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CLASS 1: Concept of a Contract and Its Underlying Policies, p.

1-21
What are the goals of this class? Introduce us to the basic legal content of the law of contracts Prepare you to perform various roles within our legal profession: practitioner, judge, arbitrator, legislator, legal advisor, and policy-maker Explore different approaches to law and different ways to construct a system of contract law that addresses the contemporary needs of the communities in which we operate. What roles could you play in the legal profession? Practitioner, judge, arbitrator, legislator, legal advisor, and policy-maker To what extent is it possible to determine what the law is? You can look up statutes and research case law. But, for the average person, this is a very difficult undertaking. Why is it important to consider what the law ought to be, from the perspectives of : (1) a lawyer: knowledgeable of current law; may have to argue in favor/against current interpretation of law (2) a judge: you may have to be the arbiter (common law) (3) a policy-maker: you may have to decide what is in the best interest of the overall society; takes contemporary societal norms/morals into consideration (4) a legislator: you may need to write and enforce legislation to progress the law What is a contract? Restatement (Second) of Contracts: A contract is promise or 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. Restatement (Second) of Contracts: a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made. The result of a contract is the creation of a legal relationship involving rights and duties of persons. What is the role of contract law in society? Employment agreements, sales contracts, promissory note or check, rental or lease agreement, etc. Contracts are the foundation of our entire society. Why do we have contract law? Fear of legal sanctions people will uphold their promises Economic reasons our society depends upon free exchange in the marketplace and contract law makes this possible. Exchanges in the marketplace always depend upon voluntary agreements between individuals and other persons. Such voluntary agreements could never work without contract law.

Makes possible private, voluntary agreements. Social order rests upon stability and predictability of conduct, of which keeping promises is a large item. Facilitation of economic exchange enforcing contracts facilitates trade by promoting present reliance on future promises When should promises be enforced, and why? Promises should always be enforced Economic importance e.g. credit Political advantages private contract is a powerful tool for diffusing power in a society, for dividing decision-making and opportunities between the state on the one hand and private persons on the other. The social order rests upon stability and predictability of conduct, of which keeping promises is a large item. When should promises not be enforced, and why? Generally, promises should always be enforced However, if there is an occurrence that arises and if the non-occurrence of this event was a basic assumption of the contract, a promise should not be enforced. Why do these questions matter? When individuals enter into contracts, it is important to know not only the purpose the contract serves, but also under what circumstances these contracts may be rendered null and void. What are the sources of contract law? Writ of Assumpsit breach of contract where the defendant was alleged to have broken a promise made to the complaining party Common Law in most jurisdictions, contract law is not codified, and thus the primary source of general contract law is case law. (Stare Decisis) Statutory Law Restatement - bench and bar, the Restatement of Contracts (currently in the second edition) has no legal force but nevertheless provides highly persuasive authority. It is a systematic statement of prevailing law both decisional and statutory. Uniform Sales Act codification of sales law in the U.S. which began in 1902 Uniform Commercial Code (UCC)created under the auspices of the American Law Institute and the National Conference of Commissioners on Uniform State Laws, has been adopted by every state except Louisiana. Proposed revisions to Article 2, governing contracts for the sale of goods, have been finalized and presented to the states for enactment. It is a comprehensive statute dealing with a wide range of commercial transactions. United Nations Convention on Contracts for the International Sale of Goods (CISG) ratified by many of the leading trading nations including the United States and China (but not the United Kingdom and Japan), it governs many transactions for the sale of goods between parties with places of business in different nations.

UNIDROIT Principles of International Commercial Contractsnonbinding authoritative text similar to the Restatement. What is their hierarchy? Statutory law takes precedent over common law. Why are sources important? It might be easier to understand a single law or legal principle if all laws had a single source. There are many sources, however, and the laws springing from each have a different scope and effect. Therefore, it is important to know something of these sources in order to understand how particular laws affect us. What is the difference between an outcome and a holding? An outcome is A holding is the appellate courts answer to a legal question. An appellate court either affirms, reverses or modifies the decision below. Compare Bolin Farms with Bailey. In each case: What social policies did the holding promote? Bailey Bolin What social policies did the holding not promote? Bailey Bolin Did the court achieve the right outcome in the case? Yes, in both cases, the court achieved the right outcome. Did the court achieve the right balance among policies in articulating the law? Yes, the court did achieve the right balance among policies in articulating the law. How would you have decided the case if you were the judge? Same as were decided in both. How would you present the case if you represented the plaintiff? Bailey Bolins How would you present the case if you represented the defendant? Bailey Bolins If you were a policy-maker or congressman and wished to either codify the holding or enact a contrary law, what would your law say? What are your reasons for the law?

Bailey v. West, p.13-17 (1969)


[plaintiff]: Bailey [defendant]: West Procedural Posture: Trial before justice of the superior court with decision for the plaintiff for his cost of boarding horse for 5 months. P is appealing to try to get damages for the full 4 years. D is cross-appealing. Trial judge found there was a contract implied in fact between P and D until P received notification from D that he wouldnt be responsible for the horses board. On appeal, the Ps appeal is denied and dismissed by the Supreme Court ad the Ds cross appeal is sustained. Facts: P (Bailey) is suing D (West) for value of services rendered when feeding a race horse for about 4 years. D purchased horse from a third party but the horse turned out to be lame. D had his trainer reship the horse to the seller who refused to accept the delivery. Ds trainer then took the horse to Ps farm where it remained for about 4 years until P sold it. P sent bills for feed and board to defendant. After the 1st bill, D immediately returned it saying that he was not the owner of the horse nor was the horse sent to P on his request. Issues: Under Rhode Island common law, was their a contract implied in fact between P and D? No Under Rhode Island common law, was their a quasi contract between P and D? No Ruling: Judgment for the D. Holding: Judgment was that P was a volunteer who performed the services at his own risk. Reasoning: There was no Contract based on implied in fact because these require: 1. mutual agreement 2. intent to promise 3. agreement and promise are not made in words, they are implied from facts Court held there was no mutual agreement nor any intent to promise. Court held that the trial judge made a mistake in finding a contract implied in fact. There was no meeting of the minds because P knew there was dispute as to the horses ownership and his later actions (sending bills to both D and third party seller of horse) proved he did not know with whom he had a contract. There was no quasi contract because in a quasi contract: 1. benefit must be conferred upon D by P 2. appreciation of D of such benefit 3. acceptance and retention of benefit by D in circumstances where it is inequitable to retain the benefit without payment. (doctrine of unjust enrichment)

Bolin Farms v. American Cotton Shippers Association, p. 18-21 (1974)


[plaintiff]: Bolin Farms [defendant]: American Cotton Shippers Association Procedural Posture: In plaintiff farmers' action challenging the validity of contracts they executed by which they agreed to sell defendant purchasers' their cotton at a certain price, summary judgment motions were filed. Facts: The farmers entered into a sales contract with the purchasers, by which they agreed to sell their cotton to the purchasers at a fixed price. After the price of cotton doubled, the farmers sought a declaration that the contracts were null and void so that they could obtain a better price for the cotton. On motions for summary judgment, the court entered judgment for the purchasers. Issues: Should a contract for the advance or forward sale of a crop product be enforceable when the price of the crop unexpectedly skyrocketed after the signing of the contract due to unforeseeable events? Validity and enforceability of a contract for the purchase and sale of cotton entered into between willing buyers and sellers, both adult and experienced cotton farmers and buyers. Ruling/Holding: Judgment for the D (contracts are valid) The contracts validity and enforceability were upheld. Rule of Law: When two knowledgeable, competent parties enter into a contract, the contract stands regardless of changed circumstances that might make the contract less attractive to one of the parties, at the time of performance. Reasoning: The court held that whatever caused the price of cotton to rise after the contracts were executed had no relevancy to the contracts' validity. The court held that the contracts were valid and enforceable given that the parties were willing to sell and buy, were adults, were experienced in dealing with forward sales contracts in an open and competitive market. The court held that the purchasers were entitled to specific performance under Louisiana law and ordered the farmers to deliver the cotton in accordance with the contracts.

CLASS 2: Offer, p. 250-269 What is the Restatement? A statement of rules of law in certain subjects, adopted and

promulgated by the American Law Institute, the statement of a rule being entitled to weight as a product of expert opinion and as the expression of the law by the legal profession. A systematic statement of prevailing law, both statutory and decisional.
Is it authoritative? What does it mean to be authoritative? Yes. Although they are secondary sources, the Restatements are authoritative and have been cited by practitioners, scholars, and judges. No they have no legal force & are non-binding. Is it persuasive? What does it mean to be persuasive? Yes. Because of their high quality and the reputations of the authors, the restatements are often cited as a highly persuasive general depiction of the law, even though they are technically not primary sources of law.

Restatement (Second) of Contracts 24 (1981)


24. OFFER DEFINED
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

Exercise: The Case of His and Hers Mercedes (p. 257) 1. State Conclusion: The P, Mears, is entitled to either the automobiles or damages as a result of Nationwides breach of contract. 2. State the Law with Authoritative Citations: Craft v. Elder & Johnston Co. an offer that is accepted by the seller may not be modified or revoked in terms of prices or terms o Nationwide accepted the offer when it confirmed Mears as the winner of the contest and used his slogan Restatement of Contracts 24 o An offer was made to Mears, which he accepted by sending in his slogan. A contract was formed, as Mears was declared the winner and his slogan was used. Therefore, there is an obligation to fulfill the prizes 3. Additional Applicable Reasons

4. Apply to Facts:

5. Conclude: Therefore, Nationwide Insurance did breach their contract, rendering Mears entitled to collect either the autos or damages.

