the basis of the sender’s
mistake
 Sender should bear the risk unless the recipient should know of the mistake
Fraud (Misrepresentation) and Non-Disclosure

- Fraud in the inducement versus fraud in the execution:

o Fraud in the inducement (voidable)
 Misrepresentation about background facts that induce a party to make a K
 Grounds for rescission and independent tort action
 Party misrepresents quality of subject matter that made you enter into the K
o Fraud in the execution – fraud in factum – makes K void -(RARE)
 Misrepresentation about the K itself, the parties are tricked into signing the K

- Misrepresentation is an assertion that is not in accord with the facts

o If there is a misrepresentation, we think that the “consent” should not be upheld
 An assertion is a statement
 Half truth
 Concealment
 Non-disclosure
o Normally expression of opinion is an interpretation of facts and is not considered a misrepresentation
o Nor is mere puffery from a salesperson a misrepresentation
 Vokes v Murray: Vokes took dance lessons, swindled into spending $31,000 – the dance
instructor praises her and gives her awards – turns out she is not good
 This is fraud because it is an assertion that is not in accord with the facts
o The dance studio says it is within their business
 These people are experts in dance, therefore their opinion has a similarity to facts
o Sometimes an assertion is intentionally fraudulent, sometimes it is innocent
 An innocent misrepresentation is fraudulent only if it is a material misrepresentation

- When is there a duty to disclose?

o If a party makes no affirmative statement and does not reveal their full knowledge
o Traditional view: no duty to disclose information to other side on the condition that information is
equally accessible to both parties
 Free market idea to reward people for working hard and getting the benefit – encourages
diligence
 Laidlaw v. Organ: Buyer makes a K to purchase from seller – buyer learns the War of 1812
is over and the price of tobacco is going to rise. Seller asks: “do you know of any information
that would lead me to raise the price?” Buyer is silent.
 Held: no duty to disclose if information is equally available – remand for new trial to
answer if both parties could have known
 Problem: it’s hard to know where knowledge begins and ends
o Exceptions to the traditional Rule:
 Fiduciary or close relationship (lawyer/client)
 Previous statement or false impression
 If you made a half-truth and need to clear it up
 Mistake of the other party as to a basic assumption
 Unilateral mistake – think bidding
 K clause “all parties disclose relevant information within their possession”
 When other party asks a question there may be a duty to disclose
 Hill v. Jones: buyers of a house find ripples in the wood – “could that be termite
damage?” – seller says it is water damage
 o Under Laidlaw there would be no duty to disclose – the buyer had made many
visits and could have found the information - But the seller is in the better
position
o The court turns on the fact that they asked a question – “AZ has recognized
that a duty to disclose arises where buyer makes an inquiry, regardless if it is
material”
o Also adopts a Florida law – “where the seller of a home knows of facts
materially affecting the value of the property which are not readily observable
and are not known to the buyer, the seller is under a duty to disclose them to
the buyer”
 Affirmative duty on the seller to reveal information – buyers are more trusting so
there are more sales and transaction costs go down
Duress and Undue Influence

- Undue Influence
o Party was unfairly persuaded at a moment of weakness
o Undue influence is unfair persuasion
 Comes out of close relationships
 Pressure at a time of emotional or physical distress
 Fiduciary relationship between the parties (lawyer/client)

- Duress:
o Again, there are issues of consent – we do not want to enforce a K which someone did not
voluntarily agree to
o Party was coerced into agreeing (“sign or else”)
 Test: wrongful threat which leaves no reasonable alternative
 Rubenstein v. Rubenstein: husband conveys all his property to wife far below market
value because he is scared for his life – she will care for the children
o Court holds he did not make a valid choice so he will not be held to it
 “economic duress” – demonstrated by proof that “immediate possession of needful goods is
threatened”
 Austin v. Loral: Loral gets 6 million dollar K from government and subcontracts with
Austin – Loral gets a second K and Austin wants in – Loral says you must still be the
lowest bidder
o Austin says: you will get us the 2nd K and accept price increases or we will not
send you parts under the existing K – this is the wrongful threat (extortion)
o Loral could not obtain the parts elsewhere so there is economic duress - there
was no reasonable alternative – Loral’s business is contracting with the Navy
so if he loses this bid, he could lose his business – no other companies could
perform in time
o Duress is subjective – no bright-line rule because it is hard to define
 Not all threats are economic duress
 Machinery Hauling v. Steel of West Virginia– no Contract existed in a case where no
continuing contract existed between π and Δ and Δ threatened to not do business with
π in the future
o It is not a WRONGFUL threat if no contractual duty exists because there is no
obligation for them to do business together
 Hard bargain does not equal duress
Unconscionability

Unconscionability: an introduction to a controversial doctrine:

- It suggests that there is some defect in the bargaining process and there is ALSO a notion of unfairness in
the substance of the deal
o In tension with the theory of freedom of Contract
- It is an amorphous definition on purpose (In Re Louis Fleet)

