Contracts I: Case Briefs

8/9/2004Revision 0.1

Author: Philip Larson703.798.5244 (tel)

Contracts I: Case Briefs

Disclaimer: These notes and outlines are provided as-is without any warranty as to their correctness, completeness, or quality. They are not meant to be a substitute for your own efforts. You may copy and forward this document as long as you do not alter its contents.


Table of Contents

1. Contract Notes..........................................................................................................................32. Bailey v. West (What is a Promise?).................................................................................63. Leonard v. Pepsico, Inc. (What is a promise?).................................................................84. Kirksey v. Kirksey (Consideration – Bargain v. Gift)...................................................105. Hamer v. Sidway (Consideration – Bargain v. Gift)......................................................116. St. Peter v. Pioneer Theatre Corp. (Consideration – Bargain v. Gift).........................127. In Re Greene (Consideration – Bargain v. Gift)............................................................148. Batsakis v. Demotsis (Consideration – Adequacy).........................................................169. Wolford v. Powers (Consideration – Adequacy)............................................................1810. Haase v. Cardoza (Promissory Estoppel - Intrafamilial).........................................2111. Ricketts v. Scothorn (Promissory Estoppel - Intrafamilial)....................................2212. Feinberg v. Pfeiffer Co. (Promissory Estoppel - Emplymnt Context)...................2413. Hayes v. Plantations Steel Co. (Promissory Estoppel - Emplymnt Context)........2614. Salsbury v. Northwestern Bell Telephone Co. (Promissory Estoppel - Charitable Subscriptions)................................................................................................................................2915. Congregation Kadimah Toras-Moshe v. DeLEO (Promissory Estoppel - Charitable Subscriptions)............................................................................................................3116. Coley v. Lang (Promissory Estoppel – Incomplete Negotiations)...........................3317. Hoffman v. Red Owl Stores, Inc. (Promissory Estoppel – Preliminary Negotiations)..................................................................................................................................3518. East Providence Credit Union v. Geremia (Promissory Estoppel – Promises to Insure) 3819. Mills v. Wyman (Material Benefit Rule – Past Consideration)...............................4020. Manwill v. Oyler (Material Benefit Rule – Promises for Non-Donative Material Benefits).........................................................................................................................................4121. Webb v. McGowin I (Material Benefit Rule – Promises for Non-donative Material Benefits).........................................................................................................................................4322. Webb v. McGowin II (Material Benefit Rule – Promises for Non-donative Material Benefits)..........................................................................................................................4423. Lucy v. Zehmer (Offer and Acceptance)...................................................................4524. Dyno Construction Co. v. McWane Inc. (Offer).......................................................4725. Lefkowitz v. Great Minneapolis Surplus Store, Inc. (Offer)...................................5026. Ever-Tite Roofing Corp. v. Green (Acceptance).......................................................5227. Ciarmella v. Reader’s Digest Association, Inc. (Acceptance)..................................5428. Pavel Enterprises v. A.S. Johnson Co. (Revocation)................................................5529. Dataserv Equipment v. Technology Finance Leasing (Counteroffer)....................5730. Ionics, Inc. v. Elmwood Sensors, Inc. (Counteroffer)...............................................5831. Example Brief...................................................................................................................5932. Example Brief...................................................................................................................6033. Example Brief....................................................................................................................61

Philip Larson Page 2


1. Contract Notes

1.1 What is Contracts?

Contracts is the study of the legal enforcement of promises. Answers the following two questions:

1. Should the law intervene to enforce the promise? 2. If so, what are the appropriate steps to “enforce” the promise?

Lawyers must predict which promises will be enforced and which broken promises the law will choose to ignore.

1.2 Different Theories

Positive theory attempts to “explain the patterns of promissory enforcement”. Normative theory attempts to justify the exercise of state coercion through the application of contract law.

Autonomy TheoriesTake an “Ex Post” perspective to adjudication, viewing the process as a mechanism for resolving a specific dispute. Autonomy theories attempt to justify contract law on the ground that promisors have a moral obligation to keep their promises. “To renege is to abuse a confidence he was free to invite or not, and which he intentionally did invite. To abuse the confidence now is like lying: the abuse of a shared social institution that is intended to invoke the bonds of trust.”p24.

It argues that “legal enforcement of contract promotes individual freedom by giving people the power to bind themselves with others.” However, what about the freedom to change one’s mind and renege on a promise?

Problems with using “moral promise principle” to justify contractual liability: 1. difficult to explain why promises create moral obligation2. principle doesn’t explain why courts do not enforce all promises

Economic TheoriesTake an “Ex Ante” perspective in adjudication viewing the process as a mechanism for creating rules and rights that will provide incentives for individuals in the future. “Judicial decisions are evaluated according to whether their prospective effects are socially desirable.”

As a matter of public policy, enforcement of serious promises will encourage promisees to rely on promises when predicting the future. This is considered socially desirable because it increases productivity. Reliance is detrimental, (and hurts productivity) when the promise is broken because it will frustrate the promisee’s future plans.



Economic theories believe that the aggregate benefits of promise-making “outweigh” the aggregate harms.

Economic analysis of contract law must also determine whether it is “more socially desirable to encourage individuals to weigh their options at the time they are considering breaking a promise, or to encourage individuals to weigh their options at the time they are considering making a promise.”

Reliance TheoryA “communicated promise often induces the promise to change her course of future behavior. This change in behavior is called reliance on the promise. According to reliance theory, “compensating for this harm is the moral basis for enforcing promises” p28.

Skeptical or Pluralist Theory There are many reasons why courts enforce promises and the search for a single, general theory is hopelessly idealistic.

1.3 Ways to systematize the law

1.3.1 RestatementsRestatement of the Law of Contracts – published in 1932 by ALI. Not intended to be enacted as a statute by legislatures. Intended to assist in developing common law of contracts.

Original restatement was revised, and 2nd Restatement of Contracts was adapted by ALI in 1979. 1.3.2 Reduce common law to statutes and seek adoption by state legislatures

e.g. Article 2 of the Uniform Commercial Code (UCC) defined in 1940s by groupo of scholars. Intended to standardize the various state laws governing certain kinds of contracts, namely contracts for the sale of goods.

Note: Every state but Louisiana has enacted Article 2, which was just revised in 2001 with final approval in 2003.

1.4 Functions of Contract Law rules

1. solve the sorting problem (which to enforce)2. gap filling (when people make promises that are incomplete, contract rules fill the

gaps)3. rules for determining the meaning of the agreement itself (e.g. parol evidence

rule)4. Define the outer boundary of acceptable bargaining and outcomes

a. Fraud, duress, unconscionability



b. which rules should be treated as default rules (where parties can opt out) and which ones should be mandatory and not subject to variation by mutual consent? (e.g. contracts whose results offend widely-held social values)

1.5 Enforcing Promises (p131)

A contract is a legally enforceable promise.

When a court enforces a promise they can: 1. order compensatory damages paid to P or2. order D to perform the promise

“the ability to rely on the promises of others adds to the confidence necessary for social intercourse and enterprise.” However, “freedom to change one’s mind is necessary for free intercourse between those who lack omniscience”.

Courts primarily use three doctrines to distinguish between enforceable and unenforceable promises:

1. Consideration Doctrinea. Performance or promise must be bargained forb. Performance can consist of

i. An act other than a promiseii. A forbearance to act

iii. Creation, modification or destruction of a legal relationshipc. Promise may be given to the promisor or to some other person. Promise

may be given by the promisee or by someone else. 2. Promissory Estoppel

a. Promise which promisor should “reasonably expect to induce action or forbearance” on the part of the promisee and actually does induce the action is binding if injustice can be avoided only by enforcement of the promise.

b. Charitable subscription or marriage settlement is binding without proof that the promise induced action or forbearance.

3. Material Benefit Rulea. Promise made in recognition of a past benefit is binding to the extent

necessary to prevent injusticeb. Promise is NOT binding if the benefit is a gift

Simplification: “bargained for” promises are enforced by consideration but “gift promises” are not.



2. Bailey v. West (What is a Promise?)

2.1 Title and Citation

Bailey v. West, Supreme Court of Rhode Island, 1969 p5

2.2 Facts

P (Bailey) is suing D (West) for value of services rendered when feeding a race horse for about 4 years. D purchased horse from a third party but the horse turned out to be lame. D had his trainer reship the horse to the seller who refused to accept the delivery. D’s trainer then took the horse to P’s farm where it remained for about 4 years until P sold it. P sent bills for feed and board to defendant. After the 1st bill, D “immediately returned” it saying that he was not the owner of the horse nor was the horse sent to P on his request.

PH: bench trial before justice of the superior court with decision for the plaintiff for his cost of boarding for 5 months. P is appealing to try to get damages for the full 4 years. D is cross-appealing. Trial judge found there was a contract “implied in fact” between P and D until P received notification from D that he wouldn’t be responsible for the horse’s board.

2.3 Issues

1. Under Rhode Island common law, was their a contract “implied in fact” between P and D? 2. Under Rhode Island common law, was their a quasi contract between P and D?

2.4 Decisions

1. No. 2. No.

Judgment was that P was a “volunteer” who performed the services “at his own risk”. P’s appeal denied and dismissed. D’s cross appeal is sustained. Cause remanded to superior court for entry of judgment for D.

2.5 Reasoning

There was no Contract based on “implied in fact” because these require: 1. mutual agreement2. intent to promise3. agreement and promise are not made in words, they are implied from facts

Court held there was no “mutual agreement” nor any “intent to promise”. Court held that the trial judge made a mistake in finding a contract “implied in fact”. There was no “meeting of the minds” because P knew there was dispute as to the horse’s ownership and his later actions (sending bills to both D and third party seller of horse) proved he did not know with whom he had a contract.

There was no quasi contract because in a quasi contract:1. benefit must be conferred upon D by P2. appreciation of D of such benefit3. acceptance and retention of benefit by D in circumstances where it is inequitable to retain the

benefit without payment. (doctrine of “unjust enrichment”)

Key question, is therefore whether or not P was acting as a “volunteer” at the time he accepted the horse for boarding. It was determined that P was a volunteer boarding the horse “at his own risk”.



Public policy – a person conferring a benefit cannot require the other to pay for it unless the one conferring has a valid reason for doing so. Since P knew there was controversy, P could not reasonably expect D to pay.

2.6 Separate Opinions

2.7 Analysis

Notes Section: Why do courts give reasons for their decisions?

o Common law is based on precedent. Reasoning of previous cases is necessary to determine when precedent is applicable.

Notes- To be an agent, means that to take the actions of the agent is as if you took the action yourself. - You can be an agent and acting poorly for your master- section 4 of the 2nd Restatement- Contracts

o contracts can be oral o contracts can be inferred by what you doo contract “implied in fact” vs “implied-in-law” (e.g. “implied in equity”, quasi-contracts)

“implied in fact” is a contract quasi-contracts ARE NOT contracts, however a court can use it to reallocate

funds to make things equitable a “placeholder” cannot make a contract with you (Bailey v. West)

o there was a procedural problem as well (p7 paragraph 1)o Was Bailey a volunteer?

He knew that the “owner” of the horse (West) was not willing to pay. o Volunteer is an “exception” to having a quasi-contract…

- Hypotheticalo What if Bailey sells the horse in 6 months instead of 4 years? West goes to Bailey and

says that it turns out he is the true owner and that Bailey should “pony up”. What about 8 months? 4 years? 10 years?

- Bailey loses the “implied in law” case.

- Main pointso Contracts can be inferred by what you doo Contracts can be oralo Section 4 of the 2nd Restatement



3. Leonard v. Pepsico, Inc. (What is a promise?)


Leonard v. Pepsico, Inc. , United States District Court, Southern District of New York, 1997 p19

3.2 Facts

P (Leonard) is suing D (Pepsi) for not honoring an offer of a Harrier Jet (worth ~$25 million) for 7,000,000 pepsi points (worth ~$700,000) on a commercial. P obtained the necessary points by collecting $700,000 from friends and sent a letter to D saying he was interested in taking them up on their offer for one Harrier Jet. D sent a letter back telling him that the commercial was clearly in jest and that no offer ever existed. Harrier Jet was not available in D’s catalog of “redeemable” merchandise.

PH: None. It is in district court.

3.3 Issues

Under New York common law, can D take P up on an offer made in jest in a commercial and thereby create an enforceable contract?

3.4 Decisions

No. An objective person would not have “reasonably have concluded” that an actual offer of a Harrier Jet was available, therefore there was no offer and no contract.

3.5 Reasoning

It does not matter what was going through the heads of either party. “if the jest is not apparent and a reasonable hearer would believe that an offer was being made, then the speaker risks the formation of a contract which was not intended.”

Since P insists that the commercial appears to be serious, the court MUST explain why the commercial is funny including:

1. the youth is a highly improbable pilot2. traveling to school in a Harrier jet is an exaggerated fantasy3. Harrier jets are for “attack” and “destroy” missions and are therefore unlikely to be targeted to

civilian consumers4. the number of Pepsi points needed would have required the user to drink 190 pepsi’s a day for 100

years.

Note: even if a promise honestly believes that she has received a promise, enforcement is denied if a reasonable observer would not have believed there to be a promise.


3.7 Analysis

Interesting: It does not matter what was going through the heads of either party. “if the jest is not apparent and a reasonable hearer would believe that an offer was being made, then the speaker risks the formation of a contract which was not intended.”

Notes:



- is it “objectively” reasonable for the offer to exist? It doesn’t matter what the Leonard or Pepsi thinks.

- All that matters is the “outward manifestation of intent” such that it justifies the other party in believing. There would have to be an “outward manifestation of intent” on the part of Pepsi

Main point: It is an Objective theory. “Objective Person” - Section 2 of the 2nd Restatement.



4. Kirksey v. Kirksey (Consideration – Bargain v. Gift)


Kirksey v. Kirksey, Supreme Court of Alabama, 1845 p132

4.2 Facts

P was the wife of D’s brother who had died and left P with estate and children. D convinced P to sell her land and move 60 miles to his estate where he promised land and a place to raise her children. After two years, D notified P that she had to move to an uncomfortable house in the woods and eventually required her to leave completely.

PH: Verdict was found for P with damages awarded of $200.

4.3 Issues

Under Alabama common law, is selling one’s home and moving 60 miles sufficient consideration to enforce a promise by D to provide P with house, land, etc?

4.4 Decisions

No. While the judge writing the opinion thought it was, his “brothers” (other judges on the Supreme Court?) thought that D was providing a gift and therefore no sufficient consideration. (Material Benefit Rule) Judgment of the court below was reversed.

4.5 Reasoning

D was providing access to his estate to P as a gift and there was therefore not binding.


Judge thought there was sufficient consideration because of the reliance P placed on the promise (e.g. moving 60 miles, selling her home)

4.7 Analysis

I disagree with the decision.

Notes: - Gifts can have conditions. - Gifts w/ conditions are NOT contracts. - He is not offering the house to get her to move. This is not an exchange and therefore there is no

contract. - She does not own her land, she just has a preference on it.- Dissenting judge is applying “Benefit”/”Detriment” theory and he is wrong. The correct judges,

use the new theory. - Discerning between “Conditional Gift” and a real contract

o Contract: If x then yo Conditional Gift: If you move to my land, I will provide you a house etc.o Difference is one of “INTENT”. If you are promising Y to get X it is a contract. If you

are promising Y and you don’t really care about X then it is a conditional gift.



5. Hamer v. Sidway (Consideration – Bargain v. Gift)


Hamer v. Sidway, Court of Appeals of New York, 1891 p45

5.2 Facts

P’s uncle promised P $5000 if he did not drink, smoke, play cards or pool until be was 21. P turned 21 and sent uncle a letter informing him that he had not done these things. Uncle sent letter back saying that he intended to provide the money to P with interest at a later date. Uncle died and the executor of his estate (D) refused to pay P saying that the contract lacked consideration because the Uncle did not benefit from the consideration, nor was the promisee harmed, but rather benefited, from the promise (by being healthier).

PH: P appeals supreme court of New York decision that reversed a judgment entered on the decision of the court at special term in favor of P.

5.3 Issues

Under New York common law, is forbearance by one party (P) sufficient consideration to make a promise binding?

5.4 Decisions

Yes. Forbearance to act (e.g. smoke, drink, etc.) is sufficient consideration to make a promise binding and enforceable. This promise does not require the uncle to have benefited from the performance. However, even if it were, the court says it would have found that the uncle had benefited.

Order appealed from reversed. Judgment of the special term was affirmed in favor of P.

5.5 Reasoning


5.7 Analysis

Notes: - Court of Appeals is highest court in New York

o This is the last word in the New York- “Forbearance” on part of promisee (nephew), that is sufficient consideration…- “Benefit” to promisor OR “Forbearance/Detriment” on part of promisee is sufficient consideration

o We do not need normal detriment, we need a “legal detriment” which includes forgoing a legal right.