Lonergan v. Scolnick, p. 250-269 (1954)


[plaintiff]: Lonergan [defendant]: Scolnick Procedural Posture: Plaintiff appealed from a judgment of the Superior Court of San Bernardino County (California trial court) in an action against defendant for specific performance or for damages. The trial court found that plaintiff and defendant did not enter into a contract as alleged in plaintiff's complaint, and that defendant was entitled to judgment against plaintiff. Facts: The parties corresponded about a plot of land defendant had advertised for sale. Plaintiff set up an escrow account in the event that he decided to purchase the land. Defendant sold the land to another party, resulting in this action. Issues: Had a contract been entered into between these parties? NO Ruling: Judgment for the D (affirmed) Rule: There can be no contract unless the minds of the parties have met and mutually agreed upon some specific thing. This is usually evidenced by one party making an offer which is accepted by the other party. Holding: Defendant's advertisement in the paper was a mere request for an offer. Trial court's construction of the letters exchanged between the parties as inquiries and answers, rather than acceptance, was reasonable. Correspondence was to gauge interest, not to make a definite order to P. Negotiations were preliminary. Further assent on the part of defendant was required to show acceptance. Reasoning: Advertisement in paper was request for an offer Correspondence merely answered from questions asked by the plaintiff, and stated that if he was really interested, he would have to act fast. The statement that he expected to have a buyer in the net week or so indicated that the defendant intended to sell to the first-comer, and was reserving the right to do so. o Further assent from D was required

Lefkowitz v. Great Minneapolis Surplus Store, p.253-255 (1957)


[plaintiff]: Lefkowitz [defendant]: Great Minneapolis Surplus Store Procedural Posture: appeal from Municipal Court that denied motion of D for amended findings
of fact, or, as an alternative, a new trial. Judgment for plaintiff in sum of $138.50. Trial court did not allow Ps claim for value of fur coats since the value was speculative and uncertain.

Facts: Great Minneapolis Surplus Store (D) has advertisements in the newspaper offering new coats
and lapins for $1 for the first people who show up when the store opens on Saturday. On each of the advertised Saturdays, Lefkowitz (P) was first to show up and demanded the items and showed his willingness to pay the $1. The D refused to sell stating that the house rule was that you had to be a woman. D contends that the newspaper advertisement was not an offer and could be withdrawn at any time. Rather, it was an invitation to offer that is not a contract until accepted by the seller.

Issues:
Is an advertisement that states the price, the quantity and the rules (first come first served) an offer or an invitation to offer? Offer.

Thus, was the advertisement an offer? Yes. If so, did the plaintiffs conduct constitute an acceptance? Yes. Ruling: Judgment for P. Holding: Appellate court agreed with trial court that this was in fact an offer that was accepted
when Lefkowitz showed up willing to pay the $1.

Reasoning:

RULE: ADVERTISEMENTS AS BINDING OFFERS - test of whether a binding obligation may originate in advertisements addressed to the general public is whether the facts show that some performance was promised in positive terms in return for something requested. o In this case, the performance was being first to the store on Saturday morning. RULE: OFFER - where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract Thus, Court ruled that the trial court was correct in holding that there was in the conduct of the parties sufficient mutuality of obligation to constitute a contract of sale.

Leonard v. Pepsico, Inc, p. 257-266 (2000)


[plaintiff]: Leonard [defendant]: Pepsico, Inc. Procedural Posture: Plaintiff consumer appealed an order of the United States District Court for the Southern District of New York, which granted defendant corporation's motion for summary judgment in the consumer's action that sought specific performance of an alleged offer of a fighter jet by the corporation. The district court granted motion for summary judgment on the grounds (1) that the commercial did not amount to an offer of goods; (2) that no objective person could reasonably have concluded that the commercial actually offered consumers the jet; and (3) that the alleged contract could not satisfy the NY statute of frauds. Facts: Using television commercials, the corporation conducted a promotion in which it offered merchandise in exchange for "points" earned by purchasing its soft drink. For each item of merchandise sported by a teenager in the commercial, the ad noted the number of points needed to get it. When the teenager was shown in the jet, the ad prices it as 7 million points. The consumer alleged that the ad was an offer, that he accepted the offer by tendering the equivalent of 7 million points, and that the corporation breached its contract to deliver the jet. Issues: Did the television commercial constitute an offer? Was summary judgment improper? Holding: No. An objective person would not have reasonably have concluded that an actual offer of a Harrier Jet was available, therefore there was no offer and no contract. Ruling: Judgment for D. On appeal, the court affirmed for substantially the reasons stated by the district court. Summary judgment granted for D. Reasoning: Ads are presumptively not offers; there would be no enforceable contract until the Defendant accepted the order form and cashed the check. The judge uses the objective reasonable person standard to decide that no objective, reasonable person would have concluded the commercial actually offers a Harriet Jet o Ads are presumptively not offers, and the Plaintiff has the burden of proving otherwise by showing the ad is sufficiently definite, explicit, and leaves nothing open for negotiation The ad was not sufficiently definitive. In fact, the advertisement made reference to other things you have to do (namely refer to catalogue and forms), and then if you referred to the catalogue and forms, the carrier jet was not mentioned There was not intent for the ad to constitute an offerthis was a joke, and there was no intent to offer the jet. Reasonable observer would have understood entertainment

25. OPTION CONTRACTS


An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.

36. METHODS OF TERMIATION OF THE POWER OF ACCEPTANCE


(1) An offerees power of acceptance may be terminated by a. Rejection or counter-offer by the offeree, or b. Lapse of time, or c. Revocation by the offeror, or d. Death or incapacity of the offeror or offeree In addition, an offerees power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

(2)

30. FORM OF ACCEPTANCE INVITED


(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.
Comments: a. Required form. The offeror is the master of his offer.... The form of acceptance is less likely to affect the substance of the bargain than the identity of the offeree, and is often quite immaterial. But the offeror is entitled to insist on a particular mode of manifestation of assent.... b. Invited form. Insistence on a particular form of acceptance is unusual. Offers often make no express reference to the form of acceptance; sometimes ambiguous language is used. Language referring to a particular mode of acceptance is often intended and understood as suggestion rather than limitation; the suggested mode is then authorized, but other modes are not precluded.

38. REJECTION
(1) An offerees power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.

41. LAPSE OF TIME


(1) An offeree's power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. (2) What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made. (3) Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.
Comment: a. Reasonable time. In the absence of a contrary indication, just as acceptance may be madein any manner and by any medium which is reasonable in the circumstances (30), so it may be made at any time which is reasonable in the circumstances. The circumstances to be considered have a wide range: they include the nature of the proposed contract, the purposes of the parties, the course of dealing between them, and any relevant usages of trade.... b. Direct negotiations. Where the parties bargain face to face or over the telephone, the time for acceptance does not ordinarily extend beyond the end of the conversation unless a contrary intention is indicated..... c. Offers made by mail or telegram. Where the parties are at a distance from each other, the normal understanding is that the time for acceptance is extended at least by the normal time for transmission of the offer and for the sending of the offeree's reply....But in the absence of a significant speculative element in the situation, a considerably longer time may be reasonable.... d. Speculative transactions. The rule that an offer becomes irrevocable when an acceptance is mailed (42, 63) in effect imposes a risk of commitment on the offeror during the period required for communication of the acceptance, although during that period the offeror has no assurance that the bargain has been concluded. The rule that the power of acceptance is terminated by the lapse of a reasonable time serves to limit this risk. The more significant the risk, the greater is the need for limitation, and hence the shorter is the time which is reasonable. Illustration 1. A sends B an offer by mail to sell a piece of farm land. B does not reply for three days and then mails an acceptance. It is a question of fact under the circumstances of the particular case whether the delay is unreasonable.

Humble Oil & Refining Co. v. Westside Investment Corp., p. 376 - 379 (1968)
[plaintiff]: Humble Oil & Refining Co. [defendant]: Westside Investment Corp. Procedural Posture: Westside, Humble, and Mann (3rd party petitioner) each filed a motion for summary judgment. Court granted Westsides motion only. Petitioner (Humble) appealed the judgment of the Bexar County Civil Court, Fourth District (Texas), which dismissed his claim for specific performance of an option contract for the purchase of real estate. Court of civil appeals confirmed. Facts: On Apr. 5, Westside (seller) and Humble (buyer) entered into a written contract where Westside agreed to sell property to Humble with consideration the payment of $35k, and there was consideration for the option contract $50 paid (consideration given for the option contract so that Westside could not retract the offer until after the time stipulated in the contract). Contract said Humble could accept by giving notice by June 4th, 9pm, and paying $1750 within 10 days after acceptance. On May 2, Humble sent letter to Westside, accepting the offer, provided that the seller install utility lines to the property before the date of closing. Then, on May 14th, Humble sent a letter to Westside, accepting Westside's original offer as it was, and stating that "the exercise of said option is not qualified" and Westside can disregard the amendment proposed in their May 2nd letter. Humble then paid the $1750 in the time period asked for in the contract, to an escrow agent that had been designated for this transaction. Westside admits he entered into the option contract with Humble, but contends that the option agreement was terminated by Humble in the letters of May 2 & May 14. May 2nd was a conditional acceptance, which rejects the option contract. Issues: Whether Humble's May 2nd letter, proposing an amendment to the option contract was a rejection of the option contract, thereby terminating the buyer power of acceptance. Rule: When valid consideration is given for an option to purchase (i.e. option contract), the contract is irrevocable for as long as the option is available. Holding: The court reversed the judgment of the trial court and held that petitioner was entitled to specific performance of the option contract, because the option contract was an independent agreement between the parties and did not terminate negotiations regarding the contract of sale. Reasoning: Court says the May 2nd letter did not terminate the option contract. Westside had an obligation, in consideration for the $50 paid, to keep the option contract open for a specified time. Although during this time Humble had the right to either accept or reject the offer, thereby ending the transaction, they were not barred from negotiating the contract, since it was a separate offer from the option contract.

James Baird Co. v. Gimbel Brothers, Inc., p. 388-390- (1933)


[plaintiff]: James Baird Co. [defendant]: Gimbel Brothers, Inc. Procedural Posture: P appealed a judgment of the District Court of the United States for the Southern District of New York, which directed a verdict for Gimbel after plaintiff sued for breach of contract. Facts: Gimbel Brothers (D) sent contractors who were likely to bid on a construction job an offer to supply material needed for the job at set prices. Defendant did not realize that he was mistaken about the total quantity of the material needed for the job. Plaintiff contractor received defendant's offer and bid on the construction job that same day, basing its bid on the prices quoted by defendant. Later that same day, defendant telegraphed a withdrawal of the offer to contractors, having learned of his mistake. Plaintiff formally accepted defendant's offer several days after receiving the telegraph and the written confirmation of withdrawal. Defendant refused to recognize a contract, and plaintiff sued for breach of contract. Issues: Did promissory estoppel apply? Is D liable for mistakenly giving a low bid that P relied upon to make a construction bid? Holding: No. The subcontractor was not liable under promissory estoppel and no bilateral contract had been made. Rule: Defendant withdrew the offer before the plaintiff had accepted. Thus, the defendant legally withdrew from the contract. The plaintiff could also not recover under promissory estoppel, because the contract lacked consideration. Reasoning: Use by the general contractor of the subcontactors bid did not constitute acceptance of that bid Subcontractors offer could have become a promise to deliver only if the general contractor promised to take and pay for the linoleum. Promissory estoppel did not apply because an offer for an exchange is not meant to become a promise until a consideration has been received

Drennan v. Star Paving Co., p. 392 -395 (1958)


[plaintiff]: Drennan [defendant]: Star Paving Co. Procedural Posture: The trial court entered judgment for Drennan ($3,817), holding that Star Paving had made an offer and that Drennan had relied upon that offer when listing Star Paving as the subcontractor. Star Paving appealed.

