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Contracts I Chapter 1: Introduction to Contract Law o Our legal system does not concern itself with all agreements. For example: Exchange of a promise to provide an inexpensive watch for an act of opening an envelope. CONSIDERED CONTRACT Promise to give a homeless person a free meal. NOT CONSIDERED A CONTRACT o Will be learning contract law from two principle sources: Common Law- a body of law developed by judges in response to particular disputes. Modernize and create uniformity. Uniform Commercial Code (U.C.C.), Article 2- a body of statutory law drafted by lawyers, professors, and judges, and adopted in almost every state. Pertains to sale of goods. Must be able to determine whether given contract is governed by common law or U.C.C. Applicable rules of law are different depending on which body of law governs. o Contract Law Policy- Policy provides the “why” of law. Why courts have created and decided cases the way they have decided them. Predictability- also known as certainty. As a general goal, law strives to structure human relations so that people can determine the consequences of their actions. In the context of contract law, promotes our free market economy by providing certainty for those involved in the exchange of goods or services. o A merchant will know the legal consequences of her negotiating efforts. Encourages people to enter into contracts, secure in the knowledge that these contracts will be enforced. o If one party decides not to perform, society through the judicial system, will step in to ensure the aggrieved party can get what she expected. Underlies much of contract doctrine. Courts generally dislike changing contract law at all because parties make contracts on the premise that their bargain will be governed by existing law. 1

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Contracts I

Chapter 1: Introduction to Contract Lawo Our legal system does not concern itself with all agreements. For example:

Exchange of a promise to provide an inexpensive watch for an act of opening an envelope. CONSIDERED CONTRACT

Promise to give a homeless person a free meal. NOT CONSIDERED A CONTRACTo Will be learning contract law from two principle sources:

Common Law- a body of law developed by judges in response to particular disputes. Modernize and create uniformity.

Uniform Commercial Code (U.C.C.), Article 2- a body of statutory law drafted by lawyers, professors, and judges, and adopted in almost every state.

Pertains to sale of goods. Must be able to determine whether given contract is governed by common law or U.C.C.

Applicable rules of law are different depending on which body of law governs.o Contract Law Policy- Policy provides the “why” of law. Why courts have created and decided cases

the way they have decided them. Predictability- also known as certainty.

As a general goal, law strives to structure human relations so that people can determine the consequences of their actions.

In the context of contract law, promotes our free market economy by providing certainty for those involved in the exchange of goods or services.

o A merchant will know the legal consequences of her negotiating efforts. Encourages people to enter into contracts, secure in the knowledge that these

contracts will be enforced.o If one party decides not to perform, society through the judicial system, will

step in to ensure the aggrieved party can get what she expected. Underlies much of contract doctrine. Courts generally dislike changing contract law

at all because parties make contracts on the premise that their bargain will be governed by existing law.

Courts are disinclined to conclude that parties have entered into a contract unless both parties express their desire to contract using unqualified language.

o Rule allows for parties to predict consequences of their actions, negotiating behavior, and therefore to negotiate freely and with confidence as to the consequences.

Courts typically DO NOT let parties out of their contracts nearly all contracts are enforced.

o Allows parties to predict the consequence for making contracts obligation to perform.

Freedom of Contract- may be viewed as an outgrowth of our society’s emphasis on individualism.

Society assumes people are individual actors with free will. Contract law promotes that assumption by emphasizing that we have the freedom to make whatever contracts we choose to make.

Serves the larger goal of encouraging contract making in our market economy.o The more likely courts are to uphold what parties agree to in their contracts,

the more likely parties will continue to make contracts. Freedom of contract is promoted when courts enforce contracts, even if they are

unfair.

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o Courts are respecting parties’ freedom to voluntarily make own contractual bargains.

Fairness- A legal system fails all together if it does not reach the results that society believes are fair.

Policy is expressed by words such as “just”, “equitable”, or “protection”. Encourages contract-making because when parties believe the legal system will treat

them fairly, they are more likely to enter contracts.o Conversely, parties will feel more comfortable if they know unfair contracts

will not be enforced by our legal system. Example of “unfair”: forced at gunpoint (duress as defense) or based

on a lie (misrepresentation as defense). Situations may raise conflicting policy concerns.

o Example: Fairness can conflict with predictability or freedom of contract. Fairness concerns create blurry lines and require case by case

evaluation. Predictability dictates clear lines and unambiguous rules.

Courts have created contract defenses to escape unfair contracts. Efficiency- frequently cited policy especially in tort law and civil procedure.

In contract law, efficiency is significant because promotes our market economy by encouraging contractual exchange.

o Contractual exchange is desirable because it facilitates each party to an exchange by obtaining something she values more greatly than what she currently possesses.

Example: You buy a car. The car has greater value to you than the money. That is facilitation of efficient exchange.

Specific contract rules also promote efficiency.o Contract rue might be said to encourage “efficient breaches” of contract.

This rule will encourage a party to breach a contract and pay damages if that party can do so in an economically efficient manner.

Courts interpret contracts against the party who wrote them, reasoning the drafter was in the best position to make the contract ambiguous.

o The “Big Picture” of Contract Law Contract law is highly structured body of law. The “Contract Law Organizer” has a “cradle-to-grave” structure.

Fits together as a whole and reflects a logical order.o Contract topics logically flow from: Contract formation (the requirements for

making a contract) Defenses (the requirements for escaping a contract) to meaning (the process of interpreting contracts) performance and breach (the order in which parties must perform and what happens if one of them doesn’t perform properly) third-party issues (other than the parties who else can enforce the deal) remedies (what does a party who sues for a breach get if she wins). Pg. 9.

o Common Law Contracts vs. U.C.C. Article 2 Cases Common Law- Any case that does not pertain to goods. When not good, must look up cases.

Common law developed out of the merchant idea we discussed in class. For example, took the knowledge of how a merchant sold his goods in attempt to MODERNIZE and create UNIFORMITY.

Uniform Commercial Code, Article 2- Pertains to the sale of goods. Chapter 2: Mutual Assent

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o Chapter Problem: Memo from Supervisor regarding the sale of machinery to Diamond Car Manufacturer.

o Contract Formation- Do the parties even have a deal? Traditional formation Mutual Assent Communication of Present Commitment

Example: Amy/Betty (Case regarding floor cleaning.)o Issue Presented: Whether Amy and Betty communicated a present

commitment to form a contract. o To form a contract both parties must communicate a present commitment.o This is usually an OFFER followed by ACCEPTANCE this becomes a

manifestation of assent by the offeree to the terms of an offer in a proper manner.

o Amy spoke directly to Betty and certainly made an offer. Used the word “will” which communicates an unequivocal plan of

future action and therefore the requisite commitment.o Betty responded, “I really ought to let you do it”.

Some might understand “ought” as “must”, but “ought” might be expressing Betty’s belief about what might be the best course of action.

o Result is that “ought” does not represent or communicate a present commitment to go forward with a specific action. Betty did not probably communicate the requisite present commitment to form a contract.

Legal analysis focuses on ONE legal issue and in case of Amy/Betty it was whether the parties communicated a present commitment to form a contract.

o Requirement that parties express present commitment to form a contract is a rule.

o Background Information Restatement (Second) of Contracts- is a collection of statements that purports to articulate the

rules that constitute a particular body of law. Attempts to describe the rules of contract law. Written by judges, expert lawyers, It is NOT binding law, courts may ignore them but they are often very influential.

Consideration- is one requirement for forming a valid contract. Consideration law requires that each party to a contract promise to perform or

actually perform “something” in exchange for “something from other party.o Value does not matter.

o Present Commitment Requirement for Contract Formation Requires that each party communicate a present commitment to forming a contract. Usually an OFFER followed by an ACCEPTANCE.

When both parties, usually through an offer and acceptance, communicate a present commitment, there is MUTUAL ASSENT to form a contract.

Subjective Intention- what a person meant by the words she used. Objective Intention- how a reasonable person would understand the words the person used.

LUCY v. ZHEMER (1954, pg 23- Sale of farm in bar.)o Ultimately the court decided that the contract was BINDING.o Objective/Subjective issue. Determined through facts (i.e. there was

significant consideration in that there was 40-45 minutes of discussion, rewriting of the contract, and asking his wife to sign) that Zehmer was not joking.

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o Zehmer’s actions proclaimed sale although his thought may not have.o Key Contract Language- Interpret the language in which the parties

communicated. “We hereby agree to sell to W.O. Lucy the Ferguson Farm, complete

for $50,000, title satisfactory to buyer.” Only agrees to sell to W.O. Lucy and not brother.

HARVEY v. FACEY (1893, pg 28- 3 telegram purchase.)o Focus on particular qualities a party’s statement must possess for a court to

conclude that a reasonable person would find what the rule you have learned requires: present commitment.

o Facts 1st Telegram- “Will you sell Bumper Hall Pen to us? Telegraph lowest

cash price- answer paid”. 2nd Telegram- “Lowest cash price for Bumper Hall, 900 pounds.” 3rd Telegram- “Sale confirmed.”

o The issue here is whether there is an offer and acceptance. The second telegram does not give a yes or no and since there is no

firm offer there cannot be a true acceptance. NOT BINDING.o Types of Legal Reasoning

Rule-Based Reasoning- (also known as syllogistic or deductive) involves applying the rules to relevant facts to reach a conclusion.

Analogical Reasoning- involves arguing that a factual situation is similar to a situation in another case so that the conclusion reached should be the same.

Counter-Analogical Reasoning- involves arguing that a factual situation is different from a situation in another case so that the conclusion reached should be different.

Policy-Based Reasoning- involves arguing that a given policy should dictate a certain conclusion in a given legal problem.

o Applying Rules to Facts- Rule-Based Reasoning Legal Rule is simply a statement of abstract facts (often called requirements/elements) that a

court, legislature, or administrative agency has determined must be present to produce a specified legal consequence.

If the court finds the fats of a particular situation match-up sufficiently to the required abstract set of facts, the court will attach the specified legal consequence.

IRAC- Applying the Rules to Facts Issue- Identify and explicitly state the precise legal issue you are about to discuss.

o Example: The issue presented is whether Jane Doe’s conduct satisfied the second element of burglary, entering, when she turned the doorknob and entered the house.

Rule- Accurately state the specific rule you plan to apply. Analysis- Apply the rule to the specific relevant facts presented in the legal problem

you are analyzing. Conclusion- State an explicit conclusion, your specific prediction as to how a court

would decide the particular issue you discussed.o Certainty of Terms- An expression of commitment may not be enough to be an offer, an acceptance

or expression of assent. Section 33 of Restatement (Second)- Certainty

Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

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The terms of a contract are reasonably certain if they provide an appropriate basis for determining the existence of a breach and for giving an appropriate remedy.

o The fact that one or more terms of a proposed bargain are left or uncertain may show that a manifestation of intention is not intended to be understood as an offer or acceptance.

Essential Terms- Common law certainty rule is very flexible but must have the following: Quantity (how many of a specific item) Parties to the contract Price (or method of how it is determined) Subject matter (i.e. specific house) Important, but not essential are Time and Place for performance.

Study section 2-204 (3), 2-305, and 2-308 through 2-310 in the U.C.C. Article 2. 2-204 Formation in General (3)- Even though one or more terms are left open a

contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. Pg 235.

2-305- Open Price Term Pg. 243o The parties if they so intend can conclude a contract for sale even though the

price is not settled. In such a case the price is a reasonable price at the time for delivery if:

Nothing is said as to price; or The price is left to be agreed by the parties and they fail to agree; or The price is to be fixed in terms of some agreed market or other

standard as set or recorded by a third person or agency and it is not so set or recorded.

o A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

o When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.

o Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable to do so must pa their reasonable value at the time of delivery and the seller must return any portion of the price paid on the account.

2-308- Absence of Specified Place for Delivery, Pg. 244o Unless otherwise agreed:

The place of delivery of goods is the seller’s place of business or if he has non his residence; but

In a contract for sale of identified goods which to the knowledge of the parties at the time of the contracting are some other place, that place is the place for their delivery; and

Documents of title may be delivered through customary banking channels.

2-309- Absence of Specific Time Provisions; Notice of Termination, Pg. 245o The time for shipment or delivery or any other action under a contract if not

provided in this Article or agreed upon shall be reasonable time.

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o Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

o Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

2-310- Open Time for Payment or Running of Credit; Authority to Ship Under Reservation, Pg. 245

o Unless otherwise agreed: Payment is due at the time and place at which the buyer is to receive

the goods even though the place of shipment is the place of delivery; and

If the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (Section 2-513); and

If delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due at the time and place at which the buyer is to receive the documents regardless o where the goods are to be received; and

Where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

Is the certainty rule different from common law certainty rule?o If so what ways? If not, why not?

o Special Offer Rules- There are special offer rules that courts have layered onto the general principles already discussed (that an offer must communicate a present commitment to contract and must include sufficiently certain terms).

Rules in this section only apply if a problem falls within’ one of the several categories. Advertisements, quotes, or requests for bids.

Rules apply IN ADDITION to rules already learned (present commitment/certainty). “General Rules”- have a special meaning in legal context.

It is a legal principle that governs most situations, but under particular circumstances it is not determinative.

Example: As a general rule, advertisements are not offers. BUT in the Lefkowitz case you will see that the court concluded that the advertisement issue was an offer.

Advertisements, Circulars, and Quotes as Possible Offers. As a general rule, newspapers advertisements, circulars, and price quotes are NOT

OFFERS, rather INVITATIONS for OFFERS.o Rationale is that there is no specific offeree (because an advertisement is

communicated to everyone in the public who reads it) nor a specific quantity.o Accordingly, advertisements lack the requisite for certainty of terms.o It does not make sense for an advertiser to be liable for each person who came

into the business and said, “I accept.” LEFKOWITZ v. GREAT MINNEAPOLIS SURPLUS STORE (1957, pg. 41)

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o Defendant refused to sell plaintiff certain piece of fur after placing following ad in the newspaper:

o 3 Brand New Fur Coats, Worth to $100, First Come First Served, $1 Eacho Plaintiff was the first to present himself at appropriate counter at defendant’s

store.o Sale price of $1 not given because seller has right to revoke/modify price.o Defendant relies on Craft c. Elder and Johnston Co. Case no offer made to

specific person, but public generally.o Whether a binding obligation may originate in advertisements addressed to the

general public is “WHETHER facts show that some performance was promised in positive terms in return for something requested”.

o Where offer is clear, definite, and explicit, and leaves nothing open for negotiation, it CONSTITUTES an offer, acceptance of which will complete the contract.

Johnson v. Capital City Ford Co. Case newspaper ad relating to the purchase of automobiles may constitute an offer.

o Whether a newspaper advertisement is an offer rather than an invitation to make an offer DEPENDS on the legal intention of the parties and the surrounding circumstances.

o HOLDING: Appellate court deemed trial court was correct.o RULE: As a general rule, newspaper advertisements are not offers, rather

invitations for offers. However, a particular newspaper advertisement, addressed to the general population may have a binding obligation if the facts show that some performance was promised in positive terms in return for something requested. If the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which would complete the contract. An offer is clear, definite, and explicit if it expresses quantity, price/value, and subject.

o Professor’s Notes: Invitation to offer leaves room for ambiguity, but an offer leaves no

room for negotiation. In this case there was a stated quantity and request for performance (“first come first serve”), price/value.

FAIRMOUNT GLASSWORKS INC. v. CRUNDEN-MARTIN WOODEN WARE CO. (1899, pg. 44)

o Court determined that the contract between the two parties (Crunden wanted to purchase 10 car loads of jars from Fairmount) was BINDING.

o Fairmount appeals the case, but the holding is that that the contract was indeed BINDING.

o ISSUE: Did Fairmount have the right to decline to fill the order at the time it sent the telegram?

o There are a number of cases holding that a quotation of prices is not an offer to sell.

A completed contract will arise out of giving an order for merchandise in accordance with proposed terms.

o There are a number of cases holding that a transaction is not completed until the order is made accepted.

BUT, in each case must reflect on the language there used.

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In this case, there is more than a quotation of prices the true meaning of the correspondence must be determined by reading it as a whole.

“Advise us lowest price on OUR ORDER of 10 car loads.”o Appellant could not fail to understand here that the

appellee wanted to know the price for order. The aim of the courts is to arrive at the intention

of the parties. Deemed that Fairmount intended to give the

information Crunden asked for. Use of Fairmount stating “accepted immediately”, was also

held sufficient to show there was a definite proposition which was closed by the buyer’s acceptance.

o Professor’s Notes: HYPOTHETICAL ISSUE: P shopping in D’s computer store. Price on computer was marker at

$600. P took shopping cart to register and was refused the sale. Conflicting issues:

No offer until money is tendered. Simply putting the computer in the car does not mean there is a contract.

Putting the computer in the shopping cart constitutes for a contract.

Letters of Intent In complex transactions involving enormous numbers of issues, that must be

addressed in an eventual contract, parties often choose to document their progress toward a contract with a letter of intent.

Sometimes parties choose to bind themselves in letters of intent and regard a final written agreement as mere formality.

o The legal issue is it becomes difficult to determine whether parties intended to document their progress or create contractual obligations.

Sections 26 & 27 of Restatement (Second)- Letters of intent may or may not be binding depending on whether the parties INTEND the letter to be binding or INTEND that neither party will be bound until they negotiate and execute final documentation of their deal.

o Section 26- Preliminary Negotiations, Pg. 18o A manifestation of willingness to enter into a bargain is not an offer if the

person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made further manifestation of assent.

o Section 27- Existence of Contract Where Written Memorial Is Contemplated, Pg. 18

Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.

STORE PROPERTIES INC. v. NEAL (1945, pg. 47)o Store Properties appealing judgment that letter of intent was not binding.

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o Letter of Intent, Paragraphs 8, 9, 10 demonstrate that the instrument was merely a proposal and no definite lease unless the terms were to be written in a new contract.

o Store Properties claims that $5,000 deposit and $30,000 as guaranty for improvements is receipt from defendants, Neal, that formal lease.

o Neal contends uncertainty and indefiniteness so that the writing is not an enforceable contract.

o Store Properties again argues that: Defendant’s proposal to execute lease incorporated all terms necessary

to create a valid instrument. Defendants cannot claim uncertainty regarding the improvements

because it was left at the plaintiff’s discretion according to Exhibit A. Exhibit A does not state that Neal, the defendant had the right to refuse

to sign a proper lease.o HOLDING: Court determines NOT ENFORCEABLE CONTRACT.

When contract appears to be a preliminary agreement embodying only the spirit of a contemplated supplementary contract… and it is perfectly clear… that the minds of the parties never met upon the details, THEN IT IS NOT ENFORCEABLE.

When only the principle provisions of a lease are agreed upon, leaving the details and conditions to be expressed in writing to be executed by the parties, and such writing is never charged, it never becomes a binding obligation upon either party.

In this case, “a lease upon the given has not been executed within 30 days… both parties reserve the right anytime thereafter, to terminate this offer”.

Such language CLEARLY IMPLIES that parties contemplated the execution of a formal lease.

Absent from Exhibit A as provisions for a lease (makes letter of intent merely a preliminary instrument) are the following:

Kind of building and the nature of its construction. Nature of its foundation. Type of roof, zoning ordinances, other legal requirements

pertaining to permanent structure. Methods for preventing abandonment and enforcing

obligations of the lease in event of lessee’s insolvency. Character and financial responsibilities of an assignee.

Professor’s Note: The work SHALL invokes future action or duty. For example: The landlord SHALL furnish the apartment.

Request for Bids- Large-scale construction projects. Owner of land decides to do a large-scale project, she first has to hire architects and

engineers.o When plans and specifications are complete, owner will ask construction

companies (called “general contractors”) to bid on the project.o General contractor that is working on a government contract is called a “prime

contractor”.o General contractors are directly responsible for completing project in accord

with project plans and specifications at price agreed upon.

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o Courts generally hold that when a general contractor seeks bids from subcontractors, the general contractor’s request for a bid is ONLY AN INVITATION FOR OFFERS.

o The subcontractor’s bids are CONSIDERED OFFERS.o Manner of Acceptance- Already learned in order to form a contract both parties must manifest a

commitment and terms must be sufficiently certain. (Sometimes special offer rules apply.) Section 30 of Restatement- Form of Acceptance Invited

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.

Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.

Offeror’s Control Over the Manner of Acceptance- Offeror is deemed the “master of the offer” by the courts.

Therefore, offeror has the right to insist that an acceptance be made only in one particular way.

Offeror may require that an offeree accept by signing, delivering the completed performance sought by the offeror, or by “dancing a jig”.

Offerors seldom insist on a particular form of acceptance when they make an offer .o But if the offer does insist on a particular manner of acceptance, an offeree

can only accept by complying with the insisted upon manner of acceptance. o In contrast, if an offeror only suggests a preferred method of acceptance, an

acceptance by any reasonable means will suffice. Offeror’s right to control the manner of acceptance gives rise to three (3) potential

issues in analyzing whether a valid acceptance exists:o Does the offer require, suggest, or not address a particular manner of

acceptance? If manner is not addressed at all, the fact will be obvious.o If an offer does require a particular manner of acceptance, has the offeree

complied with the required manner? If so, and an offeree otherwise accepts an offer, parties have satisfied the mutual assent requirement. If not, parties did not form a contract.

o If offeror suggested a particular manner of acceptance, and an offeree accepts using a different manner, has offeree accepted? If offeree adopts a reasonable manner and otherwise, the parties have satisfied the mutual assent requirement.

KUZMESKUS v. PICK UP MOTOR CO. (1953, pg 54)o Involves offeror’s control over the manner of acceptance.o Court rules in favor of plaintiff, focus on specific language of parties. o Court applies Section 60 of Restatement- Acceptance of Offer Which States

Place, Time, and Manner of Acceptance If an offer prescribes the place, time, or manner of acceptance its terms

in this respect must be complied with in order to create a contract. If an offer merely suggests a permitted place, time, or manner of acceptance, another method of acceptance is not precluded.

o Kezmeskus, offeror and plaintiff puts in the preliminary interest to purchase 4 school buses.

o An hour after bid is placed on buses by the offeror, he receives a call from the store and general managers to discuss terms of the purchase.

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The bid by Kezmeskus however was a mere invitation of an offer for the pick up trucks.

On each order form there was a provision included that stated “this order is not binding unless authorized by an officer and the purchaser’s credit has been OK’d by the finance company”.

o As master of the offer, Kuzmeskus does not address a particular manner of acceptance and leaves that for the defendant, Pickup Motor Co., to determine.

They are the ones who put the provision on the order form.o The following morning, prior to receiving notification that the offer was

accepted, Kezmeskus revokes his offer and asks for her deposit back. o The issue here was whether there was a binding agreement of purchase and

sale.o Defendants claim that the written orders were memos of oral contracts.

Plaintiff, Kezmeskus contends that these were not oral contracts, but preliminary discussions and negotiations because the defendant required that the contracts be executed in writing.

And the order forms would not be binding unless authorized.o Based on these facts no contracts were completed by the mere delivery of the

order forms to the defendant.o The defendant made it clear to the plaintiff that those order forms were not

intended to be presently bound, but still needed approval.o RULE- A promise made with the understood intention that it is not legally

binding, but only expresses a present intention is NOT A CONTRACT.o RULE- Before acceptance is communicated to offeror, he has the right to

revoke/withdraw offer.o Application: The indication by the defendant of a willingness to receive

proposals, did not ripen into any contracts unless proposals were accepted by general manager and finance company. Kezmeskus never informed that his offers had been accepted and therefore had the right to revoke them

o Courts ruled in favor of plaintiff. Unilateral and Bilateral Contracts- Many offerors do not specify whether an acceptance must

be in the form of performance or the act of making a promise. When an offeror does not specify the manner if acceptance, it does make a difference

whether the contract is considered unilateral or bilateral. Unilateral contract refers to the fact that one party, the offeror, requires the

acceptance to be in the form of performing an act.o Unilateral refers to the fact that only one party, the offeror, is making a

promise.o Example: If I offer to sell you my car for $400 and say “You can only buy my

car by handing me $400”. This is a unilateral contract because offeror insists that offeree accept by performing an act, handing over money.

Bilateral refers to the fat that both parties are making promises.o Example: If I offer to sell you my car and say “You can only accept my offer

by promising to buy the car”. This is a bilateral contract because offeror insists on a promise.

DAVIS v. JACOBY (1934, pg 58)o The issue addressed in this case is whether contract formed between parties

was unilateral or bilateral.o Section 32 of Restatement- Invitation of Promise or Performance

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In case of doubt an offer is interpreted as a inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance the offeree chooses.

o Davis is the plaintiff who is asked by uncle to come to California to care for ill wife, Blanche in return for promised inheritance.

o On week after Davis agreed, Rupert commits suicide.o Davis moves to California to care for Blanche.

Upon Blanche’s death Davis learned that Rupert has left entire estate to two nephews.

o Davis sues Rupert’s estate, Jacoby.o Davis appealed trial courts ruling in favor of the estate, that there had been no

contractual obligation because Rupert had made a unilateral offer that could have only been accepted by performance.

Since Rupert was dead Davis could not help him with business affairs.o ISSUE: What type of offer is presumed to have been made where the offer is

ambiguous as to whether it is unilateral or bilateral?o RULE: An offer is assumed to be bilateral, if it is ambiguous with regard to

whether it is unilateral or bilateral.o Application: Court pointed to Rupert’s statement, “Will you let me hear from

you a soon as possible…” as a request for immediate reply so that he could make arrangements and rely on Davis’ promise to come to California to care for Blanche. Furthermore, since Rupert asked her to take care of them both until death it was apparent that he was relying on Davis’ promise to perform and continue to care for Blanche even after his death.

o Holding: Judgment for the estate reversed, contract was bilateral and binding.o Section 12 of Restatement-Capacity to Contract

No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.

A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is:

Under guardianship, or An infant, or Mentally ill or defective, or Intoxicated.

Knowledge of an Offer- Minor issue relating to the manner of acceptance is whether an offeree can accept an offer if the offeree is unaware of that offer.

o Section 51 of Restatement- Effect of Part Performance Without Knowledge of that Offer

Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance required by the offer may accept by completing the requested performance.

o Termination of the Power of Acceptance- Sections 36-43, 48 of Restatements Section 36- Methods of Termination of the Power of Acceptance

An offeree’s power of acceptance may be terminated byo Rejection or counter-offer by the offeree, oro Lapse of time, or

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o Revocation by the offeror, or o Death or incapacity of the offeror or the offeree

In addition, an offeree’s power of acceptance is terminated by the non occurrence of any condition of acceptance under the terms of the offer.

Section 37- Termination of Power of Acceptance Under Option Contract Not withstanding, Sections 38-49, the power of acceptance under an option contract is

not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of the contractual duty.

Section 38- Rejection An offeree’s power of acceptance is terminated by his rejection of the offer, unless

the offeror has manifested a contrary intention. A manifestation of intention not to accept an offer is a rejection unless the offeree

manifests an intention to take it under further advisement. Section 39- Counter- Offers

A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.

An offeree’s power of acceptance is terminated by his making of a counter-offer unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. (Livingstone Case)

Section 40- Time When Rejection or Counter-Offer Terminates the Power of Acceptance Rejection or counter-offer by mail or telegram does not terminate the power of

acceptance until received by the offeror, but limits the power so that a telegram or letter of acceptance started after the sending if an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

Section 41- Lapse of Time 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. What is a reasonable time is a question of fact, depending on all of the circumstances

existing when the offer and attempted acceptance are made Unless otherwise indicated by the language or the circumstances, and subject to the

rule stated in Section 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at time before midnight on the day on which the offer is received.

o Section 49- Effect of Delay in Communication of Offer If communication of an offer to an offeree is delayed, the period

within which a contract can be created by acceptance is not thereby extended if the offeree knows or has reason to know of the delay, though it is due to the fault of the offeror; but if the delay is due to the fault of the offeror or to the means of transmission adopted by him, and the offeree neither knows nor has reason to know that there has been a delay, a contract can be created by acceptance within the period which would have been permissible if the offer had been dispatched at the time that its arrival seems to indicate.

Section 42- Revocation by Communication From Offeror Received by Offeree An offeree’s power of acceptance is terminated when the offeree receives from the

offeror a manifestation of an intention not to enter into the proposed contract. Section 43- Indirect Communication of Revocation

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An offeree’s power of acceptance is terminated when the offeree takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reasonable information to that effect.

Section 48- Death or Incapacity of Offeror or Offeree An offeree’s power of acceptance is terminated when the offeree or offeror dies or is

deprived of legal capacity to enter into the proposed contract. Death or Incapacity- An offeree’s power to accept an offer terminates upon the death or

incapacity of the offeror, Not in a bilateral contract though as we saw in the Davis v. Jacoby case. Case would

have been determinative rule if contract was unilateral. Revocation- An irrevocable offer cannot be revoked.

First you must determine whether an offer is irrevocable. Then see if alleged revocation really is revocation. Irrevocable offers in the bilateral context.

o Two ways an offer can be made irrevocable: Applies to contracts under U.C.C. Article 2, by making a firm offer. Option contract which is a tool used by undecided buyers and sellers to

meet their respective needs. Example: Buyers of land want “buy-time” to decide whether or

not they really want to purchase property.o Buyer will pay the seller an agreed-upon sum to ensure

that for a specified time, the seller will not sell property to another.

o Exchange of time for money. Same requirements have to be met as any other contract:

mutual assent and consideration.o However, consideration requirement is more lenient in

the option contract. While courts will generally conclude there is no

consideration (calling the consideration “nominal”) if the amount stated in contract is $1 or less courts accept $1 as consideration for an option.

Irrevocable offers in the unilateral context.o Brooklyn Bridge Hypothetical (pg 65)

A makes an offer to B by stating “I will pay you $50 if you walk across the Brooklyn Bridge”. When B gets halfway across the Brooklyn Bridge A says, “I revoke my offer”. If B walks the rest of the way across the bridge must A pay B the $50?

Initially Wormser argues that “If an offer of a unilateral contract revokes the offer after the offeree starts performance, but before the performance is complete, no contract has been formed”

This is because acceptance occurs at the end of a performance in the unilateral contract.

However Section 45 of Restatement changes the rule, to protect individual and promote policy.

Section 45- Option Contract Created by Part Performance or Tender

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o When an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders the beginning of it.

o The offerors duty of performance under any option contract, so created is conditional on completion or tender of the invited performance in accordance with terms of the offer.

Two Ways an Offeror May Revoke Professor’s Notes:

o Six ways to terminate the power of acceptance: Revocation Lapse of Time Death Incapacity Rejection Counter-Offer

o Revocation before acceptance- NO CONTRACTo Acceptance before revocation- BINDING CONTRACT

PETTERSON v. PATTBERG (1928, pg 66)o In this case the offeror communicates her revocation directly to the offeree. o Section 42 of Restatement- Revocation by Communication From Offeror

Received by Offeree An offeree’s power of acceptance is terminated when the offeree

receives from the offeror a manifestation of an intention not to enter into the proposed contract.

*This is the rule courts use to determine whether the offeror’s communication revokes the offer.

o Court assumes that Pattberg made an offer, but was it unilateral or bilateral? o ISSUE: Did Pattberg revoke his offer before Patterson accepted?o Defendant, Pattberg wrote to Patterson, Plaintiff on April 4, 1924:

“I agree to accept cash for the mortgage, it is agreed and understood as consideration I will allow you $780 providing said mortgage is paid on or before May 31 and regular quarterly payment due April 25, 1924 is paid when due.”

Defendant made regular quarterly payment on time and then in early May went to Pattberg home to pay off mortgage.

States that he came to pay the mortgage and Pattberg refused the money and said that he had sold the bond mortgage to a third party.

o Holding: Trial court rules in favor of Plaintiff and awards sum plus interest. However, appellate court claims that a unilateral contract was formed, the performance never occurred, and therefore no contract was ever made.

o RULE: Any offer to enter into a unilateral contract may be withdrawn before act requested to be done has been performed.

o RULE: If the offeror can say “I revoke” before the offeree accepts, however brief the interval of time between the two acts, there is no escape from the conclusion that the offer is terminated (Williston on Contracts S60B).

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o Application: Here before the actual tender is made, Pattberg revoked his offer. Before the tender of necessary moneys had been made Pattberg did inform the Plaintiff, Petterson that he had sold the mortgage already.

This was definite notice to Petterson that the defendant could not perform his offered promise.

o RULE: An offer to sell property may be withdrawn before acceptance without any formal notice to whom the offer is made.

It is sufficient if that person has actual knowledge that the person who made the offer has done some act inconsistent with the continuance of the offer such as selling the property to the third party.

o Application: Thus in this case it is clear that the defendant’s offer was withdrawn before acceptance had been tendered.

The offer of the defendant was withdrawn before it became a binding promise, therefore there was no contract ever formed, so there was no breach of contract.

o Dissent: This became the issue of fairness and the fact that the Plaintiff really did begin to tender performance since he had already made regular payments on the mortgage and had also made his way over to the defendant’s house to pay off the mortgage. The defendant is the one who made it impossible for the plaintiff to perform. This helped to develop Section 45 of restatement to protect those who enter into contracts and to promote predictability policy.

DICKINSON v. DODDS (1876, pg 70)o On Wednesday Dodds, the defendant, send Dickinson the plaintiff, a memo.o In memo, Dodds said he “agreed to sell” a piece of land for 800 pounds and

that the offer was going to be held open until 9:00 am on Friday.o Dickinson the plaintiff claimed that he had decided to accept Dodd’s offer on

Thursday morning but did not contact him immediately because he thought he had until Friday morning to accept.

o On Thursday afternoon Dickinson became aware from a reliable source (his agent) that Dodds had offered the land to a third party. Dickinson wrote a note to accept the offer and delivered it to Dodds’ home. He left the letter with his mother-in-law who admitted she had forgotten to give the letter to Dodds.

o On Thursday Dodds indeed sells the property and gets deposit from the third party.

o On Friday of the deadline to accept the offer, Dickinson and his agent attempt to give Dodds written acceptance of the offer.

o Dodds states that he has already sold the land to a different party the previous day and that it was “too late”.

o Dickinson sues for specific performance.o Procedure: Lower court ruled in Plaintiffs favor granting specific

performance. Dodds could only have withdrawn offer by giving notice to P, which

he did not. Defendant appeals and court determines that a contract had never been

formed.o Issue: Whether a promise to hold an offer open (as Dodds had offered

Dickinson in the memo) is binding, where the other party accepts before the deadline, but does no accept until after he learns that the offeror has already

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sold the property. In other words , did Dodds have the right to revoke his offer to Dickinson?

o Applicable Law: “But it is clear settled law, on one of the clearest principles of law, that this promise being a mere nudum pactum (“bare”/”naked” promise) was not binding, and that any moment before complete acceptance by Dickinson (offeree), Dodds (offeror) was as free as Dickinson himself.

An offer or promise is not binding until/if offeree does not completely accept the offer. The offeror has the right to revoke the offer even if it is before the deadline.

There was no meeting of the minds at the time the acceptance was made therefore a binding contract was not formed.

o Holding: Yes, an offeror can withdraw or revoke his offer before the deadline offered in the original offer as long as he has not received acceptance and the offeree has been informed of the intention to revoke through some reliable source.

o Rationale: Dickinson knew that Dodds was no longer going to sell to him because Dodds had clearly told him he was withdrawing his offer and that he had sold to a third party. Furthermore, Dickinson stated that he had heard, from a reliable source, his agent, that Dodds was going to sell the property to a third party even before he attempted to deliver that letter of acceptance. Dickinson was therefore aware of the fact that Dobbs had changed his mind. The “two minds” were not in agreement at one time, the time of acceptance.

o RULE: An offer does not bind the offeror to hold the offer open until the time that he claimed he would.

o RULE: In order for a contract to be binding there must be meeting of the minds at the time of acceptance. There must be a continuing offer up to the time of acceptance.

o RULE: An offer is withdrawn by the offeror when the offeror explicitly states so, or when he changes his mind AND that change is communicated to the offeree.

o Professor’s Notes: This issue here is indirect revocation and whether it occurred in this case. The two rules are as follows:

Element 1: Offeror takes an action inconsistent with going forward with the contract.

Fact: Dobbs sold property to someone else. Because this was real property , defendant could no longer sell what he had offered to sell.

Element 2: Offeree acquires reliable information about inconsistent action.

Fact: Dickinson later hires who told him about Dobbs selling property to another to be his agent. Dickinson trusted agent to act for him therefore indicating that agent was reliable source.

Lapse and Rejection- Two ways of terminating an offer that are not linked in any way. Both are addressed in Akers v. Sedberry.

AKERS v. J.B. SEDBERRY INC. (1955, pg 73)o Section 41 of Restatement- Lapse of Time

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.

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What is a reasonable time is a question of fact, depending on all of the circumstances existing when the offer and attempted acceptance are made

Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in Section 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at time before midnight on the day on which the offer is received.

Section 49- Effect of Delay in Communication of Offero If communication of an offer to an offeree is delayed,

the period within which a contract can be created by acceptance is not thereby extended if the offeree knows or has reason to know of the delay, though it is due to the fault of the offeror; but if the delay is due to the fault of the offeror or to the means of transmission adopted by him, and the offeree neither knows nor has reason to know that there has been a delay, a contract can be created by acceptance within the period which would have been permissible if the offer had been dispatched at the time that its arrival seems to indicate.

o Section 38 of Restatement- Rejection An offeree’s power of acceptance is terminated by his rejection of the

offer, unless the offeror has manifested a contrary intention. A manifestation of intention not to accept an offer is a rejection unless

the offeree manifests an intention to take it under further advisement.o Facts

Breach of contract of employment, the Plaintiffs (Akers) win at trial court, the Defendant (Sedberry) appeals. The appellate court keeps holding.

Akers and Whittsett contracted to work with Sedberry for 5 years and after friction with new management Plaintiffs flew to Nashville to offer their voluntary resignation face to face with Mrs. Sedberry.

She did not accept their offer and proceeded to discuss future business operations with the Plaintiffs.

“Would not accept”, said nothing regarding the fact that she would even consider their resignation offers.

October Sedberry sends notice that she is going to accept the Plaintiffs’ resignation.

o Issue: Were the offers made by the Plaintiffs rejected by Mrs. Sedberry?o RULE: (YES) It takes two to make a contract and it takes two to unmake it.

It cannot be changed or ended by one alone, but only by mutual assent of both parties.

A contract for employment for a FIXED period (in this case 5 years) may be terminated by the employees offer to resign, provided such offer is duly accepted by the employer.

Section 40 of Restatement (Illustration 2)- Ordinarily an offer made by one to another in face to face conversation is deemed to continue only until the end of the conversation and cannot be accepted thereafter.

Corbin on Contracts- When negotiating parties in each other’s presence…IF WHEN first reply is not an acceptance and the offeror

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turns away in silence, proper inference is that the offer is no longer open to acceptance.

o Application: In case this case the conduct of Sedberry led plaintiffs to conclude she rejected the offer. Furthermore, the offers were no longer open to acceptance since face to face she had declined their offers.

o Conclusion: Therefore, the attempt of the defendant to terminate the contracts was unlawful and constituted a breach.

Counter Offers- An offeree is not always willing to be bound by the terms stated in an offeror’s offer, however wishes to continue discussions with the offeror.

Offeree may propose an alternative deal, called a counter-offer. RULE: When an offeree chooses to make a counter-offer, that choice implies

rejection of the original offer. LIVINGSTONE v. EVANS (1925, pg 78)

o Section 39- Counter- Offers A counter-offer is an offer made by an offeree to his offeror relating to

the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.

An offeree’s power of acceptance is terminated by his making of a counter-offer unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.

o ISSUE: Whether the Plaintiff’s counter-offer was in law a rejection of the defendant’s counter-offer.

o HOLDING: Contract was binding.o Facts:

Offer made by the Defendant (Evans) to sell property to Plaintiff (Livingstone) for $1800.

Livingstone replies to offer by stating “Send lowest cash price. Will give $1600 cash. Wire.”

Defendant’s agent replies “Cannot reduce price.” Upon receipt of the telegram plaintiff wrote accepting offer.

o RULE: Generally, when an offeree chooses to make a counter-offer it is an implication of a rejection to the original offer.

o RULE: A counter-offer is only deemed as a rejection if it does not stand by the terms of the original offer.

As in the Hyde v. Wretch (this was a landmark case for case law stood without question for 85 years*), “part of law in contracts…making a counter-offer is a rejection of the original offer”. This case takes Hyde and pushes it a little further.

o Application: In this case an issue arises because the defendant responded “Cannot reduce price” to plaintiff’s counter-offer.

Was this a simple rejection of the counter-offer or renewal of the original offer?

Court determined it was a renewal of the original offer and that the contract was BINDING, it gave plaintiff the right to accept.

o Rationale: The court determined “Cannot reduce price” as more than just a reply to the counter-offer. The price referred to in the response by the Defendant, was “unquestionably the price mentioned in his original offer/letter”. The statement that he could not reduce the price showed that he

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was standing by his terms of the original offer therefore making it open to acceptance.

o NOTES: A purported acceptance that changes any of the terms of an offer is a

counter-offer. This concept is sometimes referred to as the mirror-image rule. This is referred to as such because it makes things clear cut and leaves no room for discretion.

Counter offers and rejections are treated differently than an options contract because an options contract is a bargain for agreement and must be left open for acceptance.

The Mailbox Rule- Sections 40, 42, 63, and 66 of Restatements Section 40- Time When Rejection or Counter-Offer Terminates the Power of

Acceptanceo Rejection or counter-offer by mail or telegram does not terminate the power of

acceptance until received by the offeror, but limits the power so that a telegram or letter of acceptance started after the sending if an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

Section 42- Revocation by Communication From Offeror Received by Offereeo An offeree’s power of acceptance is terminated when the offeree receives

from the offeror a manifestation of an intention not to enter into the proposed contract.

Section 63- Time When Acceptance Takes Effecto Unless the offer provides otherwise,

An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it reaches the offeror; BUT

An acceptance under an option contract is not operative until received by the offeror.

Section 66- Acceptance Must Be Properly Dispatchedo An acceptance sent by mail or otherwise from a distance is not operative when

dispatched, unless it is properly addressed and such precautions taken as are ordinarily observed to insure safe transmission of similar messages.

Section 67- Effect of Receipt of Acceptance Improperly Dispatchedo Where an acceptance is seasonably dispatched but the offeree uses means of

transmission not invited by the offer or fails to exercise reasonable diligence to insure safe transmission, it is treated as operative upon dispatch if received within the time in which a properly dispatched acceptance would have normally arrived.

*SEE EXERCISE 2-33 IN TEXT (pg 79-80) FOR EXAMPLES. Professor’s Notes: Acceptance occurs when it leaves the offeree’s hand, regardless of

when it is received by the offeror.o Rejected when it is received by the offeror.o Revocation when received by the offeree.

Options contract when offeror receives.o Mutual Assent Under U.C.C. Article 2- This is a model of statutes drafted by a team of lawyers,

professors, and judges.

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Section 1-103- Construction of U.C.C. to Promote Its Purposes and Policies; Applicability of Supplemental Principles of Law

The U.C.C. must be liberally construed and applied to promote its underlying purposes and policies, which are;

o To simplify, clarify, and modernize the law governing commercial transactions;

o To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and

o To make uniform the law among the various jurisdictions. Unless displaced by the particular provisions of the U.C.C., the principles of law and

equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.

Official Comments: The U.C.C. was drafted against the backdrop of existing bodies of law, including the common law and equity and relies on those bodies of law to supplement its provisions. U.C.C. is the primary source of commercial law rules (pertains to goods) in the area that it governs. In the absence of such provisions U.C.C. preempts principles if common law and equity that are inconsistent with either its provisions or its purposes and policies.

U.C.C. Mutual Assent Rules are Sections 2-204, 2-205, 2-206, 2-207 Section 2-204- Formation in General

o A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

Flexibility- aims to create flexibility of mirror image rule in common law.

o An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

o Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy

Similar to Section 33 of Restatement-Certainty which states: Even though a manifestation of intention is intended to be

understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Section 2-205- Firm Offerso An offer by a merchant to buy or sell goods in a signed writing which by its

terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such a period of irrevocability exceed three months; but any such terms of assurance on a form supplied by the offeree must be separately signed by the offeror.

Section 2-206 Offer and Acceptance in Formation of Contract

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o Unless otherwise unambiguously indicated by the language or circumstances An offer to make a contract shall be construed as inviting the

acceptance in any manner and by any medium reasonable in the circumstances;

An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

o Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

Section 2-207- Additional Terms in Acceptance or Confirmationo A definite and seasonable (no lapse of time) 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 (pushes to [2])

o If not merchants, the additional terms are to be construed as proposals for addition to the contract. BETWEEN MERCHANTS such terms become part of the contract UNLESS (pushes to [3]):

The offer expressly limits acceptance to the terms of the offer; They materially alter it; or Notification of the objection to them has already been given or is given

within a reasonable time after notice of them is received.o 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 a 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 the act. (Based on historical transactions/contracts between the merchants).

o In regards to different terms: Equal treatment Rule: Adds additional terms to the contract. Majority Rule = Knock out rule, where both terms knocked out and

court supplies new term. Minority Rule = Drop out rule, where additional term from the offeree

is dropped out.o Gun HYPO: Buyer orders a gun for $400 COD, 30 Days with indemnity

provision (withholding responsibility. Seller adds the provision conditionally. Buyer does not read and uses the gun and injures himself. He sues the seller. Move to 2-207 (3) because provision is conditional.

Notes: o “And” signals multiple elements of a rule.o “Or” signals requirements that can be met in alternative ways.o “Unless” signals an exception to the rule.o “Including” signals a non-exclusive list of examples.

Definitions:

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o Agreement- means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance.

o Contract- means the total legal obligation which results from the parties’ agreement.

o Notice- A person has notice of face when: He has actual knowledge of it; or He has received notice or notification of it; or From all the facts and circumstances known to him at the time in

question he has reason to know that it exists. A person knows or has knowledge of a fact when he has actual

knowledge of it. “Discover” or “learn” or a word or phrase of similar import refers to knowledge rather than to reason to know. The time and circumstances under which a notice or notification may cease to be effective are not determined in this act.

A person notifies or gives notice or notification by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know if it. A person receives a notice or notification when:

It comes to his attention; or It is duly delivered at the place of business through which the

contract was made or at any other place held out by him as the place of receipt of such communications.

Notice, knowledge, or notice or notification received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting that transaction, and in any event from the time when it would have been brought to his attention if the organization had exercised due diligence.

o Party- as distinct from “third party” means a person who has engaged in a transaction or made an agreement.

o Remedy- means any remedial right to which an aggrieved party is entitled with or without resort to tribunal.

o Send- in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other unusual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of proper sending.

o Term- that portion of an agreement which relates to a particular matter.o Written- or writing includes printing, typewriting, or any other intentional

reduction to tangible form.o Section 1-204- Time; Reasonable Time; “Seasonably

Whenever this Act requires any action to be taken within a reasonable time, any time which is not manifestly unreasonable may be fixed by agreement.

What is a reasonable time for taking any action depends on the nature, purpose, and circumstances of such action.

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An action is taken “seasonably” when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time.

o Buyer- means a person who buys or contracts to buy goods.o Good Faith- in the case of a merchant means honesty in fact and the

observation of reasonable commercial standards of fair dealing in the trade.o Receipt of goods- means taking physical possession of them.o Seller- means a person who sells or contracts to sell goods.o Section 2-104- Merchant; Between Merchants

Merchant means a person who deals in goods of that kind or otherwise by his occupation and holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

Between Merchants means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

o Section 2-105- Goods Goods must be both existing and identified before any interest in them

can be passed. Goods which are not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

o Section 2-106- Contract; Agreement; Contract for Sale; Present Sale; Conforming to Contract; Termination; Cancellation

In this article unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods. Contract for sale includes both a present sale of goods and a contract to sell goods at a future time. A sale consists in the passing of title from the seller to the buyer for a price. A present sale means a sale which is accomplished by the making of a contract.

Goods or conduct including any part of performance are conforming or conform to the contract when they are in accordance with the obligations under the contract.

Termination occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On termination all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.

Cancellation occurs when either party puts an end to the contract for breach by the other and its effect is that same as that of termination except that the canceling party also retains any remedy for breach of the whole contract or any unperformed balance.

WACHTER MANAGEMENT CO. v. DEXTER & CHANEY , INC. (2006, pg 87) Shrink-wrap “If open package constitutes agreement.” Clickwrap “Put software in and click through licensing agreements.” Facts:

o DCI offers software contract and mentioned that there would be additional provision and would be governed by the laws of State of Washington (leniency, convenience of location, public policy, society, ect.).

o The integration clause stated that this would be final agreement.

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o After two years Wachter finds issues with the software and sues for damages in Kansas.

Case ends up being dismissed because of the VENUE. In the clause it had stated that contract would be governed by the state of Washington.

ISSUES:o Was the “shrink-wrap” an additional term to the contract?o Did opening of the “shrink-wrap” constitute acceptance of the contract

HOLDING (Majority): Wachter’s opening does not express assent. Dissent: The license agreement was not a modification of the contract. The original

offer included the license, or at least expressed the intent of the parties that license was a part of the offer.

Chapter 3- The Consideration Requirement for Contract Formationo Section 17 of Restatement- Requirement of a Bargain

Except as stated in subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration.

Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts under the rules stated in Sections 82-94.

Formation of contract requires a bargain which there is a manifestation of mutual assent and consideration.

o The general rule for consideration is that there must be a bargain for exchange.o The Basic Consideration Rule and Forbearance as Consideration

Section 71 of Restatement- Requirement of Exchange; Types of Exchanges To constitute consideration, a performance or a return promise must be bargained for. 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. The performance may consist of

o An act other than a promise; oro A forbearance; oro The creation, modification, or destruction of a legal relation.

Each party to contract must receive consideration. A return promise or performance is consideration if it is bargained for.

For example:o Anna agrees to pay Bill $500 and Bill agrees to tutor Anna in contract law for

5 hours (CONSIDERATION).o Out of sympathy for Anna, Bill agrees to tutor Anna in contract law for 5

hours (NO CONSIDERATION). HAMER v. SIDWAY (1898, pg 102)

Hamer is the bankruptcy agent and plaintiff, suing Sidway, defendant and executor of the will.

Facts:o Nephew, Story Jr. 2nd promised by his uncle Story Sr. to be paid $5000 if

nephew refrained from drinking, gambling, using tobacco, until the age of 21.o Nephew successfully performed his part of the bargain.o Executor of Story Sr.’s estate says contract was not binding because it lacked

consideration. ISSUE: Whether nephew’s performance of restraining (forbearing) from drinking,

using tobacco, or gambling constituted consideration. HOLDING: Yes, forbearing to do those acts did constitute forbearance and the

contract was binding.25

RULE: A valuable consideration in the sense of the law may consist in either some right profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, taken, suffered, or undertaken by the other. Values of exchanges do not matter, it is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for promise to be made to him.

Applicable Laws: o Parson’s on Contracts 444 “In general a waiver of any legal right at the

request of another party is sufficient consideration for a promise.”o Kent Volume 2 “Any damage or suspension or forbearance of a right will be

sufficient to sustain a promise.” Rationale: Sidway, defendant claims nephew benefited from his actions of refraining

to drink, smoke tobacco, or gamble, so there was no consideration. However, this contention which if well founded would leave open for controversy in many cases whether what promise did or omitted to do was a benefit to him, as to leave no consideration to support the enforcement of the promisor’s agreement.

o SUCH A RULE COULD NOT BE TOLERATED and is without foundation in the law.

HYPO: If gambling was illegal and only asked to refrain from doing so would there be consideration? NO

o Adequacy of Consideration, Sufficiency of Consideration and Related Topics General Rule: Courts do not inquire into the adequacy of consideration. SCHNELL v. NELL (1861, pg 105)

There were 3 possible items of consideration at issue.o Promise to pay “one cent”- nominal considerationo Love and affection Schnell (D) bore his deceased wife- moral consideration

will not support a promiseo Desire in the form of inoperative will, that persons named should have sums

of money specified- a valid consideration for his promise cannot be found in a fact of a compromise of a disputed claim; for which some claim is legally boundless, a promise upon a compromise of it, or a suit upon it, is not legally binding

Agreement the deceased wife, Theresa Schnell, made with these people did not have legal authorization, so it made the initial contract not binding.

Facts:o Theresa Schnell died with out property because all of the property she owned

jointly with her husband reverted to him upon his death. The husband and defendant agreed through contract to give three beneficiaries $200 a piece. The contract indicated the husband’s purpose for the contract; that T had been a dutiful and loving wife. The consideration for the promise was one sent and the love and affection he had for his wife. Nell (Plaintiff) later sued after Schnell did not pay.

ISSUE: Can a nominal sum of money or prior acts of love and affection act as legal consideration sufficient to create an enforceable contract?

Holding: No, the one cent was nominal and the love and affection was deemed as moral consideration, therefore the contract was void/ not binding.

RULE: While the inadequacy of consideration will no vitiate an agreement, that doctrine does not apply to the mere unequal exchange of money.

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o Cannot trade “one cent” for “two hundred dollars” The exchange would have been valid if the cent had been an item of

indeterminate value. RULE: A moral consideration ONLY, will not support a contract.

o Husband had no legal obligation to honor his wife’s bequests simply because of “love”.

RULE: If a claim is legally groundless, a promise upon a compromise is not legally binding.

o As for the promise by the beneficiaries to not pursue further claims arising from the will, the court held that valid consideration for his promise did not exist because any such claims would have been legally groundless.

BATSAKIS v. DEMOTSIS ( 1949, pg 109) Facts:

o Batsakis (Plaintiff) sues Demotsis (Defendant) to collect on a promise Demotsis had made to pay at a later date, $2000 plus interest in exchange for 500,000 drachmae.

o D had asked the Plaintiff for money which she needed to feed her family. In exchange D promised in writing to return $2000, plus interest.

“I have received from you $2000 of US money… I will return to you again in American dollars…”

D received 500,000 which had a value of approximately $25 at the execution of the contract.

D refused to pay back the money claiming that there was no adequate consideration for her promise because of the putative market value.

o ISSUE: Did the market value of the exchange that occurred between Demotsis and Batsakis constitute for inadequate consideration and therefore make the contract unenforceable?

o HOLDING: The trial court found in the favor of the Plaintiff (Batsakis) and he was awarded $750 plus interest. The plaintiff appealed and the damages were modified to $2000- The contract was BINDING.

o RULE: The mere inadequacy of consideration will not void a contract. Here the two currencies were different therefore the court would not

inquire about the inadequacy of consideration. The court reasoned that the consideration given by Demotsis for

Batsakis’s promise could not be considered inadequate because the Defendant got exactly what she contracted for.

o Professor’s Notes: WANT of Consideration- means no consideration

A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place.

FAILURE of Consideration- some sort of consideration, but not deemed adequate.

Policy Rationale: Freedom to contract and promotes efficiency, motivating individuals to enter contracts.

o Past and Moral Consideration MILLS v WYMAN ( 1825, pg 112)

Facts:o Young man dies after going to foreign country.

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o Young man was 25 years of age and “had long left his father’s family” so he was in the care of Mills (Plaintiff) when he fell ill.

o Father of the ill young man (Wyman, Defendant), after having found out about this event, writes to the Plaintiff expressing his promise to pay the debt Mills had incurred while caring for his son.

In regards to Wyman, “influenced by a transient feeling of gratitude”o Wyman does not follow through on the promise so Mills takes him to court.

ISSUE: Whether the defendant, Wyman, writing to promise to Plaintiff constituted legal consideration, making the contract binding.

o Does making a promise after the action has already taken place constitute legal consideration?

HOLDING: No, the promise made by Wyman did not constitute legal consideration. The Court of Common Pleas said there was no consideration and the Appellate Court affirmed.

RULE: Past consideration (when a promise is made after an action) is not legally binding.

o Section 71 of Restatement- Requirement of Exchange; Types of Exchanges To constitute consideration, a performance or a return promise must be

bargained for. 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.

APPLICATION: Wyman never sought care for his ill son. Plaintiff was being a Good Samaritan and his kindness and service toward the sick was not bestowed upon the defendant’s request. Wyman felt morally obligated to make the promise to Mills only after Mills had performed the action.

o A deliberate promise made in writing freely and without mistake, one which may lead the party to whom it was made into contracts and expenses cannot be broken without violation of moral duty. BUT, if there was nothing paid or promised for it, the law leaves the execution of it to the conscience of he who makes it. It is only when the party making the promise gains something, or he to whom it is made loses something that the law gives the promise validity.

Professor’s Notes: Past consideration = no consideration Generosity cannot turn to contract gratuitous service. WEBB v MCGOWEN

o This is the case of the worker who jumped and disabled himself trying to save a life.

o MUST ANALYZE THIS SORT OF SCENARIO UNDER FOUR (4) VIEWS.

MILLS v WYMAN TRADITIONAL VIEW- moral obligation and past

consideration are NOT CONSIDERATION. No contractual obligation. EX: You go away on vacation and you come back to see the

neighbor has mowed your lawn. He says okay pay me $10. You are NOT obligated.

WEBB v MCGOWEN

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MORAL OBLIGATION VIEW- Moral consideration IS CONSIDERATION when there is a drastic event such as saving someone’s life, serious injury, etc.

Here there was an agreement to pay a set amount over a set period of time because had become permanently disabled. The contract and payments would continue until END of TERM.

Restatement 86- No moral obligation, just issue of preventing injustice.

Injustice left at discretion of the court. New York Statute (General Obligation law)- only if trial held in NY.

There is a BINDING contract if SIGNED and in WRITING. Practice Exam Question

A arrives in San Diego for vacation. She gets very sick from food or water and is in her hotel room for three days unable to leave her room. The hotel cleaning woman, B, attempts to come in the first day of A’s illness to clean the room and finds A in bed – ill. B offers her help and A accepts. B provides crackers from the kitchen, extra bottles of water, clean towels, cleans the room more than once a day, cleans the bathroom three times each day, and opens the windows. After three full days of care from B, from sunrise to sunset, A is able emerge from the room.

A is a high school student, 17 years of age, and went to California for spring break. When A finally calls her parents, on day four, the parents tell her to tell B that they will pay her a wage of $50 per day. A does not so the parents call B and tell her what they told the daughter. B never receives payment.

o B brings a cause of action against A’s parents (don’t concern yourself with jurisdiction). How would the court likely rule? Please provide sufficient reasoning to support your answer. Apply all applicable views or theories.

o Using the same facts as above, however A is 22 years of age having gone back to college later in life.

o MY ANSWER: Issue: The issue is whether the promise made by A’s parent’s to B, to

pay her $50 a day in wages for caring for their daughter, was sufficient consideration to form a binding contract.

RULE: Past consideration occurs when a promise is made after an action. Past consideration is not good consideration. Moral consideration is not good consideration. When there is not sufficient consideration there is no contractual obligation.

Application: In the case of the 17-year old’s parents and the cleaning woman at the hotel, the promise made to pay $50 in wages lacked sufficient consideration and therefore there was no binding contract. The promise made to B was only made after the parents had been informed of the event that their daughter was ill and cared for by the cleaning lady. The promise made after the action was therefore likely made out of emotion. And moral consideration alone is not good consideration further supporting the fact that the promise was not binding. Lastly, the cleaning lady was justifiably completing tasks that were expected of her (her occupation required) and anything she did extra was out of kindness and her discretion.

Conclusion: Therefore, there is no contractual obligation on the part of the parents to pay the cleaning lady $50 a day in wages for caring for their daughter.

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Professor’s Notes: APPLY ALL APPLICABLE VIEWS, as per the directions.

o I failed to do so and only addressed the case with the traditional view (Mills v Wyman)

Be aware of timing on exams, brain dump in the beginning to get out all relevant terms you may use in your answer.

In regards to her being 22-years old, it is always good to provide counter-argument.

In answering exam questions, do not just restate the facts verbatim. Professor is the one who made the exam, provide an analysis.

In regard to Section 86 of Restatement and injustice in this case- None existed.

o Settlement of Invalid Claims In a settlement contract, a party against whom a claim is asserted agrees to resolve that claim

by paying the other party money. Example: A files a claim from B who ran a red light and crashed into him. B and A

then agree that B will pay A $10,000 to settle the claim. A and B both made promises. A promised not to sue B, and B promised to pay A so there is no issue of mutual assent. The exchange also has consideration: A relinquished the right to seek legal redress against B, for B’s promise to pay.

o *The issue that may occur is if B later decides that he believes he might have prevailed in a law suit, instead of settling.

For example, proof later came that the light was actually green, not red.

Here, B might sue A to rescind settlement contract or B might refuse to perform causing A to sue B in order to enforce the contract.

Courts apply a compromise position because:o Courts do not want to encourage people to assert frivolous claims to extort

money from each other.o However, courts want to encourage settlements because courts have become

overcrowded. UNDER THIS POSITION: A settlement of claims which later turns out to be invalid

is ENFORCED IF:o The settling plaintiff had a genuine belief that the claim was valid at the time

of settlement; ando The claim was at worst doubtful from the perspective of a reasonable person.

Other courts sometimes take the position that a genuine belief alone suffices as consideration and enforces the settlement upon genuine belief.

FIEGE v. BOEHM (1956, pg 116) Facts:

o Plaintiff, Boehm goes on several dates with Fiege. o She becomes pregnant and Plaintiff contends that Fiege is the father. o He agrees to pay what amounts to cost and support in return for a forbearance

to prosecute him for illegitimacy. o He pays $480,but then goes to her doctor and finds out he is not the father.o He stops paying she sues. He files a demurrer. She files amended declaration

saying she filed for bastardy only after he stopped paying.

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ISSUE: Is forbearance on invoking bastardy charges sufficient consideration to make a contract binding?

o Even though the claim on which the settlement is based is invalid (Fiege is not the father.)

HOLDING: YES. The court found in the favor of the Plaintiff, Boehm. RULE: 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.

RULE: (Provided by Professor) Forbearance on invoking bastardy charges is sufficient consideration.

o Promise not to prosecute a claim which is not found in good faith does not itself give a right of action on agreement to pay.

o Settlement claims are enforced when: Made in good faith Have some foundation

Application: Plaintiff made the charge of bastardy in good faith even though the charge was subsequently proven false.

o Preexisting Duty Rule This is a relatively straight forward concept: A promise to do what one is already obligated to

do is NOT GOOD CONSIDERATION. Example: A and B are trading baseball cards. They agree to trade the car of one

famous player for the card of another famous player. A handed his card over to B and B stated “I’ll give you the card I promised ONLY IF you give me a second card. B then asked for a specific card, and A although upset, agrees and hands over the second card because of his passionate desire for the car in which he had originally bargained. A might agree to the second deal and even perform, but he will almost certainly feel cheated.

o If the preexisting duty rule was applied to the exchange, that would justify A getting his second card back.

The issue of preexisting duty rule is easily understood when looked at like this: The issue arises when two parties have made one contract and then made a second

contract. The question then becomes whether there is consideration for the second contract so that the second contract is enforceable.

Courts now address many preexisting duty rule issues under a contract defense called “economic duress”.

Uniform Commercial Code Section 2-209 (1)o An agreement modifying a contract within this article needs no consideration

to be binding. Courts are sympathetic about “not getting what you bargained for”.

I purchase a NEW shirt on the internet and it comes USED in the mail. HYPOTHETICAL- TINA FEY

You are Tina Fey’s agent/attorney. She is under contract with SNL for 3 more years for $400,000 per episode. Fey asks you to call and renegotiate her deal for more money now that she’s a big star.

o How can you get more money without violating the preexisting duty rule? Need to do something more to get more money.

Additional obligation added to contract (i.e. additional appearances).

Fey does not perform well by not being funny.

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o In this case, you must look at the fine print on the contract to determine what her performance requires.

HYPOTHETICAL- WASH CAR, MANURE For example, you agree to wash someone’s car for $10 on Wednesday. On Tuesday,

it is smeared with a bunch of manure.o Contract modification by change of surrounding circumstances.o TWO VIEWS:

RENEGOTIATION/REVISEMENT MINORITY RULE: “Sea is the sea.” You agreed to wash the car so

you must perform on the original contract. Preexisting Duty Rule Flowchart (Exam Approach)

SPOT ISSUE (2 contracts, one duty) Promise to only do what already had to do No contract UNLESS:

o Doubtful claim (aka “honest disputes”)o Addition of genuine new dutieso Unforeseen circumstances (Ex: Manure on car), Executory (Still coming into

being- Ex. The car has not yet been washed.), Fair deal ALASKA PACKER’S ASSOCIATION v DOMENICO (1902, pg 121)

Libel= complaint Libellants= Plaintiffs Alaska Packer’s is the defendant and the appellant. Domenico is the plaintiff and

respondent. Facts:

o March 26 initial contract was formed, $50 for season and 2 cents per salmon.o April 15 other workers form contract for $60 for season and 2 cents per

salmon.o April Unloaded the vessel on the Two Brothers ship.o May 19 Stopped work in a body, demanded company’s superintendent to pay

$100 instead of the original $50/$60.o May 22 New contracts were drafted and signed in front of shipping

commissioner because it was impossible to get new men to replace them last minute. Superintendent however testified that at the time he had told the libellants that he was without authority to alter/edit such contract.

o After they returned to SanFran the company denied validity of the new contracts and some plaintiffs sought counsel.

Procedure: On trial in court below, the plaintiffs undertook to show that fishing nets provided by the Alaska Packer’s were defective and that was why they asked for an increase in wages.

o Court ruled AGAINST the Plaintiff’s and in favor of the Defendant. ISSUE: Whether the alleged contract made by the superintendent, and that he

executed it on behalf of the appellant, Alaska Packer’s, was supported by sufficient consideration.

GENERAL RULE: A promise to do what one is legally obligated to do is not good consideration.

RULE: (Drawn from LINGENFELDER v BREWING CO.) When a party merely does what he has to do, he cannot demand an additional compensation therefore; and although by taking advantage of his adversary, he obtains a promise for more, the law will regard it as a nudum pactum (naked promise- not binding) and will not lend its process to aid in the wrong...

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RULE: If there is no modification of the contract, where individual has done nothing more or nothing different, then individual is bound to tender under the original contract. If there is no loss, trouble, or inconvenience that could result that was already assumed, terms of the original contract are enforceable.

HOLDING: The Plaintiffs were not justified in refusing performance because there was no need to alter the contract. The ORIGINAL CONTRACT was BINDING and ENFORCEABLE.

Rationale: Business of company relied on the quality of the facility it provides its workers in order to generate a profit; therefore it is highly unlikely that there were rotten nets.

Application: Plaintiffs agreed in writing (1st contract) for stated compensation, to render their services to Appellant (Alaska Packer’s) in remote waters, where large amount of money was invested, and at a time where it would be impossible to secure other men in their places. Plaintiffs without any valid cause absolutely refused to continue working unless paid more. Consent to such demand given without consideration for reason that it was solely based upon the plaintiffs’ agreement to render the exact services, and none other, that they were already under contract to render. The Plaintiffs willfully and arbitrarily broke that obligation.

Professor’s Notes:o Economic Duress is put into perspective with this case.o Policies are:

Fairness, inherently just and right Predictability, universally accepted

Exercises 3-15 Alaska Packer’so Section 73 of Restatement- Performance of a Legal Duty

Performance of a legal duty which is neither doubtful nor the subject of honest dispute is not consideration if it differs from what was required by duty in a way which reflects more than just a pretense of bargain.

o Section 89 of Restatement- Modification of Executory Contract A promise modifying a duty under a contract, not fully performed on

either side is binding IF: The modification is fair and equitable in view of the

circumstances not anticipated by the parties when the contract was made; or

To the extent provided by the statute; or To the extent that justice requires enforcement in view of

material change of position in the reliance on the promise. AFC INTERIORS v DiCELLO (1989, pg 126)

Reoccurring problem: What happens if a party who owes money under a contract sends the other party a check labeled “payment in full” and the other party, while disputing the fact that the check reflects full payment, nevertheless cashes it.

Accord: settlement contract Satisfaction: Performance on settlement contract

o Accord + Satisfaction: agreement and performanceo In common law accord and satisfaction is accomplished when creditor accepts

and deposits check which the debtor offers as full payment. Liquidated claim- Amount agreed upon

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Motion for summary trial/judgment: both parties agree to the facts (no trial, to determine the facts) and only need the decision as to the application of the law.

Arbitration- resolution of dispute Appeal- trial, not arbitration. Facts

o DiCello, the defendant, contracts with AFC interiors, Plaintiff, for services. o Services are performed, and DiCello does not pay. o While AFC is filing suit DiCello sends partial check and returned goods

stating on check payment in fullo AFC crossed out the notation and inserted the words “Payment on Account”

ISSUE: Does AFC’s acceptance of the check constitute an accord and satisfaction or is it a reservation of rights under UCC 1-207?

o “Thus the precise question before this court is whether the special endorsement of the check by AFC with knowledge of dispute as to the amount due, and with knowledge of conditional statement on the check, constituted an acceptance of the conditional check, i.e., accord and satisfaction.

RULE: In common law accord and satisfaction is accomplished when a creditor accepts and deposits a check which the debtor offers as full payment for an unliquidated or disputed debt By cashing the check the creditor manifest assent to the terms of a new contract which extinguishes the debtor’s prior contractual obligation.

RULE: Accord and satisfaction is a common law doctrine where there is a contract between a creditor and a debtor for settlement of a claim by some performance other than that which is due.

o Under Ohio law a creditor has but one alternative- accept the amount tendered under the terms and conditions, unless the conditions be waived or return the check.

RULE: HOWEVER, Pursuant to UCC1-207 When a debtor tenders a check to a creditor as payment in full for less than the full amount owed on the debt, the creditor may accept the check as partial payment if he endorses the check “under protest” or some similar way as to apprise the debtor that the debt is not paid in full.

HOLDING: UCC 1-207 supersedes the common law doctrine of accord and satisfaction. Judgment for the plaintiff reversed and cause remanded to the trial court.

RATIONALE: Altering common law accord and satisfaction on full payment checks would effect a substantial shift in the balance of power between disputing creditors and debtors. Accord and satisfaction involves the creation and execution of a new contract not performance of payment of an executory contract. The creditor cannot accept the new contract, a material term of which is the extinguishment of the creditors obligation and simultaneously reserve rights to collect the full amount under the original contract.

NOTES: o Policy is fairness.o Most courts in this matter favor the dissenting opinion.

DISSENT: Claims that the U.C.C. is misapplied. “The case before us satisfies the elements of accord and

satisfaction. A bonafide dispute existed as to whether DiCello has the option to return the furniture he did not want for full credit. Moreover, DiCello claimed he was being charged for furniture he did not receive. Along with the returned items in question and a letter explaining his actions, DiCello delivered a

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check to AFC marked “Payment in full for any and all claims against Nick DiCello”. The deposition of AFC demonstrated that there was an understanding of DiCello’s intention to fully settle the account. The debtor’s intent is known, and allowing the creditor to keep the money disregarding the debtor’s conditions seems unfair and violative of the obligation of good faith which the U.C.C. makes applicable to every contractual duty.

o Illusory Promises Illusory promises really are not promises at all. The speaker has not bound herself to any

obligation. Gives the illusion of a contract, but not so.

Consideration is defined as a bargained for promise, act, or forbearance. An illusory promise has no consideration and therefore no enforceable contract can be

formed. In illusory promises, the focus is on “bargained for promises”, contracts that involve

exchanges of promises, a promise exchanged for a promise. Incidences where parties have bargained for an exchange, but courts will not find

consideration and therefore not enforce the promise:o Past consideration- promise for actions, forbearance in the past o Moral consideration- promise based solely on moral groundso Promise for settlement or release (forbearance) on an invalid claim without an

honest or reasonable belief that the claim has colorable basis.o Nominal value, paying someone one cent an hour as wageo Exchange of same currency where value is known is not consideration but

deemed as a gift (one cent for $200) What Makes a Promise Illusory?

A promise is illusory if it does not restrict the promisor’s future right of action; A promise is illusory if it gives the promisor unfettered discretion to perform or not

perform on the promise; or A promise is illusory if it does not restrict the promisor’s autonomy.

The two concepts that influence a court’s determination of whether a promise is illusory is: GOOD FAITH

o Courts uniformly agree that every contract includes an implied duty of good faith often defined as “honesty in fact” and courts have used this implied duty to enforce what otherwise appear to be illusory promises.

REASONABLENESSo Courts have held that contracting parties have a duty of reasonableness or

reasonable efforts to enforce what otherwise appear to be illusory promises. However some promises, those that justify the conclusion that they are illusory

cannot be saved by either one of those techniques.o Look below at the case of Thu and Juanita.o Important fact is there is that Juanita states, “until I use my sole discretion”- it

is this phrase that makes the promise illusory. Because Juanita can demand payment at any time, she has not necessarily agreed to delay the payment.

Here the good faith requirement would not eliminate Juanita’s sole discretion. She could end up wanting a new dress the next day and demand the money.

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Here reasonable efforts cannot be applied to make the promise non-illusory because it does not involve taking any action. It is an internal/mental process.

o Although Juanita’s promise included language of a promise, it was illusory because:

It did not restrict Juanita’s discretion to choose Could not be restricted by implying good faith or the requirement of

reasonable effort. Fact patterns to look for with illusory promises:

Output contract Termination clauses Satisfaction conditions Loan contingencies Conditions of gratuitous events (lotteries/disabilities) Silence and implied promises Reasonable efforts Want/desires expressed Requirement contracts

Examples: You are parent, your 17 year-old daughter comes to you on Thursday and asks you to

use your car on Saturday night. You know the car needs washing. You say “If you wash the car today, I will let you use it on Saturday if I determine that I will not use it”. Daughter becomes angry and leaves with a huff.

o Daughter is angry because she has agreed to wash the car and in exchange for the MERE possibility of being allowed to drive the car. You have merely reserved, for later decision, the right to either allow her to use the car or not. In other words where she MUST commit to washing the car, you have not committed yourself at all.

o Only made it sound like you were promising to do something. Thu and Juanita scenario is that Thu owned Juanita $500 and did not have enough

money to pay her on the due date. Thu begged Juanita for extra time to pay. Juanita says “If you agree to pay me an extra $50, I will not demand that you pay me all the money you owe me until my sole discretion decides to demand it”.

o This is an illusory promise. Juanita is not giving up anything at all because she could ask for all the money owed the following day. She has sole discretion.

Exercise 3-18 (Explanations, pg 135)o I will buy your car for $5000 cash if I feel like it.

ILLUSORYo I will buy your car for $5000 cash.

NON ILLUSORYo If I wake up in a good mood tomorrow, I will clean your house in exchange

for $100. ILLUSORY

o Unless I win the lottery tonight, I will clean your house in exchange for $100. NON ILLUSORY

o From a baseball league to a baseball manufacturer: “We will buy, at $1 per ball, all of the baseballs we require”.

NON ILLUSORY

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o From a baseball league to a baseball manufacturer: “We will buy, at $1 per ball, as many baseballs as we choose to buy”.

ILLUSORYo I covenant to pay you $4000 for this washing machine if I am satisfied with it.

NON ILLUSORYo I covenant to pay you $4000 for this washing machine if I desire to do so.

ILLUSORY Exercise 3-23 (pg 144)

o “Pay me $25 per month as premiums. If you keep current with your premium payments and become physically or mentally unable to work at your current employment, I will pay you half of your monthly salary each month.”

NON ILLUSORY- It is conditional and that is okay. Indefiniteness is not okay.

o “We will pay you $5 per brick for all of the bricks our architect determines that we need for the construction project.”

NON ILLUSORY- The need determines the amount.o From a widget manufacturer to a widget retailer: “We will sell you at $0.50

per widget all the widgets we produce.” NON ILLUSORY- Providing good faith.

o “If you give me $1, and if I draw your name from this fishbowl from among all the names of others from whom I have collected a dollar, I will give you all the money I have collected.”

NON ILLUSORY- Bargain for chance.o “Unless I accept this job offer I received to be a law clerk with the Law

Offices of Darrow and Smith, I promise to tutor you in contracts.” ILLUSORY- Too discretionary, speaker holds to much power.

o “I will buy your home if I get a 30-year, $200,000 loan from the Bank of Trust at an 8% interest rate.”

NON ILLUSORY- There is reasonable effort.o “I covenant to pay you $25 an hour to tutor me in contracts, but I may

terminate this contract at any time.” ILLUSORY- Termination at anytime.

o “We will pay you $5 per brick for 50,000 used bricks. We may cancel this contract at anytime without notice.”

ILLUSORY- Indefinite time.o “We will pay you $5 per brick or 50,000 used bricks. We may cancel this

contract at any time.” ILLUSORY- Indefinite time.

STRONG v SHEFFIELD (1894, pg 137) Facts:

o Husband of Defendant (Sheffield) signed a promissory note (which is a written promise by one party to pay a specific sum of money to another party at a specific time), to repay a debt.

o Payee of the note (person to whom the husband owed $ to) approached the wife and insisted she agree to serve as collateral on the note (undisputed issue).

o Debt of the husband was past due at the time and the ONLY consideration for wife’s endorsement was forbearance on collection of debt, which occurred for about two years.

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ISSUE: Was the defendant’s endorsement valid consideration for the promise to not collect on the debt?

RULE: Agreement by a creditor to forbear the collection of debt presently due is GOOD CONSIDERATION for an absolute or conditional promise of a third person to pay the debt.

o Nor is it essential that the creditor should bind himself at the time to forbear collection or to give time. If he is requested by the debtor to extend time AND third person party undertakes in forbearance there must be reasonable time to furnish good consideration for collateral undertaking.

GENERAL RULE: In all cases of forbearance to sue, such forbearance must be either:

o Absolute; oro For a definite time; oro For a reasonable time.o Forbearance for a little or for some time is not sufficient.

HOLDING: There was no agreement to forbear for a fixed or reasonable time therefore there was no consideration for defendant’s endorsement, because promise was illusory, and therefore no enforceable contract.

o Rule in favor of Defendant, Sheffield. Rationale: In this case, there was nothing on its face to prevent immediate suite on

the note, against the maker or to recover original debt. The Plaintiff had stated “I will hold it until such time as I want my money”. This is too indefinite, vague, deceptive, and leaves discretion completely at the hand of the Plaintiff, Strong. There was no sufficient consideration for contractual obligation.

Notes:o HYPO: If we wanted to make this conditional what could the contract have

stated? If not paid after 30 days, then 1% interest.

o Why is there consideration where one party (wife here) agrees to pay money owed by someone else (husband here)?

Initially courts concluded the first party in these types of cases received no consideration and that there was no enforceable contract. However, today courts label similar transactions as “third party beneficiary” contracts and enforce them.

OMNI GROUP, INC. v SEATTLE FIRST NATIONAL BANK (1982, pg 139) Facts:

o Omni, the Plaintiff, offered the Clarks 59 acres of land.o The Clarks, (Defendants- Bank is the holder of the mortgage.) accepted the

offer. The transaction however was subject to Omni receiving an engineer’s and architect’s feasibility report.

o If the report was satisfactory to the Plaintiff, they would notify the seller in writing. If nothing was sent the sale would be void.

o After the report was done, the parties met to discuss the terms and an agreement was made regarding the reports, and they were working toward a resolution.

o Later on the Clarks refused to proceed with the sale. Procedure: The lower court had initially found for the Clarks but it was reversed on

appeal and judgment was in favor of the plaintiff.

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ISSUE: A report had to be done and then the plaintiff had to be satisfied with the report. So, is a contract with a personal satisfaction clause still enforceable even though the promisor is under no real obligation to perform any action?

RULE: Contracts with personal satisfaction clauses are enforceable because the promisor has implied obligation to exercise its personal satisfaction in good faith.

HOLDING: Yes, the contract is still binding because the Plaintiff made reasonable effort and had good faith when he was going to obtain the reports.

Rationale: The promisor’s duty to exercise his judgment in good faith is adequate consideration to support the contract. The plaintiff, Omni was required to notify the Defendant of the acceptance if the feasibility report was “satisfactory”. The products of the report were done to eventually benefit the Clarks and demonstrate “good faith”.

NOTE: o Referenced in case, MATTEI v HOPPER

Rule and similarities are drawn in the two cases. Satisfaction Clause regarding obtaining leases in good faith.

Satisfaction clauses look like illusory promises because you only have to go through with the promise if you want to

o However, courts justify enforceability because of the implied “good faith standard” in all contracts.

WOOD v LUCY, LADY DUFF-GORDON (1917, pg 143) Facts:

o Wood, the Plaintiff in the case had contracted with the Defendant, Lucy. The contract gave Wood an exclusive right to market and license all of

her designs and to endorse designs with her name.o The exclusive contract also required that they split the profits from Wood’s

sales evenly but there was no “express clause” saying that he would perform. Wood could choose to do nothing However this is pragmatic, court wants to move against old common

law. It was in Wood’s best interest to perform so that he could make a

profit (best effort).o Lucy placed endorsements on clothes without Wood’s knowledge, kept the

profits to herself, and Wood’s sued. ISSUE: Whether implied obligations can make a contract enforceable?

o May the promise to use reasonable efforts be implied from the circumstances of the contract?

o Can an implied promise to use best efforts be considered valuable consideration?

o Can the duty of good faith compensate for vagueness in an agreement to avoid invalidation of a contract that was clearly intended by both parties?

RULE: A promise to use reasonable efforts may be implied from the entire circumstances of the contract.

RULE: An implied promise to use best efforts in contract performance can be considered valuable consideration.

RULE: The duty of good faith can compensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by the parties.

RULE: Reasonable Efforts Test- A promise that is fairly implied is still a promise. HOLDING: Judgment for the Plaintiff. Applicable Law: Cardozo’s Rule- Section 2-306 of U.C.C.

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o Part 1: Good faith testo Part2: In exclusive dealing contracts, both parties should use their best efforts.

Rationale: A contract may lack explicit promise to further its goals. The acceptance of an exclusive agency meant that Wood had accepted the duties of that agency. Because Lucy’s sole compensation was split of the profits, there would be no efficacy to the transaction unless there was an implied promise to use best efforts.

o The court held that it was clear from the terms and recitals and duties under the contract that both parties intended to do what was reasonably necessary to make it a success so that there would be profits to divide.

Professor’s Notes:o Cardozo’s tone shows that he most likely will not rule in her favor.o The promise is NON ILLUSORY because of reasonable effort implied in

contract. Wood shows effort by demonstrating that it was in his best interest to

perform otherwise he would not have profited. John Coco mentions example of what if Wood had different intention,

for example spying for another designer.o It was the decision of the judge to assume the implied intentions.

This could be temper some because of ambiguity.o Lucy’s consideration for the contract was the forbearance to not endorse and

give Wood the exclusive right.o Monthly reports provided by Wood is also evidence of objective facts, he had

good intentions. Chapter 4: Promissory Estoppel

o The fundamental goal of promissory estoppel is to protect a party if that party legitimately relies on another party’s promise, even though the technical requisites for contract formation have not been met.

In this sense, PE may be thought of as an entirely separate theory of contract formation. RELIANCE THEORY (versus the bargain theory covered in the previous chapters)

o Doctrine of promissory estoppel reflects two departures: A departure by you, as a contract student, from your study of traditional contract formation

additional doctrine by which courts may enforce a promise. A departure within contract law from the relatively formal approach of early contract law

more modern approaches advocated based on different policy rationales.o The Four Elements of Promissory Estoppel

Section 90 of Restatement- Promise Reasonably Inducing Action or Forbearance A promise1 which the promisor should reasonably expect to induce action or

forbearance2 on the part of the promisee or third person and which does induce such action or forbearance3 IS BINDING if injustice can be avoided4 only by enforcement of the promise. The remedy granted for the breach may be limited as justice requires.

o Comment D: Partial Enforcement Promises usually get full scale enforcement under this section. Relief

though, sometimes may be restricted to/limited to restitutions or to damages, or specific relief measured by the extent of the promisee’s reliance rather than by the terms of the contract.

A charitable subscription or a marriage settlement is binding under subsection (1) without proof that promise induced action or forbearance.

o Promissory Estoppel as a Substitute for Consideration

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KIRKSEY v KIRKSEY (1845, pg 153) This case took place before the any Restatements were created. Facts:

o Brother-in-law of widow invites widow to stay (some 60 miles away from her home) on his property.

o She was comfortable where she was at, but he advises her to sell the land.o After moving her over there, he kicked her off the property after two years.

ISSUE: Whether the plaintiff’s actions amounted to sufficient consideration to make an enforceable contract.

HOLDING: The trial court finds for the Plaintiff, $200 for loss and inconveniences that she sustained when moving this considerable distance. The defendant appealed and the judgment was reversed for Defendant.

RULE: Mere gratuities do not constitute sufficient consideration to form a binding contract.

o Gratuity is when you give up something and do not expect something in return.

Application: Promise on the part of the defendant was a mere gratuity. He moved her there and sought nothing in return. There was no consideration therefore there was no enforceable contract.

NOTE: Development of law seen through this case. RICKETTS v SCOTHORN (1898, pg 154)

Scothorn is the grand-daughter and plaintiff in this case and Ricketts is the executor of her grandfather’s will and the defendant in the case.

Facts: o In a promissory note the grandfather wrote” I promise to pay Katie Scothorn

on demand $2000 to be at 6% annum”o Plaintiff alleges consideration for execution of the note was that she should

surrender her employment and cease to work for a living. She was induced to abandon her occupation and relying on the annual

interest she gave up her employment “I have fixed something that you have not got to work anymore…

none of my grandchildren work and you don’t have to either”. ISSUE: Whether reliance can preclude the requirement of consideration? Did the

Plaintiff, Scothorn really rely on her grandfather’s promise? GENERAL RULE: A promise not supported by consideration can be enforced if:

o There is a promise;o Promisor should reasonably expect to induce actiono Promisee does induce such actiono Injustice can only be avoided by enforcing the promise.

RULE: (Derived from case of SIMPSON CENTENARY COLLEGE v TUTTLE) “Where a note, however, is based on a promise to give for the support of objects referred to, it may still be open to this defense of want of consideration, UNLESS it shall appear that the done has, prior to any revocation, entered into engagements, or made expenditures based on such promise, so that he must suffer loss or injury if the note is not paid”.

HOLDING: The contract is binding and judgment is for the Plaintiff, Scothorn. Rationale: Court decisively finds there is no consideration and that her grandfather’s

gift was a gratuity. It was a gratuity in that the grandfather expected nothing in

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return, BUT… as the promisor he both INTENDED she not work AND INTENTIONALLY INDUCED her to quit her job.

o Scothorn quitting her job was a reasonable and probable consequence of his gift.

o Reliance on his gift permits the court to drop the consideration requirement. EAST PROVIDENCE CREDIT UNION v GEREMIA (1968, pg 157)

Facts:o The Plaintiff is claiming the balance due on a promissory note and the

Defendants are counterclaiming based on the fat that they were relying on the Plaintiff, the Credit Union, to pay their insurance premiums.

o Defendants had taken out a loan and secured that loan through the car and they had promised to ensure the car.

o When the payments were late to insurance company, the company sent a letter to both the plaintiff and the defendant. The plaintiff then informed the defendant that if the insurance premiums were not paid , that they would pay them and apply the payments toward the balance on the loan.

o The defendant’s husband got sick and they stopped paying the premiums.o The car got totaled but was not insured because no one had made payments.

ISSUE: The sole issue by this appeal is whether or not the plaintiff (creditor) is precluded from recovering on its loan contract by reason of failure to fulfill promise to defendants to pay overdue insurance premiums.

PROMISSORY ESTOPPEL RULE: A promise not supported by consideration can be enforced if…

RULE: Interest constitutes valid consideration. HOLDING: The court finds it unnecessary to use Promissory Estoppel in this case, but

would if it had to (mentioned in dicta). The court finds that there was consideration and therefore the contract was enforceable. Since the plaintiff did not carry out the promise, there was a breach of contract and judgment for the Defendant was affirmed.

Rationale: The court found that paying for the defendant’s policy premium would have been a profitable venture for the Plaintiff’s because they were going to charge interest on those payments. Interest constitutes valid consideration. Furthermore, the bank had a vested interest in the car since it served as collateral for the loan.

NOTE: This case was advocating the new doctrine of promissory estoppel.

o Promissory Estoppel as a Substitute for a Required Writing Courts will not enforce certain types of contracts unless they are in writing and signed. Statutes which require signed writings are called “statutes of fraud” Promissory estoppel has made “in roads” into this body of law by providing a mechanism to

enforce promises that do not comply with the signed writing requirement. Section 139 of Restatement- Enforcement by Virtue of Action in Reliance

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 the action or forbearance is enforceable, not withstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

In determining whether injustice can be avoided ONLY by enforcement of the promise the following circumstances are significant:

o Availability and adequacy of other remedies, particularly cancellation and restitution;

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o The definite and substantial character of the action or forbearance in relation to the remedy sought;

o The extent to which the action or forbearance corroborates evidence of making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

o The reasonableness of the action or forbearance;o The extent to which the action or forbearance was foreseeable by the

promisor.o Promissory Estoppel as a Mechanism for Making Certain Offers Irrevocable

DRENNAN v STAR PAVING CO. (1958, pg 161) Facts:

o Drennan is a general contractor and was seeking bids to submit for a job.o Drennan ends up suing Star Paving to recover damages because defendant

refused to perform after he had submitted the bid. ISSUE: Whether Drennan’s (Plaintiff’s) reliance on the Defendant’s offer is

irrevocable even though there was no consideration? RULE: Lack of consideration is not fatal to the enforcement of the promise if

REASONABLE RELIANCE can substitute to old the offeror to the offer. HOLDING: Judgment was for the Plaintiff, the offer from the subcontractor, Star

Paving, was irrevocable and created an enforceable contract. Rationale: The Defendant gave the Plaintiff an offer that ended up being binding.

The general rule states that an offer can be revoked prior to acceptance. However, in this case the special offer, contractor’s rule applies. The rule is that if the offer is silent on revocability, the court will assume that the offer is NOT REVOCABLE.

o Furthermore, the concept of Section 90 of Restatement states that if a promise reasonable induces actions then the promisor is LIABLE for those actions.

The defendant had reason to expect that if his bid had proved lowest it would be used by the Plaintiff.

When the plaintiff used the Defendant’s offer in computing his own bid, he bound himself to perform in RELIANCE on D’s terms.

o Promissory Estoppel as a Mechanism for Policing Unfair Bargaining Behavior HOFFMAN v RED OWL STORES, INC. (1965, pg 164)

Promissory estoppel is applied to enforce a statement that is not even an offer. Facts:

o Plaintiff, Hoffman was interested in obtaining a franchise from one of the Defendant’s stores.

o Plaintiff informed a representative that he had $18,000 for this deal. o Defendant’s representative told Hoffman that he needed experience and that

he should buy a grocery store to gain some.o Hoffman bought the store and within three months it became profitable.o The representative then informed Hoffman that he can now sell the store and

was reassured that the $18,000 was going to be sufficient. o Hoffman was then told to move to a bigger city so he sold his bakery with a

loss of $2000 and incurred moving costs as well.o The deal ended up never going through because Red Owl Stores ended up

wanting $34,000 for the deal.o Hoffman sued.

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Procedure: The judgment was in favor of the Plaintiff. He was awarded a sum of approximately $16,735 which later required a new trial to determine damages.

o Defendant’s argument was that an agreement was never reached on the essential factors necessary to form a contract between the two parties.

ISSUE: Does promissory estoppel require that, aside from the lack of consideration, the promise sued upon embrace all essential details of a proposed transaction between a promisor and promisee so as to be equivalent to an offer that would result in a binding contract between the parties if the promise were to be accepted.

RULE: For promissory estoppel, it is not required that the promise embrace all essential details of the proposed transaction to be equivalent to an offer that would be valid to form a contract.

HOLDING: No, it is not required that the promise embrace all essential details of the proposed transaction to be equivalent to an offer that would be valid to form a contract. Therefore, judgment for the plaintiff.

Rationale: Section 90 of Restatement does not require that in order to apply promissory estoppel, the promise be as definite that if there was consideration, there would be a contract. It only requires that the promise should reasonably expect to induce action or forbearance, does induce the action or forbearance, and injustice can only be avoided by enforcing the promise. The plaintiff was induced by the defendant to sell his store and ended up incurring a loss. The court decides that injustice can only be avoided if Hoffman is reimbursed for his expenses and losses. From the facts it is evident that Hoffman bought the grocery store expecting it to be a temporary experience gaining venture and the trial court was correct in assigning a new trial for the damage amount because Plaintiff does not know if he could have potentially gained a profit. The court held that under these facts injustice would result if Hoffman were not allowed relief because he relied to his detriment on promises in which the Defendant, Red Owl Stores failed to keep.

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MIDTERM EXAM

Take Home Portion: This is going to be an extensive test because professor wants to cover all of the issues covered in class. Be sure to not use any materials aside from the ones that were required for the course. Use your anonymous ID number for the take home, it will be due on Tuesday, July 6, 2010.

In Class Test: The test will run for approximately 1 hour and 15 minutes and will be total of 50 Points.

Part 1: 5 Short Answer Questions (5 Points Each)- Dictate about 5 minutes to each question.Part 2: 1 Essay Question (10 Points)- Dictate about 10 minutes to the question.Part 3: 6 Multiple Choice (2 Points Each)- Dictate about 2 minutes to each question.Part 4: 3 True or False (1 Point Each)- Dictate about 1 minute to each question.

NOTE: If there is more than one view on a case, be sure to apply it to the question. If there is a minority/majority opinion, mention both. Be sure to review U.C.C. Section 2-207, will definitely be on exam.

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