- A “gift”, that is not actually given, but merely promised is NOT enforceable. - Hypothetical: What if the uncle did not ask anything of the nephew but just said, in writing, that

on his 21st birthday he would give the nephew $5000 and then he died. This would not be enforceable.

- “Bargain for Exchange”- If I promise to pay you not to go to the moon. What about if I cannot go to the moon? - Is “Psychic benefit” sufficient consideration? - “benefit” vs. “detriment” is no longer the rule it is “bargain”/”exchange”- We study it because it is interesting to study the evolution from old theory from old law to new

law



6. St. Peter v. Pioneer Theatre Corp. (Consideration – Bargain v. Gift)


St. Peter v. Pioneer Theatre Corp., Supreme Court of Iowa, 1940 p46

6.2 Facts

A theatre (D) held a “bank night” in which they were to provide a prize of $275 to a lucky winner. An agent of D announced that P had won. P immediately went in and demanded award of D who refused to pay. D claims that P did not win but that P’s husband had won and that P’s husband was too late (1 second too late) to accept the award. Only testifying witnesses were P and P’s husband so there are no disputes of fact. P is suing D for the $275 plus costs. D claimed that winner had to: 1. sign name to book and 2. claim prize within 2.5 minutes.

D made a motion for directed verdict on 7 grounds, 3 of which are discussed in the opinion: 1. no adequate or legal consideration for the claimed promise3. P was asking for a promised gift based on performing the two requirements above. Since it was a gift and not a legal contract, there was no legal consideration7. if there was sufficient consideration, then the transaction is a lottery and therefore would be an illegal transaction upon which no recovery could be had

D claimed that it clearly was not a lottery referencing the case “State v. Hundling” in which “bank nights” were determined not to be a lottery as a lottery would require P to have paid some “valuable consideration” which they had not done.

PH: trial court judged in favor of D. P is appealing ruling of trial court.

Relevant cases: Case State v. Hundling, Iowa, the same court held that the arrangement was not a lottery that would be in violation of Section 131218 of the Code and therefore the theatre was not subject to criminal prosecution. Note: “profit accruing remotely and indirectly to the person who gives the prize is not a substitute for the requirement that he who has the chance to win the prize must pay a valuable consideration in order to make the scheme a lottery.”

Blake v. Blake – whenever “injury to one party” or “benefit to the other” springs from consideration, it is sufficient to support a contract.

6.3 Issues

Under Iowa common law, must a promisee pay a “valuable” consideration in order to enter into a viable contract?

6.4 Decisions

No. The consideration is at the discretion of the Theatre and is specified in the “unilateral contract”, therefore, all that is necessary is performing the acts required for there to be consideration. Since they offered the prize to one based on performing the acts of signing the book and being in close proximity, they controlled the value of the consideration and deemed it sufficient for the enforcement of a unilateral contract.

No ground for directed verdict. Court’s ruling was reversed in favor of P. All justices concur.



6.5 Reasoning

D claims that since P did not pay a “valuable consideration”, the arrangement was nothing but a promise to make a gift which is not legally enforceable consideration. Judges however disagreed. They said that a “unilateral contract” had been created where the promisor does not receive a promise as consideration. Rather, the act requested (signing the book and claiming the prize) is sufficient consideration for the contract in a “unilateral contract”. In these contracts the “sufficiency of the consideration” is at the discretion of the party offering to pay the prize and their requested acts therefore are sufficient.

Rule: In a unilateral contract, if the act specified by the offering party is performed then consideration is supported.

D claimed that “no reasonable person could say that the requested acts were bargained for” to create an enforceable promise. Again, the judges disagreed saying that


6.7 Analysis

Note: Most students misread cases because they fail to see the issues in terms of the applicable law

Notes: - If you sign, win and claim then you get the money. - “Unilateral contract” – only way to engage the promise is to engage in the activity required. - Black letter law – you must “fully perform” required acts- “Unilateral” vs. “Bilateral” used to be a big deal. However, the 2nd Restatement did away with the

language and it is becoming less relevant. - In a unilateral contract, “Detriment”/”Benefit is not the rule. The rule is that if the act performed

by the offering party is performed, then consideration is supported. - Doctrine of Adequacy – p52 paragraph 1 “it matters not how insignificant the benefit…”- Nominal Doctrine – “in re greene”, the $1 is nominal and not “adequate”

o If it is so minor that it seems like it is a fraud on the court, the court will decide there is not sufficient consideration. E.g. if the parties are trying to get out of the rules on gifts, for instance

- Take away: St. Peter mentions both Benefit/Detriment (even though it is and Bargain/Exchange)- Question: If there is consideration, why isn’t bank night illegal?

o Because they haven’t paid any money for the opportunity. o Consideration has a different definition in different circumstances

- Gratuitous promises are NOT enforced- Courts have moved from Benefit/Detriment to Bargain/Exchange (p141)

o



7. In Re Greene (Consideration – Bargain v. Gift)


In Re Greene, United States District Court, Southern District of New York, 1930 p134

7.2 Facts

P was a woman who had lived in adultery with D for several years. D bought P a $70,000 house on Long Island. When they stopped being intimate and moved apart, P and D signed what was alleged to be a binding contract in which D promised to P to 1. pay her $1000 dollars a month while they both were alive, 2. provide a $100,000 life insurance policy and keep the premiums on it for life, 3. pay rent for four years on an apartment she leased. D went bankrupt and failed to pay so P is suing D for $375,700 to cover these costs.

PH: hearing held and judge ruled in favor of P. D’s objections dismissed.

7.3 Issues

Is past consideration (former cohabitation) sufficient consideration for liability of a new contract?

7.4 Decisions

No. Judge ruled that past consideration is NOT consideration. Therefore, the contract lacked sufficient consideration to be enforceable. Ruling in favor of D.

7.5 Reasoning

Rule 1: A contract for future illicit cohabitation is unlawful.

While this rule was not broken because the contract was made after they had stopped cohabitation, the judge ruled that the promise was void because of lack of consideration. The consideration was in the past.

Judge sought to find other consideration, apart from past cohabitation but could find none. It is not enough that the parties “intended” to make a valid agreement. An agreement is only valid if it has sufficient consideration. “unless consideration is actually present, there is not a legally enforceable contract.”


7.7 Analysis

Notes- he disagrees with the claim that he said he would leave his wife for this woman- Candidates for consideration in this case and decisions…

o Illegal cohabitation (not consideration – illegal)o Upkeep on life insurance (not consideration - gift)o Rent (not consideration - gift)o $1 - (not consideration – nominal)o “released the claimant from all claims which she had against him”o “other good and valuable consideration” (no consideration – nominal? Fraud? Or, just not

true…)o Placed “under seal” (can “under seal” be consideration?) - (not consideration – nominal)o $1000 per month during joint lives



- There needs to be sufficient consideration on both sides- Something “illegal” cannot be consideration

o Reasoning: Purpose of court finding consideration is typically to enforce the contract. Don’t want to enforce these contracts.

- “Past consideration” is NOT considerationo If you wash my car and then ask me for $5, what are you bargaining? You’ve already

done the deed. o Only way around this is the “Moral Obligation Doctrine”

- Releasing legal claims CAN BE valid consideration (Section 74 of 2nd Restatement P2)o Why didn’t the court find this to be valid consideration in this case?

First Restatement hadn’t come out yet? Perhaps because the court worries that it is blackmail?

- Bargain for exchangeo A: If you x, I will y. o B: If you y, I will x.



8. Batsakis v. Demotsis (Consideration – Adequacy)


Batsakis v. Demotsis, Court of Civil Appeals of Texas, 1949 p144

8.2 Facts

In war-torn Greece, Demotsis (D) borrowed equivalent of $25 from Batsakis (P) in exchange for a note that promised to pay Batsakis $2000. D claims there was “want and failure of consideration”p145 ¶last because she never got anything close to $2000. D had money and property in the US but could not access it in Greece because of WWII. She was in “straightened financial circumstances”.

PH: In trial court, P sued D to recover $2000+interest. Trial court, without intervention of a jury, found in favor of the plaintiff for $750+interest. P is appealing. D did not like the decision either but has not cross-assigned error.

8.3 Issues

Adequacy of consideration. Was the $25 in wartime Greece adequate consideration for D’s promise to pay P $2000+interest?

8.4 Decisions

Yes. Court of Civil Appeals of Texas affirmed the trial court judgment. However, they reformed the judgment to award P the entire $2000+interest.

8.5 Reasoning

“Inadequacy of consideration will not void a contract”p146¶lastRule 1: Having no consideration or “nominal” consideration will void a contract. Rule 2: Inadequacy of consideration will NOT void a contract. p146¶last. Courts do not look into the adequacy of consideration. “The Peppercorn Theory.”p148

Reasoning: Inadequacy of consideration doesn’t void a contract because the contracting parties got exactly what was contracted for. This may be different if there is fraud or other foul play in the contracting process. However, court will not question the subjective valuations of the consideration of two contracting parties. Court said that 1. “There was consideration” and 2. “they won’t look into the inadequacy of that consideration”.


8.7 Analysis

Note: - letter was not written accurately. It said they exchanged $2000 for $2000 rather than $25 for

$2000. - the court could argue that both parties are frauding the court- Defendant is claiming

o Want of considerationo Nominal (“inadequate”) consideration

- What about DURESS? o Wasn’t D under duress when this contract was made?



o Not if the going rate was $2000 for 500,000 drachmas- What about UNCONSCIONABILITY?

o



9. Wolford v. Powers (Consideration – Adequacy)


Wolford v. Powers, Supreme Court of Indiana, 1882 p147

9.2 Facts

Wolford (P) brought suit to obtain $10,000 against Lehman’s estate (D) based on a promissory note written by deceased. Just before dying, Lehman promised P that if P named his son Charles Lehman Wolford that Lehman would “make the child’s welfare his chief object in life and provide for it generously and give it a good education.” P cared for Lehman during some brief illnesses. When boy was 5 months old, Lehman created a note for P for $10,000 stating that this was how he wanted to carry out his promise.

PH: trial court judged for D. Indiana Supreme court reversed.

9.3 Issues

Was the trial court correct in rendering a judgment for D based on want of consideration?

9.4 Decisions

No. Indiana Supreme court reversed trial court decision and found there was a contract. They found that P could recover the $10,000.

9.5 Reasoning

Rule 1: “general rule that where there is no fraud, and a party gets all the consideration he contracts for, the contract will be upheld”p147¶4. Rule2: “the value of all things contracted for is measured by the appetite of the contractors, and therefore the just value is that which they be contented to give.”

Statute: Section 79 of 2nd Restatement – courts ought to honor the values that parties have placed on their respective performances”

Court does not look into adequacy because there is “absolutely no rule by which the courts can be guided” p148¶1.


9.7 Analysis

- The Peppercorn Theory (a.k.a Adequacy Doctrine) – a peppercorn is sufficient consideration for a promise. (Holmes)

- Converse of the Peppercorn Theory (Adequacy) is the Nominal Consideration doctrine in Section 79 of 2nd Restatement – “disparity in value sometimes indicates that the purported consideration was not in fact bargained for but was a mere formality or pretense. Such sham or ‘nominal’ consideration does not satisfy requirement of Section 71.”

- Section 79 of 2nd Restatement – courts ought to honor the values that parties have placed on their respective performances”

- Unconscionability – Section 208 of 2nd Restatement



- Mutuality of Obligation p150– in a bilateral contract “both parties are bound or neither party is bound”

o if for any reason the promise of one party is not binding upon him, it is not sufficient consideration for the promise of the other and the contract is void for want of consideration

o what happens in a case where there is an unenforceable promise (e.g. promise to do an illegal act)? My opinion: lack of consideration.

- Promissory Estoppel p157– (Section 90 of 2nd Restatement) consideration is no longer the sole tenet underlying the enforcement of promises. Courts have expanded the set to include those based on reliance.

o Estoppel can be used to 1. enforce gratuitous promises that would have been beyond the reach of the

consideration doctrine Does this mean that promisee can make a gratuitous promise binding

simply by acting on it? (Note: this would “cut up the doctrine of consideration by the roots”)

2. expand liability in cases where there is consideration (Henderson claims this is what courts primarily use it for. p161)

o “the extent to which the new section 90 (estoppel) was to be allowed to undercut the underlying principle of Section 75 (consideration) was left entirely unresolved”p161

Notes: - Adequacy Doctrine

o Courts do not typically look into the adequacy of considerationo This question only comes up if there is a hint that we are dealing with something else

including: Gift Nominal Duress Unconscionability (e.g. illegal) Illusory promise

- Was this a bargain for exchange or a gift? o If there is no bargain for exchange, you must be able to explain why…

o Lehman offered to take care of the boy IF they promise to name the boy after him Unilateral contract because it is a promise for an act (not promise for a promise)

They do name the boy after him (ACCEPTANCE) Note: in a unilateral contract, performing the act IS acceptance

Kindness on part of parents for taking care of Lehman is not consideration because it takes place after the contract was made. (It was not part of the BARGAIN for EXCHANGE)

When looking for a bargain for exchange you should look at what is going to the promisor from the promisee.

o Court is asking in the following order: 1. Was there a bargain or was there just nominal consideration? 2. If it is a bargain, is it adequate?

Courts often have to address adequacy (even though courts don’t look into adequacy) because it frequently comes up in cases.

This is a better order than the reverse. o Adequacy of Consideration (Section 79)

A) benefit/detriment theory B) bargain and exchange theory



- Summary of Considerationo Consideration questiono Gift/nominal question (same as deciding there is NOT a bargain for exchange)o Adequacy

Hamer Kirksey St. Peter In re Greene Balsakis WolfordConsider-ation?

B/DBenefit by Act; Unilateral K

Ben/DetConditional Gift (Not a gift

Ben/Det & Bargain/Exch

Only need 1. One form of consideration is enough; Public policy exceptions to consideration

Barg/Exch Exch

Gift/Nominal?

X X Gift; nominal consideration ($1); statement of “good and valuable” consideration

Gift No gift because of exchange

Adequacy? Adequacy upheld

Adequacy upheld

Adequacy upheld in pure money situation (e.g. war-torn Greece)

Adequacy is upheld even though there is no clear “market value”

- Promises given in exchange- Conditional gifts- Conditional promise

o E.g. “Offer admission to UNC…your enrollment depends on your successful completion” – admission is revoked. They promise to let him in IF he continues the same level of performance.

-



10. Haase v. Cardoza (Promissory Estoppel - Intrafamilial)


Haase v. Cardoza, District Court of Appeal, 3rd Dist. California, 1958 p162

10.2 Facts

Rose Haase (P) is trying to recover $10,000 from Alice Cardoza (D) based on an oral promise. D’s husband died and after he died D told P that D’s husband had left her $10,000 and that she had not given it to her and felt very guilty. D then said “I am going to pay you $50 a month. Will you accept it?” P received these payments until P sent D a note asking to cover the balance due on the $10,000.

PH: Trial court granted D’s motion for a non-suit finding that there was no consideration for the promise. P is appealing.

10.3 Issues

Was there sufficient consideration or justification for an estoppel to allow P to recover $10,000 from D?

10.4 Decisions

No. Appeal court affirmed trial court in favor of D (P could not recover). Court found no consideration and no reliance on part of P on D’s promise.

10.5 Reasoning

Court found that D’s promise to pay $10,000 are “not actionable” because there was no consideration. Court could not find any change in position on the part of P which would give rise to an “estoppel as a substitute for consideration.” p164¶2

Rule 1: Corbin on Contracts, section 114 p354,355: “an informal promise without consideration, in any of the senses of that term, creates no duty and is not enforceable”


10.7 Analysis

Notes- Promissory Estoppel (Section 90 of the 2nd Restatement)

o alternate way to have a contract enforcedo if you find consideration, you DO have a valid contracto if you cannot find consideration, you can use estoppel as a means to enforce a contract

- We start w/ Intrafamilial promises because DESPITE the wording in Section 90, they are NOT typically enforced even when there is reliance.

- **to use estoppel** you STILL must have a promise!! (not a contract but a promise) e.g. “I intend to give you $10,000 is not a promise”

- Courts claims it did not enforce the promise because there was no reliance. However, Mrs. Boardman thinks that the real reason was that courts think:

o Family members don’t want their promises to be legally enforceable- Informal promise – promise the parties did not intend to be legally enforceable-



- “material benefit rule” -



11. Ricketts v. Scothorn (Promissory Estoppel - Intrafamilial)


Ricketts v. Scothorn, Supreme Court of Nebraska, 1898 p164

11.2 Facts

Scothorn (P) sued executor of Rickett’s estate (D) to retrieve $2000+interest based on deceased promissory note. Rickett’s was P’s grandfather. Consideration for the note was that P ‘should’ stop working. Relying on the note, P quit work. Mother of P testified that Ricketts had told her he had given the note to ‘enable’ P to quit work. When Rickett’s died he had paid one years interest on the note and at no time repudiated the obligation.