Facts: Star Paving (D) submitted a subcontractor bid to Drennan (P), a general contractor, for a public school construction project. Drennan used Star Pavings bid of $7,100.00 to prepare his final bid and was awarded the contract. The next day Star Paving informed Drennan that it had underestimated the cost of the project and refused to do the work for less than $15,000. Drennan hired another subcontractor to do the work for $11,000 and sued Star Paving for the difference between $11,000 and $7,100.

Issues: Did plaintiff's reliance make the defendant's offer irrevocable?

Holding: Yes. The court affirmed the trial court's judgment.

Rule:

Reasoning: It was analogous to a unilateral contract, i.e. substantial effort or reliance makes the contract whole. Plaintiff bound themselves to act based on the defendant's terms, so the defendant should also be bound.

La Salle Natl Bank v. Vega, p.284-286 (1988)


[plaintiff]: La Salle National Bank [defendant]: Vega Procedural Posture: Trial court granted summary judgment for D on Ps breach of contract claim stating there were no issues of material fact as to whether a contract was formed between P & D. Facts: CoA: breach of real-estate contract Mel Vega entered into a transaction with Buyer 1, La Salle Bank, to sell his property. Vega also entered into a contract with Buyer 2, Borg. The real estate contract prepared by La Salles agent Ruekberg said that the La Salle is purchasing the property on the behalf of Trust 10952. La Salle Bank is the trustee for Trust 19052, making Ruekberg an agent of the trustee. Ruekberg prepared the document and signed it and Vega subsequently signed the document. However, the document stipulated that it had to go back to the trust for signature. Therefore, the trustee did not confer the ultimate power of acceptance to Vega. La Salle is seeking specific performance of the contract, and if that it isnt available, damages. Buyer 2 intervened and filed a claim to ask for specific performance of his purported contract and a declaration that the contract between Vega and La Salle was not valid. Issues: Whether a contract was formed without execution of the document by the trust Holding: No contract was formed between P & D; affirmed summary judgment for D. Rule: Another mode of acceptance may not be substituted when an offer requires a written acceptance by a specific party. Reasoning: An offeror has complete control over an offer and may condition that acceptance be made according to the terms of the offer. No other mode may be used when an offer by its terms requires a written acceptance by a specific person or entity. In this case the contract between P and D stated on the document that the contract would not be in full force until signed by the trust. Signing by the trust was the only permissible mode of acceptance. In this case there was no acceptance and hence no contract because the trust had not signed the document. The contracts language (especially, upon the trusts execution, this contract will be in full force), makes it apparent that the document was not a contract; when the language of an offer governs the mode of acceptance required, ad an offer requires written acceptance, no other mode may be used

Hendricks v. Behee, p. 286-287 (1990)


[plaintiff]: Henricks [defendant 1]: Behee [defendant 2]: Smith Procedural Posture: Trial (nonjury) court awarded Hendricks $997.50 out of $5,000 deposit. Trial court also awarded balance of $4,0002.50 to Behee. Smith appealed he judgment for Behee.

Facts: Behee placed $5,000 in escrow with Hendricks as a deposit on real estate owned by Smith. A disagreement arose between the parties and eventually Behee mailed a written offer of $42,500 for the real estate and $250 for a dinner bell and flower pots. Smith signed the agreement but Behee notified an agent of Smith that he had withdrawn the offer before he received notice of the acceptance. Hendricks brought an interpleader action against Behee and Smith and Behee filed a cross claim against Smith. Issues: Whether a contract was entered into between Smieth and Behee. Holding: No. Judgment for Behee was affirmed Rule: There is no contract until acceptance of an offer is communicated to the offeror An uncommunicated intention to accept an offer is not an acceptance.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. Notice to the agent, within the scope of the agent's authority, is notice to the principal, and the agent's knowledge is binding on the principal. Reasoning: Before Behee was notified that the Smiths had accepted his offer, Behee notified the agent of the Smiths that Behee was withdrawing the offer. The notice to the agent, being within the scope of her authority, was binding upon the Smiths. Behee's offer was not supported by consideration and his withdrawal of it was proper.

Ever-Tite Roofing Corp. v. Green, p. 288-291 (1955)


[plaintiff]: Ever-Tite Roofing Corp [defendant]: Green Procedural Posture: Trial court found for the D, the homeowners. Ever-tite appealed. Trial court held that notice to Ps workmen upon their arrival with the materials was sufficient and timely to signify their intention to withdraw from the contract. Appellate court disagrees. Facts: Ever-Tite Roofing (P) is suing Green (D) for damages sustained from a breach of contract. Ds signed a document obtaining services of P in re-roofing of their home. It said they could accept the contract by written acceptance or upon commencing performance of the work. They obtained a credit report. When they received it they requested additional information that was then received before the institution gave its approval. The day after the approval, P sent workmen with two trucks loaded with roofing materials to the Ds house. They met an existing working crew that was there already. The Greens (D) ordered Ps workmen not to do any work.

Issues: Do the Greens have an obligation to inform Ever-Tite Roofing that they are securing another roofers services if their signed agreement was that Ever-Tite could accept the offer by commencing work? Does the commencement of work start with the credit report, loading up the trucks? Holding: Appellate court reversed trial courts decision saying that the Greens had to pay the Roofing company $85.37 for the loading of the trucks plus $226 for the expected profit from the job. Rule: Withdrawing an Offer

Reasoning: it was the intention of P to accept the contract by commencing the work, which was one of the ways provided for in the instrument for acceptance Court ruled that since a simple phone call could have solved this problem, and since the roofing company acted in a reasonable amount of time, the Greens had to pay. Court ruled that acceptance of the contract commenced with the loading of the trucks with the necessary materials.

Carlill v. Carbolic Smoke Ball Co., p. 296-302 (1893)


[plaintiff]: Carlill [defendant]: Carbolic Smoke Ball Co. Procedural Posture: Facts: Carbolic Smoke Ball Co. (D) manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, colds, or any other disease. After seeing the ad Carlill (P) purchased a ball and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract. Judgment for 100 pounds was entered for Carlill and Carbolic Smoke Ball appealed. Issues: Was there a valid contract between the parties? Does one who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waive notification of acceptance, if his purpose is to sell as much product as possible? Holding: Yes. Rule: One who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification of acceptance if his purpose is to sell as much product as possible. Reasoning: The court held that a person who makes an offer may decline to require notice of acceptance if he or she wishes. One who makes an offer dispenses with the requirement of notice of acceptance if the form of the offer shows that notice of acceptance is not required. To accept an offer, a person need only follow the indicated method of acceptance. If the offeror either expressly or impliedly intimates in his offer that it will be sufficient to act without giving notice of acceptance, performance is sufficient acceptance without notification. The court held that an advertisement is considered to be an offer when it specifies the quantity of persons who are eligible to accept its terms. If such an advertisement requires performance, the offeree is not required to give notice of his performance. The court addressed the issue of whether the ad was intended to be a promise or whether it was merely puffing. The court pointed to Carbolic Smoke Balls claim in the advertisement that it had deposited 1000 pounds with Alliance Bank, which the court decided was intended to demonstrate the companys sincerity in paying the reward.

Russell v. Texas Co., p. 316-319 (1956)


[plaintiff]: Russell [defendant]: Texas Co. Procedural Posture: Texas Co. challenged the district court's judgment awarding appellant damages due under the terms of a revocable license. Facts: Plaintiff sent an offer on Oct. 30, 1952 to the TX Company for a revocable license to cover the use of his land in connection with mining operations on adjacent lands. The offer said, Your continued use of the roadway, water, and/or materials will constitute your acceptance of this revocable permit and required payment of $150.00 for the permit. The company continued to use the land until November 22, 1952, and in December, the company told Russell that the offer was rejected. Russell sued for damages. Issues: Can the TX Company accept and retain the benefits of the contract and then vitiate the contract by claiming they never had the intent to accept the contract despite the contracts statement that use of the land constitutes acceptance? Did the trial court err as a matter of law in finding that the offer for the said license was accepted? Holding: No; Judgment of trial court affirmed. There was acceptance of Russells offer - that Texas Co.s continued use of the land was an acceptance of Russells offer of a license. Rule: Restatement (Second) 69: Acceptance by Silence/ Exercise of Dominion (3) 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 Reasoning: Upholding a rule that sanctions lack of intention to accept an offer as a valid claim to vitiate a contract unconscionable and not in line with fairness or justice Russells offer of the license used clear and unambiguous terms in explaining that the continued use of section 23 in connection with activities and operations on other lands would constitute an acceptance of the offer of the license. Trial court found evidence that the Texas Company did continue to use section 23 after Russells offer, and hence came within the specified terms of acceptance. Even in the absence of a tortious use, the true test would be whether or not the offeror was reasonably led to believe that the act of the offeree was an acceptance. o In this case, test was met Russell was led to believe there was acceptance.

