Chapter 9

INTRODUCTION TO CONTRACTS
Suggested Additional Assignments
Interview
Students should interview a businessperson who makes contracts. What are the subjects of the contracts?
What difficulties arise in negotiating them? What mistakes has the person made? What issue of law does
he or she wish were understood more clearly?
Writing: A Short Skit
Offer and acceptance cases often involve misunderstanding. Have students write one page of their own
dialogue, in a realistic setting, in which two or more parties incorrectly believe they have formed a con-
tract. The students should bring two copies to class, so that they can read the parts with another student.
When students perform the skits, the other students should attempt to identify the contract problem.
Award a prize for the contract problem that is the hardest to detect while still being definitely fatal to the
deal. The author must be able to explain what problem has crept into the negotiations, and how the parties
should have avoided the problem.
Drafting: A Letter of Intent
Businesspeople use letters of intent frequently, although lawyers often urge otherwise. Have students
draft a letter of intent that arguably does—and arguably does not—create a binding deal. The students
should be able to explain the nature of the ambiguity, and how to remedy it.
Research
Students should find an exculpatory clause, perhaps on a parking lot ticket, checkroom receipt, sports ad-
mission ticket, or elsewhere. Students should report on precisely what conduct or events the clause co-
vers, and whether, in their view, it is legal.
Research
Students should conduct research on contracts in the particular area of business in which they intend to
major. They should bring one example of such a contract to class with them in order to discuss the impact
such a document has on the predictability of commerce within their particular field of concern.
Action Learning: Drafting a Noncompete Clause
Students should assume that they are partners in a bakery in St. Louis, Missouri, that specializes in exotic,
expensive pastries. The business has grown quickly in its first four years, and now sells its products to
stores and restaurants throughout Missouri, Illinois, and Iowa. Sandra has applied for a management posi-
tion, and she appears the perfect candidate. She has five years experience as a food wholesaler, and a rep-
utation as a superb amateur chef. Sandra would analyze the market for new products, create new pastries
and other foods, and assist in selling new and existing products. Sandra would work with company chefs,
salespeople, and customers–just about everyone. The students’ assignment: to draft a noncompete clause
for Sandra’s contract.

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2 Unit 2 Contracts

Drafting: Unconscionability
Students should draft a contract clause that they consider unconscionable, the goal being to make the un-
conscionability as subtle as possible. Students might construct such a clause in a car rental agreement, a
warranty for computer software, an apartment lease, a warranty for a dog purchased from a pet store, or
any other contract that they can imagine.
Analysis: Puffery and Misrepresentation Distinguished
Students should write one page of dialogue or prose describing a sales pitch made to a consumer. The
seller should tread the fine line between puffery and misrepresentation, and the student should be able to
declare whether the conduct was lawful, and why.

Chapter Overview
Chapter Theme
If you understand the contract issues that courts scrutinize, the agreement you draft is likelier to be en-
forced. You thus achieve greater control over your affairs—the very purpose of a contract.
Quotes of the Day
The whole duty of government is to prevent crime and to preserve contracts.
—Lord Melbourne (1779–1848), British Prime Minister
Promises are the uniquely human way of ordering the future.
—Hannah Arendt (1906–1975), German-American political scientist,
in Crises of the Republic

Contracts
For a contract to be enforceable, these key characteristics must be present.
• Offer
• Acceptance
• Consideration
• Legality
• Capacity
• Consent
• Writing (only certain types of contracts must be in writing.)

Is it certain that the defendant promised to do something?

If she did promise, is it fair to make her honor her word?
If she did not promise, are there unusual reasons to hold her liable anyway?

Key Issue: Predictability

From the earlier research assignment, students should be able to show particular examples of the way
contracts provide certainty in business transactions throughout various areas of business.
Chapter 9 Introduction to Contracts 3

Types of Contracts
In a bilateral contract, both parties make a promise.. When the bargain is a promise for a prom-
ise, it is a bilateral agreement. In a unilateral contract, one party makes a promise that the other
party can accept only by actually doing something.

A contract is executory when it has been made, but one or more parties has not yet fulfilled its
obligations. The moment the parties strike their bargain, they have an executory bilateral express
contract. A contract is executed when all parties have fulfilled their obligations.

A valid contract is one that satisfies all of the law’s requirements. It has no problems in any of
the seven areas listed at the beginning of this chapter, and a court will enforce it. An unenforce-
able agreement occurs when the parties intend to form a valid bargain but a court declares that
some rule of law prevents enforcing it. A voidable contract occurs when the law permits one
party to terminate the agreement. This happens, for example, when the other party has committed
fraud, or when an agreement has been signed under duress. A void agreement is one that neither
party can enforce, usually because the purpose of the deal is illegal or because one of the parties
had no legal authority to make a contract.

In an express contract, the two parties explicitly state all important terms of their agreement. The
vast majority of contracts are express contracts. Some express contracts are oral, and some are
written. In an implied contract, the words and conduct of the parties indicate that they intended
an agreement.

Students often find implied contracts difficult to understand, perhaps because the other paired
terms introduced in this section present two faces of some aspect of contract: bilateral and uni-
lateral, executory and executed. People do not enter negotiations with intent to form an implied
contract. Implied contract is not another method of forming a contract, but a remedy a court may
apply after the fact if there was no valid contract between the parties but their words and conduct
manifest implied intent that certain promises would be legally enforceable.

You Be the Judge: Mr. W. Fireworks, Inc. v. Ozuna1

Facts: Mr. W sells fireworks. Under Texas law, retailers may only sell fireworks to the pub-
lic during the two weeks immediately before the Fourth of July and during two weeks imme-
diately before New Year's Day. And so, fireworks sellers like Mr. W tend to lease property.
Mr. W leased a portion of Ozuna's land. The lease contract contained two key terms:

"In the event the sale of fireworks on the aforementioned property is or shall become unlaw-
ful during the period of this lease and the term granted, this lease shall become void."

"Lessor(s) agree not to sell or lease any part of said property including any adjoining, adja-
cent, or contiguous property to any person(s) or corporation for the purpose of selling fire-
works in competition to the Lessee during the term of this lease, and for a period of ten years
after lease is terminated." (Emphasis added.)

1
2009 Tex. App. LEXIS 8237 Court of Appeals of Texas, Fourth District, San Antonio, 2009
4 Unit 2 Contracts

A longstanding San Antonio city ordinance bans the sale of fireworks inside city limits, and
also within 5,000 feet of city limits. Like all growing cities, San Antonio sometimes annexes
new land, and its city limits change. One annexation caused the Ozuna property to fall within
5,000 feet of the new city limit, and it became illegal to sell fireworks from the property.
Mr.W stopped selling fireworks and paying rent on Ozuna's land.
Two years later, San Antonio's border shifted again. This time, the city disannexed some
property and shrank. The new city limit placed Ozuna's property just beyond the 5,000 foot
no-fireworks zone. Ozuna then leased a part of his land to Alamo Fireworks, a competitor of
Mr. W.
Mr. W sued for breach of contract, arguing that Ozuna had no right to lease to a competitor
for a period of ten years. The trial court granted Ozuna’s motion for summary judgment. Mr.
W appealed.
You Be the Judge: Did Ozuna breach his contract with Mr. W by leasing his land to a com-
petitor?
Argument for Ozuna: Your honor, as soon as San Antonio's city limits changed and my cli-
ent's land fell within 5,000 feet of the city, it became illegal to sell fireworks on his property.
The lease is quite clear. By its own terms, it became void. Mr. W therefore had no continu-
ing right to enforce any part of it.
Mr. W seeks to selectively enforce one portion of a void lease that it finds advantageous. The
company shows no desire to pay rent, or to live up to any other parts of the lease.
When the city's boundary changed again, my client was free to lease his property to any seller
of fireworks he wished.
Argument for Mr. W: Your honor, my client paid for several things when he leased Ozuna's
land. He was buying more than the right to sell fireworks; he was also paying for exclusive
rights. The fact that selling fireworks became illegal on the property does not require that the
court void the non-compete agreement.
Before San Antonio's city limits shifted, Mr. W lived up to its part of the bargain by paying
rent each month. Mr. Ozuna has certainly not offered to return those payments. Yet he is try-
ing to get out of his promise not to lease the land to any other fireworks company.
It is Ozuna who seeks to escape selected parts of the contract. He should be held to his agree-
ment, and he should not be permitted to lease his land to a competitor of Mr. W.
NOTE: The court held that the agreement was in fact void, and that Ozuna was free to lease
the land to another fireworks seller.
Chapter 9 Introduction to Contracts 5