PH: P recovered from D in trial court.

11.3 Issues

Was there sufficient consideration or justification for estoppel to allow P to recover from D’s estate?

11.4 Decisions

Yes. Trial court verdict affirmed in favor of P (she recovered the $2000). Court ruled there was no consideration but having quit her job was sufficient reliance for estoppel.

11.5 Reasoning

Court DID NOT find consideration: “There was no promise on the part of the P to do, or refrain from doing, anything…He gave the note as a gratuity, and looked for nothing in return.” p165¶2

Court DID find estoppel: “is there an equitable estoppel which ought to preclude the defendant from alleging that the note in controversy” is invalid? Yes.

PRIMARY REASON: “having intentionally influenced P to alter her position for the worse on the faith of the note…it would be grossly inequitable…to resist payment on the ground that the promise was given without consideration” p166¶1

Definition: Estoppel – “right arising from acts, admissions, or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged.”


11.7 Analysis

- Why didn’t Haase recover? o no estoppel because there did not appear to be reliance…

If showing reliance would have helped Haase recover, aren’t future promisees well advised to rely substantially on such promises. Is this sound social policy?

- Reconciling Haase and Rickettso Just better attorneys? o No, there was reliance in Ricketts and no reliance in Haase

- Intrafamilial promises – usually considered “donative” promises and are not generally enforced, despite Section 90 and despite Ricketts p167¶5



o Rationale for not enforcing intrafamilial promises Promisor is a relative and therefore cares about the welfare of the promisee. Decision to break the promise will take into account any harm the promisee

might suffer Problem: this assumes that intra-familial promisors are likely to keep their

promises. Is this true with divorce rates as high as they are? Doesn’t this over-estimate the probability of performance and over-rely on intra-familial promises?

- Presumption of Nonenforcement of Donative Promises – “reliance may provide some evidence that a promise was actually made, but it seldom provides full evidentiary security.” p167¶6

- Must the promisor “intend” the promise to be legally enforceable for it to be?

- Promissory Estoppel is applied differently in different contextso Intrafamilial is one of the more “annoying” types but it comes up very frequently

What is the difference between Haase and Ricketts Haase represents the MAJORITY RULE that promissory estoppel is

not enforced in Intrafamilial situations BOARDMAN’s opinion: Ricketts rule is that if you have a promise

between family members, and the person who makes the promise never goes back on it, then you may be able to get the promise enforced under promissory estoppel. Why would you be in court in this situation? Most common answer is DEATH.

o Reasons for not enforcing intrafamilial promises that lack consideration 1. You may really want to do it but if it turns out you can’t, the circumstances

are likely so egregious, that you may not want it to be binding. 2. Signaling problem – “I’m promising but not promising under the law…” can

look like a bad signal 3. Courts don’t want to reduce the number of promises made by family

memberso

-



12. Feinberg v. Pfeiffer Co. (Promissory Estoppel - Emplymnt Context)


Feinberg v. Pfeiffer, St. Louis Court of Appeals, Missouri, 1959 p174

12.2 Facts

P (Feinberg), a former employee of D (Pfeiffer Co.), is suing D for breach of contract in providing her $200 per month for life upon retirement. P began working at D when she was 17. She owned some stock. She received a bonus each year. Board of Directors of D got together to discuss her retirement and resolved that “in view of the length of service” she should get retirement benefits of $200 per month for life and that this should “become a firm obligation of the corporation to be available to her whenever she should see fit to retire”.

PH: jury was waived. Trial court found for P with judgment of $5100. D is appealing.

12.3 Issues

Under Missouri common law, is reliance on a promise to provide a pension sufficient cause of action to make the promise binding?

12.4 Decisions

Yes, court affirmed trial court’s opinion that P’s reliance on D’s promise to pay her pension in retirement was sufficient. Judgment for P. This court wrongly stated that the reason was that the reliance WAS consideration. However, promissory estoppel is separate from consideration.

12.5 Reasoning

D claims that the Board of Directors decision was merely a promise to make a gift and that since there was no consideration given or paid by P, it is not binding. “Many years of long and faithful service” is not consideration because it is in the past.

P agrees that consideration in the past would not be valid, but says that there were two other elements of consideration: 1. continuation of P in the employment of D2. her change of position (i.e. her retirement) made in reliance on D’s promise

Court agreed w/ D that first of these were not valid consideration. “it is clear from her own testimony that she made no promise or agreement to continue in the employ of D in return for its promise to pay her a pension.”

Rule: Restatement of the Law of Contracts §90. “Promissory estoppel is now a recognized species of consideration.”


12.7 Analysis

Notes- what is the correct question to ask to verify whether we should



- In Feinberg, there was no consideration because there was no bargain/exchangeo Contract is enforced despite not having consideration. Why?

Promissory Estoppel – employee relied on promise §90 – “reasonably expect” her to rely? Yes, it was an official, written

letter from the Board of Directors of the company We have

o 1. Relianceo 2. Expected reliance

Odd thing about the case is that she never says she relied on it.



13. Hayes v. Plantations Steel Co. (Promissory Estoppel - Emplymnt Context)


Hayes v. Plantations Steel Co., Supreme Court of Rhode Island, 1982 p178

13.2 Facts

D (Plantations Steel Co.) is appealing trial court (no jury) judgment for P (Hayes). P worked at D fro 25 years. Manielli, agent of D, said that D would “take care” of P in retirement but mentioned no sum of money or percentage of salary. D had no formal provision of a pension plan for any other employees except those in unions. P was not in the union. D paid P $5000 for a few years and Mainelli testified that it was his “personal intention” that the payments continue. D was then taken over by the DiMartino family. The company then decided to stop making the payments.

PH: Trial court found in favor of P saying that D was obligated to pay P $5000 yearly pension based on an “implied-in-fact” contract. Trial judge said Hayes had showed sufficient “detrimental reliance” upon D’s promise and gave rise to promissory estoppel. Trial court ruled that under a section in “Employee Retirement Income Security Act”, “ could not get attorney’s fees. Both parties are appealing. Trial court said that “barring bankruptcy or the cessation of business for any other reason” that Hayes had a right to the continued annual payments. Said that while the $5000 was never specified, it was “established” by the four annual payments. Hayes consideration was voluntarily retiring when he was under no obligation to do so. Trial court found that even if Hayes had not truly bargained for the pension, his reliance on the promise would have been enough to make it legally binding.

13.3 Issues

Court said that to discuss legal effect of D’s promise to P they must ask two questions…

1. Did P supply required consideration to make the promise binding? (No)2. Was P’s alleged reliance sufficiently induced by the promise to estop D from denying its

obligation to him? (No)

13.4 Decisions

Court finds in favor of D and reverses trial court decision. D is not obligated to pay P the pension. Court found that there was no consideration and that the reliance was not induced by the promise because P had already decided to retire.

13.5 Reasoning

Court said that to discuss legal effect of D’s promise to P they must ask two questions…

1. ISSUE 1: Did P supply required consideration to make the promise binding? (No)Potential consideration:

a. long years of dedicated service (gratuity)b. work performed during the week between promise and retirement (insufficient

consideration)c. reliance (promissory estoppel)

Court said that Hayes did not bargain for A) (long years of dedicated service) and it occurred in the past and was therefore not induced by the promise. Therefore, the plantation’s promise was “intended as a token of appreciated for Haye’s many years of service” and was therefore in the nature of a



gratuity. Court said that A could be distinguished from a case in which someone promises pension in order to force an employee to retire. In this case, Hayes had already expressed his intent to retire.

Court said that B (work performed during the week) was insufficient because D did not seek it or try to deter Hayes from leaving or staying.

Court said that promissory estoppel requires that the promise induce the promisee’s action or forbearance. Court said that since Hayes had decided to retire before the promise the court could not find that “injustice can be avoided only by enforcement of D’s promise”


13.7 Analysis

- How do you reconcile Hayes and Feinberg? o Intention of the two parties. Do they “intend” to be legally bound? o §90 “a promise which the promisor should reasonably expect to induce action or

forbearance” Judicial Notice – courts can take “judicial notice” of a fact and it is therefore

found to be true (e.g. court took “judicial notice” of WWII) They do not say this in the case, but Mrs. Boardman thinks this court is taking

“judicial notice” that people change their behavior when they expect a pension. o Did Hayes rely on the promise? Not clear that he did. o

- If all promises induce reliance, why are some not enforceable under §90? o Did they “intend” for it to be enforceable?

- Ways Hayes differs from Feinbergo Hayes does not have

- Argumentso 1. What you have said is so vague it could not be construed as a promise. o 2. Yes it is a promise, but the court cannot enforce it because the court has no idea what

enforcing it would look like.- One problem with promissory estoppel is determining which action

o Chose to retireo Did not get another jobo Lifestyle changeso

8/31/04

- 2nd Restatement is separate from 1st Restatement because it no longer requires reliance of a “definite and substantial character”.

- §90 is one of the most quoted sections in the 2nd Restatement

- Elements required for Promissory Estoppelo 1. Promise

Nature of promise can have an impact on whether it is enforced. E.g. promise in Hayes is potentially too vague; Feinberg has promise from corporation not from an individual like in Hayes

o 2. Promisor should reasonably expect to induce reliance §90 only requires “reasonable” expectation on the part of the promisor



Hayes, we see that the promisee expected it but did the promisor? Would a reasonable person expect it?

o 3. “it does induce reliance” (e.g. reliance occurs)o 4. promise is binding only if injustice can be avoided only by enforcement of the promise

This is often ignored by courtso Note: “remedy granted for breach may be limited as justice requires”

Damages based on promissory estoppel are therefore less than damages based on consideration

Notes from essay“legal enforcement of a promise intended by the promisor to be legally enforceable will not deter similar would-be promisors from making such promises in the future. However, if the law enforces promises in contexts where the promisor is not likely to have intended his promise to be legally enforceable, individuals in the future will be less likely to make such promises.”



14. Salsbury v. Northwestern Bell Telephone Co. (Promissory Estoppel - Charitable Subscriptions)


Salsbury v. Northwestern Bell Telephone Co., Supreme Court of Iowa, 1974 p189

14.2 Facts

P (Salsbury) was trying to raise money for Charles City College. Peter Bruno solicited a subscription from D (Northwestern Bell Telephone Co.). Agent of D (Winder) lacked authority to bind D for pledge but conveyed request to superiors and received their consent. Winder then sent a letter to Bruno stating that the contribution had been approved for $15,000, $5000 each over 3 years. College treated the letter exactly like any pledge card.

Inconspicuous relevant fact: The College used the promise to gain credit with a creditor. p189¶last

PH: Trial court found for P saying that D’s promise of a charitable subscription put in the letter made the promise binding for D. D claims that trial court failed to apply basic contract principles saying that there was “failure of consideration”.

14.3 Issues

Under Iowa common law in 1974, can charitable subscriptions be legally binding even if they lack consideration?

14.4 Decisions

Yes, court says that based off of §90 of the 2nd Restatement, charitable subscriptions can be binding without proof that the promise induced action or forbearance. Court affirmed trial court and said D’s promise to P was binding. Court used “public policy” as part of the justification.

14.5 Reasoning

Court says there has long been a conflict in courts about when to make charitable subscriptions binding. “In reaction to this widespread criticism a number of courts have turned to promissory estoppel as an alternative for the consideration requirement.”

“We acknowledge as valid the criticism of cases which enforce charitable subscriptions only on a fictional finding of consideration. But we are reluctant to adopt promissory estoppel as the sole alternative basis for such enforcement.” P190¶5

Rule: Restatement of Contracts §90 has a new subsection added: “2) A charitable subscription or a marriage settlement is binding under 1) without proof that the promise induced action or forbearance”

Court found that public policy supports this view because it is logical to bind charitable subscriptions without requiring showing consideration because charitable projects serve public interest.


-



14.7 Analysis

Notes- charitable subscription – charitable giving in the form of a future pledge- Hypo 1: If I pledged to NPR, they sent me a mug, and then I reneged is this promissory estoppel

or consideration? o Mrs. Boardman thinks “Consideration” would be a valid argument in addition to

promissory estoppel Inner motives are not supposed to be relevant to whether or not there is a

contract Counter argument: is NPR in the business of selling mugs? No.

- Hypo 2: Could you sue them for breach if they did not send the mug? o If you do argue “Consideration” in the first hypothetical, you must be able to argue

“Consideration” in this hypothetical.o If this is a valid contract sustained by consideration, what about the fact that you are

purchasing something but can still claim the tax deduction?

- Court Reasoned that based on §90 in 2nd Restatement, you can enforce charitable subscriptions even if there is no consideration

-



15. Congregation Kadimah Toras-Moshe v. DeLEO (Promissory Estoppel - Charitable Subscriptions)


Congregation Kadimah Toras-Moshe v. DeLEO, Supreme Judicial Court of Mass., 1989 p192

15.2 Facts

Facts were uncontested. P (Congregation) taking action against D (DeLeo), the admin of decedents estate. Decedent made an oral promise, made in presence of witnesses, to give the Congregation $25,000. Congregation planned to use the $25,000 to transform a storage room into a library named after decedent. Decedent died before fulfilling the promise.

P says that decedents promise is enforceable because it has valid consideration.

Trial court rendered summary judgment for D saying it did not have to give P the $25,000.

15.3 Issues

Can an oral promise to make a charitable subscription be binding without consideration or substantial reliance?

15.4 Decisions

No, court affirmed trial courts decision in favor of summary judgment for D. Estate does not need to give the Congregation the $25,000.

15.5 Reasoning

Gratuitous pledge: Superior court said “this was an oral gratuitous pledge, with no indication as to how the money should be used”.

Benefit/Detriment“no legal benefit to the promisor nor detriment to the promisee”

RelianceCongregation’s “allocation” of the $25,000 was insufficient reliance to be an enforceable obligation. Court distinguishes this case from others that had “written” promises and involved substantial consideration or reliance.

§90 of 2nd RestatementP asks to abandon requirement of consideration or reliance based on 2nd Restatement. Court decided there was no injustice (because there was no reliance) in declining to enforce decedent’s promise. Furthermore, to enforce such a promise “would be against public policy.”


15.7 Analysis

Notes



- “It is often difficult to determine whether words of condition in a promise indicate a request for consideration or state a mere condition in a gratuitous promise. An aid, though not a conclusive test…, is an inquiry whether the happening of the condition will be a benefit to the promisor. If so, it is a fair inference that the happening was requested as a consideration.” P194¶4

- Based on the 2nd Restatement of Contracts, no longer does reliance have to be definite and substantial. Instead, “the remedy granted for relief may be limited as justice requires” and that “charitable subscription…is binding under Subsection (1) without proof that the promise induced action or forbearance.”

- Reason: enforcing charitable subscriptions is good public policy. - Effect: Only three or four state courts have dispensed with a need to show consideration or

promissory estoppel in charitable contribution cases. - What effect would enforcement have on future charitable promising?

o 1. None. o 2. Enhances charitable treasuries because donees can now enforce against reluctant

donorso 3. Reduce charitable promising but not necessarily givingo 4. Reduces charitable treasuries because some donors who would have promised and kept

their promise will no longer promise.

8/31/04- a hope or expectation, even though well founded, is not equivalent to either legal detriment or

reliance- Why did the court argue that it was against public policy? “it is an oral promise sought to be

enforced against an estate” – what would prevent people from saying they had an oral promise and lying about it.

9/13/04- Judge Cardozo – famous for being a brilliant legal scholar. Also famous for getting the result he

wants.

- Allegheny College v. National Chautauqua County Bank of Jamestowno Mary Johnston promises to give Allegheny College $5000. Two years after she makes a

down payment of $1000. She later repudiates. She then dies. The College now sues. Today, this case would be treated as a promissory estoppel case.

In 2nd Restatement, you don’t even have to show reliance, It’s difficult to show injustice if you don’t have reliance… Therefore, 2nd Restatement §90 subsection 2 is difficult to enforce. Example: injustice is tinged with fraud…e.g. intentionally misleading

someone. Usually with a charity, there isn’t fraud.



16. Coley v. Lang (Promissory Estoppel – Incomplete Negotiations)


Coley v. Lang, Alabama Court of Civil Appeals, 1976 p199

16.2 Facts

Lang (P) sued Coley (D) for specific performance of alleged agreement in which Coley was to purchase the stock of Lang’s corporation for $60,000. Complaint was later amended to include a claim for damages incurred by Lang in reliance on Coley’s promise.