Ammons v. Wilson & Co., p. 321-322 (1936)


[plaintiff]: Ammons [defendant]: Wilson & Co. Procedural Posture: Ammons filed suit against Wilson & Co. to recover damages alleged to have been caused by the corporation's breach of contract. At the conclusion of the evidence, upon the corporation's motion, the Circuit Court of Bolivar County (Mississippi), excluded the Ps testimony and directed a verdict and judgment in the corporation's favor. Ammons appealed. Facts: Ammons was engaged in the wholesale grocery business. Wilson & Co. was engaged in the business of meat packing, part of which was the manufacture and sale of shortening. The corporation's salesman booked the claimant for an order of shortening at a set price. The booking was not a contract nor an absolute offer to contract. Thereafter, the claimant, through the corporation's salesman, placed an order for shortening. The corporation waited 12 days from the time the order was given before declining to accept them. The claimant filed a breach of contract action against the corporation. Issues: Whether or not, under the law, Wilson & Co. implicitly accepted the order through its silence. Holding: Whether or not the delay before rejecting the order, in view of a past history of these kinds of transactions, constituted an implied acceptance is a question for the jury. Reversed and remanded. Rule: Restatement (Second) 69: Acceptance by Silence/Exercise of Dominion (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. Reasoning: All of Ammons previous orders had been accepted and the goods shipped not later than a week from the giving of such orders o Silence as assent According to the court, it was a question for the jury whether or not the corporation's delay of 12 days before rejecting the orders, in view of the past history of such transactions between the parties, including the booking, constituted an implied acceptance.

Adams v. Lindsell, p.325-326 (1818)


[plaintiff]: Adams [defendant]: Lindsell Procedural Posture: Judge reasoned that it was the defendant, Lindsells, neglect that caused the delay and that the jury must take it that the answer did come back in due course of post. D was liable for the loss and P recovered a verdict. Facts: Defendants deal wool and sent a letter on Sept. 2 to the Plaintiffs (wool manufacturers in a different town) offering wool at a price to be paid in two months, and to be weighed up by your agent within fourteen days receiving your answer in course of post. Defendants misdirected the letter, Plaintiffs did not receive it until Sept. 5, and the Defendants did not receive answer until Sept. 9. On Sept 8th, not having received the letter, the Defendants sold the wool to someone else Issues: Whether Plaintiffs had accepted Defendants offer, thus forming an enforceable contract. Holding: Yes. Rule: An offer by post is completed and accepted when the accepting party assents to the terms and puts the letter into the postal system. Reasoning: The Court held that Defendants offer was accepted on September 5, when Plaintiffs mailed the acceptance letter to Defendants. The Court rejected Defendants argument that there could not have been a binding contract until they had received the answer from Plaintiffs accepting the offer. The Court reasoned that under Defendants line of reasoning, it would be impossible to complete a contract through the post. If the Defendants were not bound by their offer until the answer was received, then the Plaintiffs would not be bound until they had received word that the Defendants had received their acceptance, and this could go on indefinitely.

Minneapolis & St. Louis Ry. Co. v. Columbus Rolling-Mill Co., p.330-332 (1886)
[plaintiff]: Minneapolis & St. Louis Railway Company [defendant]: Columbus Rolling-Mill Co. Procedural Posture: Plaintiff appealed a judgment of the Circuit Court of United States for the Southern District of Ohio finding defendant did not breach any contract between the parties because no contract existed. Facts: Minneapolis (P) sent a letter to Columbus Rolling-Mill Co. (D) for a quote for prices of 500 to 3,000 tons of 50 lb. steel rails and for 2000 to 5000 tons of 50 lb. iron rails for delivery in March 1880. Columbus responded with a statement that they did not make steel rails but will sell the iron rails for $54 per gross ton spot cash, F.O.B. his mill with a condition of excuse by strike, destruction of serious damage to plant or for any causes beyond their control and that if such was acceptable to be notified before December 20, 1879. Minneapolis then sent a telegram on the 8th of December to Columbus for 1200 tons and a request to reply. Minneapolis sent another telegram with a confirmation and a request for a contract as well as a template of the rail and a query into splices and the prices for the splices for this lot of iron. On December 18th, Columbus sent a telegram to Minneapolis telling them it could not book at that price. On December 19th Minneapolis sent another telegram for an order for 2000 tons as per Columbuss letter of the sixth (this was a mistake for the word eighth). Another query was sent to confirm the order of the 19th and finally Columbus responded on January 19th stating that there was no contract. Minneapolis sued Columbus and the jury gave the verdict to Columbus. Minneapolis appealed. Issues: Once an offer is rejected, can it be revived by a unilateral act of acceptance? Holding: No. Once an offer is rejected it cannot be revived by a unilateral act of acceptance; The Court affirmed the judgment and found since plaintiff did not accept defendant's offer, no contract was formed. Rule: Restatement 36 Methods of Termination of the Power of Acceptance (1) An offerees power of acceptance may be terminated by Rejection or counter-offer by the offeree UCC 2-207: Additional Terms in Acceptance or Confirmation Reasoning: Columbus offered to sell between 2000 and 5000 tons of rails. Minneapolis sent an acceptance for 1200 tons. That acted as a rejection of the original offer and as such Columbus responded indicating a refusal to accept that order. The negotiations were at an end. Minneapolis cannot fall back on Columbuss original offer. The railroads letter of acceptance on December 19th was merely a new offer to do business which Columbus refused. There was no contract.

U.C.C. - ARTICLE 2 - SALES ..PART 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT

2-207. Additional Terms in Acceptance or Confirmation.


(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract 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 or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

69. ACCEPTANCE BY SILENCE OR EXERCISE OF DOMINION


(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: (a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. (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. Comments: a. Acceptance by silence is exceptional....The exceptional cases where silence is acceptance fall into two main classes: those where the offeree silently takes offered benefits, and those where one party relies on the other party's manifestation of intention that silence may operate as acceptance. Even in those cases the contract may be unenforceable under the Statute of Frauds.

DTE Energy Tech., Inc. v. Briggs Elec., Inc., p. 334-340 (2007)


[plaintiff]: DTE Technologies, Inc. [defendant]: Briggs Electric, Inc. Facts: DTE, a Michigan corporation, began negotiations with Hospital for the sale of electric generator systems to be installed in California. Hospital and Briggs entered into a contract where Briggs would act as general contractor. Hospital then directed DTE to attempt to negotiate a subcontract with Briggs. Eventually Briggs sent a Purchase Order to DTE. Briggs contends that the Purchase Order constituted an offer. Briggs argues that DTE accepted its Purchase Order by email which acknowledged the receipt of the Purchase Order and constituted accepted conduct. DTE submitted an Order Acknowledgment and contends that the Order Acknowledgment and the Standard Terms and Conditions of Sale attached to the Order Acknowledgment should be construed as an offer. It claims that Briggs did not object to the terms of this alleged offer accepted the alleged offer when it sent payment. As part of those terms the Agreement was to be construed in accordance with and governed by the laws of the State of Michigan and any action thereon may be brought only in a court of competent jurisdiction located in Michigan. DTE delivered the electric generator and argues that Briggs has breached its obligation to pay owing excess of $880,000. Briggs made a demand for damages arising out of delays in completion of the Project and submitted a demand for mediation against Hospital, and the general contractor seeking a declaration of the contractual rights and duties. Briggs acknowledges that the Order Acknowledgment contains a forum-selection and choice of law clause but contends that it did not agree to the forum-selection clause. October 21, 2003: D (Briggs) sent a purchase order to P (DTE) Parties do not dispute whether a contract for the sale of the electric generator exists; rather, the parties disagree as to whether the forum-selection clause is part of their contract. Issues: Whether the Order Acknowledgment or the Purchase Order operated as the offer. Whether the forum-selection clause is enforceable against D. Under UCC 2-207 in order to avoid accepting an offer by sending a written confirmation containing additional or different terms, must that acceptance be expressly conditioned on the offerors assent to those terms?

Holding: The Purchase Order constituted an offer. No, the forum selection clause is not enforceable against D. Yes. Under UCC 2-207 in order to avoid accepting an offer by sending a written confirmation containing additional or different terms, that acceptance must be expressly conditioned on the offerors assent to those terms. Rule: 2-207. Additional Terms in Acceptance or Confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract 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 or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. Reasoning: Purchase Order constituted an offer o It was the initial communication between P and D o Sent to P after P was informed that it would need to negotiate with subcontractor o Order Acknowledgment references the Purchase Order D not bound by the forum-selection clause o Forum-selection clause was contained in the fine print attached to an Order Acknowledgement sent by P after D had submitted an offer o Assuming Order Acknowledgement operated as an acceptance, the forum-selection clause at issue altered the parties contract and is not enforceable against D.

Textile Unlimited, Inc. v. A...BMH & Co., p. 342-346 (2001)


[plaintiff]: Textile Unlimited Inc. [defendant]: ABMH & Co. Procedural Posture: Defendant initiated arbitration proceedings due to plaintiff's refusal to pay for goods. Plaintiff filed an action in the United States District Court for the Central District of California to enjoin the arbitration. The district court preliminarily enjoined both the pending arbitration and defendant from any further action regarding arbitration of the dispute in question. Defendant appealed the district court's order. Facts: During a 10-month period, P bought yarn from D in 38 transactions Each transaction followed the pattern: Textile would send a purchase order, BMH would respond with an invoice and an order acknowledgment. Both the invoice and order acknowledgment contained additional terms tucked onto the back, specifically that the sale would be subject to an arbitration clause requiring arbitration in Atlanta, Georgia. Textile did not request any alterations in these invoices After receiving a shipment in Sept. 1998, Textile refused to pay, alleging the yarn was defective BMH submitted the matter to arbitration in Atlanta Textile protested, arguing that the arbitration clause had not been properly woven into the contract and filed suit in the U.S. District Court for the Central District of California to enjoin the arbitration Textile moved to stay the arbitration. The district court granted the request, determining the venue was proper in the Central District of California. D appealed. A..BMH argues that a contract including the arbitration clause was formed pursuant to 2207(1) because the fine print provided that Textile accepted if Textile didnt respond in 24 hours. Furthermore, a contract was formed under 2207(1) because acceptance was not expressly made conditional on Textiles assent to the additional or different terms. Issues: Whether a contract containing the new terms, including the arbitration clause, was formed under 2207(1). Whether the FAA requires venue in the contractually-designated arbitration locale. Whether granting of preliminary injunction was an abuse of the district courts discretion. Holding: No, because Textile did not give specific and unequivocal assent to the supplemental conditions, a contract was not formed under 2207(1).

No, action to enjoin arbitration did not have to be brought in judicial district designated in arbitration clause No, granting of preliminary injunction was not abuse of district court's discretion.