Case: DeMasse v. ITT Corporation2

Facts: Roger Demasse and five others were employees-at-will at ITT Corporation, where they
started working at various times between 1960 and 1979. Each was paid an hourly wage.
ITT issued an employee handbook, which it revised four times over two decades.
The first four editions of the handbook stated that within each job classification, any layoffs
would be made in reverse order of seniority. The fifth handbook made two important changes.
First, the document stated that “nothing contained herein shall be construed as a guarantee of
continued employment. ITT does not guarantee continued employment to employees and re-
tains the right to terminate or lay off employees.”
Second, the handbook stated that “ITT reserves the right to amend, modify, or cancel this
handbook, as well as any or all of the various policies [or rules] outlined in it.” Four years lat-
er, ITT notified its hourly employees that layoff guidelines for hourly employees would be
based not on seniority but on ability and performance. About 10 days later, the six employees
were laid off, though less senior employees kept their jobs. The six employees sued. ITT ar-
gued that because the workers were employees at-will, the company had the right to lay them
off at any time, for any reason. The case reached the Arizona Supreme Court.
Issue: Did ITT have the right unilaterally to change the layoff policy?
Decision: ITT did not have the right unilaterally to change the layoff policy, because a valid
implied contract prevented the company from doing so.
Reasoning: An employer has the right to lay off an at-will employee for virtually any reason.
That means that the employer also has the right unilaterally to change the layoff policy. How-
ever, when the words or conduct of the parties establish an implied contract, the employee is
no longer at-will.
In deciding whether there is an implied contract concerning job security, the key issue is
whether a reasonable person would conclude that the parties intended to limit the employer’s
right to terminate the employee. A company makes a contract offer when it puts in the hand-
book a statement about job security that a reasonable employee would consider a commitment.
The worker can then accept that offer by beginning or continuing employment. At that point,
the parties have created a binding implied contract. Here, the first handbook declared that
layoffs would be based on seniority. The employees accepted that offer by working, and from
that time on, an implied contract governed the employment relationship. ITT had no right uni-
laterally to change the layoff policy.

Question: Why do companies have employee handbooks or manual?

Answer: Employee manuals are important for a number of reasons. First, they let the employees
know what the policies and procedures are for that company, such as employee leave policies, termi-
nation policies, discrimination policies, etc. Also, employees can judge whether the company shares
similar values and priorities as they when it comes to fair treatment at work. Lastly, by creating an

2
194 Ariz.500 983 P.2d 1138 (Supreme Court of Arizona, 1999).
6 Unit 2 Contracts

employee manual, both employer and employee know what to expect from each other and it hopeful-
ly reduces ambiguity and confusion if a problem does arise.
Question: Was it right for ITT to change its employee manual?
Answer: A company’s policies and mission may change over the years, and it is important to keep
employees abreast of such changes that affect their employment.
Question: What was the problem with the changes to ITT’s manual?
Answer: The changes themselves took away a right of hourly employees: layoffs based on reverse
seniority. The employees relied on this provision. However, what the plaintiffs sued for was the man-
ner by which ITT instituted this change, ITT’s unilateral change to the manual.
Question: Were the plaintiffs claiming the new manual did not create a contract because there was no
consideration?
Answer: Not quite. What the plaintiffs claimed was that the old manuals that created the reverse sen-
iority layoff provision created an implied contract. And because it was a contract, it could not be
changed unilaterally; there must be new consideration to support the change. So, ITT’s fifth version
was a unilateral change, for which there was no consideration.
Question: How can ITT, or any company, change its employee manual?
Answer: Companies change their employee manuals all the time. Not every term in an employee
manual creates an implied contract, if the term merely describes the employer’s current policies, it is
not an implied contract term and employers do not need new consideration to support such a change.
If, however, the term could reasonably be considered a commitment by the employer, in order to
change that term, the employer needs acceptance and consideration to change it. The employer and
the employee must have made a bargained for exchange.
Additional Case: Britt v. Chestnut Hill College3
Facts: Joseph Britt, a detective, enrolled in a Master’s Degree program at Chestnut Hill College in Penn-
sylvania. Chestnut Hill promised students credit for life experience. The college promised Britt important
credits for his life experience if he enrolled, and after he did enroll, the school awarded the promised cred-
its.
Britt took a one-week required course entitled “Gender Stereotyping,” taught by Professor Klee. As
part of a classroom exercise, Klee directed another student, who Britt claimed was a “known” homosex-
ual, to make physical advances toward Britt. The student complied by telling Britt that he was attracted to
him and by touching Britt above the knee. Britt rejected the student’s advances. The next day, Klee as-
signed that same student to serve as a “facilitator” to “deal with Britt’s anger.” Klee became openly criti-
cal of Britt’s attitude and performance in the class and awarded him a “C” grade for the course.
Britt claimed that Klee thereafter did everything within his power to sabotage Britt’s reputation and
academic career. Klee arranged to have himself assigned as Britt’s academic advisor and, after doing so,
personally revoked, and successfully persuaded other instructors to revoke, the life experience credits that
had been granted to Britt upon admission to the college. The revocation of those credits caused Britt not
to graduate as scheduled.
Britt sued. The trial court dismissed his contract claim, essentially ruling that a college had an abso-
lute right to award and revoke credits as it saw fit. Britt appealed.
General Question: The college claimed an absolute right to assign and revoke credits. Is this attitude
typical or atypical for a college?

3
429 Pa.Super. 263, 632 A.2d 557, 1993 Pa.Super.LEXIS 3356 (Penn.Super. 1993).
Chapter 9 Introduction to Contracts 7

Question: What legal argument is Britt raising?