Coley did not want to purchase the assets but only desired to purchase the name and good will of IAS. Coley’s attorney drafted a letter that said “you have agreed to sell to nominee to buy, all outstanding stock of every kind of IAS” and then lists out the amounts to be paid on what dates. It continued saying that “we agree together that on or before September 18th, this letter agreement will be reduced to a definitive agreement binding upon all of the parties hereto and accomplishing the sale and purchase contemplated in this agreement. You agree that until we reach a definitive agreement I may request bid sets from the government…on behalf of the name of IAS.”

Lang argued that the agreement was binding and that he had lost $30,000 as a result of the reliance on the letter. The details of the loss are not spelled out.

Coley said the letter was just a basic outline of the points that had been agreed to, but that many items were left to be worked out. In particular, Lang had not sought approval of the IRS regarding the pension plan not had other details with the government been completed. Because of this, Coley realized the sale would not work out within the timeframe he wanted and notified Lang of this.

Attorney who drafted the letter testified that he informed both parties that the document in question was not binding.

PH: Trial court entered judgment for Lang (P) in amount of $7,500 “due to his reliance upon the representation of the agreement by Coley that he would purchase the stock.” Coley is appealing.

16.3 Issues

1. Did the “letter agreement” entered into by the parties contractually bind the parties? 2. Can the award by supported on the basis of promissory estoppel or reliance on a promise?

16.4 Decisions

Appellate court reversed trial court opinion and found in favor of D. The court finds no “action or forbearance” on the part of Lang so there is no promissory estoppel.

16.5 Reasoning

Issue 1: Court did not find the letter binding. There was no full and definite agreement on the terms. We cannot enforce a portion of an agreement which failed to materialize nor can we supply the terms of the contract.

Court did not find a reversible error here because the trial court did not base its judgment on a finding that the “letter agreement” was a binding contract that should be enforced.



Issue 2: Court ruled that just because the negotiations proved unfruitful does not warrant application of promissory estoppel. It states that “the record discloses no “action or forbearance of a definite and substantial character” on the part of Mr. Lang. Therefore, Court ruled that trial court had “misapplied the law to the facts in this case.


16.7 Analysis

Notes- How far have negotiations gotten?

o Turn away from the temptation to answer this by saying there has to be a writing.

- NOTE: An agreement to agree is NOT an agreement- However, can you have an agreement to agree except under a specific set of circumstances that are

not ambiguous? - There is a temporary lease of IAS name

o This was a contract as to the use of the name- If you take all of these steps, I will buy based on things we define later (e.g. pension stuff, etc.).

o Boardman thinks this is more like a contract with sufficient consideration than the court wants us to believe.

- They did not expect to be bound. - However, they did think that they would only fail to agree if a few things (“X” and “Y”) happen. - Coley thinks X and Y happened, and Lang does not think that X and Y have happened. - By default, parties do not have contracts. You must prove that there was a contract.

- If you and I agree on a deal orally, and we agree to write everything down tomorrow and- Agreement to do something in the future does not remove

- Mrs. Boardman thinks the court talked about reliance when they should have been talking about injustice.

o There is reliance (trial court found $7500 in damages), but if they both agreed to the distribution of risk falling on Lang, there is no injustice.

- COLEY REPRESENTS THE MAJORITY OPINION OF COURTS regarding the OUTCOME.

o That is, agreements are typically NOT ENFORCED under promissory estoppelo Claim in Coley that there was not reliance is only one way to find that promissory

estoppel does not apply. Promissory Estoppel typically is not enforced during preliminary negotiations. Typically, you should say there is no “injustice” if the court does not enforce an

agreement that both parties understood to be preliminary. Any “reliance” was a risk the party took upon themselves.

An agreement to agree is NOT a binding contract. An agreement to agree in a broader agreement does not mean that other aspects

of the larger agreement are not enforceable.



17. Hoffman v. Red Owl Stores, Inc. (Promissory Estoppel – Preliminary Negotiations)


Hoffman v. Red Owl Stores, Inc., Supreme Court of Wisconsin, 1965 p204

17.2 Facts

Lukowitz (division manager for D) represented to and agreed with Hoffman (P) that Red Owl would build a store in Chilton and stock it for Hoffman to operate in exchange for P’s putting up $18,000. In reliance, P sold their bakery and grocery store. Also in reliance, Hoffman purchased the building site in Chilton where the new franchise would be located. P’s lost substantial amounts of income and expended large sums of money as expenses.

More detail: Hoffman mentioned that $18,000 was all the capital he had available to invest. Red owl manager (Lukowitz) repeatedly assured him this was fine. Hoffman bought a grocery store in Wautoma to learn the business. Lukowitz then advised Hoffman to sell the store to his manager so that they could find him a larger store. Hoffman was reluctant to sell because he would lose the summer tourist business, but he sold on assurance that he would be operating in a new location by fall and that he had to sell this store to get a bigger one.

With Lukowitz assurance that everything was fine, Hoffman paid $1,000 on a lot in Chilton. Lukowitz then told Hoffman they would have to sell their bakery so they did, for $10,000. Lukowitz then presented a “Proposed Financing For an Agency Store” that said Hoffman needed to contribute $24,100 instead of $18,000. This then got raised to $26,000. At the final meeting, he was told that his father-in-law would have to sign an agreement that the $13,000 was an outright gift. Hoffman rejected the proposal, terminated negotiations and filed suit.

PH: Trial court found in favor of P. They found that Hoffman and Red Owl did not reach a final agreement in negotiations. During the negotiations, Red Owl represented to Hoffman that if he fulfilled certain requirements he would get a franchise. Hoffman reasonably relied on those representations and met all conditions when negotiations stopped. Trial court set out what they thought was reasonable compensation but, at Red Owls motion, ordered a new trial for the issue of damages for the selling of the Wautoma grocery store. Red Owl appealed and Hoffman cross-appealed on the vacation of the Wautoma damages.

17.3 Issues

1. Should court recognize causes of action grounded on promissory estoppel? (omitted from case)2. Do the facts make out a cause for promissory estoppel? 3. Are the jury’s findings regarding damages evidence?

17.4 Decisions

Issue 2: Yes, the facts make out a cause for promissory estoppel. Court ruled that injustice would result if P’s were not granted some relief because of the failure of D’s to keep their promises which induced P’s to act to their detriment.

Issue 3: Trial court awarded all damages except for “loss of profits”. They were not allowed to recover loss of profits like they would have been able to in a “breach of contract” action, because this action is different.



17.5 Reasoning

Issue 2: Facts justify promissory estoppel?Question: whether the promise necessary to sustain a cause of action for promissory estoppel must embrace all essential details of a proposed transaction so as to be equivalent to an offer? No, court found that you could have promissory estoppel even if there was no contract. It can be a separate cause of action from “breach of contract”. They mention 2nd Restatement §90 in justifying this holding.

Issue 3: DamagesRule 1: In actions of promissory estoppel, P cannot recover damages for loss of profit. However, evidence of profits would be admissible to afford a foundation for expert opinion as to “fair market value.”


17.7 Analysis

Notes Condition: If you buy the store, you will be a more likely candidate for a franchise? Could you argue promissory estoppel in this case? Probably not. Condition:

Can conditions that are individually insufficient for promissory estoppel “add up” to be collectively sufficient? Boardman did not answer this question.

Venture Capital firms: you must do X, Y and Z before we’ll even look at you as a potential customer. How would a court handle this?

1. Figure out what the people intended in this situation. Typically, the assumption is that until a full agreement has been made, each side assumes the full risk of their actions.

Negotiating in bad faith usually is NOT actionable. However, if you negotiate in REALLY bad faith, at some point it becomes actionable based on promissory estoppel.

- Ask not only, is there reliance? but also, what kind of reliance? When did the reliance occur? For example, after taking all of the precautions, Lukowitz

- Boardman thinks the court’s work is SLOPPY because of the times things occurred, etc. - What can account for the difference in outcome between this and Coley?

o There was no o This depends on what the parties intended to happen. Does Hoffman intend that there be

a binding contract? - Option 1: Hoffman believes he has been offered a store if he does X, Y and Z. If he believes he

has done X, Y and Z perhaps there is a contract. - Option 2: Hoffman believes that they would continue negotiating in good faith and there was a

universe of things that they could use to get out of the contract and a universe of things that would not be sufficient to get out of the contract.

- There are certain issues that are legitimate and some that are not. Hoffman believes adding more money is not a legitimate condition.

- Did the parties expect to be bound in a certain way? o Note: under this theory they would “both” have to agree on what they were bound to.

Hoffman expected them to be bound and they knew that he did. Therefore, using this knowledge they were acting in bad faith.

If both parties expect to be bound, we do not have Lang/Coley which could be the differentiator.

- I promise to keep negotiating with you IF you sell your bakery. o If he sells the bakery and we still continue negotiating,



- Hoffman likely DOES NOT expect to be bound. He thinks, up until the last moment, that he could get out.

Question to keep coming back to: 1. Did the parties expect to be bound?

a. This decides many promissory estoppel cases because there is almost always reliance but there is not always injustice!!!



18. East Providence Credit Union v. Geremia (Promissory Estoppel – Promises to Insure)


East Providence Credit Union v. Geremia, Supreme Court of Rhode Island, 1968 p214

18.2 Facts

Plaintiff sues to recover balance due on a promissory note from “husband and wife” (D’s). Defendants filed a counterclaim. D’s borrowed money from P and gave him a promissory note. Payment of the note was secured by chattel mortgage on D’s wagon. Mortgage had a clause that obligated D’s to maintain insurance on the motor vehicle. Mortgage further said that if D’s failed to maintain the insurance, P could pay the premium and add it to their mortgage.

D’s received a notice from insurance carrier that premium was overdue. Copy was sent to P who sent a letter saying “If we are not notified of a renewal…within 10 days, we shall be forced to renew the policy for you and apply the amount to your loan.” D called P’s office and told the employee to go ahead and pay the premium. D’s communicated their approval for P to pay the insurance and notified the treasurer of that fact. Later, the motor vehicle was totaled in an accident and D’s were informed that P had not paid the policy.

PH: Trial court dismissed P’s complaint and found for D’s on their counterclaim. Trial justice awarded them all of the money P had applied after the date of D’s accident to the outstanding balance of the loan. P appeals.

18.3 Issues

Whether or not P is precluded from recovering on its loan contract because of its failure to fulfill a promise to D to pay the overdue insurance premium.

18.4 Decisions

Judgment for D is affirmed and P’s appeal is denied.

18.5 Reasoning

P urges that the trial court erred in finding for D by referencing a case in which the court refused to apply promissory estoppel to enforce a gratuitous promise made by mortgagee. However, court ruled that P made more than a gratuitous promise. Promise by P to pay the insurance premium was made in exchange for the interest on the money. The interest was adequate consideration.

However, if it couldn’t be shown that P intended to get interest on the amount paid by it for insurance, they would have still found for D based on promissory estoppel.


18.7 Analysis

- What if the Geremia’s do not respond to the letter?o To some people the letter sounds like an offer rather than a promise. If it IS a promise,

the promissory estoppel will be enough. Why? Promises to ensure are usually upheld using promissory estoppel.

o What is the reliance?



Maybe they would have tried to get more money? Maybe they would have been more careful with the car (e.g. not driven it at all) Maybe they would have sold the car to pay off the rest of the mortgage.

o Boardman thinks they exercised an option on contract 1o What does it say about promissory estoppel?

Even without consideration, the court would have enforced under promissory estoppel.

o Don’t need to know anything about “equitable estoppel”



19. Mills v. Wyman (Material Benefit Rule – Past Consideration)


Mills v. Wyman, Supreme Judicial Court of Massachusetts, 1825 p224

19.2 Facts

Levi Wyman (Son of defendant), returned from a voyage at sea and got sick in Hartford, CT. Mills (P) took care of Wyman and incurred a number of expenses. Levi Wyman ends up dying despite the treatment. Defendant (Wyman’s father) wrote P a letter promising to pay for the expenses. There was no consideration for the promise.

P claims that “moral obligation” is sufficient consideration for the promise.

PH: trial court directed a nonsuit. P filed exceptions.

19.3 Issues

When someone takes care of another’s son when they are sick, and the son subsequently dies, but the son’s father promises to pay the man for the incurred expenses after the fact, is that promise enforceable even though there is no consideration?

19.4 Decisions

Appellate court agrees that the nonsuit was correct. Judgment entered for Wyman (D) saying he did not have to pay. P paid costs of trial for D.

19.5 Reasoning

- “what a man ought to do, generally he ought to be made to do, whether he promise or refuse.”p225¶1

- However, “if there was nothing paid or promised for it, the law, perhaps wisely, leaves the execution of it to the conscience of him 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” p225¶1


19.7 Analysis

Why is this under the “Material Benefit Rule”?



20. Manwill v. Oyler (Material Benefit Rule – Promises for Non-Donative Material Benefits)


Manwill v. Oyler, Supreme Court of Utah, 1961 p226

20.2 Facts

P alleges that he made payments on D’s behalf over a number of years for roughly $5500. He later transferred a grazing permit worth $1800 and 18 cattle worth $3000 to D. Any action on those transactions would be barred by the statute of limitations. However, P claims that defendants orally agreed to pay the sums to him. D’s filed a motion to dismiss, after which P changed the date when he claimed the oral promise was made.

P’s claim that the D’s were under “moral obligation” to pay him back the money and that their oral promise was a binding contract.

PH: D’s motion to dismiss P’s complaint is denied by the trial court.

20.3 Issues

D got a lot of money and “material benefit” from P and promised to pay him back. Do they have a moral obligation that is sufficient consideration for the promise?

20.4 Decisions

No. Appellate court found that the trial court erred in denying D’s motion to dismiss. Reversed with directions to dismiss the action. D does not have to repay P the money based on moral obligation.

20.5 Reasoning

- RULE1: “the rule quite generally recognized is that a moral obligation by itself” is not sufficient. o “if a mere moral…obligation were recognized as valid consideration for a contract, that

would practically erode to the vanishing point the necessity for finding a consideration”

- RULE2: Material Benefito “the principle that in order for a contract to be valid and binding, each party must…give

some legal consideration…conferring a benefit upon him or suffering a legal detriment at his request is…in the roots of our law.”p226¶5

o “the substance of the rule is that where the promisors have received something from the promisee of value in the form of money or other material benefits under such circumstances as to create a moral obligation to pay for what they received, and later promise to do so there is consideration for such promise.”p227¶1

- RULE3: ORAL PROMISE cannot REVIVE Outlawed obligationo “an outlawed obligation” (e.g. because of statute of limitations) can NOT be revived by

an oral promise, only by one in WRITING.

However, Court Ruled: - that “any benefits conferred on D’s would have been donative.”



- That at the time of the promise there was nothing but “bare moral obligation” to support the need for D to pay back P. “this alone would not constitute valid consideration to make a binding contract.”


20.7 Analysis



21. Webb v. McGowin I (Material Benefit Rule – Promises for Non-donative Material Benefits)


Webb v. McGowin I, Court of Appeals of Alabama, 1935 p227

21.2 Facts

Webb (P) was working at W.T. Smith Lumber Compnay, and was clearing the upper floor of the mill. He was about to throw a 75 lb block off the ledge when he noticed that if he did so he would hit McGowin (D). To prevent this, he fell with the block to divert it. He successfully diverted it byt caused himself serious bodily injuries. McGowin, recognizing his moral obligation, agreed to care for him for the remainder of his life. McGowin did pay the agreed to sum for 8 years until he died. P is suing D’s estate to keep getting the payments.

PH: demurrers to complaint were sustained. As a result, P took a nonsuit and the assignment of errors is to be addressed by appellate court. ??

21.3 Issues

Can a promise, based on moral obligation, be enforced after D’s death when P sustains incredible detriment to provide D with incredible material benefit (saving his life), when D has paid and fully intended to pay?

21.4 Decisions

Yes. Appellate court said the trial court erred in sustaining the demurrer. They reversed the decision and allowed Webb to continue getting payments from McGowin’s estate.

21.5 Reasoning

- RULE: Material Benefit Ruleo “Where the promisee cares for, improves, and preserves the property of the promisor,

though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit received…”

- RULE: Moral Obligationo “it is well settled that a moral obligation is a sufficient consideration to support a

subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor”

Court ruled that the services rendered by D were not gratuitous.


21.7 Analysis



22. Webb v. McGowin II (Material Benefit Rule – Promises for Non-donative Material Benefits)


Webb v. McGowin II, Supreme Court of Alabama, 1936 p229

22.2 Facts

Supreme Court heard the same case…

22.3 Issues

22.4 Decisions

Supreme Court upheld the appellate court’s decision that Webb should continue to get payments from McGowin’s estate saying that the benefit was “material and substantial”.

22.5 Reasoning

Supreme court verified that “if the benefit be material and substantial” and was to “the person of the promisor rather than to his estate” it is in the class of material benefits which “has the privilege of recognizing and compensating either by an executed payment or an executory promise to pay.”