Rule: UCC 2207(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. Reasoning: To obtain preliminary injunction, Textile needed only to show that serious questions were raised (and they did). Requesting a party to contest the very existence of an arbitration agreement in a forum dictated by the disputed arbitration clause would run counter to that fundamental principle. Under 2207(3), the disputed additional terms regarding arbitration on which the parties do not agree simply drop out and are trimmed from the contract o Thus, the supplemental terms proposed by A...BMH, including the arbitration clause, is not a part of the contract. Textile did not waive its right to object to arbitration.

Hill v. Gateway 2000, p. 349-352 (1997)


[plaintiff]/Appellees: Hill [defendant]/Appellant: Gateway 2000 Procedural Posture: Appellant suppliers sought review of an order of the United States District Court for the Northern District of Illinois, which denied their motion to enforce the arbitration clause contained in the items they shipped to appellee customers because it found that the record was insufficient to find that the customers were given adequate notice of the arbitration clause. Facts: A customer picks up the phone, orders a computer, and gives a credit card number. Presently a box arrives, containing the computer and a list of terms, said to govern unless the customer returns the computer within 30 days. One of the terms in the box containing a Gateway 2000 system was an arbitration clause. Rich and Enza Hill, the customers, kept the computer more than 30 days before complaining about its components and performance. Gateway sought enforcement of the arbitration agreement contained in the materials they shipped to the customers. The trial court denied their motion. P: arbitration clause did not stand out; concede noticing the statement of terms but deny reading it closely enough to discover the agreement to arbitrate. Issues: Whether the terms included in the box are effective as the parties contract, or is the contract term-free because the order-take did not read any terms over the phone and elicit the customers assent. Holding: Competent adults are bound by such documents, read or unread. In order for an arbitration clause to be valid, the purchaser need not receive notice of the clause apart from the terms and conditions of sale included in a box, and the clause need not be otherwise prominent or stand out Rule:

Reasoning: A contract need not be read to be effective; people who accept take the risk that the unread terms may in retrospect prove unwelcome. o Terms inside Gateway's box stand or fall together. If they constitute the parties' contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced. ProCD applies to this dispute o Gateway shipped computers with the same sort of accept-or-return offer ProCD made to users of its software.

Practical considerations support allowing vendors to enclose the full legal terms with their products. o Cashiers cannot be expected to read legal documents to customers before ringing up sales. o If the staff at the other end of the phone for direct-sales operations such as Gateway's had to read the four-page statement of terms before taking the buyer's credit card number, the droning voice would anesthetize rather than enlighten many potential buyers. o Others would hang up in a rage over the waste of their time. o And oral recitation would not avoid customers' assertions (whether true or feigned) that the clerk did not read term X to them, or that they did not remember or understand it. o Writing provides benefits for both sides of commercial transactions. Customers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device. The court held that UCC 2-207(2) only applies where there is a battle of the forms, and that it did not apply in this case because there was only one form.

Klocek v. Gateway, p. 352-355 (2000)


[plaintiff]: Klocek [defendant]: Gateway Procedural Posture: The trial court denied Gateways motion to dismiss and Gateway appealed. Facts: Each Gateway computer shipped with a document referred to as the Standard Terms in the box containing the instruction materials and cables. The Standard Terms provided that all claims would be settled through arbitration. The Standard Terms contained a notice on the first page stating that by keeping the computer for more than five days the user accepts the Terms as the binding agreement between the parties. Gateway moved to dismiss under the Federal Arbitration Act (FAA) which ensured that written arbitration agreements in transactions involving interstate commerce are valid, irrevocable, and enforceable. Under the FAA, if any suit is brought on any issue covered by an arbitration clause the court, on motion by one of the parties, must stay the trial until the conclusion of arbitration proceedings. Klocek in turn argued that the provisions of the Standard Terms were not binding. Klocek argued that his order of the computer constituted an offer and therefore the Standard Terms were either an expression of acceptance or written confirmation of the offer governed by Section 2-207 of the UCC. Issues: Whether the contract of sale includes the Standard Terms as part of the agreement. Whether the Court should grant Gateways motion to dismiss. Holding: No No, because Gateway has not provided evidence sufficient to support a finding under Kansas or Missouri law that plaintiff agreed to the arbitration provision contained in Gateway's Standard Terms, the Court overrules Gateway's motion to dismiss. Rule: UCC 2207: Additional terms in acceptance or confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract [if the contract is not between merchants]. . . .

Reasoning: Gateway provides no evidence that at the time of the sales transaction, it informed plaintiff that the transaction was conditioned on plaintiff's acceptance of the Standard Terms. Moreover, the mere fact that Gateway shipped the goods with the terms attached did not communicate to plaintiff any unwillingness to proceed without plaintiff's agreement to the Standard Terms. Because plaintiff is not a merchant, additional or different terms contained in the Standard Terms did not become part of the parties' agreement unless plaintiff expressly agreed to them. Gateway states only that it enclosed the Standard Terms inside the computer box for plaintiff to read afterwards. It provides no evidence that it informed plaintiff of the five-day review-and-return period as a condition of the sales transaction, or that the parties contemplated additional terms to the agreement. The Court finds that the act of keeping the computer past five days was not sufficient to demonstrate that plaintiff expressly agreed to the Standard Terms.

Kirksey v. Kirksey, p. 31-32 (1845)


[plaintiff]: Antillico Kirskey) [defendant]: Kirksey (brother of Ps deceased husband brother-in-law) Procedural Posture: Court entered judgment for P for $200; D appealed. Facts: COA: breach of contract D convinced P to sell her land after her husband died and move 60 miles to his estate, where he promised land a place to raise her children. After two years, D notified P she had to relocate to house in woods and eventually required her to leave completely. Issues: Under Alabama common-law, is selling ones home and moving 60 miles sufficient consideration to enforce a promise by D to provide P with a house and land? Holding: No, it is not sufficient consideration (mere gratuity); judgment for P reversed. Rule: A gratuitous promise is not enforceable even if a party has reasonably relied on that promise and suffered loss and inconvenience. Reasoning: Ds promise to P was a mere gratuity and not enforceable because lacked consideration. (Today, the doctrine of promissory estoppel would allow enforcement of the contract because Kirksey reasonably relied on the Ds promise to her detriment. Promissory estoppel is a consideration substitute and therefore, it must be considered only when consideration is not present.)

Hamer v. Sidway, p. 3336 (1891)


[plaintiff]: Hamer (successor-in-interest) [defendant]: Sidway Procedural Posture: The circuit court ruled in favor of the claimant to enforce the contract, and the executor appealed. The Supreme Court in the Fourth Judicial Department (New York), reversed the judgment of the circuit court, and the claimant appealed to the Court of Appeals of New York. Facts: Prior to his death, the uncle promised his 15-year-old nephew that if he refrained from drinking, using tobacco, swearing or playing cards or billiards for money until his twenty-first birthday, he would give the nephew the sizable sum of $ 5,000. When the nephew reached age 21, the nephew wrote to the uncle, telling him that he kept his side of the bargain and wished to collect the $ 5,000. The uncle returned the correspondence. After lecturing the nephew on how hard he worked to save the money, the uncle told the nephew that he was going to keep hold of the money until the nephew was capable of taking care of it. Uncle died and the executor of his estate (D) refused to pay P saying that the contract lacked consideration because the Uncle did not benefit from the consideration, nor was the promisee harmed, but rather benefited, from the promise (by being healthier). The defendant contends that the contract was without consideration to support it, and, therefore, invalid. o He asserts that the promisee by refraining from the use of liquor and tobacco was not harmed but benefited; that that which he did was best for him to do independently of his uncle's promise, and insists that it follows that unless the promisor was benefited, the contract was without consideration The Court of Appeals for New York found, however, that the nephews action had value in the form of legal detriment the nephew gave up something he had a legal right to do. Issue: Whether by virtue of a contract defendant's testator William E. Story became indebted to his nephew William E. Story, 2d, on his twenty-first birthday in the sum of five thousand dollars. Under New York common law, is forbearance by one party (P) sufficient consideration to make a promise binding? Holding: Yes, the contract was based upon consideration to support it and was, therefore, valid. Yes. Forbearance to act (e.g. smoke, drink, etc.) is sufficient consideration to make a promise binding and enforceable.

Rule: The court of appeals concluded that forbearance of a right was sufficient to sustain a promise, whether or not it in fact benefited the promise or a third party or had any substantial value to anyone. Reasoning: The nephew gave upon his legal right to use tobacco and drink liquor based upon the uncles promise that for such forbearance, the nephew would receive $ 5,000. It was inappropriate to speculate on the nephews effort required to give up the use of those stimulants or that his performance actually proved a benefit to him. It was sufficient that the nephew restricted his lawful freedom of action within certain prescribed limits upon the faith of the uncles agreement.

Langer v. Superior Steel Corp, p. 36-38 (1932)


[plaintiff]/Appellee: Langer (employee) [defendant]/Appellant: Superior Steel (employer) Procedural Posture: P sued D and the trial court entered judgment in favor of D. P appealed. Facts: COA: breach of contract P employed by D for 33 years after which board of directors took action to fire P In return for loyalty and his years of service, D would pay P $100/month as a retired employee P alleges that he is entitled to recover certain monthly payments provided for in a letter o Aug. 31, 1927: letter from president of corp. to P Informs P that directors have decided that P will receive a pension of $100/month as long as he lives, stays loyal to company, and remains unemployed Oct. 1, 1931: P is notified that monthly payments of $100 are to be discontinued P alleges that he refrained from seeking employment with any competitive company and that he complied with the terms of the agreement. Issues: Whether the letter created a gratuitous promise or an enforceable contract. Whether there was sufficient consideration to support a contract where one performing party has given up the right to do something which he otherwise would have the right to do. Holding: The letter created an enforceable contract on the theory of promissory estoppel. Yes, there was sufficient consideration to support a contract because P refrained from doing something he had a right to do (seek alternate employment).

Rule: - Restatement (Second) of Contracts 90: PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person 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. - A good consideration exists if one refrains from doing anything he has a right to do.