Answer: Britt is claiming that he had a valid contract–either express or implied–for the credits given
him based on life experience.
Question: Make an argument in support of Britt.
Answer: The college made a deal and should be forced to stick to it. This college, like many, is using
the idea of “life experience credits” as a lure to attract older students. If a college chooses to advertise
such credits to attract students, then to award them when a student applies or enrolls, it should be held
to its promise.
Question: Make an argument on behalf of the college.
Answer: This is not a business deal. All we have here is an unhappy college student. If Britt wins on
the contract issue, can he also sue to have his grade of “C” raised to an “A”? Can all students file suit
just because they are unhappy with grades, credits, or class schedule? Is a student entitled to a refund
because she does not like her dorm roommate, or had an unhappy date on Friday, or thought that last
night’s chicken potpie was overcooked? A college is a collegial place of learning, and both professors
and the administration must have wide latitude in assigning grades and credits. Britt’s aggressive re-
action to an innocuous in-class exercise demonstrated that he was desperately in need of some sensi-
tivity training–the precise purpose of the course! Should students like Britt decide a course’s content?
A college’s curriculum? Must we reward Britt’s immature conduct by appointing him provost?
Question: How would you rule?
Answer: On appeal, the court reversed on the contract claim, holding that Britt had alleged a legiti-
mate claim:
The economic reality is that colleges and universities are competing to attract nontraditional
age students and many of those institutions have designed programs to cater to them. Through
advertising and recruitment campaigns, an increasing number of colleges and universities are
promising students who wish to return to school, flexible schedules, evening and weekend
classes, and academic credit for life experience. Students, in turn, attracted by these options,
may seek to apply to a particular institution and inquire as to the requirements they will have
to meet in order to achieve their degree. Where an individual is induced to enroll in a univer-
sity or college based upon an award of certain life experience credits, the institution cannot
then, after the student’s enrollment, revoke those credits.
We point out that, by reaching this conclusion, we are in no way attempting to interfere
with an academic institution’s rights to develop its curriculum and set requirements for a giv-
en degree. However, where a college or university promises a student, upon enrollment, a
certain amount of life experience credits, the purpose of which is to enable that student to
graduate at an accelerated rate, provided that he or she successfully completes the course cho-
sen, the institution cannot breach its promise. Where a student can prove that such an agree-
ment was made, the university or college cannot revoke the life experience credits.
General Question: Has your college, or that of a friend, made any promises that it has failed to keep?
In your view, did the promises create a contract? Was the contract express or implied?
Additional Case: Andre v. Pace University4
A recent small claims case from New York illustrates the frustrations that students sometimes experience
when dealing with academic bureaucracy. Peter Broome and Marina Andre wanted to take a beginners’
computer programming course for which there were no prerequisites, such as advanced math or science.

4
N.Y. Law Journal, June 9,1994, at 25 (City Court of Yonkers, N.Y., 1994).
8 Unit 2 Contracts

The Pace University catalogue encouraged students without a computer background to take courses lead-
ing to a Graduate Certificate in Programming. The catalogue described CS502, “Fundamental Pascal Pro-
gramming,” as a basic orientation course, with no prerequisite, covering elementary programming topics.
The students met with the chairman of the department who assured them that their high school math
background was sufficient to complete CS502 without difficulty.
The students applied to and were accepted by Pace University, and enrolled in CS502. Each paid
$855, which was one-half of the tuition and fees for the one course. Professor Carrol Zahn taught the
course. At the first meeting, Professor Zahn had neither a syllabus nor any assigned text. By the second
class, he identified a Pascal text that was required, and assigned Problem 1–6 as homework. The students
each bought the book for $30. The textbook’s preface made it clear the book was not for beginners.
At the third class, Broome and Andre told Professor Zahn that the math for Problem 1-6 was way
over their heads and that they had failed to complete the homework. Other students had also failed to
solve the problem. Professor Zahn reassured everyone and told them to keep working at the problem. Af-
ter class, Broome and Andre requested a meeting with their academic advisor, stressing the urgency of
their problem, but he did not meet with them for several weeks. On the fourth day, the professor spent the
entire class trying to solve the troublesome problem and failed to do so. His homework assignment? Keep
working at Problem 1-6. During the fifth day, Zahn continued attempting and failing to solve the problem.
Broome and Andre left class in frustration and never returned.
Broome and Andre demanded a refund, but Pace refused to give it. The students’ academic advisor
admitted that Zahn had chosen an inappropriate text and was teaching the course improperly. But he re-
fused to interfere because Zahn was a tenured professor. The students sued.
General question: How would you rule in this case?
The court found that Pace had breached its educational contract. The school had promised an elemen-
tary computer course and had utterly failed to deliver it. The court also found that the Pace Catalogue was
false, deceptive, and misleading; that Pace had breached its fiduciary duty to the two; that the school had
committed educational malpractice; and that it had violated New York’s deceptive business practices
statute. The court awarded each student actual damages of $885 per student plus costs and interest, addi-
tional damages of $115 under the deceptive business statute; and punitive damages of $1,000, for a total
of $2,065.31.

Remedies Created By Judicial Activism

Promissory Estoppel and Quasi-Contract
Courts created promissory estoppel and quasi-contract as “fall-back” remedies for cases in which
the plaintiff cannot prove a valid contract with the defendant. They are not equivalent to a claim
of breach of contract for at least two reasons: both require a plaintiff to convince the court, as an
essential element of the claim, that justice requires a judgment for the plaintiff, and in both a
successful plaintiff will almost invariably receive a smaller award of damages—reliance damag-
es or restitution damages, as the case may be—than would be the case in a claim for breach of
contract.

Key Issue: Quasi-Contract

Even when there is no contract, a court may use quasi-contract to compensate a plaintiff who can
show that:
• The plaintiff gave some benefit to the defendant;
• The plaintiff reasonably expected to be paid for the benefit and the defendant knew this;
and
Chapter 9 Introduction to Contracts 9

• The defendant would be unjustly enriched if he did not pay.

Case Summary: Novak v. Credit Bureau Collection Service5

Facts: David Novak was unconscious. He suffered a brain aneurysm, a weakness in the brain’s
blood vessels that can be life-threatening. An ambulance took him to Saint Regional Medical
Center, where doctors operated successfully. He remained in the hospital for two months and
was discharged, able to go about life’s normal activities.
Novak did not pay the Medical Center’s bill, and the claim was assigned to a collection
agency which sued Novak for the debt.
The trial court found that Novak owed the debt under quasi-contract because Novak was un-
conscious and could not consent to the treatment, and the medical services were necessary to
avoid serious bodily injury or death.
Issue: Was the credit bureau entitled to damages based on quasi-contract?
Decision: Yes, the bureau was entitled to damages based on quasi-contract.
Reasoning: Novak argues that the credit bureau is entitled to nothing because he never expressly
or impliedly requested medical services. However, the real issue in a case of quasi-contract is
whether the plaintiff supplied a benefit under circumstances in which compensation is essential
to avoid unjust enrichment.
A plaintiff who has supplied services to the defendant, although acting without the defendant’s
consent, is entitled to restitution if he expected to charge for his work, the services were neces-
sary to prevent serious bodily harm, and it was impossible for the defendant to give consent.
The hospital saved Novak’s life, and its doctors assumed they would be paid. Novak could not
give consent because he was unconscious. Novak would be unjustly enriched if he received these
vital services for free.
Affirmed.
Question: In this case, Novak never agreed to the services. Isn’t one element of a contract that there
must be an agreement; an offer and acceptance?
Answer: Yes, those are elements of a contract; however, quasi-contract is a theory of recovery when
there is no contract. In this case, there is no contract, but that does not necessarily mean the credit bu-
reau should not get paid.
Question: The court laid out some specific reasons why people like the Medical Center should be
paid under these circumstances. Can you think of any nonlegal reason why the decision makes sense?
Answer: There are several public policy reasons why this decision makes sense. First, it is fair: this is
the Medical Center’s work, they routinely provide these services, and they reasonably expect to get
paid for these services. If a court denied them compensation for services that are the heart of what
they do, it would seriously undermine the Medical Center’s, and facilities like it, ability to stay in
business. Also, if the medical center did not get compensated for rendering life saving assistance in
these circumstances, they would stop rendering life saving help (or any other kind) to patients who
enter the emergency room unconscious. On a larger level, how would out system of emergency care
be different if hospitals and medical centers refused such treatment?

5
877 N.E.2d 1253, Ind.App., 2007.
10 Unit 2 Contracts

Sources of Contract Law

Common Law
Express and implied contracts, promissory estoppel, and quasi-contract were all crafted, over
centuries, by courts deciding one contract lawsuit at a time. Many contract lawsuits continue to
be decided using common law principles developed by courts.