- Unconscionability has 2 factors which must both be proved:

o 1) There was an absence of a meaningful choice (Procedural – sounds like other defenses)
 Unfair Surprise
 A term was snuck into the fine print and was unexpected – a reasonable person would
not have found them or understood them
 Hidden in the contract
 Gross Inequality of bargaining power
 There will always be some unequal bargaining power in K law
 But this is grossly unequal
o 1 party has superior power such as business sophistication and market share
 Adhesion contract
o “take it or leave it”
o No ability to negotiate terms
o Nothing inherently bad about adhesion but can be a sign of unequal
bargaining power
o 2) There are terms which are unreasonably favorable to one party (Substantive) * controversial
 According to commercial standards of time and place where the K is made
 Contrary to peppercorn theory – looking at the adequacy of consideration
o Williams v. Walker:
 Williams was a woman of limited education, supporting 7 children on welfare
 Walker is a furniture store who sold her several household items on installment plan
 Procedural: the Ks were 6 inches long and in fine print in confusing terms – sgned in the
home suggesting pressure
 Substantive: terms were such that she did not pay off anything until she paid off all of it
 Unreasonably favorable to the furniture store
o Misty Ferguson v. Countrywide: found an arbitration agreement in an employment K to be
unconscionable.
 Procedural: no chance to negotiate – adhesion K
 Conditioned on unemployment (in California it just matters that you could not
negotiate this particular K and not necessarily that you couldn’t go elsewhere)
 Substantive: one sided arbitration clauses
 All of employee’s claims will be arbitrated & pay for attorney’s feees
 Employer’s claims would go to trial court

- How do we resolve with Freedom of K and peppercorn theory?

o Converting libertarian ideals to say you have to look out for the other side when making a K
 Making wrong incentives
 Raises prices for everyone when they make less favorable outcomes for everyone
o Why this is controversial
- Commercial Unconscionability
o In general, commercial unconscionability is harder to establish between commercial parties
 It is usually harder to prove any inequality of bargaining power
 There is usually a rough parity of bargaining power
o Cross reference to Promissory estoppel (Baird) – it is harder for commercial parties to establish
promissory estoppel
o No longer limited to non-commercial settings but also applies to Merchant transactions
 Zapatha v. Dairy Mart: termination clause in a franchise agreement
 This π has a business training and education background
 Zapatha did not accept a new agreement so Dairy Mart terminated
 Procedural: no absence of meaningful choice
o No unfair surprise – not obscurely worded nor buried in the fine print
o Notice, asked him to see an attorney he chose not to
 Substantive: they would buy back equipment and goods; not a huge loss
o He also had the chance to terminate

Illegality and Public Policy

- Courts refuse to enforce Ks that are illegal or against public policy – they are void
o Cannot finish performance on K unlike in misrepresentation
o No possibility of restitution
o Some common law doctrines override Freedom of Contract
 Not going to enforce a K that is in violation of a judicially recognized public policy
o Economic rationale – encourage optimism – Δ skipping out
o Typically, a court will only address issues parties raise, but court will raise these sua sponte

- Violation of positive law (statute or constitution)

o Think Sherman Act, Murder/Prostitution/Slavery
o In pari delicto potior est condition defendants
 When parties are equally guilty, Δ is in a better condition (can skip out with money)
 COURT LEAVES THE PARTIES WHERE IT FINDS THEM
 Sinnar v. Leroy: π runs grocery store and pays bribe for liquor license
o Goes to court to get the $450 back
o This is conspiracy to corrupt and is VOID cannot be enforced
o No reliance – this is unreasonable reliance
o No quasi K
o Exceptions to no reliance measure:
 Parties not equally at fault
 Disproportionate forfeiture – too much loss
 Π was excusably ignorant of illegality
 (overregulation and a minor infraction)

- Void as against public policy

o Basic common law doctrine:
 Clauses that waive claims for negligence are generally enforceable (unless unconscionable)
as against public policy
 This is good for business
 Agreements to waive claims for “gross negligence” are generally not enforceable as against
public policy
  Cannot prevent claims for gross negligence, recklessness, intentional wrongdoing
o Prevent perverse incentives
o Broadley v. Mashpee Neck Marina: π rents doc from marina and was injured
 There was a very broad exculpatory clause so the court will not
enforce it
 Basically relieved the marina from any claim the π might bring
o Covenant not to Compete
 Agreement not to compete in business with a named party
 Typically a specified period in a specified location
 Unenforceable if “unreasonable in scope”
 Both time and geography must be reasonable
 Depends on business context
 Competition is good for the economy
o Data Management: said two computer guys could not work for five years in
the whole state of Alaska – void as against public policy
o Judges will follow social norms
 IVF cases – science is getting ahead of the law
 Legal system decided this is a contractual matter
 Kass v Kass – issue is answered by their agreement – K here
o This K is enforceable – go to medical research
 AZ v. BZ – do not enforce the K – we do not want to force an ex-husband to become
a parent (cannot sign away that right by a K)

- Severability
o What do you do if there 25 clauses to the K and only 1 is illegal
o 3 approaches you can take:
 (1) Decline to enforce whole clause or whole contract (unless so essential)
 (2)Rewrite clause or K to make it enforceable
 Not widely accepted outside non-compete context
 Too much authority for courts?
 Data Management
 (3) sever unenforceable portion and enforce remainder of clause or K
 If parties want this (how do we know?)