Reasoning: By receiving monthly payments, P impliedly accepted the conditions and thus was prevented from seeking other employment o The P was induced by the promises made to refrain from seeking other employment Unlike in Kirksey, here there was a benefit to be derived by the promisor o P had knowledge of methods used by D and D would not want him to be employed by a competitive company. Legal Detriment Rule: o If a detriment of a definite and substantial character has been incurred by the promisee, then the court may enforce the promise

Jara v. Suprema Meats, Inc., p. 39-43 (2004)


[plaintiff]: Jara, minority shareholder in Suprema Meats [defendant]: Suprema Meats, Inc. Procedural Posture: In trial court, Jara, Sr. sued for breach of contract and was successful; D appealed. Facts: - Jara, Sr. obtained a line of credit for Jara, Jr. and Rodriguezs new business in exchange for a 20% stock interest. - Sr. was issued 30,000 shares and became a member of the board along with Jr. and Rodriguez. - Parties agreed that the compensation should be $800 per week o Business was successful and after 3.5 years, the officers proposed that their compensation be increased to 20% of gross profits. Sr. did not consent; Jr. and Rodriguez voted to increase their compensation and awarded themselves bonuses - 2002: Sr. was removed from board of directors and paid a dividend of 129,000 - Jr./Rodriguez: trial court erred in finding an enforceable agreement among shareholders to require the approval of all shareholders for an increase in officer compensation. Jr.s promise was a gratuitous promise lacking in consideration. Issues: - Whether Jr.s promise was a gratuitous promise lacking consideration or an enforceable agreement. Holding: - Jr.s promise not to increase compensation without unanimous shareholder agreement was a gratuitous promise that was unsolicited and did not require a return promise or performance. Rule: - Restatement (Second) of Contracts 71: Requirement of Exchange; Types of Exchange (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 his promise and is given by the promisee in exchange for that promise.

Reasoning: Passante v. McWilliam o In gratitude for loan, the board promised to give Passante a 3 percent stock interest in the company. When the company rescinded its promise, Passante sued for breach of contract. The judgment of the trail court for the D found that the stock had not been bargained for in exchange for arranging the loan. Passante had already arranged the loan before the idea of giving him stock was ever brought up the promise is a mere promise to make a gift and not enforceable Jara is similar in fact to this case. Evidence from testimony of Sr. reveals that Jr.s promise not to increase compensation without unanimous shareholder agreement was unsolicited. o Jr. called Sr. for advice; Jr. volunteered an entirely unsolicited promise that the shareholders would agree on how much money compensation would be. o Jr.s promise did not arise from an previous objection or inducement that Sr. may have made The son's promise was gratuitous, despite his subjective state of mind. o Offered without expectation of any exchange promise or performance. Sr. did not make any further contributions to the business Because of the lack of consideration, there was no contract and thus no breach of contract. No bilateral contract was created regarding the future exercise of voting rights. o Sr. gave a non-committal, rather than a binding response when Jr. called him.

Thomas v. Thomas, p. 46-48 (1842)


[plaintiff]: Eleanor Thomas (widow of John Thomas) [defendant]: Samuel Thomas (brother of John Thomas) Procedural Posture: trial court found for P; Samuels exectutors (D) appealed. Facts: John Thomas, the deceased husband of P owned dwelling houses. John told his brother Samuel that he wanted Eleanor to have one of the houses or a certain amount of money This was incorporated into a written instrument subsequent to Johns death in which John agreed to pay to Samuel, as landlord, one dollar annually for Eleanor to be able to remain in the dwelling house Eleanor did take possession of the dwelling house for a period of time However, after Samuels death, Samuels executors refused to execute a conveyance to Eleanor pursuant to the agreement with John and instead brought an ejectment suit to oust Eleanor from the dwelling Eleanor brought suit in trail court for enforcement of Johns agreement with his brother to enable her to remain in the dwelling. D argued that consideration was missing. Issues: Whether a promise to perform an act constitutes a valuable consideration. Holding: Yes, a promise to perform an act may constitute a valuable consideration. Judgment for P. Rule:

Reasoning: Denman: The agreement showed a sufficient legal consideration quite independent of the moral feeling which disposed the executors to enter into such a contract Patterson: motive is not the same thing with consideration. Consideration means something which is of some value in the eye of the law. o Consideration exists if there is some benefit to P or some detriment to D. o The contract includes provisions requiring P to pay ground rent and make repairs. Coleridge: motive need not be stated o Cannot agree with D that this was a voluntary conveyance as the payment of 1 pound annually is valuable consideration.

Questions from Syllabus: 1. What is consideration? - With some exceptions a promise must be supported by consideration in order to be enforceable. - Consideration requires a bargained exchange in which each party incurs a legal detriment. - Two elements of consideration: [1] Bargained exchange Consideration is a bargained-for performance or return promise which is given by the promisee in exchange for the promisor's promise. Consideration need not be furnished by or to the parties themselves as long as it is part of the bargained exchange. Even if the promisor's promise induced performance or a return promise by the promisee, if such inducement was not sought by the promisor, there is no bargained exchange. In such circumstances, the promise is merely an unenforceable gift. [2] Legal Detriment: A legal detriment exists where the party: Engages in an act that the party was not previously obligated whether statutorily or contractually to perform; or Refrains from exercising a legal right

2. Why is it a requirement in contracts? - Contracts originally about an exchange of goods

3. Is it a matter of proof? If it is, can it be overcome with other forms of proof, such as formalities? -

4. Is it a matter of fairness? What does your answer indicate about the role of party autonomy in contracts? -

Browning v. Johnson, p. 54-57 (1967)


[plaintiff]: Browning [defendant]: Johnson Procedural Posture: Trial court concluded that the canceled sale contract lacked mutuality and had been too indefinite in its terms for enforcement. Regardless, concluded that the contract canceling the sale of contract was supported by adequate consideration. Browning appealed from that decision. T he trial court held that the contract canceling the sale contract was supported by "adequate" consideration. On appeal, the court affirmed. Facts: Doctors entered into a contract of sale, which all parties understood was an enforceable contract (this contract is not at issue) o Brown contracted to sell his practice and equipment to Johnson Before effective date of contract, Browning changed his mind about selling and wanted release from his obligations; Johnson demurred Browning promised to pay Johnson $40,000 if Johnson would give up the contract of sale (this is the contract that is at issue in this case) o Both parties entered into a contract which cancelled the contract of sale Browning tired of his bargain and brought action for declaratory judgment and restitution.

Issues: Whether Browning is to be bound by his promise to Johnson. Whether the law regards Johnsons act of giving up sale contract as legally sufficient consideration to support Brownings promise to pay him for such an act. Holding: Yes, Browning is to be bound by his promise to Johnson. Yes, Johnsons consideration was sufficient. Rule: The court must apply the rule followed in the State of Washington that parties who are competent to contract will not be relieved from a bad bargain they make unless the consideration is so inadequate as to be constructively fraudulent Reasoning: The court held that the seller's promise was supported by sufficient consideration and the case did not require the court to consider the relative values of the things exchanged. This is a unilateral contract in which a promise is given in exchange for an act of forbearance. o Promise: Browning promises to pay Johnson $40,000 o Act: Johnson gives up contract of sale

Sufficiency of consideration in unilateral contract: Prof. Williston o The requirement of sufficient consideration for the unilateral contract was met by the detriment incurred by the promisee (Johnson) OR by a benefit received by the promisor (Browning). Johnson suffered legal detriment Anything that fulfills the requirements of consideration will support a promise whatever may be the comparative value of the consideration, and of the thing promised. The relative values of a promise and the consideration for it, do not affect the sufficiency of consideration Contract of sale: o Mutually assented to o Originally it was fully acceptable to both parties o No misrepresentation, no fraud, no duress Browning bargained for Johnsons act of giving up the contract of sale

Apfel v. Prudential-Bache Securities, Inc., p. 57-61 (1993)


[plaintiff]: Apfel [defendant]: Prudential-Bache Securities, Inc. (investment bank) Procedural Posture: Supreme Court: Both parties argued breach of contract and sought summary judgment Appellate Division: reinstated Ds claim that the sale agreement lacked consideration o Novelty required before idea could be considered valuable On appeal: o D: no contract because lacked consideration o P: ideas were novel, but regardless, novelty is not required to validate contract Facts: 1982: P approaches D with proposal for issuing municipal securities D and P signed confidentiality agreement allowed D to review summary of techniques After a month, parties entered into a sale agreement o P: conveyed rights to technique and certain trade names o D: agreed to pay a stipulated rate to P based on banks use of the techniques from Oct. 1982 to Jan. 1988 D obligated to pay even if technique became public knowledge or standard practice over the interval of time o P agreed they had not disclosed technique and agreed to remain in confidence until it became public From 1982-1985: D implemented contract After 1985: D refused to make payments because techniques had been within public domain at the time of the sale agreement o What P sold was not theirs to sell D wants to avoid an agreement to purchase Ps idea for issuing and selling municipal bonds D argues: P had no property rights because the idea was not novel o Consideration for contract was lacking Court: showing novelty is not requirement to validate contract Issues: Whether an idea must be novel to serve as consideration in a contract selling the idea to another. Whether the Ps idea had value. Holding: No, consideration must have value to the buyer; however, there is no requirement that an idea used as consideration must have novelty. Yes

Rule: A showing of novelty is not required to validate a contract for the sale of an idea. The decisive question is whether an idea has value, not whether it is novel. Reasoning: Traditionally, parties at contract are free to make their bargain, even if the consideration exchanged is grossly unequal or of dubious value. It is enough that some real value in the eye of the law was exchanged. The fact that the sellers may not have had a property right in what they sold does not, by itself, render the contract void for lack of consideration. Defendants conduct shows that defendant received something of value (paying plaintiffs o Researched before buying it o Aggressively marketed the technique o Used it in advance of competitors o Received benefits of precluding its disclosure to others o Made payment to the P for 2 years Lack of novelty does not demonstrate lack of value

Jones v. Star Credit Corp., p. 61-64 ()