Uniform Commercial Code

The Uniform Commercial Code (UCC) was created in 1952. The drafters intended the UCC
to facilitate the easy formation and enforcement of contracts in a fast-paced world. The Code
governs many aspects of commerce, including the sale and leasing of goods, negotiable instru-
ments, bank deposits, letters of credit, investment securities, secured transactions, and other
commercial matters. Every state has adopted at least part of the UCC to govern commercial
transactions within that state.

Key Issue: Scope of the Uniform Commercial Code

Additional Case: Pittsley v. Houser6
Facts: Jane Pittsley hired Hilton Contract Carpet Co. to install carpet in her home. Hilton installed the
carpet, but Pittsley complained that there were numerous defects in the work. Hilton attempted to fix the
problems but failed to satisfy Pittsley. She sued, seeking to rescind the contract and get her money back.
Hilton responded by seeking the remaining $902 owed under the contract.
Under the UCC, a buyer can reject defective goods, or revoke acceptance. Pittsley argued that she
was entitled to reject the carpet because of the many problems, or, if she had accepted it, that she should
be permitted to revoke her acceptance. Hilton argued that she could do neither, because the UCC did not
govern the contract. He asserted that their agreement was one for services–namely, his installation. Under
the common law of contract, he argued, Pittsley had no right to reject or revoke except in an extreme case,
which this was not. A magistrate agreed with Hilton, but the trial judge ruled that the UCC did govern the
deal. Hilton appealed.
Issue: Did the UCC or the common law of contract govern this contract?
Holding: The UCC governed the contract, and Pittsley wins. This is a hybrid case, involving goods and
services. Different jurisdictions use two approaches in such cases. The “predominant factor” test looks at
the primary purpose of the contract: if it is mainly a contract for goods, the UCC governs; if principally
for services, the common law governs. Other jurisdictions sever the contract, applying the UCC and the
common law to the respective aspects of the agreement.
This court adopts the “predominant factor” test and concludes that Pittsley entered into the agreement
primarily to obtain carpet of a certain quality and color—that is, to obtain goods. The installation was in-
cidental. The court remanded to decide whether Pittsley had rejected or revoked, and if she had done one
or the other, to apply the UCC remedies.
Question: In general, Article 2 of the UCC governs what kind of transactions?
Answer: Contracts for the sale of goods.
Question: What are goods?
Answer: Goods are most things that are movable (except money, securities, and certain legal rights).

6
125 Idaho 820, 875 P.2d, 232, 1994 Ida. App. LEXIS 71 (Idaho Court of Appeals, 1994).
Chapter 9 Introduction to Contracts 11

Question: The dispute here is about whether the UCC or the common law governs the transaction.
However, isn’t it obvious that a carpet is “goods”?
Answer: Yes, a carpet is clearly goods.
Question: So what is the argument about?
Answer: This contract involved both the sale of a carpet, which is clearly a transaction in goods, and an
agreement for its installation, which is a service. Services contracts are governed by the common law.

Agreement
Meeting of the Minds
Parties form a contract only if they have a meeting of the minds. For this to happen, one side must make
an offer and the other must make an acceptance. An offer proposes definite terms, and an acceptance un-
conditionally agrees to them.
Key Issue: Letters of Intent
Additional Case: Quake Construction v. American Airlines
Facts: Jones Brothers Construction, general contractor on an American Airlines airport project, invited
Quake Construction to bid as subcontractor. Quake bid and Jones orally informed the company that it had
the job. Jones sent Quake a letter of intent stating that Quake had been “awarded the contract,” describing
the work, but including a clause reserving to Jones the right to cancel the letter of intent if the parties
could not agree on a complete contract. The parties never signed a complete contract, Jones hired another
company to do the work, and Quake sued.
Issue: Was Jones Brothers’ letter of intent a valid offer?
Holding: The letter of intent was ambiguous regarding the parties’ intent to be bound by it. The letter in-
cluded many precise, detailed terms, indicating an intent to be bound. However, the letter also referred
several times to the future execution of a formal contract, demonstrating the parties’ intent not to be
bound. Because of the ambiguity, the state supreme court remanded the case so that the trial court could
determine whether or not the parties intended to be bound.
Comment: Intent determines whether there is a binding agreement. In this case, the issue is whether
Jones intended to make an offer. An offer proposes definite terms and permits the other party to create a
contract by accepting. So the issue here is whether Jones intended to enable Quake to create a binding
agreement.
The court rules that the letter of intent was ambiguous because there were strong indications that
Jones did intend to make a valid offer, and create a binding deal, and also considerable language indicat-
ing that Jones did not intend to be bound at this stage of the negotiations.
Question: On remand, how will a fact finder be able to determine what corporate executives were
thinking at the time?
Answer: The fact finder is obligated to determine the parties’ objective intent, not their subjective
thinking. In other words, this case depends upon what a reasonable person would conclude from the
conduct and language of both parties.
Question: How could a large, experienced contracting company draft a letter that seemed to say con-
tradictory things?
Answer: Jones’s letter was ambiguous because Jones had ambivalent wishes. On the one hand, Jones
wanted Quake firmly committed to the deal, and expected that ultimately it would award Quake the
job. On the other hand, Jones tried to reserve the right to choose another subcontractor.
12 Unit 2 Contracts

Question: What could the parties have done to avoid this extensive litigation?
Answer: Jones should have decided whether it was willing to commit to Quake or not. If Jones was
unwilling to commit, it should have explicitly stated that the letter was only for informational pur-
poses and that it bound neither party. If Jones was willing to commit to the deal, it should have ex-
plicitly stated that the letter bound both parties, once each side had signed it. Quake should have
grasped that there was serious ambiguity in the letter. The company should have refused to begin its
work until Jones clarified its intentions. A simple way for Quake to force the issue would be to draft
its own version of the contract and send the document to Jones requesting its signature. If Jones re-
fuses to sign, Quake knows not to proceed.
Key Issue: An Offer Permits the Other Party to Create a Contract
As the text notes, an offer is an act or statement that proposes definite terms and permits the other party to
create a contract by accepting those terms. Sometimes people forget that by making a valid offer they
give that power to the other person. Sometimes corporate officers forget the point. Nationwide Mutual
Insurance Company wanted to energize a regional meeting, so it announced a contest for the best com-
pany slogan, to be used at the convention. “Here’s what you could win: His and Hers Mercedes. An all-
expense-paid trip around the world. Additional prizes to be announced. (All prizes subject to availabil-
ity.)”
David Mears and 184 other employees entered and an official announced that Mears’s slogan, “At the
Top and Still Climbing,” was the winner. One company officer told Mears that he had won the two cars,
while another one said that the cars were just a joke. Ultimately, Nationwide informed Mears that the
prizes were never meant seriously. The company did, however, use his slogan for its convention, and
banners, booklets, and balloons all echoed with his phrase.
Mears failed to see the joke, and filed suit in federal court. The jury didn’t laugh, either. They award-
ed Mears $60,000, the value of two of the least expensive Mercedes. The trial judge gave a judgment
n.o.v. for Nationwide, ruling that the terms of the agreement were too vague to enforce. On appeal, how-
ever, the Eighth Circuit Court of Appeals agreed with the jury, and reinstated the $60,000.
The moral: Do not make an offer unless you really want to give the other side the power to
contract.
Key Issue: Definiteness
It is not enough that the offeror indicates that she intends to enter into an agreement. The
terms of the offer must also be definite. If they are vague, then even if the offeree agrees to the
deal, a court does not have enough information to enforce it and there is no contract.
Case Summary: Baer v. Chase7
Facts: David Chase was a television writer-producer with many credits, including a detective
series called The Rockford Files. Chase became interested in a new program set in New Jersey,
about a “mob boss in therapy,” a concept eventually developed into The Sopranos. Robert Baer
was a prosecutor in New Jersey who wanted to write for television and submitted a Rockford
Files script to Chase, who agreed to meet with Baer.
When they met, Baer pitched a different idea about a television series about the New Jersey
mafia, not knowing Chase was already working on that idea. Chase visited New Jersey, and Baer
arranged meetings for him with local detectives and prosecutors who shared their stories and ex-
periences with organized crime. A detective drove Chase around and introduced him to Tony