22.7 Analysis



23. Lucy v. Zehmer (Offer and Acceptance)


Lucy v. Zehmer, Supreme Court of Appeals of Virginia, 1954 p14

23.2 Facts

Lucy (P) sued Zehmer (D) to have specific performance of a contract where Zehmer agreed to sell his farm to Lucy for $50,000. Zehmer considered the offer to be made in jest. It was made after a number of drinks. He wrote a memo saying that they agreed to sell the farm, Zehmer and his wife both signed it, and Lucy picked it up and took it. Lucy offered Zehmer $5 to bind the bargain which Zehmer refused to accept, realizing for the first time that Lucy was serious. Lucy left insisting that he had purchased the farm.

The next night, Zehmer told Lucy he was going to let him out of the deal but Lucy said he was sticking with it. He arranged for his brother to put up half the money and take half an interest in the land and got an attorney to examine the title.

PH: trial court found that Lucy (P) failed to establish his right to specific performance. They dismissed the case.

23.3 Issues

Is mental assent of both parties required in order for a contract to be binding?

23.4 Decisions

No. The outward manifestation of the parties intent is all that matters, regardless of mental assent. Therefore, the appellate court reverses trial court decision and required that Zehmer sell the farm to Lucy for $50,000.

23.5 Reasoning

RULE 1: OUTWARD EXPRESSION OF INTENTION- “we must look to the outward expression of a person as manifesting his intention rather than to his

secret and unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.”

RULE 2: Mental Assent of Both Parties is NOT required- “the mental assent of the parties is not requisite for the formation of a contract. If the words or

other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party."

Court ruled that regardless of whether it was a serious offer (from Lucy) and a serious acceptance (by Zehmer), or was a serious offer and an acceptance in jest, the contract would still be binding.

Court found that Zehmer was not “intoxicated to the extend of being unable to comprehend the nature and consequences of the instrument he executed.”




23.7 Analysis



24. Dyno Construction Co. v. McWane Inc. (Offer)


Dyno Construction Co. v. McWane Inc., United States Court of Appeals, 6th Circuit, 1999p242

24.2 Facts

Dyno Construction (P) sued McWane (D) for breach of contract when Dyno purchased some ductile iron pipe from McWane that was later found to be defective. Dyno creates underground water and sewer lines. McWane sells ductile iron pipe and fittings. Dyno obtained quotes from McWane in preparation for a multimillion dollar bid that they ended up winning. Lewis (of Dyno) called Ratcliffe (of McWane) and told him to order the materials based off the price quote. Lewis thought it was a “done deal” when he got off the phone. After the phone call, Ratcliffe put together a package with a purchase order, a credit application, etc. for Lewis to review and sign. They said that the materials were subject to terms on the reverse side, including a provision limiting McWane’s liability for defective materials. Lewis lost the package so McWane faxed over the documents without faxing the backside of the documents. Dyno signed the faxed copies without the damages limitation. Dyno then had substantial problems with the pipes it purchased. McWane refused to pay Dyno for consequential damages suffered as a result of the defects.

P (Dyno) contends that the district court erred when it found the contract was formed with the signing of the fax. It thought the contract should have been from the phone call because they had agreed to the essential terms of price, quantity and description.

PH: trial court denied parties cross motions for summary judgment. Jury returned verdict in favor of McWane saying he was not liable for the damages from the faulty pipes. Dyno is appealing the order denying summary judgment, and the order denying the motion for a new trial.

District court framed the issue for the jury as whether Lewis knew or should have known about McWane’s terms and conditions at the time he signed the fax copy.

24.3 Issues

Judgment was affirmed in favor of McWane (D). McWane did NOT have to pay damages to Dyno Construction for the faulty pipes.

24.4 Decisions

Appellate court finds no error with the trial court’s decision. McWane does not have to cover Dyno Construction’s damages even though the pipes they sold them were found to be faulty.

24.5 Reasoning

RULE: Invitation to offer- “typically, a price quotation is considered an invitation for an offer, rather than an offer to form a

binding contract”- However, a price quotation may suffice for an offer if it is sufficiently detailed…” ??

o “neither the November 8 nor November 13 price quotations contained words indicating that Ratcliffe intended to make an offer…” ESTIMATE was printed at the top of one of them.

Court ruled that Ratcliffe’s price quotations were “Invitations to Offer” and therefore, the offer was the purchase order and the acceptance was when McWane signed the fax. The jury determined that he should have known about the clause so the appellate court affirmed the decision.




24.7 Analysis

COASE THEORUM- ideal bargaining is where

o 1. legal rights of parties are well-defined and marketableo 2. no transaction costs to bargainingo 3. parties are informed

- In these situations, parties will bargain to the most efficient outcome, regardless of where the legal system places liability initially.

- rules of bargaining are most extensive than the rules of consideration, promissory estoppel, and unjust enrichment that govern enforcement of promises.

Offer and Acceptance- Offer and Acceptance requires mutual assent to a contract- Subjective vs. Objective tests of mutual assent

o There are two tests to determine Subjective test: “actual intent” theory

This was dominant in the language of contracts until about a century ago

Required that there be a “meeting of the minds” Problem: actual intent theory induced much about the parties intentions

they plainly did not have. Objective test

Does not rely on the actual intentions of the parties but just on the outward manifestations of a party’s intent

Constractual obligation is imposed based on what a reasonable person would have believed was intended

o Mutual assent is NOT required. Just manifestation indicating such assent.

This helps because it puts incentives in place to make sure that people are conforming to prevailing customs of contracting.

- OFFERo An offer is an “act on the part of one person whereby he gives to another the legal power

of creating the obligation called contract”- ACCEPTANCE

o “the exercise of power conferred by the performance of some act or acts. Both offer and acceptance must be acts expressing assent”

- INVITATION TO NEGOTIATEo How does one determine when the point of having a contract has been reached?

9/27/2004- Dyno v. McWane

o Use this to check which steps are offers. Which of these are offers? # and $ “estimate”

one test, if I attempted to accept this would we think we had a binding contract. Probably not if it says “estimate.”

21 from “please call” Does not necessarily mean you are still in negotiation. However, in

this case it seems to be another type of price quote.



Dyno calls in an order (price agreement, quantity, etc.) Why isn’t this a contract? He presented an offer and McWane

accepted… McWane could use the prior dealings as evidence if they always used

the same process of signing the documents in order for their to be a deal.

Legal relevance of this order should be based on the CONTEXT (e.g. past deailings, current dealings and industry standard…)

McWane sends Fed Ex for signing This is the OFFER…

McWane Faxes document Dyno signs Fax

- Note: Things that provide context in business contracts: o Past Contracts provide contexto Current Contract provides contexto Industry standard provides context

-



25. Lefkowitz v. Great Minneapolis Surplus Store, Inc. (Offer)


Lefkowitz v. Great Minneapolis Surplus Store, Inc., Supreme Court of Minnesota, 1957 p246

25.2 Facts

Great Minneapolis Surplus Store (D) has advertisements in the newspaper offering new coats and lapins for $1 for the first people who show up when the store opens on Saturday. On each of the advertised Saturdays, Lefkowitz (P) was first to show up and demanded the items and showed his willingness to pay the $1. The D refused to sell stating that the house rule was that you had to be a woman.

D contends that the newspaper advertisement was not an offer and could be withdrawn at any time. Rather, it was an invitation to offer that is not a contract until accepted by the seller.

PH: appeal from Municipal Court that denied motion of D for amended findings of fact, or, as an alternative, a new trial. Judgment for plaintiff in sum of $138.50. Trial court did not allow P’s claim for value of fur coats since the value was speculative and uncertain. Trial court held that the value of the lapin stole was established as $139.50.

25.3 Issues

Is an advertisement that states the price, the quantity and the rules (“first come first served”) an offer or an invitation to offer?

25.4 Decisions

Appellate court agreed with trial court that this was in fact an offer that was accepted when Lefkowitz showed up willing to pay the $1.

25.5 Reasoning

RULE: ADVERTISEMENTS AS BINDING OFFERS- “test of whether a binding obligation may originate in advertisements addressed to the general

public is ‘whether the facts show that some performance was promised in positive terms in return for something requested.’”

o In this case, the performance was being first to the store on Saturday morning. RULE: OFFER

- where the “offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract”p247¶6

Court ruled that the trial court was correct in holding that there was in the conduct of the parties sufficient mutuality of obligation to constitute a contract of sale.


25.7 Analysis

Why couldn’t the store owner make the “house rule” for the second and third Saturday’s?



- In general, courts resolve doubtful cases with a presumption that the communication is an invitation to negotiate and not an offer. p249

- PRICE QUOTATIONSo Price quotations are a daily part of commerce…they amount to an invitation to enter into

negotiations, but generally are not offers that can be accepted to form binding contracts- INDEFINITENESS

o Somt think that Lefkowitz was wrongly decided because D’s offer was “intentionally vague to induce inefficient reliance on the part of the buyer.”

- SELF SERVICEo When you take something off a shelf in a supermarket and put it in your bag, the contract

has taken place even though money has not yet exchanged hands and despite the fact that you have the right to revoke. This is so that there aren’t warranty problems. (e.g. what if the coke explodes before you purchase it)

- ACCEPTANCEo “an acceptance is a voluntary act of the offeree whereby he exercises the power conferred

on him by the offer, and thereby creates the set of legal relations called a contract”p252o §50 of 2nd Restatement: Acceptance = “manifestation of assent to the terms thereof made

by the offeree in a manner invited or required by the offer.”

9/27/2004- Why doesn’t the court provide damages for the furs, only the lapin?

o It is odd that the court does not provide damages for the furso Why don’t they sue for specific performance?

It’s already been sold? - Ads are usually invitations not offers

o §20.1.b (this is why Lefkowitz probably would not be decided the same way today Namely, Lefkowitz understands that the offer was not available to him.

9/28/2004- Boardman thinks the case was wrongly decided

o 1. Wrongly decided regarding 3rd offer in which court awards Lefkowitz Reason: At this point he KNOWS he is not in the pool of people who are

intended for the offer. (e.g. serial killer cannot accept reward by turning himself in) §20.1.b

Lefkowitz did not have the “belief that by accepting there would be a deal”o 2. The first offer MIGHT BE an offer…

To the extent its not its because its an advertisement NOT because of the “worth up to $100” statement

-



26. Ever-Tite Roofing Corp. v. Green (Acceptance)


Ever-Tite Roofing Corp. v. Green, Court of Appeals of Louisiana, 1955 p252

26.2 Facts

Ever-Tite Roofing (P) is suing Green (D) for damages sustained from a breach of contract. D’s signed a document obtaining services of P in re-roofing of their home. It said they could accept the contract by written acceptance or upon commencing performance of the work. They obtained a credit report. When they received it they requested additional information that was then received before the institution gave its approval. The day after the approval, P sent workmen with two trucks loaded with roofing materials to the D’s house. They met an existing working crew that was there already. The Greens (D) ordered P’s workmen not to do any work.

PH: trial court sustained D’s defense and rejected P’s demands, dismissing the suit at its costs. Ever-Tite Roofing (P) appealed. Trial court held that notice to P’s workmen upon their arrival with the materials was sufficient and timely to signify their intention to withdraw from the contract. Appellate court disagrees.

26.3 Issues

Do the Green’s have an obligation to inform Ever-Tite Roofing that they are securing another roofers services if their signed agreement was that Ever-Tite could accept the offer by commencing work? Does the commencement of work start with the credit report, loading up the trucks?

26.4 Decisions

Appellate court reversed trial courts decision saying that the Green’s had to pay the Roofing company $85.37 for the loading of the trucks plus $226 for the expected profit from the job.

26.5 Reasoning

- “it was the intention of P to accept the contract by commencing the work, which was one of the ways provided for in the instrument for acceptance”

RULE: WITHDRAWING AN OFFER- “general rule of law is that an offer proposed may be withdrawn before its acceptance and that no

obligation is incurred thereby. Exceptions include: o An offer terminates at the time specified in the offer, or, if no time is specified, at the end

of a reasonable amount of time

Court ruled that since a simple phone call could have solved this problem, and since the roofing company acted in a “reasonable” amount of time, the Greens had to pay.

Court ruled that acceptance of the contract “commenced with the loading of the trucks with the necessary materials.”


26.7 Analysis

§30 and §32 – be familiar with both sections



- §30 – offeror is MASTER of the offero Offeror determines how offeree can accepto If offer doesn’t say anything, then anything reasonable is acceptable

BEGINNING PERFORMANCE IS ACCEPTANCE However, beginning performance does not necessarily mean it is a unilateral

contract. It just means that you have made a “promise by act”o Bilateral – acceptance by performance (promise)o Unilateral – acceptance by completion of performance

You cannot interfere with the other parties performance Beginning performance, in a unilateral conference

This creates an OPTION CONTRACT that makes it temporarily irrevocable

- §32o If offer doesn’t specify, you can accept in any reasonable way

- §42/43 Primary Revocation Sectionso §42: Revocation terminates the power to accepto §43: You can revoke in two ways:

1. Revoke directly to person or persons given the offer 2. You take a definite action inconsistent with the offer staying open AND

Offeree learns of your action Example:

- Ever-Tite Roofing Companyo Who makes the offer? The Green’s? But the contract was writing by Ever-Tite

Can the creator of the terms of the offer be the offeree? Yes, if the offeror agrees to the terms

o We have an offer? Revocation: Was it before the ACCEPTANCE?

- Readers Digest Associationo RDA makes the offer and Ciaramella refuses to sign it even though his lawyer says “we

have a deal”



27. Ciarmella v. Reader’s Digest Association, Inc. (Acceptance)


Ciarmella v. Reader’s Digest Association, Inc., United States Court of Appeals, 2nd Circuit, 1997 p255

27.2 Facts

27.3 Issues

27.4 Decisions

27.5 Reasoning


27.7 Analysis

- Readers Digest Associationo RDA makes the offer and Ciaramella refuses to sign it even though his lawyer says “we

have a deal”

4 factors- 1. Express Reservation of the right not to be bound in absence of signed writing- 2. Has partial performance taken place? - 3. Have all terms been agreed upon? - 4. Is this the type of contract typically in writing?

MAILBOX RULE: - HYPO – I make you an offer and you have mailed me acceptance. On the day I receive the

acceptance, prior to opening it, I revoke. TOO LATE, acceptance by mailing is when the mail is SENT. You have the power to bind both parties merely by sending the acceptance, even if one party doesn’t even know about it.

- HYPO – I make an offer that requires that you call me when you accept. Immediately on the phone call I revoke. The mailbox rule is a default rule that can be changed as agreed to by both parties. THIS IS A CONTRACT.

- HYPO: I offer you $25 to mow my lawn. You start mowing my lawn. Is there a contract? o Performance as acceptance? o

- HYPO: I will pay you $25 if you find my kitten? o Can only accept by performance…

- How do you accept an offer that requires performance? o 1. Perform the actiono 2. Begin to perform the action (makes the offer temporarily irrevocable – when you

finish, the offer has been accepted)



- If you are allowed to accept by promise, then beginning to perform might be a promise that means you have accepted…

- OTHER THAN THE MAILBOX RULE, ALL OTHER ACCEPTANCES ARE BY RECEIPT. - REVOCATION is also based on RECEIPT.

- ACCEPTING BY PROMISEo You have to express a commitment within the context of the situation.o An acknowledgment is NOT sufficient. (e.g. “well that’s a good deal!”)o Conditional Acceptance

I accept if I say nothing to the contrary in 30 days. This is okay if the offeror does not object.

o Because my acceptance - ACCEPTANCE BY PERFORMANCE

o Is beginning performance acceptance? No. But it might be a promise to continue performing…

Boardman has a problem with this. The best situation is if the offeror is very clear.

o The person making the offer won’t interfere with the party performing in a unilateral contract.

o Unilateral contracts can be harsh. - ACCEPTANCE BY EITHER

o If an offer does not specify whether you can accept by promise or performance, barring unusual circumstances you can accept EITHER WAY.

o If that is true, and you begin performing, when you begin performing you PROMISE TO PERFORM…This is the law’s default.

o Default contract where either is acceptable DOES NOT REQUIRE notice of beginning of performance.



28. Pavel Enterprises v. A.S. Johnson Co. (Revocation)


Pavel Enterprises v. A.S. Johnson Co., Court of Appeals of Maryland, 1996 p270

28.2 Facts

Issue involves a general contractor and subcontractors. The general contractor, Pavel Enterprises (P), put in a bid for a renovation project at NIH. PEI solicited bids and Johnson (D) verbally submitted a quote of $898,000. PEI then submitted a bid of $1,585,000 for the entire project. NIH notified PEI that its bid would be accepted. PEI sent a fax to all of its subcontractors asking them to review their bids. On 8/30 PEI informed NIH that Johnson would be the subcontractor. On 9/1, PEI mailed and faxed a letter to Johnson accepting Johnson’s bid. Upon receiving the fax, James Kick of Johnson called PEI to let them know there was an error in their bid and as a result, the price was too low. Kick sought to withdraw Johnson’s bid over the phone and in a letter marked 9/2. NIH formally awarded PEI the project on 9/28. PEI found a substitute contractor that cost $32,000 more. They are suing Johnson for the difference.

PH: Trial court made the following findings: 1. PEI relied upon Johnson’s sub-bid2. Prior to NIH awarding PEI the contract on 9/28, Johnson had revoked its bid (9/2). 3. PEI’s letter on 8/26 indicates that there was no definite agreement between PEI and Johnson

Trial court analyzed the case under 1. general contract theory and 2. detrimental reliance. Trial court did not find a contract had been formed under either theory. Court of Appeals affirmed.

28.3 Issues

Can a subcontractor revoke their bid to a general contractor after the general contractor accepts the bid but prior to the bid being won?

28.4 Decisions

Yes. It is said that the subcontractor has made a “contingent offer”, where the contingency is that they win the contract. Until the contingency takes place, they are free to revoke. Additionally, they looked for detrimental reliance. However, the Court of Appeals affirmed trial court’s decision that there was not a contract between the subcontractor and the general contractor and that the general’s reliance was not “substantial and definite”.

28.5 Reasoning

The Maryland Court of Appeals used two primary cases to analyze this case:

Judge Hand- Judge Hand decided that the general contractor would be bound to the price submitted to the

letting party, but the subcontractors are not bound, and are free to withdraw prior to final award. Drennan court

- The Drennan court, applied §90 Promissory Estoppel. They did not use estoppel as a substitute for the contract, but rather said that the subcontractor’s bid was irrevocable (they were estopped from revoking).

- Despite popularity of reasoning, Drennan gets criticism because the general contractor is free to bid shop, bid chop, and encourage bid peddling, to the detriment of the sub-contractors.

Court also refers to UCC §2-205



RULE: “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 even may such period of irrevocability exceed three months.” P 275¶1 This means that if a subcontractor makes a bid in writing, there is some assurance that the offer is held open…

1. One way of thinking about this is that “if the subcontractor intended its sub-bid as an offer to a unilateral contract, use of the sub-bid by the general’s bid constitutes part performance, which renders the initial offer irrevocable under the 2nd Restatement §45.

Trial court and court of appeals held that Johnson’s sub-bid was an offer. Trial judge rejected PEI’s claim of a bilateral contract because:

1. there was no meeting of the minds2. the offer was withdrawn prior to acceptance

The court of Appeals affirmed that there was no contract.

Conditional Offer- Johnson’s sub-bid was an offer of a contingent contract that was contingent on PEI getting the

award from NIH. - At any time prior to the occurrence of the contingency, Johnson was free to withdraw (which he

did on 9/2)

Reliance- “if the reliance was not “substantial and definite”, justice will not compel enforcement…- 1. If subcontractor showed that general contractor engaged in “bid shopping”, this would be strong

evidence that the general did not rely on the sub-bid. - 2. Prompt notice by general contractor to the subcontractor that the general intends to use the sub

on the job is weighty evidence that they did rely.

Court said that “although the finding that PEI did not rely on Johnson’s bid was indisputably a close call, it was not clearly erroneous”


28.7 Analysis

In Baird, judge Hand ruled that a subcontractor can revoke his bid at any point prior to ormal acceptance. Therefore, a subcontractor is free to revoke in the case of a mistake, meaning that subcontractors will be more likely to make mistakes. In Drennan, however, Judge Traynor decided that the loss from the mistake should fall on the party that caused it. This gives the contractor incentive to avoid costly errors.

Extra-legal sanctions- General contractors sometimes don’t require “firm offers” from subcontractors because of “extra-legal sanctions.”

REVOCATION (p267)- §36 of 2nd Restatement of Contracts

o Offeree power of acceptance is terminated when 1. rejection or counter-offer (this is modified in UCC) 2. lapse of time



3. revocation by offeror 4. death or incapacity of the offeror

- Once an offer has been made, it generally remains open a reasonable time so the offeree has an opportunity to respond. Nevertheless, the offeror may revoke his offer provided the offeree has not already manifested acceptance.

- Offers made in conversationo End at the conclusion of the conversation, unless there is an expression to the contraryo A.k.a Revocation is automatic

- Revocation in unilateral contractso This is a problem because the only way to accept the contract is through performance. o Used to be that you could revoke anytime prior to completion of the unilateral act. o “more recent common law formulation…once the offeree has begun the requested

performance, the offer cannot be withdrawn until they have a reasonable opportunity to complete it.”

- Bargaining by Mailo Generally, revocation of an offer does not become effective until the offeree actually

receives the letter communicating the withdrawal §42. o Therefore, Rather than the “dispatch” rule, revocation is governed by a “receipt” rule.

- Irrevocable offerso It is possible to create offers that cannot be revoked for a specific period of timeo Option Contracts

Where one party pays another to make an offer by the latter irrevocable. o

10/4/04NOTES

- Pavel asks for sub-bids- Johnson bids for the work

o Is this an offer? (I will do the work if you pay me $898,000) o Or, is it a contingent offer? (I will do the work for $898,000 IF you win the contract)

- Pavel submits Johnson’s bid to NIHo Is this acceptance?o Is it acceptance based on partial performance that makes the offer temporarily

irrevocable? - Pavel is not the lowest bidder. - Pavel learns that they are going to win the contract- Pavel sends a fax to have the subcontractors review their bids…

o Proof that Pavel does not believe themselves to be bound…o Potentially, they are trying to “bid-cut”

- Pavel attempts to accept- Johnson attempts to revoke

10/5/2004- Pavel is good practice for making offer/acceptance arguments- It shows the way in which the context may matter (e.g. the industry thinks bid estimates are

offers? Maybe it looks like an offer, but industry recognizes that it is not binding…)

Four Primary Ways to get a BINDING Agreement in Pavel- 1. Traditional Offer and Acceptance

o Pavel does not think Pavel is bound because they send a fax asking for a rebid. Note: Pavel might just be complying with federal regulations…

o The offer was revoked before it was accepted. - 2. Use estoppel to make sub-contract temporarily irrevocable based on the Drennan line

o This probably still lapses when they lose the original bid…o However, what if this happens all the time (where the 2nd place vendor wins the account)



o Maybe it was still irrevocable, but by sending out a fax to all potential subcontractors, Pavel acts like there is not a contract

o If general contractor believes they are bound to the government, they can bind the sub-contractor when they made the bid…

o Know the BAIRD and DRENNAN approaches from this case. BAIRD is less popular than DRENNAN.

- 3. Making the sub-bid an offer, and making use of the sub-bid in your general bid as acceptance- 4. BAIRD case – sub-contractor is not bound without formal agreement.



29. Dataserv Equipment v. Technology Finance Leasing (Counteroffer)


Dataserv Equipment, Inc. v. Technology Finance Leasing Corp, Court of Appeals of Minn, 1985 p281

29.2 Facts

Technology Finance (D) and Dataserv (P) are both dealers of new and used computer equipment. Dataserv’s Jack Skjonsby called Ron Finerty of Technology Finance and proposed selling to Technology $100,000 of IBM computer stuff that Dataserv had gotten from Canada. Finerty sent Skjonsby a written offer to purchase the features and a proposed form of contract on 9/6. Dataserv’s contract included a “clause 8” that referred to a clause that “Indepth” would provide the installation. Technology had a few problems with the contract and on 10/1, the resolution of clause 8 was still a problem. Later in October, Dataserv offered to accept any other third-party installation that Technology Finance could designate. Technology did not agree to this. On 11/8, Dataserv offered to remove clause 8 entirely. Technology responded that it was too late. On 11/9, Finerty called Dataserv and informed them that “the deal was not going to get done because they’d waited until too late a point in time. On 11/12, Dataserv informed Technology that the features were ready for pickup. On 6/19 of the next year, the features were sold to another party for $26,000 and it is seeking the difference of $74,000 be paid by Technology.

PH: Trial court found that Technology Finance (D) breached a contract to purchase certain computer equipment from Dataserv (P). D is appealing. The Court of Appeals reverses “on the question of contract formation.”

Trial court ruled that the telephone call on 11/8 in which Dataserv offered to remove clause 8 was an acceptance of Technology’s counteroffer, thereby establishing a contract. Technology claims the court erred in finding a contract saying that Dataserv’s response to its counteroffer operated, as a matter of law, as a rejection, terminating Dataserv’s power to subsequently accept the counteroffer.

29.3 Issues

Do we have acceptance or a counteroffer?

29.4 Decisions

Court ruled that “by refusing to accept accordin to the terms of the proposal, Dataserv rejected Technology’s counteroffer and thus no contract was formed.

29.5 Reasoning

RULE: COUNTEROFFER TERMINATES POWER OF ACCEPTANCE: “under familiar principles of contract law, a party’s rejection terminates its power of acceptance”p282¶7

Court ruled that “by refusing to accept accordin to the terms of the proposal, Dataserv rejected Technology’s counteroffer and thus no contract was formed.




29.7 Analysis

Aug 30 – Technology makes an offer to for some Technology features over the phone (Offer)Sept 6 – Dataserv sends a proposed contract form with some new clauses (Counteroffer)Oct 1 – Technology wrote saying that 3 changes would have to be made. “make the changes and I’ll sign” (Counteroffer)Late Oct – Dataserv makes two changes and offers to substitute anyone Technology wants instead…is this a CO or is just negotiation…depends (Counteroffer)

Counteroffer = offer + rejection of previous offer.

COUNTEROFFER- 2nd Restatement §39 defines a counteroffer as “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.”

- Price of Technology equipment tends to depreciate quickly. There are obvious benefits to a rule that regards a counteroffer as a rejection because otherwise it would permit the offeree to play the market and wait for the prices to go down…

o Should the rule be the same for items that have a fairly constant value through the bargaining process?

- Can a Rejection to a Counteroffer be revoked? o Not really.

- MIRROR IMAGE RULEo Common law often says that “an offer could only be accepted if the offeree agreed

precisely and completely to the terms offered. If the terms of the acceptance varied in any way from the terms of the offer, that acceptance was a counteroffer.

o This requirement was known as the mirror image rule because the offer and purported acceptance had to match.

o This made sense in terms of “certainty and predictability of contract negotiations”, however, it is not typically followed in its strictest sense today.

- LAST SHOT DOCTRINEo Operating with the mirror image rule, this happened when performance of some contract

took place where there was not an exact agreement between the two parties (NO MIRROR IMAGE). The rule was that the last form sent was the one that would prevail.

- UCC §2-207o Fixes some of problems with the mirror image and last shot doctrine o

BOARDMAN NOTE: ARTICLE 2- buying and selling of goods. - Proposed changes have been ROUNDLY IGNORED BY THE STATES- No one is teaching the NEW ARTICLE 2



30. Ionics, Inc. v. Elmwood Sensors, Inc. (Counteroffer)


Ionics, Inc. v. Elmwood Sensors, Inc., United States Court of Appeals 5th Circuit, 1997 p285

30.2 Facts

Elmwood (D) makes thermostats. Ionics (P) makes water dispensers. Ionics, on 3 occasions, purchased thermostats from Elmwood. Each time Ionics made a purchase, they sent Elmwood a purchase order which contained some conditions. After receiving the PO, Elmwood would send a letter saying that looked a lot like an acceptance letter but purported to be, in the small technical writing, a counteroffer and limiting Elmwood’s liability if there were problems. Ionics then had many problems with the thermostats and is suing Elmwood.

PH: Trial court denied Elmwood’s motion for partial summary judgment. Elmwood is appealing saying that their conditions should be taken based on the “last shot doctrine”.

30.3 Issues

How much is Elmwood liable for the problems Ionics had with their thermostats given the structure of the forms passed back and forth?

30.4 Decisions

Court affirmed district court’s order denying the partial summary judgment for Elmwood. This was good for Ionics. The court ruled that the battle of the forms and last shot doctrines don’t make sense, particularly when the terms in the last form directly contradict terms in previous forms because it would give the ability of the last sender to “rewrite the entire contract.” Rather, the court used the wording in UCC§2-207comment6 to say that the Elmwood’s new terms (limiting liability) were not to be included in the contract because they were expressly contradicted by Ionic’s form and therefore there was “automatic notification of objection.”

30.5 Reasoning

BATTLE OF THE FORMS- LAST SHOT doctrine would state that Elmwood’s form would win because it was the last one

sent. Therefore, some common law would suggest that Elmwood would have no liability. - Elmwood is pushing for the battle of the forms…

However, court chose to analyze under UCC §2-207…UCC §2-207

- In Roto-Lith, “this court held that ‘a response which states a condition materially altering the obligation solely to the disadvantage of the offeror is an acceptance, expressly conditional on assent to the additional terms.”

- RULE: §2-207comment6o “where clauses on confirming forms sent by both parties conflict, each party must be

assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result, the requirement that there be notice of objection which is found in subsection (2) of §2-207 is satisfied and the conflicting terms do not become part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act”p288¶6

o The “notification of objection” is satisfied based on comment6 of §2-207. o



REASONING: “Allowing later forms (last shot doctrine) to govern…would, aside from being an artificial and arbitrary distinction, lead parties to include more background rules. Longer forms would be more difficult and time consuming to read than under the existing rules…we do not wish to engender more of this type of litigation.”p288¶3


30.7 Analysis

10/5/2004

UCC §2-207- is about when there is acceptance- When there is acceptance, what are the tools? - In the first clause, acceptance will be treated as acceptance even if it adds new terms

Clause 1- acceptance is acceptance, even if there are additional or different (e.g. conflicting) terms

Clause 2- Additional terms are proposals for addition. Between merchants, they are added unless

o 1. acceptance requires the new terms (in which case it’s a counteroffer)o 2. they materially alter ito 3. notification of objection to them has been given within a reasonable amount of time

Clause 3- Conduct by both parties is sufficient to establish a contract. Terms consist of the terms on which

the writings agree + terms from the UCC.

PROBLEMS: - Students tend to assume that all of 2-207 only applies to merchants…This is not the case. - Clause 2 doesn’t say what to do with “conflicting” terms.

First: UCC§2-207clause 1- Acceptance, even if it adds new terms, is an acceptance not a counteroffer…- But what happens to the additional terms?

o Generally they are treated as proposals that, absent objection by a party, become part of the contract.

o However, this is only between merchants. o Additionally, if the terms “materially alter” the contract, the will not be included…o THIS SUPPORTS THE ORIGINAL OFFER rather than the “last shot”

Second: USS§2-207clause 2- offeree can still make a counteroffer, they just have to make the acceptance “expressly

conditional” on assent to the new terms. o If parties expressly agree to the terms, a contract is formed

Third: UCC§2-207clause3- designed to preempt the “last shot” doctrine. Instead of the last form exchanged establishing the

terms of a contract, the provisions on which the writings agree, plus terms supplied by the UCC, will establish the terms of the contract.



KNOCK-OUT RULE- “conflicting terms cancel one another. Under this view, the offeree’s form is treated only as an

acceptance of the terms in the offeror’s forms which did not conflict.”p293¶2

ANOTHER OPTION- Professor Victor Goldberg criticizes the knock-out rule arguing for a “BEST SHOT” rule in which

the court must choose one form or the other based on the criterion of overall fairness. This would encourage parties to draft standard form terms that take the other’s interests into account.

A counteroffer means a rejection + an offer- look at §39- be open that things that look like a counteroffer might not be. - This case proves the LAST SHOT DOCTRINE is DEAD. - §2-207part3 kills the last shot doctrine (if we clearly have a contract, the terms are the ones on

which we agree plus the defaults of the UCC)

§2-207part1 – we still have an agreement even though when you accepted it looked like a counteroffer;§2-207part2 – this tells you what the terms are, if you are under section one (this is different if there are merchants)§2-207part3 – if we fail in 1, but it still seems like we have a contract, use the terms on which they agree + UCC.

Details of §2-207- What happens if we get conditional acceptance? We go to section 3. - We’re here because of the Mirror Image Rule and the problems it caused…



31. Step-Saver Data Systems, Inc. v. Wyse


31.2 Facts

TSL – Defendant; Step-Saver – Plaintiff

31.3 Issues

31.4 Decisions

31.5 Reasoning


31.7 Analysis

Why does it matter if the TSL gets to include the language in the warranty? - Evidence what happens in industry- TSL sales representatives made claims to them about software compatibility. TSL warranted the

software would be compatible.- Step-saver thinks they entered into a deal

Under 2-207part1, what is the analysis? - Before the comma, even though it looks like a counteroffer, - What about after the comma? It seems that the “Opening this package indicates acceptance. If you

don’t agree with them, you should…” is a conditional acceptance. o Court discusses §2-207part2 – talks about material alteration when talking about the tests

to see o The language is WITHOUT DOUBT conditional acceptance

Court rules that it is not conditional acceptance because it is sent after the deal has already been entered into.

Counter argument is that Step-Saver had purchased these things multiple times in the past and was fully aware about the box top language. They continually accepted it…

Under 2-207part2sectionC-



32. Hill v. Gateway 2000, Inc.


32.2 Facts

32.3 Issues

32.4 Decisions

32.5 Reasoning


32.7 Analysis

Gateway makes the offerHills accepts

- ProCD says you can have shrink wrap? - You do not need two forms to have 2-207- You need a conflict that makes sense under section 1…-



33. Example Brief


33.2 Facts

33.3 Issues

33.4 Decisions

33.5 Reasoning


33.7 Analysis

10/25/2004

Indefiniteness- think on our own about categories of things that might lead a court to be less inclined to enforce

some “indefiniteness”- When is indefiniteness more likely to be tolerated?

o 1. Long-term contracts This is harder to set the terms up front. Forcing companies to be definite does not necessarily decrease the likelihood of

breach. o 2. Course of dealing has made the indefiniteness more concrete

If you argue up front, the court doesn’t know what to do. If the parties have course of conduct that explains, court can use that.

o 3. Minor terms The parties haven’t even bothered putting it into the contract. A term, originally thought to be minor, ends up being important

o 4. Indefinite term is irrelevant to dispute Trying to argue that the contract should be unenforceable because of an

indefinite item that is NOT in dispute. E.g. he promised 500 I accepted them, but we never agreed to 500, therefore the

whole contract is unenforceable.- What makes an arguably indefinite contract less likely to be tolerated?

o 1. Seeking specific performanceo 2. Open-ended renting agreementso 3. Indefinite term (missing term) was discussed but you came to no agreement on it.

As differentiated from a minor term that was never discussed… This suggests a lack of agreement.



o 4. Contract gives one party total control (courthell v. summit thread)o 5. Indefinite term is material (and no extenuating circumstances)

Heart of the contract and no explanation as to why it is not in there. - MUTUALITY – an old requirement that is NOT required anymore…

REQUIREMENTS CONTRACTS- Difference between requirements contracts and output contracts- Requirement contracts

o I agree as the buyer to take everything I require from a single seller. o What are the seller’s requirements? These are fuzzier…

Usually, they are to make a “good faith effort” to supply what the buyer needs. Sometimes they may have to put you in a priority position over other buyers… Usually this is not a problem because the buyer is buying such a small

percentage of total output, they can’t effectively change market prices. o What if the buyer’s needs change? Instead of 2 I need 30 cokes?

In most cases this is fine because it is a small percentage of the total… However, if the buyer is trying to take advantage of seller (e.g. getting more at a

cheaper price and reselling, thereby going into competition with seller)- Output contract

o I agree to buy everything a seller is able to produce. Usually, this is the amount usually produced, estimated to be produced, or some

other reasonable amount. You can have output contracts that are ½ of your output… NOTE: You can buy from multiple sellers, but you must buy the portion

promised. What is seller’s responsibility to buyer?

Can they go out of business? Can they choose not to sell them to me? No.

If I, as the buyer, am broke and can’t buy any? This is probably breach…

If seller outputs much more than originally thought, must I buy everything?

EASTERN AIR LINES v. GULF OIL CORP. - Eastern and Gulf

o Gulf is to provide fuel, proportioned from various stations. o This is a long term contract. o How do we know how the pricing is determined? o What terms are open?

Quantity term – seems to be what Eastern requires… Price term – linked to the price of crude oil…

o Contract breaks down after decades. Why is there a problem now? Price of production goes up wildly, or seriously. It now costs Gulf much more

to create Aviation fuel… However, the fact that crude oil has gone up should not be a problem so what is

the problem? 1. Government has price controls on US-made crude oil have made the

price not follow the standard “price of crude oil” 2. price index for crude oil may cease to be accurate 3. K price > market price – this will force a buyer to decrease their

requirements

§2-306(1)



Quantity as occurs in good faith except that no unreasonably disproportionate to any stated estimate, or in the absence of a stated estimate, to any normal or otherwise comparable output…

It is ok to have open terms because the “good faith” and “unreasonably disproportionate” give shape…

THEREFORE, you breach a requirements contract when the following terms are not met:

1. new quantity must occur in good faith 2. new quantity is not unreasonably disproportionate to stated

estimate…o Eastern v. Gulf was decided CORRECTLY because the argument was that fuel freighting

was not in bad faith (it was always done) and fuel freighting did not create an unreasonably disproportionate quantity purchased…

o Posner claims you have a limit on going up, but not a limit on going down in requirements

This is just wrong…

EMPIRE GAS CORP. v. AMERICAN BAKERIES- Empire gas creates and sells propane to American Bakeries. American Bakeries breach a few

days after the contract is signed. You might say “no harm no foul.” American is considering switching their trucks that would require more propane. They agree to buy ~3000 conversion units and the necessary propane to run their trucks.

- What is the requirements contract? o Requirements contract: I’ll buy as much propane as we require. o NOT a requirements contract: I’ll buy ~3000 conversion units from you.

- What is it that Posner concludes about §2-306(1)?o He concludes it is mainly regarding INCREASES in quantity. o He says quantity decreased to zero is NOT necessarily breach. (IF YOU HAVE A GOOD

REASON)o He says quantity decreased to zero WITHOUT A REASON is a breach. o Going down in quantity MAY violate good faitho If you go from ~3000 to 500 without a reason, this is probably a problem as well… o Quantity in this kind of contract means the kind that occurs in good faith. Wildly to one

side or the other - You can have breach of “unreasonably disproportionate” quantity EVEN IF BOTH PARTIES

ACT IN GOOD FAITH!!-- §2-306(1): This is about determining whether or not there is BREACH in the quantity term

of requirements and output contracts.o Purpose: to allow a quantity term to be loose in this kind of contract and still have the

contract be enforceable. (this hurts claims of indefiniteness in terms of quantity)o If you are dealing with a requirements contract and someone brings up indefiniteness,

you can turn to §2-306(1) to determine whether the quantity term has been breached. - American Bakeries promises to buy ~3000 and buys none. - Posner view of §2-306

o We understand what to do with the “unreasonably disproportionate” part of §2-306 if the quantity is higher…

In situations where you buy too much because the market price is higher than the contract price so the person buys more so that they can resell it. This is BAD FAITH.

The quantity CAN go up for other reasons, however… When the increase in quantity is really large, this can be taken as a sign of bad

faith…o If they purchase less, what do we do…



Illinois law would allow a quantity to go from estimate to zero, but only if you are acting in good faith. (e.g. if you buy zero but you have a good reason you have not breached…)

Zero is disproportionately less and, combined with no good reason, o Posner’s view is the MINORITY view.

- Boardman’s preferred view of §2-306o “good faith” is always in the backbone of the UCC. o UCC separates “good faith” from “unreasonably disproportionate” into separate sections

for a reason. (otherwise it would be redundant) So what does “unreasonably disproportionate” section add?

In a requirement contract, you promise to take what you need from a single seller?

There is a risk of the seller running out of supply or a buyer’s demand going wildly up or down.

This helps share the risk of situations in which there are WILD upswings in business situations where it is still in good faith…

- EXCLUSIVITY CONTRACTSo §2-306(2) – what if there is a very open quantity termo

WOOD v. LUCY, LADY DUFF-GORDON (EXCLUSIVE DEALING CONTRACTS)- Wood is suing Lucy for breach of contract. Lucy gives up the right to sell her endorsements to

another agent. Under the contract, Wood was supposed to market her and pay her ½ of his profits. - Lucy argues there was no contract because Wood was not required to use “best efforts” and

therefore had no consideration for her promise. - Judge Cardoza says Wood has an implied duty to use “best efforts” to sell her endorsements.

- According to §2-306o Boardman Note: Best efforts > reasonable effortso Boardman Note: Best efforts > good faitho Boardman Note: Best efforts is never equal to good faith

BLOOR v. FALSTAFF BREWING CORP. (EXCLUSIVE DEALINGS CONTRACTS)- Falstaff purchases Ballantine beer (from Bloor) and part of the contract requires that they use “best

efforts” to promote and maintain a high volume of sales of Ballantine beer.-- §2-306(2)

o For exclusive dealing contracts, unless otherwise agreed upon, o If you are one of many dealers, this section does not apply

- What is required by best efforts? See below

Exclusive dealings contracts- There is an annoying question that a lot of students focus on…

o What is the definition of “Best efforts” or “Reasonable efforts”? Part of the problem are the comments in the 2nd Restatement… E.g. if you just made bread crumbs and you have another division

o Boardman’s response: don’t worry about it…usually base this off of prior casework…-

WAGENSELLER v. SCOTTSDALE MEMORIAL HOSPITAL (TERMINATION CLAUSES)- Wagenseller was happily employed at the hospital. She was hired at-will without a written

contract. She was promoted- termination clauses are more important than covenants not to compete…- employment law is its own world- AT-WILL Contracts can only be broken for good or no cause, not for bad cause. - “BAD CAUSE” clauses in contracts are NOT EVER enforced



- CAUSES OF TERMINATION CONTRACTSo Good cause

Poor performance Beating your coworkers

o Bad cause Always specific to the employee (e.g. firing someone because of their race, or

religion) “BAD CAUSE” clauses in contracts are NOT EVER enforced “firing for bad cause…is not a right inherent in the at-will contract, or in any

other contract, even if expressly provided.”o No cause

Downsizing Example: More likely to find downsizing to be “no cause” even though

there is a reason. Note: try not to confuse “cause” and the “reason”. Downsizing is the

reason even though there is no cause. - CAUSE FOR WRONGFUL DISCHARGE

o PUBLIC POLICY EXCEPTION Found in statutes Voting/Jury duty Refusing to break the law

o IMPLIED-IN-LAW EXCEPTION Good faith and fair dealing

Wagenseller’s claim is that good faith requires “good cause” in termination. THIS IS NOT LAW.

This court says GF and FD gets you the benefit of the bargain. This is the HARDEST exception to win on.

o IMPLIED-IN-FACT Employment Agreements

As part of my contract of employment, you made an employee manual that explained the termination procedures…These were not followed…

CONSUMERS INTERNATIONAL, INC. v. SYSCO CORPORATION (TERMINATION CLAUSES)

- CI, a small distributor, has a contract with Sysco, a large corporation. Their contract allows termination by 60 day written notice by either party (e.g. NO CAUSE).

- Sysco broke the agreement without giving a reason and CI is suing saying that “good faith and fair dealing” requires that there be “good cause”, not “no cause”.

- CIs argumentso 1. they need good cause to terminate…o 2. public policy exception because CI, being small, did not have the ability to push for a

more enticing contract.- Generally, the burden is on P to PROVE that there was BAD CAUSE

- Boardman Summary: Do not ever think that lack of a good cause equals a bad cause. Remember that “cause” is a legal conclusion and is different than the “reason” given

GAGLIARDI BROS. INC. v. CAPUTO (COVENANTS NOT TO COMPETE)- Gagliardi, a meta processing company, was bought by Heinz in 1980. Caputo worked there from

1972 until he was terminated in 1981. He was a controller that knew a lot of trade secrets. He signed a covenant-not-to-compete contract in 1974 valid for 1 year after employment. While he got a raise at the time, this was the same type of raise he typically got so it is not clear that it is consideration.

- Since 1977, no Gagliardi employees have been required to sign employment contracts such as that signed by Caputo…



- Covenant not to compete was found to be “WITHOUT CONSIDERATION” and was not upheld by the court…

- This covenant-to-compete is a modification of an existing agreement. - Courts DO NOT LIKE ENFORCING COVENANTS-NOT-TO-COMPETE- Court gives 4 questions you should ask in order to enforce a covenant-not-to-compete

o 1. You cannot pay someone who does not work for you not to work for another company. (least important)

o 2. Covenant must have adequate consideration Note: Courts are split about ability to fire someone at will makes an addition of

a covenant-not-to-compete have adequate consideration… This court says there was NOT adequate consideration…

o 3. Covenant must be reasonably limited in time and geography… Is the reason for the covenant to deprive you rivals of necessary talent or protect

your company in a reasonable way? Courts dislike covenants-not-to-compete so much that

o 4. the covenant must be necessary to protect the employer (e.g. is this a legitimate business reason)

- ALASKA PACKERS’ ASS’N v. DOMENICO (MODIFICATION OF EXISTING AGREEMENTS)

- FACTS: March 26, Domenico promised to pay salmon fishers $50 for the season and two cents for each salmon they took part in catching…April 26th, they upped it to $60. On May 19th, workmen stopped and demanded $100 instead of what was stipulated in the contracts. Superintendent told them he did not have authority to make the change but nevertheless manually adjusted the contract. Domenico then refused to pay the $100. Fishermen tried to show that the fishing nets were defective and used that to try to justify the increase in wages. Court found this was not the case.

- RULING: “consent to” increase wages from $60-$100 was “without consideration.” The new contract was based on what they had already agreed to do.

- “No astute reasoning can change the plain fact that the party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party.”

- RULE: THIS IS THE COMMON LAW RULE of the “PRE-EXISTING DUTY”. Fishermen lost because they had a preexisting duty to perform…

- The next case applies the UCC rule…- ANALYSIS

o Does duress play a role? Probably. o Does the superintendants lack of authority to make the change play a role? Yes. o Does lack of consideration play a role? Absolutely. They had a preexisting duty…

- HYPO: People like sports examples when talking about pre-existing duty…What if their employer offers them more money to stay even if they

RALSTON PURINA CO. v. McNABB (MODIFICATION OF EXISTING AGREEMENTS)- FACTS: Ralston sues alleging that McNabb failed to deliver bushels of soybeans from two

separate contracts. McNabb’s fields had unusually heavy rains and could not deliver. Ralston sent McNabb one month letters of extension from Dec. to Feb. for both contracts. On March 17, they demanded that McNabb pay $11,131.32 in damages based on a March 8th market price for soybeans.

- COURT: says that they do not have to pay damages based on the current date. The date should be based on the

- ISSUE: Did they breach the contract on Nov 30 or did they modify the contract and fully breach in late February?

- UCC §2-209 (1): an agreement modifying a contract needs no consideration to be binding.



o The real test is “did you modify the contract in GOOD FAITH or did you modify it to maximize what the person would owe you later?”

- What did Ralston really gain by waiving a particular day of delivery and extending the contract?

FRAUD NOTES- concealment, duty to disclose cases- Spiess test

o False representation in the context of this type of fraud Misrepresentation – there must be a representation and it must be false. This

happens in failure to disclose. Has there been a falsee It has to be for a past or existing material fact susceptible of knowledge Knowing it is false or purporting to know and actually not knowing with the

purpose of inducing someone to act or knowing w/ s.c. that someone will be induced to act.

Person has to be induced to their detriment- Danann adds

o What about potential fraud when you have a merger clause? There are very few merger clauses drawn up. Usually they are boilerplate.

DANANN REALTY CORP. v. HARRIS- This case is about having a merger clause in a potential fraud case…- Buyer claims that misrepresentations were made.- This is typical: you walk around and ask questions and you get answers. After signing a contract,

they feel like they were misled. - Signing “AS IS” clauses in contracts…- Fraud vitiates everything it touches. - Don’t hang your hat on poorly worded language. “the buyer understands he is undergoing his own

investigation and assumes the risk”, etc. Even clauses like this, where you have been induced to sign it based on things they have told you, you can find fraud that vitiates the contract.

- Need to pay attention to the language, but be aware that regardless of how finely you craft the clause, you can’t get rid of the evidentiary support of fraud.

- Majority opinion is the DISSENT of this case. - Negligent and intentional fraud as opposed to “innocent” fraud.-

We skipped the DUTY TO READ cases. These are in fraud because oftentimes the signer says that they didn’t read. You have a DUTY TO READ contracts you sign. There are some exceptions for people who cannot read. (e.g. Spanish speaking; blind). Typically you have the DUTY TO READ or have that contract read to you…Cases will not allow one side to take advantage of the other’s ability to read it…There are some courts at the margin that are chipping away at the DUTY TO READ because contracts are so mucky…e.g. Contract is too legalistic (doesn’t matter if they read it or not because they wouldn’t understand it.), Person had no ability to change the language so it didn’t matter (this works best if your ability to get out of the deal is weak. E.g. go into a parking garage and you get your ticket after the fact). We all know you didn’t read it. It is a falsehood to pretend that you were going to read it. E.g. all the terms come in the mail with your computer. The way out at the extreme is this. If the clause is so surprising that it is approaching unconscionability, and I didn’t read it, and it was understood by all parties that I didn’t read it, we MAY not enforce the DUTY TO READ…Mrs. Boardman believes this DUTY will be weakened in the next 20 years, in a large part due to Internet Purchases.

OBDE v. SCHLEMEYER- Facts: P was buying a piece of property. Found out the property was infested with termites. They

did not ask about termites nor did they do their own termite inspection. They found that D knew about the termites.



- Court said the situation was so uncommon that D should not have fraudulently CONCEALED the information from P.

- Are termites dangerous? - Duty to Disclose + silence = Fraud

o When do we have a DUTY TO DISCLOSE?o This case focuses on a “serious and dangerous condition.” And that the condition is ”not

obvious”. (e.g. it must be latent)o Duty to Disclose

1. serious and dangerous condition 2. latent

o If this is the case, then cockroaches shouldn’t count.

- might fail to disclose what they know is a mistake the other party has made. - They may fail to disclose to promisor an important material fact- Concealment – - If you have a DUTY TO DISCLOSE and you are silent, there is the same legal consequence as if

you have a DUTY TO DISCLOSE

REED v. KING- is this concealment or non-disclosure? - This is non-disclosure…- If you told all the neighbor’s “Don’t mention the grisly measures” it might be concealment.

However, in this case it is more just non-disclosure. - What does the house seller fail to disclose?

o Slim chance P would have asked the questiono What if she’d asked “Is there anything I should know about this house?”o P’s have a DUTY TO DISCOVER many things (e.g. schools, crime rates, neighborhood

parks, etc.). If it is hard to find out, how could it affect the property value?o This court said that there was a duty to disclose. However, this breaks the test from the

previous case. What is the new test? o What is the test here for DUTY TO DISCLOSE

Facts that would “materially affect the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.” P465

There must be an economic harm to P in order to have a case…FRAUD

- very intuitive- she’s surprised by people’s ability to confuse aspects of fraud on the exam. - Let’s see the differences

Misrepresentation casesSpiessDanann

Concealment and Duty to disclose cases…(Concealment is more active than duty to disclose)Obde – termites; they get the house repaired for their own use (not active concealment); latency and dangerous test (VERY IMPORTANT)

Reed – neighbor’s were told, if asked, not to share the information (possibility of concealment); Materiality test (IMPORTANT); the person in Reed that does not reveal the information about the murders.



L&N Grove – most people don’t think we have concealment. Seems like a strange place to find misrepresentation. Some of the class will find that there may be a duty to disclose. The duty is being put on the buyer. If the buyer has the duty, the circumstances are different than if the duty is on the seller.

L&N GROVE v. CHAPMANCurtis (Buyer) and Chapman (Seller). Curtis buys land next to Disneyworld. It was announced publicly that Disneyworld might set up shop and make this land significantly more valuable. He does not recover anything. Why is this different than OBDE and the termites?

- BUYERs do not have to disclose-

HYPO: what if everyone knows Disneyworld was coming and this guy finds public information and finds out that it is very likely that Disney will create it in a way that makes this land valuable. To force him to disclose, we would

FOCUS STUDY ON §161§161 2nd Restatement: a) this is about (Spiess); b) other party is mistaken but it is not your fault and you know they are mistaken; (L&M – mistakes about disneyland, Obde – mistakes about termites, Reed – mistaken about ghosts); c) (Danann) ; d) someone is entitled to the fact because of trust and confidence (Spiess – youth and friendship is similar to trust and confidence?, L&M).

§162 2nd Restatement (Danann)

CAPACITY TO CONTRACT

- Infancy- Mental capacity

o Inherento Temporary

KIEFER v. FRED HOWE MOTORS, INC. Kiefer is a minor and was married but emancipated. He has a child and uses the car to drive himself to work. Does this impact his ability to disaffirm the contract?

- If we say that the car is a necessity, can he disaffirm? o YES, but you owe the party FULL restitution.

- What if Kiefer had lied about his age when signing the contract? o NO, you are estopped from complaining.

- What does the dissent argue? o 1. If a minor is mature enough to marry, have kids and work, he is mature enough to

make binding contracts. o 2. Since the car was a necessity,

- Law focuses on the MINOR not on the situations of the other…- ABSOLUTE right of the infancy doctrine. - Does necessity legally sway? - Necessity Exception IS an exception. You can still disaffirm, but you have to pay FULL

RESTITUTION. If you disaffirm and the purchase was not a necessity, you DO NOT pay full restitution…

HALBMAN v. LEMKEHalbman, a minor, buys a car, and pays most of the price ($1100 out of $1150). When the car breaks, he wants out of the deal. He disaffirms the contract and gives the title back to Lemke. He asks for his $1100 back. Lemke counterclaims that Halbman should give him the car back in the condition it was originally in. RULE:



If Halbman drives the car off a cliff, it is HIS FAULT the car is destroyed but he survives and he tells Lemke he wants his money back. He tells Lemke he has no idea where the car is. Can he disaffirm?

- YES, he does not have to give back ANYTHING…

What if Halbman gives away the car as a gift? He tells Lemke he wants to disaffirm but he can’t return the car because he gave it to his girlfriend.

- If you are trying to defraud, the court will typically not let you do it.

What if Halbman sells the car to a third party and then tries to disaffirm? - he has to give back what he made on the car. (Sale is treated differently.)

NOTE: the reason the seller does not . If you cause a minor to have to pay back FULL RESTITUTION, you have taken away their right of DISAFFIRMMENT.

§14 of the 2nd Restatement- Minors have right of Voidability

I can always disaffirm, but I can only AFFIRM if I am 18. If you can affirm as a minor, we would allow you to create contracts as a minor…

SHIELDS v. GROSSAt 10, Shields was sexy. The photos are meant to illicit some type of sexual response. Court says it is not pornographic and you can’t publish them with other pictures that are clearly pornographic. She signs a document giving the publisher full rights. The majority says that she CANNOT disaffirm. Dissenting opinion is that she should be able to DISAFFIRM.

- the mother can’t disaffirm the contract? - most of the decisions our parents make when we are children do not carry forward to future use…- Could this contract be drafted to avoid this problem?

o Yes, consent could have been more limited. - She wanted an absolute injunction.

§51 2nd Restatement is what gives her the right to sue for privacy invasion. There does not appear to be any way, given this statute, that the dissent can be right. Given this statute, the MAJORITY has to be right.

11/22/04- Mental capacity is harder to prove than age. - If we know how old they are in court, we can determine how old they were when they entered into

the contract. However, if they are sane or insane in court this does not help us determine for sure whether they were sane or insane at the time of the contract.

- Mental retardation – some are high-functioning and are capable of entering into valid contracts. - Other mental illnesses

o Bipolar o Brain damage – might affect your ability to understand but not your judgment. It may

affect your memory but nothing else. o Old ageo Drugs and Alcohol

- In this list, the only thing you have direct control over is intoxication from drugs and alcohol. - It’s not just that we might disagree, it means that mental capacity may change over time, is

difficult to measure. Mental capacity (your brain) is much more complex than age.

FABER v. SWEET STYLE MANUFACTURING CORP.



- Faber is manic and wildly productive. He takes his wife out to dinner. He is frantic. He is likely very intelligent and competent.

- Is there any reason to suspect he does not understand the contract? No. - Is there any reason to believe he has delusions? No. - Is there reason to believe he has problems with his judgment? YES. - Your judgment changes throughout the day, year and week…Why is this different here? The

scale of his choices were much higher. - We have a contract here that is “substantial.”- What should the defendants who sold the land be arguing?

o He seemed competent to them and seemed to be a person capable of making competent decisions.

- Are there situations in which they might be able to get leverage by - Faber wants to void the contract, return the land, and get his money back. You can get back to the

status quo fairly easily. - If we were in the middle of a lengthy sales contract where you could not get back to the status quo,

defendants should be able to argue that they should not assume all the risk given that the person they contracted with appeared competent.

- Should the contract be voided? o No harm no foul. Just put some dirt back in the whole and return to status quo. Based on

his impairment and judgment alone. (some jurisdictions will do this but not all of them)o Hording – an impulse to buy certain objects repeatedly. There is some kind of

compulsion. Some people think it is a mental illness, some don’t. o Suppose I have a compulsion to buy something from my neighborhood store repeatedly,

should I be able to void all those contracts? Courts have a hard time with this. Many say it is an uncontrollable impulse.

- What accounts as appropriate judgment will depend on who you are…- Recover Gambling Losses?

o Not for compulsiono For mental illness, sometimes.

- Manic is likely to get you relief more frequently than hording, gambling, etc. - §15 of the 2nd Restatement

o Don’t need to know §12, or 13. o §15 is a more limited conception of mental capacity

Does Mr. A person occurs only voidable contractual duties by reason of mental defect if

1. o A. he does not understand the contracto B. he is not acting reasonable and the other party had reason to

know that he wasn’t. 2. Contract is made on fair terms and the other party does not have

knowledge. §15 is both more and less generous because B does require the other

party to know of the limitation which does not seem to be necessary in FABER.

However, section 2 is more generous because as long as we can get back to the status quo, you can probably figure out a way to protect the person mentally challenged…

o Think of §15 as an alternative that is a little less common than what we see in FABER. Note how this differs from infants. Infants are always innocent even if it causes

great loss to the other party.

WILLIAMSON v. MATTHEWS- Williamson sells her house to Matthews for less than the market value. Within hours, she

contacted the lawyer. - Does the speed with which she sought legal assistance matter?



o Yes. Since she was intoxicated, it appears likely that she is sobering up. - There is a meeting at the house, they draft the contract, they meet for closing, etc. She could not

have been drunk this whole time. She had a couple of drinks before going to the signing of the contracts.

- This is not quite Lucy v. Zehmer because she could not have been drunk the whole time… - If she has impaired understanding and impaired mental capacity, and she sells the house for good

market value, is the contract voidable? o Yes. o BOARDMAN: if she had sold it for the right price, she would NOT have been able to

void. - She sold it for $8,000 less than market value and potentially $15,000 less. - Part of what she is arguing is inadequate consideration…

o Adequacy is not usually looked into. However, inadequate consideration + some kind of mental defect.

o This is basically asking whether or not there was a fair bargain. E.g. Did the other party knowingly take advantage of someone’s condition.

o Court mentions she’s got a tough financial situation, about to undergo foreclosure (~duress?).

o Is the court adding up duress, intoxication, etc. in making this decision? - Is it impaired judgment? Is it duress?

o Bottom line: the closer you are to being to a point where you don’t understand what is going on, the more likely you are to get out of it…

o The fact that she is under economic pressure would not count for a completely competent adult. The court mentions it in an offhand comment. The only way it will count is if the party has a mental defect that causes someone to be much more confused during times of stress. Perhaps the court is saying that this situation has exacerbated the economic pressure to a point where she was mentally incapable of making a binding contract.

- Court’s testso Incapacity: “our rule in such a case is that a party cannot avoid, free from fraud or undue

influence, a contract on the ground of mental incapacity, unless it be shown that the incapacity was of such a character that, at the time of execution, the person had no reasonable perception or understanding of the nature and terms of the contract.” p508.

URIBE v. OLSON- Bonham, the mother, sells property at what looks like fair market value. She has some

deterioration from health and age. - What is different about this case?

o The outcome. She doesn’t get out of the contract. o Court questions whether there was evidence that she didn’t have the capacity to

understand the contract.- She was declared incompetent. Her daughter becomes her legal guardian because of her mental

capacity. However, there was a lot of evidence that she had done things she could not do if she did not have her faculties about her.

- This court says that you can have “lucid” moments that can last for long periods of time. However, you also have moments of “confusion” in which you don’t know what is going on. Who should have to prove whether she was lucid during the period of contract?

o Originally, the mother would have to show she was incompetent. If she could show that, the buyer would have to show that he didn’t see any evidence of that.

o Therefore, the party seeking to void must show the incapacity. If they do that, and if it matters whether the other party is aware of the incapacity, the burden shifts and the competent party must prove that they were unaware.

- If I prove my mother is confused 80% of the time but not 20% of the time, from a burden of proof perspective, it is not clear where it lies.

- Does it matter that the contractual period went on for a while?o This would help out the buyer.



- One of the key differences in this case is that she had a partner with her the whole time. If someone who cared about you and is looking out for your best interests was there and talking to you about it and lets you go forward.

o Therefore,

- If you are institutionalized, or have major mental retardation, you probably have people who are looking out for you.

- However, as baby boomer’s bodies outlive their brains, will these types of rules start to change given that they will be MUCH more frequent?

o Older people usually have money. If they can’t enter into contracts, we are all in trouble. -

PUBLIC POLICY- courts refuse to enforce contracts based on public policy typically for two reasons

o 1. discourage a type of behavior Note: this does not necessarily make the contract illegal. It may just not be

enforced. o 2. withhold the benefit of judicial affirmation

Court says “we are unwilling to be a party to this”. Withholding aid to the party that behaved badly. In fraud or duress we are looking at what we want to do for the defendant. In public policy

- Types of public policyo Gamblingo Slaveryo Prenuptial agreements

- public policy can deal with illegality or immorality- void (suggests it is never enforceable)- Void based on public policy

o Typically leave the parties where they lie…o Court does not intervene in the arrangement at all. o Restitution is generally NOT availableo If a contract is void, typically we think that there may be restitution. NOT in cases of

public policy.

WATTS v. MALATESTA- §994 says if someone gambling with another loses more than a certain sum, you can go to court

and ask for the money back within three months.- P (Watts) lost $37,000+ from horse racing and he wants it back. D (Malatesta) is a bookie. - Watts (P) has won more bets than he has lost.

o He is up $150,000 over all time. o Therefore, the bookie is down to him $150,000

- Watt’s is asking, under §994, if he can get his $100,000 back. - What is the bookie’s defense?

o If §994 applies to Watts, then it should apply to me. - Interesting: even though Watts is up $150,000- MAJORITY: seems to be WATTs friendly; bookie loses all.

o Majority decision encourages Watts to gamble (if he can find a game) because there is no downside and very good upside.

o Majority decision discourages gambling for Malatesta more than under the dissent opinion.



Therefore, if we care more about screwing the bookie than the casual gambler, the Majority decision is best.

- DISSENT: equal friendlyo

- The bookie never gains and he loses only if the other gambler loses more. - Is there a clear winning argument of the MAJORITY argument IF the only goal is to remove

gambling? o

NEW YORK FOOTBALL GIANTS, INC. v. LOS ANGELES CHARGERS FOOTBALL CLUB, INC.

- NFL held an early secret draft so that the AFL could not get at the players. - Do they have a contract?

o Perhaps when the commissioner had announced his approval. - Part of the agreement was not to submit the contract - Why is this contract, if it is one, against public policy?

o Public policy must come from sources. We put a limit on what a judge can choose to be against public policy. This judge cites the bylaws of private organizations (SEC, NCAA).

o Why is it against public policy to sign someone before? If this is against public policy, who is harmed?

Budding young athletes. Boardman: it is probably the broader audience, including the viewing audience.

She says you are deceiving the public and this is bad. - In PUBLIC POLICY, you have to show

o 1. a large number of people were effected, ando 2. this type of harm could occur over and over againo This explains why the general public had to be harmed here rather than just the coach or

the school or the player, etc. o

RODDY-EDEN v. BERLE- immorality realm- Milton Berle gets a ghost writer for his novels. He decides not to publish the book. She sues to

get money from him. Court says that this would have been defrauding the public. o This was not a book about Milton Berle, it was a novel.

- This court decides it is NOT going to do anything for either party because the contract is immoral. - What if they start this contract, he gives her a signing bonus, she decides not to proceed and he

sues to get the signing bonus back…Does he get it back or do the losses fall where they are? o In many courts, she will get to keep the money.o “Unclean hands” – if someone has slightly cleaner hands or attempts to wash their hands,

that person might be better off.- The difference between whether a contract is illegal or whether it just isn’t going to be enforced. - Typically, if it is illegal, you can put people back to the status quo. However, if the contract just

can’t be enforced, it is not clear that the courts have the power or the inclination to return the money. They may just leave it where it is.

IN RE BABY M- Some where it is illegal based on a specific statute. - 5 states where contracts are unenforceable- Some where they are enforceable

- The question here is not whether they have access to the child, but whether Mrs. Stern gets to take the place of “mother” in the adoptive sense.

- This contract was found to be both illegal and unenforceable.



o It is illegal because there is a statute. o Court is taking something that people don’t really think is about adoption and is

stretching it for a public policy perspective. - Unenforceability – public policy decisions

o These decisions are made “in the best interests of the child”o The court is deciding that between two biological parents, they are not going to o Consent – court doesn’t think Mrs. Whitehead truly has the ability to consent prior to

having the child.- Mr. Stern wants specific performance. This is incredibly hard. However, if ever there was a

circumstance that was good for specific performance it is this one. The definition of specific performance is one in which money could never be enough.


Documents

Contracts I: Case Briefs