[plaintiff]: Jones [defendant]: Star Credit Corp Facts: Ps, who are on welfare, agreed to purchase a home freezer unit for $900 from D, a door-to-door salesperson representing Your Shop At Home Services, Inc. Various credit-related charges (credit life insurance, credit property insurances, sales tax, etc.) add another several hundred dollars on to the purchase (total $1,234.80) The Ps paid over $600 toward the purchase while the evidence indicates that the freezer had a max retail value of roughly $300 Issues: Whether the sale of a freezer unit having a retail value of $300 or $900 ($1,439.69 including credit charges and $18 sales tax) is considered unconscionable as a mater of law (within the meaning of Sec. 2-302 of the Uniform Commercial Code)? Holding: Yes, the contract is unconscionable. Rule: A court may refuse to enforce a contract for the sale of goods on the ground that an excessive price term renders the contract unconscionable. Reasoning: UCC 2-302 allows a court to refuse enforcement of a contract containing an unconscionable price term. The sale of a freezer having a retail value of $300 for $900 is unconscionable as a matter of law. Other factors taken into account when deciding if price term was unconscionable (aside from mathematical formula ratio): o Financial resources of the buyer known to the seller at the time of sale o knowing advantage taken of the buyer o Gross inequality of bargaining power The contract should be reformed by changing the payments called for therein to equal the amount already paid by the P. Common law doctrine/statutory law recognizes the importance of a free enterprise system but at the same time will provide legal armor to protect and safeguard the prospective victim from the harshness of an unconscionable contract Value disparity in the sales agreement leads to conclusion that advantage was knowingly taken of P Meaningfulness of choice essential to the making of a contract can be negated by a gross inequality of bargaining power

In re Greene, p. 66-69 (1930)


Claimaint: an unmarried woman who filed proof of claim in the sum of $375,700 based on an alleged contract Debtor/Bankrupt: a married man who had an intimate relationship for several years with the claimant Procedural Posture: hearing held and judge ruled in favor of P. Ds objections dismissed. Facts: P was a woman who had lived in adultery with D for several years. D bought P a $70,000 house on Long Island. Claimant asserts that the debtor promised to marry her as soon as his wife divorced him o Bankrupt denies April 1926: When they stopped being intimate and moved apart, P and D signed what was alleged to be a binding contract in which D promised to P to o pay her $1000 dollars a month while they both were alive, o provide a $100,000 life insurance policy and keep the premiums on it for life o pay rent for four years on an apartment she leased. Also in the written instrument it was specified that the bankrupt had no interest in LI house and was not liable for mortgage interests, taxes, and other charges associated with the property Consideration for these payments on claimants behalf was $1 and other good and valuable considerations 1928: Debtor made payments for about 2 years and then stopped. D went bankrupt and failed to pay so P is suing D for $375,700 to cover these costs. Issues: Whether there was any consideration for the bankrupts promise, apart from the past cohabitation? Holding: No; the contract lacked sufficient consideration to be enforceable. Rule: A consideration given by one party which is only token or nomial does not constitute sufficient consideration Reasoning: Past illicit intercourse was not sufficient consideration (past consideration is not recognized by the law) The $1 paid by the claimant was nominal and could not support an executory promise to pay hundreds of thousands of dollars

A contract for future illicit cohabitation is unlawful. There is consideration present in such a case, but the law strikes the agreement down as immoral Other good and valuable considerations is plausible, but there is not proof that in fact anything good or valuable had been given at the time the contract was made. Bankrupts purported immunity from having to pay taxes and other charges on the claimants house is not enough since he was never chargeable with these expenses; his previous payments were gratuitous. No claims for claimant to release bankrupt from o Imaginary claims of release are not consideration Although the parties here may have intended to make a valid agreement, the most solemn and formal document possible cannot disguise what is in reality a gift. o A seal is only presumptive evidence of consideration on an executory instrument o Agreement is unenforceable.

Fiege v. Boehm, p. 69-73 (1956)


[plaintiff]: Boehm [defendant]: Fiege Procedural Posture: P filed a breach of contract action to recover the expenses incident to the birth of and to provide support for the Ds illegitimate child o A jury found in favor of P D filed a motion for JNOV or a new trial. D appealed from the Superior Court, which overruled Ds motion for JNOV Facts: D promised to make payments to the unmarried P for the costs associated with the birth of her child and also to provide support payments for the child after its birth According to P, D acknowledged on numerous occasions that he was the father of the child Also before the childs birth, D agreed to pay all of Ps medical expenses and to compensate her for the loss of her salary caused by the childs birth, and to pay $10 per week for child support until the child was 21 This set of promises were made upon the condition that she would refrain from prosecuting him for bastardy After the childs birth and the promise to make payments, blood tests revealed that D was not the father D only paid P $480 she demanded that he pay her the further sum of $2,415.80 the balance due under the agreement D contends that even if he did enter into the contract as alleged, it was not enforceable because Ps forbearance was not based on a valid claim, therefore the contract was without consideration The D claimed there was no consideration for his promise because the right relinquished by the P to sue for paternity was groundless and thus without value Issues: Can forbearance from asserting a good faith legal claim be sufficient to constitute valid consideration? Holding: Yes, if the parties reasonably believe in good faith that the claim forgone is valid, the forbearance is consideration for a return promise. Rule: Forbearance to assert an invalid claim may serve as consideration for a return promise if the parties at the time of the settlement reasonably believed in good faith that the claim was valid.

Reasoning: Forbearance from asserting a legal claim known to be invalid is not valuable consideration. To be valid consideration, the claimant must subjectively believe in good faith that the claim is valid, and that belief must be reasonable from the standpoint of a reasonable person in the position of the claimant. In this case, there was no proof of fraud or unfairness As long as the original claim of paternity was in good faith, the Ds promise would be enforced The fact that the P good faith belief turned out be mistaken did not matter.

Levine v. Blumenthal, p. 78-80 (1936)


[plaintiff]: Levine [defendant]: Blumenthal Procedural Posture: - District Court judge found that subsequent oral agreement had been made to change the terms of the written lease with respect to rent paid but that it was unsupported by a lawful consideration and therefore could not be effective. Facts: - P leased to D a store premises in Paterson for 2 years - Term commenced on May 1st, with option of renewal for further period of 3 years - Rent reserved for $2,100 for 1st year and $2,400 for 2nd paid in equal monthly installments - April 1932 (before first year of term expired), D to P: would not be able to pay the increase in rent o If increase was forced, D would have to leave the premises or go out of business. D agreed to let them pay same rent until business picked up - For 11 months of 2nd term, rent was paid by D and accepted by P at the rate of $175/month - Option for renewal was not exercised and D surrendered premises at the expiration of the 2nd term, leaving the last months rent unpaid - P brings action to recover unpaid balance of rent reserved by the lease for the 2nd year - $25 per month for 11 months, and $200 for the last month. Issues: - Whether the subsequent oral agreement to reduce the rent was without consideration and therefore unenforceable (nudum pactum). Holding: - No, the agreement to reduce the rent was not supported by a valid consideration and therefore created no legal obligation. Rule: - Subsequent agreement, to impose the obligations of a contract, must rest upon a new and independent consideration. Reasoning: Payment in part is not regarded in law as a satisfaction of the whole, unless it was in virtue of an agreement supported by consideration Promise to do what already legally bound to do is not consideration

Basic principle that a consideration, to support a contract, consists either of a benefit to the promisor or a detriment to the promisee Any consideration, however insignificant, satisfied this rule The test is whether there is an additional consideration adequate to support an ordinary contract, and consists of something which the debtor was not legally bound to do or give. Sufficient consideration: a payment of part of debt and an agreement of debtor to refrain from voluntary bankruptcy o Contemplation of bankruptcy is not enough.

Alaska Packers Assn v. Domenico, p. 81-84 (1902)


[plaintiff]: Alaska Packers Association [defendant]: Domenico 6 Procedural Posture: The court found that the evidence did not support Domenicos claim regarding the nets and entered judgment for Alaska Packers. Domenico appealed. Facts: March 26: Domenico promised to pay salmon fishers $50 for the season and two cents for each salmon they took part in catching April 26: upped to $60 May 19: workmen stopped and demanded $100 instead of what was stipulated in the contract. The companys representative claimed that he had no authority to alter and adjust the contract, but, being in a situation where it was impossible to bring in other workers, agreed to the change in pay. At the end of the season, Alaska Packers refused to pay the higher wages Domenico brought suit to recover the additional $50. He testified that the nets were defective, impairing his ability to maximize payment based on the number of salmon caught. Issues: Is a promise to pay more for doing what the other party had already contracted to do enforceable? Is a contract modification enforceable without new consideration? Holding: No, a promise to pay more for doing something that the other party had already contracted to do is not enforceable. No, a contract modification is not enforceable without new consideration Rule: Pre-existing Duty An agreement modifying a contract is not supported by consideration if one of the parties to the agreement does or promises to do something that he is legally obligated to do or refrains or promises to refrain from doing something he is not legally privileged to do. Reasoning: Consent to increase wages from $60-$100 was without consideration The new contract was based on what the sailors had already agreed to do One cannot coerce a promise for increased compensation for doing that which he is legally bound to do by threatening non-performance A party cannot demand additional compensation for what he has already obligated himself to do. The real question is a question of law. Domenico agreed in writing to render services to the plaintiff for a stated compensation. Domenico demanded extra pay in remote waters where the fishing season is very short and

where it would be impossible to find other workers. Consent by the defendant under such circumstances is not valid consideration. A party to a contract who refuses to perform, and coerces a promise from the other party to pay additional compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party. Company did not provide a voluntary waver of the breach of the original contract. In fact, the company knew nothing of the breach until the expedition returned to San Francisco. Superintendent had no power to make a new contract and no power to change the original or waive any rights.