7
392 F.3d 609, Third Circuit Court of Appeals, 2004.
Chapter 9 Introduction to Contracts 13

Spirito, who shared stories about loan sharking, power struggles between family members, and
two colorful individuals known as Big Pussy and Little Pussy, both of whom later became char-
acters on the show.
Chase wrote and sent Baer a draft of the first Sopranos teleplay, and Baer commented on the
script. The two spoke at least four times that year, and Baer sent Chase a letter about the script.
When the show became a hit, Baer sued Chase claiming that on three separate occasions Chase
agreed that if the show succeeded, Chase would “take care of” Baer commensurate with the true
value of Baer’s services. If the show failed, according to Baer, Chase owed him nothing.
The District Court dismissed the case, holding that the alleged promises were too vague to be
enforced and Baer appealed.
Issue: Was Chases’ promise definite enough to be enforced?
Holding: No, the District Court judgment was affirmed. A contract arises from offer and ac-
ceptance, and must be sufficiently definite so that the performance can be ascertained with rea-
sonable certainty. If parties to an agreement do not agree on one or more essential terms of the
purported agreement courts generally hold it to be unenforceable. New Jersey law deems price
term to be an essential term of any contract. An agreement lacking definiteness of price is not
unenforceable if the parties specify a method by which they can figure out the amount. If there is
no such method, then the purported agreement is invalid. Also, duration of the contract is an es-
sential term; therefore any agreement must be sufficiently definitive to allow a court to determine
the agreed upon length of the contractual relationship.
Baer claims that when the subject matter is an “idea submission” the court should disregard
well-established case law requiring definiteness in contracts. New Jersey precedent does not
support Baer’s attempt to create an exception to this traditional contract principal. Enforceability
of a contract requires definiteness with respect to the essential terms f that contract.
Nothing in the record indicates that the parties agree on: how, how much, where, or for what
period Chase would compensate Baer. Moreover, the parties did not discuss who would deter-
mine the “true value” of Baer’s services, when “true value” would be calculated, and what varia-
bles would go into that calculation. There was no discussion of the meaning of success of the
show, nor any contemplation of dates of commencement or termination of the contract. Nothing
in Baer’s or Chase’s conduct shed light or, on answered, any of these questions.
Question: Why did Chase originally agree to meet with Baer?
Answer: To hear Baer’s idea on a Rockford Files script.
Question: Then why did Chase meet with Baer in New Jersey later that year?
Answer: Because at the first meeting Baer pitched a different idea that was similar to the
idea Chase was already working on regarding a New Jersey mob boss in therapy.
Question: Did Baer help Chase develop his idea?
Answer: Yes, Baer arranged meeting for Chase with New Jersey prosecutors and detectives
with experience with organized crime. A detective Chase met also introduced Chase to Tony
Spirito who shared stories about loan sharking and power struggles between family members
connected to the mob.
Question: Why would Baer do this if he didn’t expect to get paid?
14 Unit 2 Contracts

Answer: Expecting to get paid and being entitled to get paid are two different things. Baer
probably did help Chase under some kind of expectation, whether it was to get paid for his
services, or whether it was to land a job is unclear. What is clear is that Baer sued based on
contract, and there clearly was no enforceable contract between Chase and Baer that would
entitle Baer to money.
Question: Was it fair of Chase to use Baer in this way?
Answer: Probably not, although different industries have different standard procedures. Baer
is a lawyer, and presumably should have known what requirements were necessary in order
to have a valid, enforceable contract.
Additional Case: Lemming v. Morgan8
This case demonstrates the way casual agreements between friends open the door to litigation. Larry
Lemming and Jackson Morgan were friends. According to Lemming, he and Morgan orally agreed to
form a partnership. Lemming would use his business connections and influence to locate real estate that
was ripe for development, and would help Morgan finance, develop, and resell the property. Morgan
would temporarily hold the property in his name alone because Lemming was going through a divorce
and also had tax problems. The two men agreed that, “if and when Lemming’s divorce and tax problems
subsided,” Morgan would transfer to Lemming one-half of all property and one-half stake in the profits
from five properties. Morgan denied that the parties had ever formed a partnership.
Question: You are the lawyer for Morgan. What step should you take now?
Answer: File a motion for summary judgment.
Question: Why summary judgment?
Answer: Morgan claims that even if the parties had the understanding that Lemming claims, the
terms are so indefinite that there is no binding contract.
Question: You are now the judge. Morgan has filed his motion for summary judgment. How do you
rule?
Answer: Motion granted, which is what the trial court actually did, with the appeal court affirming.
The appeal court stated:
The alleged oral agreement in this case was not sufficiently certain or definite to be enforcea-
ble. The agreement Lemming seeks to enforce had no specific provisions regarding when
transfer of title, division of proceeds, or sale of the properties was to take place; how or when
development was to take place on any of the properties; how development or other costs of
the ventures were to be allocated; how, when or by whom it would be decided whether the
properties would be sold or whether one-half of Morgan’s interests in the various properties
would be transferred to Lemming; or how proceeds would be calculated. Testimony that
Lemming was to get one-half of the proceeds “if and when” his personal and tax problems
subsided is too vague to be enforceable. While the doctrines of reasonable time or reasonable
requirements might supply some details to an agreement, indefiniteness in subject matter so
extreme as not to present anything upon which the contract may operate in a definite manner
renders the contract void.
It has not escaped our notice that Lemming virtually admits that he sought to mislead the
government and his personal creditors about his assets and contingent assets in the way he at-
tempted to structure his “agreement” with Morgan. However, because the principles outlined

8
228 Ga. App. 763, 492 S.E.2d 742, 1997 Ga. App. LEXIS 1264 (Georgia Court of Appeals, 1997).
Chapter 9 Introduction to Contracts 15

above resolve the issue of the enforceability of the purported agreement, it is not necessary
for us to address the issue of whether such an apparently illegal contract would ever be en-
forceable.
Question: Summary judgment for Morgan means that Lemming never gets to leap in front of a jury
and make his case. A jury’s job is to judge credibility. Isn’t it possible that a jury would find Lem-
ming utterly trustworthy and Morgan a liar, and thus conclude that the friends had formed a binding
agreement?
Answer: It is possible that a jury would believe Lemming rather than Morgan, but that will not render
any “agreement” enforceable. The court is saying that the so-called contract is too vague for any court
to enforce, even if the friends had agreed. Oftentimes the clearest indication of whether contract terms
are sufficiently definite is whether or not a judge would know how to enforce the deal. Here, the court
said there were far too many missing terms for any court to be able to do that.
Preventive Law Question: How should Lemming have avoided this problem?
Answer: Simple. Put it in writing, and make it clear, in plain English.
Question: If the parties had written a short, exquisitely lucid contract, what problem might still have
confronted Lemming?
Answer: His alleged desire to avoid tax and alimony problems by hiding assets. If he really did that,
he might be subjecting himself to civil lawsuits and even criminal prosecutions. Do not expect a court
to enforce a so-called deal involving illegal conduct.
Revocation
An offer is revoked when the offeror "takes it back" before the offeree accepts. In general, the offeror
may revoke the offer any time before it has been accepted.

Case: Nadel v. Tom Cat Bakery 9

Facts: A Tom Cat Bakery delivery van struck Elizabeth Nadel as she crossed a street. Having suffered
significant injuries, Nadel filed suit. Before the trial began, the attorney representing the bakery's owner
offered a $100,000 settlement, which Nadel refused.
While the jury was deliberating, the bakery’s lawyer again offered Nadel the $100,000 settlement.
She decided to think about it during lunch. Later that day, the jury sent a note to the judge. The bakery
owner told her lawyer that if the note indicated the jury had reached a verdict, that he should revoke the
settlement offer.
Back in the courtroom, the bakery’s lawyer said, "My understanding is that there's a note…. I was
given an instruction that if the note is a verdict my client wants to take the verdict."
Nadel's lawyer then said, "My client will take the settlement. My client will take the settlement."
The trial court judge allowed the forewoman to read the verdict, which awarded Nadel – nothing.
She appealed, claiming that a $100,000 settlement had been reached.
Issue: Did Nadel's lawyer accept the settlement offer in time?
Decision: No, the bakery owner's lawyer revoked the offer before acceptance.
Reasoning: An offer definitely existed. And, the twice repeated statement, "My client will take the set-
tlement," indicates a clear desire to accept the proposal. The problem is that the acceptance came too late.

9
2009 N.Y. Misc. LEXIS 5105, SUPREME COURT OF NEW YORK, NEW YORK COUNTY, 2009.
16 Unit 2 Contracts

Analyzing the timeline, the bakery owner's attorney indicated that if a verdict had been returned,
he revoked the offer. This notice was given before the attempted acceptance. And so, since a verdict had
in fact been returned, the offer was no longer open.
The parties did not reach a binding settlement agreement. We deny Nadel's motion.
Rejection
If an offeree clearly indicates that he does not want to take the offer, then he has rejected it. A rejection
immediately terminates the offer.
Counteroffer
A party makes a counteroffer when it responds to an offer with a new and different proposal.
Key Issue: Acceptance
When there is a valid offer outstanding, it remains effective until it is terminated or accepted. An
offeree accepts by saying or doing something that a reasonable person would understand to mean
that he definitely wants to take the offer.

Additional Case: Specht v. Netscape Communications Corporation10

Facts: A group of Plaintiffs sued Netscape, claiming that two of the company’s products illegal-
ly captured private information about files that they downloaded from the Internet. The plaintiffs
alleged that this was electronic eavesdropping in violation of Federal law.
The Plaintiffs downloaded from Netscape’s web page SmartDownload, a software plug-in
that enabled them to download Netscape’s Communicator software. Near the bottom of the
webpage was a tinted button labeled “Download.” The plaintiffs clicked to download. If, instead,
they had scrolled further down the page, they would have seen an invitation to “review and agree
to the terms of the Netscape SmartDownload software license agreement” and they would have
been sent to a series of linked pages and finally get to the license agreement. In that license
agreement was a term requiring arbitration for any dispute. The plaintiffs never reviewed the li-
cense terms.
Netscape moved to dismiss the case and compel arbitration, but the District Court ruled that
the plaintiffs had not agreed to the terms of the license. Netscape appealed.
Issue: Had the Plaintiff’s agreed to arbitrate their claims?
Holding: No, the District Court’s ruling is affirmed. Defendants argue that because notice of the
SmartDownload license terms was on the next scrollable screen, plaintiffs were on “inquiry no-
tice” of those terms. We disagree that a reasonably prudent offeree in plaintiffs’ position would
necessarily have known or learned of the license agreement prior to acting.
Receipt of a physical document containing contract terms or notice thereof is frequently
deemed sufficient to place the offeree on inquiry notice of those terms. This principle applies
equally to the world of online product delivery, pop-up screens, hyperlinked pages, and click-
wrap licensing. What plaintiffs saw when they were invited to download SmartDownload was a
screen containing praise for the product, and a “Download” button at the bottom of the screen.
Defendants argue that a fair and prudent person using ordinary care would have been on inquiry
notice of SmartDownload’s license terms.
10
306 F.3d 17, Second Circuit Court of Appeals, 2002.
Chapter 9 Introduction to Contracts 17

We are not persuaded that a reasonably prudent offeree in these circumstances would have
known of the existence of the license terms. The offer did not carry an immediately visible notice
of the existence of the license terms. The fact that the position of the scroll bar on their computer
screens may have indicated an unexplored portion of the Netscape webpage remained below
does not mean that they reasonably should have known that this portion contained a notice of
license terms.
Question: The Court mentions “clickwrap licensing.” What is that?
Answer: When you purchase software online, frequently the seller requires to, as a condition
of your purchase, to read and agree to all of the company’s terms, and provides you with an
option of clicking “I agree” or “I do not agree”. The terms and conditions referred to are fre-
quently their licensing agreement terms, and by clicking on “I agree” you have agreed to
abide by those terms. Similar agreements, called “shrinkwraps” are packaged inside many
electronic products and might require that before inserting a purchased CD into your com-
puter, you must read and agree to all terms in the brochure.
Question: Are these types of agreement legal?
Answer: Many of the courts that have reviewed these issues have ruled that clickwrap and
shrinkwrap agreements are binding, even against consumers. The courts have emphasized
that sellers are entitled to offer a product on any terms they wish, and that shrinkwrap and
clickwrap are the most efficient ways of including complicated terms in a small space.
Question: If these types of agreements are binding, why was Netscape’s clickwrap agree-
ment found to be invalid?
Answer: The problem for Netscape was not the terms of the licensing agreement, but the no-
tice of the existence of those terms. The terms were essentially buried on the webpage, and
no reasonable and prudent offeree would have known of their existence.
Question: What could Netscape have done differently?
Answer: Made the notice of the licensing agreement more obvious, perhaps locate it up
higher on the webpage, before the “Download” button.
Action Learning
The following skit provides a reasonably realistic contract negotiation, and prompts useful discussion
about offer and acceptance. The skit requires no rehearsal; the three actors simply read their parts loudly
and clearly. The only preparation required is to make photocopies for the other two players. There are
three parts, which we recommend casting in this way:
• Mr. (or Ms.) Greenback, you, the professor
• Roger Rifle, a male student
• Tiffany Diamond, a female student
Setting: It is Monday morning. Greenback, the general manager of a New York football team, is in his
office. It is halfway through the professional football season. Greenback suddenly needs a backup quar-
terback for his team. On one line, in Los Angeles, is Roger Rifle, an experienced NFL quarterback. On
the other line is Tiffany Diamond, a sports agent who works in Boston. She represents another quarter-
back, Joe Wyoming.
Greenback: Tiffany, do me a favor, hold on one second . . . Hello?
18 Unit 2 Contracts

Rifle: Hello, is that Mr. Greenback? This is Roger Rifle, sir, my wife said you called.
Greenback: You can guess why. We lost our number two quarterback yesterday.
Rifle: I saw it on T.V. Heck of a tackle that was. Real unfortunate, sir, I felt it in my heart.
Greenback: Sure. He’s out for the season. We’re down to our third string QB, we’ve got no
backup at all. I figured we’d talk. I’m speaking with Joe Wyoming’s agent right now.
You interested in playing again this season?
Rifle: I’m ready to go. I fired my agent–guy was a bum–I can do business myself.
Greenback: We got seven games left this season. We’ll pay you 125,000 bucks for the dura-
tion of the season. You’ll be learning plays and sending in signals but you won’t see
much action.
Rifle: I’ll do whatever you say. But I can’t work for 125,000. Last year I earned 500,000. I
figure half a season, I’ll take 250,000.
Greenback: Life in Los Angeles is great, Rifle, I understand that. Beaches, restaurants, glam-
our. Maybe you don’t want to play the game anymore.
Rifle: I can still thread a needle at 30 yards.
Greenback: 150,000, no more.
Rifle: No can do. I suppose I can go as low as 225,000. I wouldn’t even do that for any other
team. I respect you folks. But that’s my best offer.
Greenback: Rifle, you can throw a football. But can you move? You’ve had more knee opera-
tions in a month than Joe Wyoming’s had in his career. With my offensive line, I need a
quarterback with legs.
Rifle: I may have a contract with Seattle by the end of the week. I expect to get almost half a
million from them.
Greenback: Dream on. There’s no way I could offer a backup QB more than 200,000. Not
with the budget I’m facing. That would be top, if I could go that high. I’ll have to push
some numbers around, see what’s feasible. You’ve got to decide how serious you are
about playing this game. Think it over while I talk to Joe—he does want to play.
Greenback puts Rifle on hold.
Greenback: Tiffany, sorry to keep you waiting.
Diamond: Joe Wyoming is interested, but a bunch of teams are interested in Joe. He’d love to
play in New York. Anyplace else, I’m gonna need a million bucks to finish the season.
New York, I’ll get Joe to play for 850.
Greenback: 500.
Diamond: Come on, Greenie. Joe is still at the top of his game. He completed 62 percent of
his passes last season.
Greenback: How many passes did he attempt, nine? Okay, 550,000.
Diamond: Let’s not play cat and mouse. 750,000, Joe shows up tomorrow. Not one penny
less.
Greenback: Let’s make it a lot less. 600,000, no more. Take it or leave it, I got Roger Rifle
waiting to sign.
Chapter 9 Introduction to Contracts 19

Diamond: That’s good money for Rifle. Not for us. Nice talking to you.
Greenback: Tiffany, calm down, you’re a good agent. I’m gonna go out on a limb. I’m gonna
get Joe 650,000, 1 don’t know how. That’s it. I gotta go.
Diamond: You got yourself a deal, Greenie. 650,000 for the regular season, plus a 100,000
bonus for each game of the playoffs.
Greenback: Playoffs? All you agents are optimists. Hold on, Rifle’s getting impatient to play
for me.
Greenback puts Diamond on hold.
Greenback: Rifle, you decide between football and surfing yet?
Rifle: I want to play. I’m your man, Mr. Greenback.
Greenback: Smart. Show up at the stadium tomorrow morning at 10:00, ready to go.
Greenback gets a call that he considers more important. He hangs up on both Rifle and Dia-
mond. Rifle hops on a plane for New York. The next morning at 10:00 A.M., Rifle shows up at
the stadium, and finds Greenback.
Rifle: Here I am, sir, ready to go.
Greenback: Glad to see you. Listen, I can give you 135,000. I think you’ll agree that’s fair.
Rifle: Huh?! Whaddya, kidding me?
Greenback: Next year, if things work out, I’ll get the owner to go higher.
Rifle: You said 200,000. I’m here to accept 200,000.
Greenback: Not gonna happen. Look across the field. That’s Joe Wyoming warming up. He
didn’t come cheap. I haven’t got the money for you; if I did, I’d pay you what you want.
Rifle: That was the deal. I came all the way out here. I’m not getting shoved around by any-
body. I’ll take 200,000, not 135.
Greenback: You’ll take a walk, pal. Get off my field. I gotta talk to Joe.
Rifle leaves. Greenback picks up a portable phone and calls Diamond.
Greenback: Listen, Tiffany, a small setback here. I can’t come up with the 650. The best I can
do is 525.
Diamond: No way, Greenie. We’ve got a deal for 650 plus bonuses.
Greenback: Bonuses? I never said anything about bonuses.
Diamond: Now don’t get tough, Greenie.
Greenback: He can play for 525 or he can walk.
Diamond: This is bad business, Greenie, this is very bad. Listen, he’s come all this way. I’ll
forget the bonuses. But I won’t forget the 650. You offered 650 and we took it. He’s there
to play and I expect you to pay.
Question: But Greenback does not pay anybody. Roger Rifle sues for $200,000. Joe Wyoming
sues for $650,000 plus bonuses. How will the two plaintiffs fare?
[We encourage a brief discussion by the students, with no comments from the professor. Then we
may reread a few key lines, focusing on exactly what each party said.]
20 Unit 2 Contracts

Question: In Rifle’s lawsuit, who will win?

Answer: The football club should win. Greenback said, “There’s no way I could offer a backup
QB more than 200,000 . . . . That would be top, if I could go that high. I’ll have to push some
numbers around, see what’s feasible.” He never firmly offered to pay $200,000. A court will
probably consider his statements mere bargaining, or an invitation to Rifle to make another offer.
A true offer proposes definite terms and permits the other party to create a contract by accepting.
Greenback’s statements did not give Rifle that power.
Question: But what about Rifle’s statement, “I want to play. I’m your man, Mr. Greenback”?
Doesn’t that indicate a binding agreement?
Answer: No. It indicates that Rifle may have thought he had a deal. Greenback was simply
agreeing that Rifle would show up for practice the next day.
Question: Does Rifle have a claim of promissory estoppel?
Answer: Rifle did rely on the conversation to come all the way east. He clearly believed that he
had a deal. But a successful promissory estoppel claim begins with a clear promise. Greenback
never made one. Again, Rifle appears to be on the losing end.
Question: What about Wyoming’s suit for 650,000 plus bonuses?
Answer: Joe will also lose. Greenback made a clear, binding offer of $650,000, and Diamond ap-
peared to accept. But Diamond in fact made a counteroffer, adding the provision about a
$100,000 bonus for each playoff game. A counteroffer is a rejection of the original offer. Green-
back never accepted the counteroffer and there is no deal.
Question: But didn’t the parties have a valid deal for $650,000? Diamond said, “You got your-
self a deal, Greenie.” Why not enforce that much of the contract?
Answer: There is no contract to enforce. She said that she accepted the deal, but she did not do
so. Her counteroffer is what controls, and there is no agreement for any salary.

UCC and the Battle of Forms

Under common law, acceptance must be precisely the same terms as the offer (the mirror image
rule).

Under the UCC, merchants using different preprinted forms have a way to reach agreement.
This is known as “the battle of the forms.”

The battle of forms provisions of UCC §2-207 provide an excellent illustration of how the UCC
alters common-law rules. While one may choose not to explore these provisions in depth unless
and until one covers the UCC in Unit 3, it is useful to mention §2-207 to contrast with the com-
mon law’s mirror-image rule.

Communication of Acceptance
The offeree must communicate his acceptance for it to be effective. The questions that typically
arise concern the method, the manner, and the time of acceptance.
Method and Manner of Acceptance
The “method” refers to whether acceptance is done in person or by mail, telephone, email, or fax.
The “manner” refers to whether the offeree accepts by promising, by making a down payment,
Chapter 9 Introduction to Contracts 21

by performing, and so forth. If an offer demands acceptance in a particular method or man-

ner, the offeree must follow those requirements. If the offer does not specify a type of ac-
ceptance, the offeree may accept in any reasonable manner and method.

Time of Acceptance: The Mailbox Rule

An acceptance is generally effective upon dispatch, meaning the moment it is out of the of-
feree’s control. Terminations, on the other hand, are effective when received.

Practice Exam
Matching Questions
Match the following terms with their definitions:
(4) A. Implied contract 1. A party that makes an offer.
(5) B. Mirror image rule. 2. An agreement based on one promise in exchange for another.
(3) C. Offeree 3. A party that receives and offer.
(1) D. Offeror 4. An agreement based on the words and actions of the parties.
(2) E. Bilateral contract 5. A common law principle requiring the acceptance to be on ex-
actly the terms of the offer.

True/False Questions
Circle true or false:
1. T F To be enforceable, all contracts must be in writing.

2. T F Abdul hires Sean to work in his store, and agrees to pay him $9 per hour. This agreement is
governed by the Uniform Commercial Code.
3. T F If an offer demands a reply within a stated period, the offeree's silence indicates acceptance.
4. T F Without a meeting of the minds there cannot be a contract.

5. T F An agreement to sell cocaine is a voidable contract.

Multiple-Choice Questions
1. Mark, a newspaper editor, walks into the newsroom and announces to a group of five reporters: “I’ll
pay a $2,000 bonus to the first reporter who finds definitive evidence that Senator Blue smoked mari-
juana at the celebrity party last Friday.” Anna, the first reporter to produce the evidence, claims her
bonus based on
(a) Unilateral contract.
(b) Promissory estoppel.
(c) Quasi-contract.
(d) Implied contract.
(e) Express contract.
22 Unit 2 Contracts

2. Raul has finished the computer installation he promised to perform for Tanya, and she has paid him in
full. This is
(a) An express contract.
(b) An implied contract.
(c) An executed contract.
(d) A bilateral contract.
(e) No contract.

3. Consider the following:

I. Madison says to a group of students, "I'll pay $35 to the first one of you who shows up at my house and
mows my lawn."
II. Lea posts a flyer around town that reads, "Reward: $500 for information about the person who keyed
my truck last Saturday night in the Wag-a-Bag parking lot. Call Lea at 555-5309."
Which of these proposes a unilateral contract?
(a) I only
(b) II only
(c) Both I and II
(d) None of the above

4. On Monday night, Louise is talking on her cell phone with Bill. “I’m desperate for a manager in my
store,” says Louise. “I’ll pay you $45,000 per year, if you can start tomorrow morning. What do you
say?”
“It’s a deal,” says Bill. “I can start tomorrow at 8 a.m. I’ll take $45,000 and I also want 10 percent
of any profits you make above last year’s.” Just then Bill loses his cell phone signal. The next morn-
ing he shows up at the store, but Louise refuses to hire him. Bill sues. Bill will
(a) Win, because there was a valid offer and acceptance.
(b) Win, based on promissory estoppel.
(c) Lose, because he rejected the offer.
(d) Lose, because the agreement was not put in writing.
(e) Lose, because Louise revoked the offer.

5. Which of the following amounts to an offer?

(a) Ed says to Carmen, "I offer to sell you my pen for $1."
(b) Ed says to Carmen, "I'll sell you my pen for $1."
(c) Ed writes, "I'll sell you my pen for $1," and gives the note to Carmen.
(d) All of the above
Chapter 9 Introduction to Contracts 23

Essay Questions
1. ETHICS: John Stevens owned a dilapidated apartment that he rented to James and Cora Chesney for
a low rent. The Chesneys began to remodel and rehabilitate the unit. Over a four-year period, they in-
stalled two new bathrooms, carpeted the floors, installed new septic and heating systems, and rewired,
replumbed, and painted. Stevens periodically stopped by and saw the work in progress. The Chesneys
transformed the unit into a respectable apartment. Three years after their work was done, Stevens
served the Chesneys with an eviction notice. The Chesneys counterclaimed, seeking the value of the
work they had done. Are they entitled to it? Comment on the law and the ethics.
Answer: Yes, they are entitled to the value of their work, said the court in Chesney v. Stevens, 435
Pa. Super. 71, 644 A.2d 124.0 (Pa. Super. Ct. 1994). They have neither an express nor an implied
contract for the work. Stevens did nothing to create either. But he was aware of the work they were
doing, and he should know that they would reasonably expect compensation. It would be unjust, said
the court, to permit him to keep the benefit without paying anything, and so the Chesneys won their
case of quasi-contract, receiving quantum meruit damages for the value of their work.
2. Tindall operated a general contracting business in Montana. He and Konitz entered into negotiations for
Konitz to buy the business. The parties realized that Konitz could succeed with the business only if Tin-
dall gave support and assistance for a year or so after the purchase, especially by helping with the pro-
cess of bidding for jobs and obtaining bonds to guarantee performance. Konitz bought the business and
Tindall helped with the bidding and bonding. Two years later, Tindall presented Konitz with a contract
for his services up to that point. Konitz did not want to sign but Tindall insisted. Konitz signed the
agreement, which said: “Whereas Tindall sold his contracting business to Konitz and thereafter assisted
Konitz in bidding and bonding without which Konitz would have been unable to operate, NOW
THEREFORE Konitz agrees to pay Tindall $138,629.” Konitz later refused to pay. Comment.
Answer: Konitz need not pay. Tindall’s work had already been performed, without any expectation
of payment, when the parties signed the contract. Past consideration is no consideration, and the con-
tract is void. Tindall v. Konitz Contracting, Inc., 249 Mont. 345, 783 P.2d 1376, 1989 Mont. LEXIS
348 (1989).
3. The Tufte family leased a 260-acre farm from the Travelers Insurance Co. Toward the end of the lease,
Travelers mailed the Tuftes an option to renew the lease. The option arrived at the Tuftes’ house on
March 30, and gave them until April 14 to accept. On April 13, the Tuftes signed and mailed their ac-
ceptance, which Travelers received on April 19. Travelers claimed there was no lease and attempted to
evict the Tuftes from the farm. May they stay?
Answer: Yes, they may. Using the mail to accept is reasonable, since Travelers chose that medium
to send its offer. Acceptance is effective on dispatch, meaning that the Tuftes accepted Travelers' of-
fer on April 13, within the deadline. They have a binding lease. Travelers Insurance Co. v. Tufte,
435 N.W.2d 824 (Minn Ct. App. 1989).

4. Sal says to Jennifer, "I'll trim all of your trees if you pay me $300." Jennifer replies, "It's a deal, if you'll
also feed my dog next week when I go on vacation." Does the common law or the UCC apply to Sal's
proposal? Is Jennifer's reply an acceptance? Why or why not?
Answer: This case is controlled by the common law. Jennifer’s reply is not an acceptance because
she made a counteroffer.

5. Raul makes an offer to Tina. He says, "I'll sell you this briefcase for $100." Describe four ways in
which this offer might be terminated.
24 Unit 2 Contracts

Answer: Tina could accept the offer and purchase the briefcase. Tina could outright reject the offer.
Tina could make a counteroffer. Or, Raul could withdraw the offer. If the offer has an expiration date,
it would automatically terminate on that date if it had not been accepted or rejected before then.

Discussion Questions
1. Someone offers to sell you a concert ticket for $50, and you reply, "I'll give you $40," The seller refuses
to sell at the lower price, and you say, "OK, OK, I'll pay you $50." Clearly, no contract has been
formed, because you made a counteroffer. If the seller has changed her mind and no longer wants to
sell for $50, she doesn't have to. But is this fair? If it is all part of the same conversation, should you be
able to accept the $50 offer and get the ticket?
Answer: Answers will vary.

2. Have you ever made an agreement that mattered to you, only to have the other person refuse to follow
through on the deal? Looking at the list of elements in the chapter, did your agreement amount to a con-
tract? If not, which element did it lack?
Answer: Answers will vary.

3. Is it sensible to have two different sets of contract rules – one for sales of goods and another for every-
thing else? Would it be better to have a single set of rules for all contracts?
Answer: Answers will vary.

4. Consider promissory estoppel and quasi-contracts. Do you like the fact that these doctrines exist?
Should courts have "wiggle room" to enforce deals that fail to meet formal contract requirements. Or,
should the rule be, "If it's not an actual contract, too bad. No deal."
Answer: Answers will vary.

5. Return to the opening scenario. Fran, Ricky, Carla, and Dave each made an agreement with John.
None is valid under contract law. For the sake of fairness, should any of them be legally enforceable? If
so, which?
Answer: Answers will vary.