Angel v. Murray, p. 85-90 (1974)


[plaintiff]: Angel and taxpayers [defendant]: Maher (D1); Murray (D2) Procedural Posture: The trial court entered judgment in favor of P on the grounds that there was no new consideration to render the modification of the contract enforceable, and because the parties had considered the new housing units when they entered into the contract. Maher ordered to pay the sum of $20,000 to Newport P asserted that D had a preexisting duty to provide garbage collection services and that there was no consideration for the higher payments. D appealed. Facts: Maher (D1) had been providing garbage collection services to the city of Newport since 1946. In 1964 D1 and Newport agreed that D1 would receive $137,000 per year in exchange for garbage collection services for five years. The number of homes from which D1 collected increased unexpectedly by 20% and D1 requested an additional $10,000 per year for the remainder of the contract. The City Council accepted D1s modification of the contract. A group of taxpayers including Angel (P) filed a civil action against D1 and Murray (D2), the city treasurer, to compel D1 to repay $20,000 in payments that exceeded the original terms of the contract. Issues: Under the preexisting duty rule, is an unexpected circumstance a valid ground to modify a contract? Holding: Yes. Under the doctrine of unanticipated circumstances or conditions parties may increase the amount of compensation provided for in the contract even if no additional consideration is given. Rule: Restatement Second of the Law of Contracts 89D(a) A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. Elements for modification when parties voluntarily agree: o The promise modifying the original contract was made before the contract was fully performed on either side o The underlying circumstances which prompted the modification were unanticipated by the parties o The modification is fair and equitable

Reasoning: Under the preexisting duty rule, a modification of a contract must be supported by consideration. This rule is necessary to prevent the hold up game whereby a party to a contract will refuse performance unless additional consideration is given, under circumstances in which it would be very difficult or impossible for the other party to cover (Alaska Packers Assn). Courts will not enforce an agreement that has been procured by coercion or duress and will hold the parties to their original contract regardless of whether it is profitable or unprofitable Courts are reluctant to apply the pre-existing duty rule when a party to a contract encounters unanticipated difficulties and the other party, not influenced by coercion or duress, voluntarily agrees to pay additional compensation for work already required to be performed under the contract. The modern trend is for courts to enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of performance of a contract, even though there is no consideration for the modification, as long as the parties agree voluntarily. Under UCC 2-209(1) such a modification must be in good faith and obtained without extortion. In this case the modification was fair and equitable, voluntarily entered into, and motivated by events that were not anticipated and not foreseeable at the time the original contract was made. Restatement Second of Contracts 89D(a) is the applicable rule for this case. Prohibits modifications obtained by coercion, duress, or extortion Fulfills societys expectation that agreements entered into voluntarily will be enforced by the courts Case as applied to the three criteria of 89D(a) First it was voluntarily agreed to Maher plead his case and city council voted to authorize the Mayor to sign an amendment to the 1964 contract The promise modifying the original contract was made before the contract was fully performed on either side Modification was made in June of 1968 at a time when the five-year contract which was made in 1964 had not yet been fully performed by either party The underlying circumstances which prompted the modification were unanticipated by the party Original contract was premised on an increase of 20-25 per year. The 400 unit increase was beyond expectation and were unanticipated at the formation of the 1964 contract. The modification is fair and equitable It was a substantial increase for which $10,000 can be said to be fair and equitable.

Stephanie Stewart Professor Cheng Exercise: The case of the Dissatisfied Entertainer, p. 91

While taking into account the modern trend away from a rigid application of the preexisting duty rule, it is still the case that the trial judge erred in giving instructions to the jury, under which they had a duty to award damages to Ajax, the plaintiff, if they found that there was consideration for the making of the $35,000 contract. According to the American Law Institutes Restatement Second of the Law of Contracts 89D(a): A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. However, the modification is only enforced if the parties voluntarily agree to the revision and if the modification was not to remedy an unprofitable or unfair original contract. The case at hand fails to satisfy all three criteria set forth in 89D(a). Although the formation of the new contract fails to fulfill the subsequent criteria, it does comply with the first requirement, which demands that the modification of the original contract be made before the original contract is fully performed by either side. Prior to the event at Bonds resort hotel, Ajax contacted Bond to renegotiate the price terms of the original contract. Therefore, at the point of modification, neither party had fully performed the terms of original contract. The second of the criteria provided for under 89D(a) states that the underlying circumstances which prompted the modification be unanticipated by the parties. However, in Angel v. Murray (1974), the court clarifies its position on the modern trend away from the preexisting duty rule and recognizes that, courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance of a contract. In this case, Ajaxs demand for greater compensation did not arise from an unanticipated difficulty, but rather from Ajaxs desire to amend an unprofitable contract. Such a modification is not justified under 89D(a). The third criterion requires the modification to be fair and equitable, which is not the case here. Ajax demanded a $15,000 increase for a performance of the same duration and same caliber as Bond had originally contracted him for. Furthermore, 89D(a) prohibits modifications obtained by coercion, duress, or extortion (Angel v. Murray). Although he originally refused to renegotiate the terms of the original contract, Bond was forced to reconsider once Ajax threatened to not appear. Therefore, Bonds commitment to the new contract was not entirely voluntary. In fact, Ajaxs actions are comparable to the hold-up game that Chief Justice Roberts warns of in Angel v. Murray. Ajaxs refusal to perform without the promise of more money is similar

to the contractor who refuses to complete work under an unprofitable contract unless the price term is renegotiated. Finally, under the preexisting duty rule courts have generally found modifications of original contracts to be unenforceable if the individual contracted is only performing work that would have been required of him under the original contract. Here, Ajax is merely performing the work, namely his performance at Bonds resort hotel, which was already required of him under the original contract. Since Ajaxs case does not quite satisfy the unexpected or unanticipated difficulties exception, which permits modification of contracts, the contract between he and Bond should be held to the preexisting duty rule and the modification should be deemed unenforceable. Therefore, the instructions provided for by the trial judge to the jury did not take into account all three of criteria required under 89D(a) and inaccurately permitted the jury to uphold the modification of the contract. However, in light of the facts of the case, the jury would have been better to receive instructions regarding the preexisting duty rule. We reverse.

Rehm-Zeiher Co. v. F.G. Walker Co., p. 93-95 (1913)


[plaintiff]/appellant: Rehm-Zeiher Co., purchased whiskey from distillery for sale [defendant]/appellee: F.G. Walker Co., operated distillery Procedural Posture: Trial court: jury directed verdict in favor of the D on the grounds that the contract was lacking in mutuality and therefore could not be the subject of an action for a breach of contract. Facts: 1908: entered into contract to deliver 2000 cases of whisky in 1909, 3000 cases in 1910, 4000 cases in 1911, and 5000 cases in 1912. There was a part of contract stating that [i]f for any unforeseen reason the party of the second part find that they cannot use the full amount of the abovenamed (whisky) goods, the party of the first part (Walker Co.) agrees to release them from the contract for the amount desired by party of the second part (Rehm Co.) For the first two years, the plaintiff order less than the contracted amount, then sued because (after the price of whisky went up) the Rehm Co. would not sell the full amount stipulated in the third year of the contract. 1912: P brought suit to recover damages ($6,798) for Ds failure to furnish 2,596 cases of the 4000 cases that were provided for in the contract. Issues: Whether a contract that lacks mutuality is enforceable. Holding: No, if a contract lacks mutuality, it is not binding on either party. Judgment of trial court was correct; affirmed. Rule: Without mutuality of obligation there is no consideration because consideration is a promise bargained for and given in exchange for a promise. Reasoning: 1909: P ordered/received only 786 cases of the 2000 called for in contract; 1910: P ordered/received 1200 of the 3000 cases called for by contract o D did not demand that the P take in the full number of cases specified in the contract o D voluntarily chose to furnish some of the whisky did not deny to it the privilege of refusing to furnish the rest. 1911: whiskey went up in price and D did not want to deliver the whiskey that the P ordered; after request of P, D furnished 1044 cases in 1911 Crane v. Crane. Contracts looking towards the future, and embodying subject0matter necessarily indefinite in quantity, have been upheld

Unforeseen reason the unforeseen reason that would excuse P from taking only so much of the whisky as it desired to take, if any, left the amount it should take entirely to its discretion. o Contract places no limitation whatever on the meaning of the words unforeseen reason, so any reason that the company might assign for not taking the whisky would relieve it of any obligation to do so. Did not need to be good or reasonable reason. Unenforceable contract because it lacked mutuality. o Therefore, the contract was never binding upon Rehm-Zeiher and cannot be enforced.

McMichael v. Price, p. 96-97 (1936)


[plaintiff]: Price [defendant]: McMichael Procedural Posture: verdict returned in favor of P for $5,012.51; D appealed Facts: COA: breach of contract Entered into a contract to last for the duration of ten years: o D promised to purchase all the sand that the P could sell, provided that it was equal in quality and comparable with the sand sold by the companys competitors. D argues: the contract between the parties was a mere revocable offer and is not a valid and binding contract of purchase and sale because it lacks mutuality. Issues: Whether the intent of P, who offered to buy, and D, who offered to sell, entered into a contract that was mutually binding. Holding: Yes, the contract was mutually binding upon the parties. Rule: The general rule is that in construing a contract where the consideration on the one side is an offer or an agreement to sell, and on the other side an offer or agreement to buy, the obligation of the parties to sell and buy must be mutual, to render the contract binding on either party, or if one of the parties, not having suffered any previous detriment, can escape future liability under the contract, that party may be said to have a free way out and the contract lacks mutuality. Reasoning: Argued that P was not bound to sell any sand whatever and could escape all liability under the terms of the contract by a mere failure or refusal to sell sand P was not the owner of an established sand business but he was an experienced salesman of sand o On account of experience, acquaintances, and connections of the P, he would be able to sell a substantial amount of sand to the mutual profit of the contracting parties. Price term was fixed Ds argument that P could avoid liability under the contract by going out of the sand business is without force Intent of parties was to enter into a contract that would be mutually binding

Wood v. Lucy, Lady Duff-Gordon, p. - (1917)


[plaintiff]: Wood [defendant]: Lucy, Lady Duff-Gordon Procedural Posture: The trial court denied Lady Duff-Gordons motion for a

judgment on the pleadings. The intermediate appellate court reversed on the grounds that the contract lacked mutuality because Wood never promised to do anything. Wood appealed the dismissal of the complaint.
Facts: - D employed P to help her to turn her reputation in fashion into profit. - P was to have exclusive right (for one year), subject to Ds approval, to place her endorsement on the designs of others and to place her own designs on sale, or to license others to market them - In return, D was to receive half the profits derived from any contracts P made - Exclusive right initiated on April 1, 1915 and it was to last from year to year unless terminated by notice of 90 days. - P argues that he kept the contract and that D breached it by placing her endorsement on fabrics and dresses without his knowledge and withheld the profits. Issues:

Whether the intent of P, who offered to buy, and D, who offered to sell, to enter into a K that was mutually binding.

Holding: Rule: Reasoning:

Omni Group, Inc. v. Seattle-First National Bank, p. - (1982)


[plaintiff]: [defendant]: Procedural Posture: Facts:

Issues: Holding: Rule: Reasoning: