Contracts I FINAL-2

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Contracts I Outline

Table of ContentsSources of Contract Law..............................................................................................................4

Objective vs. Subjective Theories of Contract..........................................................................4

Objective Theory.......................................................................................................................4

o Case: Ray v. William G. Eurice Bros., Inc..................................................................5

Case: Leonard v. PepsiCo............................................................................................5

Case: Lucy v. Zehmer....................................................................................................5

Subjective Theory.....................................................................................................................5

What is a contract/ Contract formation......................................................................................6

Elements in a Transaction.......................................................................................................6

When is a contract formed?....................................................................................................6

Agreements to Agree................................................................................................................7

Case: Quake Construction v. American Airlines.......................................................8

Case: Walker v. Keith....................................................................................................8

Types of Contracts....................................................................................................................9

Offer/ Acceptance.......................................................................................................................11

What is an offer?.....................................................................................................................11

How is commitment of promisor shown?............................................................................12

Certain Definite Terms/Specific terms.................................................................................12

Why wouldn’t an offer still be on the table?........................................................................12

Mailbox Rule............................................................................................................................13

o Case: Lonergan v. Scolnick........................................................................................13

Counteroffers...........................................................................................................................13

Revocation of an Offer/Termination of the Power of Acceptance...................................13

o Case: Normile v. Miller................................................................................................14

Acceptance..............................................................................................................................14

Battle of the Forms......................................................................................................................15

o Case: Princess Cruises, Inc. v. General Electric Co..............................................16

Case: Harlow v. Jones.................................................................................................19

Mutual Assent..............................................................................................................................20

Consideration...............................................................................................................................20

Key concept of Consideration/Overview.............................................................................20


o Case: Batsakis v. Demotsis........................................................................................21

o Case: Plowman v. Indian Refining Co......................................................................22

Bargained-for/Exchange........................................................................................................22

Case: Allegany College...............................................................................................22

Case: Pennsy Supply, Inc. v. American Ash:..........................................................22

Benefit/ Detriment...................................................................................................................23

o Case: Hamer v. Sidway:..............................................................................................23

o Case: Kirksey v. Kirksey..............................................................................................24

Promises/Gifts.........................................................................................................................24

o Case: Dougherty v. Salt..............................................................................................25

Pre-existing Duties..................................................................................................................25

Promissory Estoppel...................................................................................................................26

Promises to make a gift..........................................................................................................27

o Case: Greiner v. Greiner.............................................................................................27

Charitable subscriptions.........................................................................................................27

Case: King v. Trustees of Boston University............................................................27

Gratuitous bailments and agencies......................................................................................27

Offers by Sub-contractors......................................................................................................28

Case: Drennan v. Star Paving....................................................................................28

Promises of Employment.......................................................................................................29

Negotiations in Good Faith....................................................................................................29

Case: Pop’s Cones v. Resorts International............................................................29

Promissory Estoppel & Remedies........................................................................................29

Promissory Restitution...............................................................................................................29

Case: Credit Bureau Enterprises, Inc. v. Pelo.........................................................30

Electronic Contracting................................................................................................................31

o Case: ProCD, Inc. v. Zeidenberg...............................................................................31

Statute of Frauds.........................................................................................................................32

Case: Crabtree v. Elizabeth Arden............................................................................33

o Case: Alaska Democratic Party v. Rice....................................................................35

Contracts for Marriage Consideration..................................................................................36

Contracts that cannot be performed under one year........................................................36

Contracts for Land..................................................................................................................36

Case: Winternitz v. Summit Hills J.V.........................................................................37


Executory-Administrator Agreements..................................................................................37

Guaranty Agreements............................................................................................................37

Surety Agreements.................................................................................................................37

Statute of Frauds under the UCC.........................................................................................37

Case: Buffaloe v. Hart..................................................................................................37

CISG..........................................................................................................................................37

Principles of Interpretation.........................................................................................................37

Case: Frigaliment Importing Co. v. B.N.S. International Sales Corp...................37

Parol Evidence Rule...................................................................................................................37

Six Exceptions to the Parol Evidence Rule.........................................................................37

UCC Approach to the Parol Evidence Rule........................................................................37

Case: Nanakuli Paving & Rock Co., v. Shell Oil Co...............................................37

CISG Approach to the Parol Evidence Rule.......................................................................37

Supplementation of the Agreement: Implied Terms..............................................................37

Case: Wood v. Lucy, Lady Duff-Gordon...................................................................37

Case: Leibel v. Raynor Manufacturing Co...............................................................37

Implied Obligation of Good Faith..........................................................................................37

Commercial Deals v. Deals involving an Aesthetic Matter...............................................37

Implied Warranties..................................................................................................................37

Contract Avoidance....................................................................................................................37

Infancy Defense......................................................................................................................37

Case: Dodson v. Shrader............................................................................................37

Mental Incapacity Defense....................................................................................................37

Duress and Undue Influence.................................................................................................37

Fraud/Misrepresentation........................................................................................................37

Case: Syester v. Banta................................................................................................37

o Case: Hill v. Jones........................................................................................................37

Unconscionability/Adhesion Contracts................................................................................37

Case: Higgins v. Superior Court of Los Angeles County.......................................37

Policy.............................................................................................................................................37

Case: Valley Medical Specialists v. Farber..............................................................37


Sources of Contract Law

Statutory lawo UCC (Uniform Commercial Code)

If a merchant, then a promise is binding under the UCC The UCC does not cover transactions involving real estate, insurance, and

personal services Article 2 of the UCC applies to transactions regarding the sale of goods,

regardless of whether the buyer or seller or neither or merchants However , there are some sections and portions of sections that are

applicable only if both parties are merchants and or only if one party has merchant status

o i.e.: 2-207(2) (Battle of the forms) Art. 2 has been accepted by every state except Louisiana Art. 2 applies to the sale of goods, but is not limited to transactions

involving merchants Common law

o Judicial Opinions (judge made)o Precedents (Stare Decisis)

The decision standso Persuasive Authority

Non-binding Cases from sister courts Authorities

Restatements o “Black letter law”

“The Restatement resembled a statute in form, consisting of ‘black letter’ statements of the ‘general rule (or, where the cases appeared to conflict, the better rule)” (see page 9 in casebook)

Considered a secondary source, however, courts have justified decisions by citing and quoting the Restatements’ rule on a given topic or point

Legal Commentary International Commercial Law

o CISG Analogous to the UCC Applies to the sale of goods Applies to businesses/merchants only

Objective vs. Subjective Theories of Contract

Objective Theory (see page 23 of casebook)


Looks at the conduct of the parties from the perspective of a reasonable person rather than the actual, subjective intentions of the parties

Doesn’t matter what the promisor was thinking, only what the promisor DIDo Restatement (Second) of Contracts § 21 :

Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract

o Case: Ray v. William G. Eurice Bros., Inc. π entered into a contract with the ∆’s for the construction of a

house. ∆ submitted its own specifications for the house for the approval but

the π had their own set of specifications. π’s specifications were integrated into the final contract that was

signed by all parties. ∆ then refused to build the house according to π’s specifications. The court held that ∆ breached the contract and that there was no

fraud or duress in the making of the contract and any mistake regarding which specifications were part of the contract was unilateral on the part of the ∆.

π's intended that their specifications were to be used and this was clearly stated in the contract that integrated those specifications. The builder signed the contract and was bound by its contents.

The actual intent of the ∆ was immaterial because it had agreed in writing to a clearly expressed intent to the contrary.

Doesn’t matter what you meant or if you read it, all that matters is whether it reasonably appears to an outside observer that you DID make a commitment

The reasonable aspect of the objective theory also serves to protect the promisee:

o i.e.: If the promisee knows that an offer is a joke and a reasonable person can tell that the offer was a joke, then there is probably no contract

Case: Leonard v. PepsiCo. The π tried to purchase a plane with “Pepsi points” Did Leonard honestly believe that he could buy a plane with

Pepsi points? Even if he did, is that reasonable?

Case: Lucy v. Zehmer Over friendly drinks at a bar, Lucy offered to buy a farm for

50K ∆ thought it was a joke and “played along” and even signed

an agreement that was jotted down on a scrap piece of paper

Court: “must look at the outward expression of a person as manifesting his intentions”

∆ didn’t lack capacity because he remembered key factso He couldn’t have been too intoxicated to enter into the

agreement because he remembers relevant facts of the night


Subjective Theory (see page 23 of casebook) Looks at the actual intention of a party, rather than the party’s conduct and

determines the party’s legal obligations Was there a “meeting of the minds?”

o Meeting of the minds requires actual assent by both parties to the formation of a contract, meaning that they agree on the same terms, conditions, and subject matter

Modern contract doctrine requires only objective manifestations of assent

The court in Ray v. Eurice Bros. mentioned that there was no “meeting of the minds;” however, the court still took an objective approach to deciding the case by looking at the conduct of the parties and not the actual intention

What is a contract/ Contract formation

Contracts are a common understanding as to something that is to be done in the future by one or both parties

A promise or set of promises that are enforced by the government Refers to an agreement that has legal effect; meaning, it creates obligations for

which some sort of legal enforcement will be available if performance is not forthcoming as promised

The Restatements (Second) of Contracts § 1 define contracts as: “a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty

The UCC(§ 1-201 (19)) defines a contract as “the total legal obligation which results from the parties’ agreement as affected by this Act and any other applicable rules of law”

Elements in a Transaction Three elements in a transaction, each of which may be called a “contract”

o Agreement-in-fact between the partieso Agreement as written (which may or may not correspond accurately to the

agreement-in-fact), ando The set of rights and duties created in the first two

When is a contract formed? To have a contract formed and enforced

o Promises must be exchangedo Promises are not merely gratuitous (so there must be consideration)o There must be a commitment by the promisor to be (presently) bound, that

is accepted by the promisee What is needed?

o Offero Acceptance Mutual Assent (see page ____ of outline)


o Consideration (see page ____ of outline) Under UCC § 2-206 (Offer and Acceptance in Formation of Contract):

o (1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances:

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but the shipment of nonconforming goods is not an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer

o (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance

Agreements to Agree Problems with agreements to agree:

o There has to be a present desire to be bound, so there cannot be an agreement to agree to do something in the future

o There is no contract if there are too many missing vital terms i.e.: “I will sell you my car!” “I accept!”

Is this a contract? What is the price? What is the timing? Professor Corbin on “Agreements to Agree:”

o As long as the parties know that there is an essentially term not yet agreed on; there is no contract…

o If the document or contract that the parties agree to make is to contain any material term that is not already agreed on, no contract has yet been made;

o And the so-called contract to make a contract is not a contract at all Restatement (Second) of Contracts § 26

o A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent

Although two parties cannot agree to make an agreement in the future, there are parts of an agreement that can be settled at a later time:

o Formal Contract Contemplated Restatement (Second) of Contracts § 27

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


circumstances may show that the agreements are preliminary negotiations

o If the terms are agreed upon and the written contract is just a formality, then there may be a contract

Case: Quake Construction v. American Airlines ∆ and the general contractor hired π to do certain work on a

construction project A dispute arose and π filed an action for breach of contract The ∆ and the general contractor claimed that no contract

had been entered The π based his cause of action on a letter of intent between

the parties On appeal the court held that although letters of intent were

enforceable, such letters were not necessarily enforceable unless the parties intended them to be contractually binding.

The court found that the letter of intent was ambiguous regarding the parties' intent to be bound

The court reasoned that although the letter of intent included detailed terms of the agreement, the letter also referred several times to the execution of a formal agreement, thus indicating that the intent was not to be bound by the letter. Therefore, the court concluded that on remand the circuit court should allow the parties to present parol evidence regarding intent

Case: Walker v. Keith The principal issue was whether the option provision in the

lease fixed the rent with sufficient certainty to constitute an enforceable contract between the parties.

The court found that the basic principle of contract law that required substantial certainty as to the material terms upon which the minds of the parties had met was a sound one and was to be adhered to.

A renewal option stood on the same footing as any other contract right.

Rent was a material term of a lease. The court held that if the parties did not fix it with reasonable

certainty, it was not the business of courts to do so. The renewal provision of the parties' contract was fatally

defective in failing to specify either an agreed rental or an agreed method by which it could be fixed with certainty.

Because of the lack of agreement, the lessee's option right was illusory, and the chancellor erred in undertaking to enforce it.

If the parties had agreed upon a specific method of making the determination of the rent amount, such as by computation, the application of a formula, or the decision of


an arbitrator, they could have been said to have agreed upon whatever rent figure emerged from utilization of the method.

o Open Price Term UCC § 2-305(1)

The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:

o (a) nothing is said as to price; oro (b) the price is left to be agreed by the parties and

they fail to agree; oro (c) the price is to be fixed in terms of some agreed

market or other standard as set or recorded by a third person or agency and it is not set or recorded

It still has to be determined whether or not the parties had a present intention to be bound

Types of Contracts Unilateral

o Promise for performance Performance = Acceptance = Contract

o Example: My performance is the price for your promiseo The only way to accept in a unilateral contract is to perform the act

required by the offero There is no contract until performance is completed

However , the offeror cannot revoke the offer once performance has begun:

Restatement (Second) of Contract s § 45 o (1) Where an offer invites an offeree to accept by

rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it

o (2) The offeror’s duty of performance under any option contract so created a conditional on completion or tender of the invited performance in accordance with the terms of the offer

o Restatement (Second) of Contracts § 32 In case of doubt an offer is interpreted as inviting the offeree to

accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses

Bilateralo The notion of “contract” typically involves an element of futurity:

commitment to some course of action to be undertaken in the futureo Bilateral contracts contain an exchange of promises


o “First the parties engage in a period of preliminary negotiations, exchanging communications of a more or less detailed nature about the type of exchange of performances to which each would be willing to agree. Next, one party (the “offeror”) makes an offer – a direct, complete proposal that a contract be entered into, providing for an exchange of defined performances. This has the effect of creating in the party to which that offer is addressed a “power of acceptance.” If that other party (the “offeree” – manifests her “acceptance” of the offer in a legally effective way, than at that moment a contract comes into being” (see page 34 in casebook)

o Examples: A promises B (I promise to perform terms, if you promise to ___) B promises A (I promise to ____) My promise

Optiono Typically, the offeror can revoke an offer at any time; however, an option

contract will limit the offeror’s power to revokeo The traditional common-law view is that an option contract can be formed

only if the offeree gives the offeror consideration for the offer (see page 54 of Crunchtime)

o Restatement (Second) of Contracts § 87 (1) An offer is binding as an option contract if it

(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or

(b) is made irrevocable by statute (2) An offer which the offeror should reasonably expect to induce

action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice

o Cannot say “I promise not to revoke before Friday” because legally the offeror can revoke anytime before acceptance

However , an option contract allows for this: “If you pay me $10 now, I promise not to revoke”

Restatement (Second) of Contracts § 25 An option contract is a promise which meets the

requirements for the formation of a contract and limits the promisor’s power to revoke an offer

o The modern approach is that a signed option contract that recites the payment of consideration will be irrevocable, even if the consideration was never paid (see page 55 of Crunchtime)

o UCC § 2-205 (Firm offer) An offer by a merchant to buy or sell goods in a signed writing

which by its terms gives assurance that it will be held open is not


revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror

o If the firm offer is on a form drafted by the offeree, it is irrevocable only if the particular “firm offer” clause is separately signed by the offeror (see page 55 of Crunchtime)

Offer/ Acceptance

What is an offer? The Restatement (Second) of Contracts § 24 defines an offer as:

o “[T]he manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it”

The UCC:o Does not define offer, so court’s must look to the common law when

dealing with contracts made for the sale of goods The CISG (Convention on Contracts for the International Sale of Goods):

o Art. 14 (1) “A proposal for concluding a contract addressed to one or more

specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price”

(2) “A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal”

o Art. 15 (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the

withdrawal reaches the offeree before or at the same time as the offer

The Promisor communicates a proposalo In a way reasonably/objectively manifesting a willingness to be boundo Consider both content and context to see what is reasonable

The offeror is the “master of his offer”o Can prescribe substantive terms of the deal he’ll agree too Can prescribe the precise manner of acceptance

See UCC § 2-206o Can prescribe terms whereby offer will automatically terminate


An offer must have specific terms (see Certain Definite Terms/Specific Terms in outline)

Arthur Corbin’s definition on Contracts:o “An offer is an expression by one party of assent to certain definite terms

provided that the other party involved in the bargaining transaction will likewise express assent to the same terms”

The offeror is the “master of his offer”o Offeror sets (prescribe) the terms of the offero The offeror can determine (prescribe) the precise method of acceptance

Once the offer is accepted, there is a contract No further assent is needed by the promisor

How is commitment of promisor shown? Words Writing Inference from an act

Certain Definite Terms/Specific terms Need essential terms to have true mutual assent 7 “Required” contract terms:

o Subject mattero Priceo Payment Termso Qualityo Quantity

Essential under the UCC UCC § 2-204(3): “Even though one or more terms are left

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

It is okay to say “As many as you can make” However, you may not be able to point to a number of items

o Work to be doneo Duration

Courts will imply terms that are not in a contract or are not clear (see page ___ of outline)

Why wouldn’t an offer still be on the table? Offeror incapacity or death Too much time has passed:

o Stated expiration of timeo Implied expiration of timeo Reasonable expiration of timeo UCC § 2-206 (2) :


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

o UCC § 2-205 : When looking at firm offers, “in no event may such period of

irrevocability exceed three months” Offeror has revoked the offer (see Revocation of an Offer in outline)

o Words or actions plus offeree knowledge

Mailbox Rule The offeree’s acceptance is valid as of mailing The offeror’s revocation is valid when received

o Because acceptance is valid as of mailing, if the revocation is received after the offeree has mailed the acceptance, there is still a valid contract

o If the revocation is received before the acceptance can be mailed, then there is no contract

o Case: Lonergan v. Scolnick ∆ posted an ad in a paper selling property in California (∆ was in

NY) π responds ∆’s ad inquiring about the property ∆ responds to π π responds asking ∆ more questions and proposing certain escrow

agent ∆ responds by saying that proposed bank is OK and states “you

must decide quickly if you want it” ∆ sells property to someone else π sends a letter saying he wants to buy and will set up escrow

o Although, π mailed his acceptance before he received the revocation, the court decided that ∆ had not shown a willingness to be bound, therefore his letter stating that “you must decide quickly if you want it” was not an offer

o Same principles apply to e-mail

Counteroffers Restatement (Second) of Contracts § 59 states:

o A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counteroffer.

Restatement (Second) of Contracts § 39(2) states:o An offeree’s power of acceptance is terminated by his making of a

counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.

Under the UCC, one’s acceptance can alter the offer and not be considered a counteroffer (see page ___ of the outline)


Revocation of an Offer/Termination of the Power of Acceptance Restatement (Second) of Contracts § 36

o (1) An offeree’s power of acceptance may be terminated by: (a) rejection or counter-offer by the offeree, or (b) lapse of time, or (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree

o (2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer

Words or act of revocation plus offeree’s knowledge is necessary An offeror can revoke an offer at any time before the offer has been accepted Offeror does not have to tell the offeree directly, someone else can tell the

offeree or the offeree can be in a situation and hear about the revocation of the offer

o Case: Normile v. Miller π was interested in purchasing a home from ∆ π made an offer in writing to ∆ to purchase

Offer says it must be accepted by “5 pm Aug. 5th” ∆ makes a counteroffer (marks up important provisions of offer and

sends it back) π does nothing and sits on the offer 3rd party buyer offers to buy from ∆, and ∆ agrees Broker tells π that ∆ sold the home (“you snooze you lose”)

An offeror cannot “promise not to revoke” before a set time frameo i.e.: “I promise I won’t revoke the offer before Tuesday”

No consideration – gratuitous promise Legally, you can revoke before that time There is nothing binding in that statement

o However , if you said “If you give me $10, I won’t revoke before Tuesday” This agreement has consideration, IF the $10 is paid This would be considered binding This is an option contract (see page ___ of outline) Putting down money towards an offer limits the offeror’s power to

revoke CISG Art. 15 :

o (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer

Performance on a unilateral contract renders the offer temporarily irrevocable (see page ___ of outline)

If the offer for a bilateral contract, the offeree’s making of preparation will cause the offer to be temporarily irrevocable if justice requires (see page 56 of Crunchtime and Restatement (Second) of Contracts § 87(2))

Acceptance Typically, the offeree can only accept how the offeror wants acceptance


Assent can be by words or actions Typically silence is not assent

o Exceptions are listed in Restatement (Second) of Contracts § 69 (1) “Where an offeree fails to reply to an offer, his silence and inaction

operate as an acceptance in the following cases only: (a) Where an offeree takes the benefit of offered services

with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation

(b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept”

Restatement (Second) of Contracts § 58 (Mirror image rule)o An acceptance must comply with the requirements of the offer as to the

promise to be made or the performance to be renderedo The mirror image rule is under common law

If the acceptance conflicts with the terms of the offer or adds new terms, the purported acceptance is a rejection and considered a counteroffer and not an acceptance (see page ___ of outline)

The UCC rejects the “mirror image rule” under the view on battle of the forms and will lead to a contract being formed even though the acceptance diverges from the offer. (see page 50 of Crunchtime)

UCC 2-207(1)o Acceptance can be written to an oral offer

CISG Art. 19 o Mirror image “soft”

Battle of the Forms

Businesses love forms because they:o Save moneyo Save timeo Control risk

Under the objective theory, it does not matter if the party did not read the form Ambiguities in forms are usually construed against the drafter Under common law, when the offeree submits a form as acceptance to an offer

and that form has terms different or additional to the original offer, then this form is considered a counteroffer because it does not conform to the mirror image rule

Restatement (Second) of Contracts § 39


o (1) A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer

o (2) An offeree’s power of acceptance is terminated by his making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counter offer manifests a contrary intention of the offeree

Also, under common law, the party that gets their form in last, controls and this is known as the Last Shot Rule

o Case: Princess Cruises, Inc. v. General Electric Co. A company and shipowner entered into a maritime contract for the

inspection and repair services of the ship owner's cruise ship A jury found the company liable for breach of contract and awarded

the shipowner damages The court held that when the predominant purpose of a contract

was the rendering of services, the Uniform Commercial Code was inapplicable, and courts had to draw on common law doctrines when interpreting the contract. As a matter of law, services rather than goods predominated the parties' contract

The company's final price quotation was a counteroffer rejecting the ship owner’s purchase order, and the terms and conditions of the price quotation controlled liability and damages in the transaction

However , drafters of the UCC were dissatisfied with this rule so under § 2-207, the “last shot rule” is removed:

o UCC § 2-207 (1) A definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms

This rule is intended to overturn the “mirror image” and “last shot” rules by providing that purported acceptance would be treated as acceptance, even if it contained additional or different terms (see handout on § 2-207)

§ 2-207 (1) does not discuss offer, so it assumes one has been made – look to common law to determine whether or not an offer has been made

Under this section, once the offeree assents through a definite and seasonable expression of acceptance or a written confirmation then a contract is formed even if there are additional or different terms

o This differs from common law, where the additional or different terms would be considered a counteroffer

If the acceptance is not an expression of acceptance or if there is clear and explicit language making the


acceptance conditional, then under § 2-207(1), there is no contract

o If the acceptance is not an expression of acceptance and clearly conditional, then this would be considered a counteroffer

o Review handout for discussion on how courts handle a counteroffer under the UCC

Under § 2-207, a written confirmation is acceptable for an oral agreement

o The terms of the confirmation become a part of the contract if they reflect the oral agreement

o Look to § 2-207(2) if the written confirmation contains additional or different terms

o Once an oral agreement is made, it is not possible to have a conditional acceptance

o UCC § 2-207 (2) The additional terms are to be construed as proposals for addition

to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or (c) notification of objection to them has already been given

or is given within a reasonable time after notice of them is received

o Assuming a contract is formed under § 2-207(1), look to § 2-207(2) to see if additional or different terms become a part of the agreement

o In order for § 2-207(2) to apply, both parties must be merchants

If both parties are merchants, than the additional terms do become a part of the agreement, unless § 2-207(2)(a)(b) or (c) applies

If both parties are not merchants, than the additional terms do not become a part of the agreement

o Additional terms are terms that add to the terms of the offer or oral agreement

o Different terms are terms that contradict or qualify an express term of the offer (or contradicts a terms of the oral agreement in case of a confirmation)

o UCC § 2-207(2)(a) If the offer contained express language

limiting acceptance to the terms of the


offer, the additional terms would not become a part of the agreement

i.e.: “This order is conditioned on seller’s acceptance of the terms hereof. Any additional or different terms contained in seller’s acknowledgement are expressly objected to and shall not be deemed to be a part of the contract between the parties”

Basically…the acceptance can’t o UCC § 2-207(2)(b)

Unless the terms would materially alter the agreement, the additional terms would be allowed

To determine whether or not the terms would materially alter, look to the surprise and hardship tests

o If the additional terms are not something that a party would expect (i.e.: not a part of industry standards) then those terms would be considered material

o If the additional terms would pose a hardship on a party (i.e.: ) then those terms would be considered material

Other examples of clauses that would be pose a material change, include:

o Clauses negating standard warranties as that of merchantability of fitness for a particular purpose (see Official Comment 4 of the UCC)

o A clause reserving to the seller the power to cancel upon the buyer’s failure to meet any invoice when due (see Official Comment 4 of the UCC)

o A clause requiring that complaints be made in a time materially shorter than customary or reasonable (see Official Comment 4 of the UCC)

o UCC § 2-207(c)


If the offeror gives notification of objection to the additional terms, either before or after receiving the acceptance, then they do not come in

o UCC § 2-207 (3) Conduct by both parties which recognizes the existence of a

contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act

This section is designed to deal with cases in which examination of the documents indicates that a contract was formed because the offer and acceptance contradict each other, but the parties nonetheless have acted as if a contract has come into existence (see handout § 2-207)

Its terms consist of those on which the documents agree, plus other implied-in-law terms, such as the Code’s provisions on implied warranties and remedies

o Trade usage, course of dealing, and course of performance would also be part of the contract under § 2-207(3) (see handout § 2-207)

Mutual Assent can be determined by conduct Case: Harlow v. Jones

o The court found that an oral sales contract was reached before the parties began exchanging forms that were never signed

o Under UCC § 2-204(3), the court found that the fact that shipping and delivery terms were not completely settled during oral negotiations was unimportant

o The court treated the written forms sent by the parties as confirmatory memoranda, which included the same shipment date of September to October and, more importantly, specified a "C.I.F." shipping term

o Under UCC § 2-320(2), the C.I.F. contract was not a destination but a shipment contract, which was, thus, governed by UCC § 2-504

o The court found that only a material delay would justify the buyer's rejection. Noting that under a recognized trade usage, a shipment term of September to October implied delivery by October to November, the court held that any delay in


shipment was cured by a timely delivery of November 29

o Finding that the buyer's repudiation in October was premature and that the buyer instead should have demanded adequate assurances from the seller, the court held that the buyer breached the contract and awarded the seller the difference between the resale and the contract price.

This section applies when the forms have different terms

o Cancels out “the knock out” rule because the courts will look to the conduct of the parties to determine the terms of the agreement

Mutual Assent

o Offer + Acceptance = Mutual Assento Under the subjective theory of contracts, mutual assent is shown through a

meeting of the mindso Under the objective theory of contracts, mutual assent is shown through conduct

Consideration

Key concept of Consideration/Overview Too many promises to be enforced so every promise and agreement will not be

enforced, unless there is “consideration” What has motivated the parties to contract? When looking for consideration, it must be determined if there was something

bargained-for and exchanged or whether a party received a benefit or suffered a detriment:

o Bargained-for/Exchange Restatement (Second) of Contracts § 71 :

(1) To constitute consideration, a performance or a return promise must be bargained for.

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

(3) The performance may consist ofo an act other than a promise, oro a forbearance, oro the creation, modification, or destruction of a legal

relation.


(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

o Benefit/Detriment Restatement (Second) of Contract § 79 :

If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee…

o This particular definition implies that there is no benefit/detriment needed in the initial definition of consideration; however this definition would arrive at the same conclusion because the benefit/detriment induced the act (meaning the benefit/detriment was a part of the bargain and therefore the consideration for the agreement)

Common law focuses on the “quo” Restatements focuses on the “pro”

The requirement of consideration renders two main types of transactions unenforceable (see page 59 of Crunchtime)

o Promises to make giftso Business situations in which one party has not really promised to do

something or given anything up, even though he may appear to have done so (the “detriment” element is missing here)

Even if an agreement on its face appears to have consideration, courts will examine whether or not the consideration is nominal or a sham

One cannot argue inadequacy of consideration, which is:o Consideration that is not fair or reasonable under the circumstances of the

agreemento Case: Batsakis v. Demotsis

∆ borrowed 500,000 Drachmae from π The amount converted to $25.00 USD

∆ signed a note, promising to re-pay π $2,000 USD plus 8% interest

Although the ∆ argued that the amount owed was not the amount loaned, the court held that inadequate consideration was not enough to void the contract

∆ wanted the Drachmae bad enough that she was willing to sign a note pledging to re-pay an amount significantly larger than the amount she received and her willingness to sign was enough consideration to make the contract enforceable

One cannot argue for past considerationo Promises made in return for a detriment previously suffered are not

enforced


o Case: Plowman v. Indian Refining Co. πs had worked many years for the ∆s and when the ∆s let them go,

the ∆s made separate contracts to pay each of the individual πs once a month an amount equal to ½ of the wages formerly earned for the rest of πs lives

πs argue that part of the consideration to enter into the contracts arose out of the relationship the existing (see page 99 in casebook)

The court held that “appreciation of past services or pleasure afforded the employer thereby is not a sufficient consideration” (see page 103 in casebook)

Bargained-for/Exchange Why bargained-for exchanges?

o Economic reasons Exchanges of value (quid pro quo) increase society’s economic

efficiency Under the bargained-for/exchange element, the promise induces the

performanceo The promise is given as part of a “bargain”; that is, the promisor makes his

promise in exchange for the promisee’s giving of value (see page 59 of Crunchtime)

o The promise to make a gift is generally unenforceable, because it lacks the bargain element of consideration. (see page 60 of Crunchtime)

Case: Allegany Collegeo ∆ promises college $5K stating that the amount “shall be known as the

Mary Yates Johnson memorial fund” and pays $1K towards the fundo ∆ later changes her mind and does not pay the remaining $4Ko After her death the school sues to enforce the gifto J. Cardozo felt that because the school bound itself to perpetuate the

name of the founder when it accepted the first $1K, the “gift” was really a contract

o Therefore the exchange was the memorial fund named after Ms. Johnson for the $5K given to the school

Case: Pennsy Supply, Inc. v. American Ash:o This case would fall under the UCC because it was for a sale of goodso Northern York County School District contracted Lobar, who then

subcontracted Pennsy Supply, Inc. to handle the pavement work on a construction project

Restatement (Second of Contracts) § 81 :o (1) The fact that what is bargained for does not itself induce the making of

a promise does not prevent it from being consideration for the promiseo (2) The fact that a promise does not itself induce a performance or return

promise does not prevent the performance or return promise from being consideration for the promise

Restatement (Second) of Contracts § 17 :


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

The bargained-for/exchange theory of consideration doesn’t actually require the parties to bargain

o Review of Pennsy Supply Inc. v. American Ash Recycling Corp. Parties never really bargained; however the court found that

American Ash not having to dispose of the waste was Court didn’t care that this was never discussed prior to Pennsy

Supply Inc. retrieving the free material The court only cared about what motivated the agreement

Benefit/ Detriment Under the benefit/ detriment element, for consideration to be present, the

promisor has to receive a benefit or the promisee must suffer a detriment. o When we say “detriment,” we mean the promisee must do something she

does not have to do or refrain from doing something that she has a (legal) right to do (see page 61 of Crunchtime)

The benefit to the promisor or the detriment to the promisee is the considerationo Those elements are a part of the bargaino i.e.: “I promise ______ if you give up smoking”

Giving up smoking is a part of the bargain and a detriment to the promisee because she is giving up a legal right to smoke

o Case: Hamer v. Sidway: Uncle publically promised his nephew that if he refrained from

“drinking, using tobacco, swearing and playing cards or billiards for money” until he was 21 years old, the uncle would pay him $5K

At the time, the nephew had a legal right to participate in all of these activities

(This is an example of a unilateral contract) Nephew upheld his end of the agreement and when he turned 21,

he wrote his uncle and asked him to make good on his promise Uncle agrees, but dies 2 years later and never makes good on his

promise Executor of uncle’s estate rejects the claim of the nephew, claiming

that the contract did not require anything from the uncle and therefore had no consideration

The court decided that it did not matter that the uncle did not benefit from the bargain and that the nephew waiving his legal rights was sufficient consideration

Therefore the contract was legal and valid This case is an example of a non-economic detriment (see page 61

of Crunchtime) The situation in Hamer v. Sidway differs from promises that are made with

conditionso i.e.: “If you come to my office, I will give you a $100”


In this example the condition is not bargained for. Also there is no consideration, therefore, this is not an enforceable promise

o Case: Kirksey v. Kirksey Defendant promised his widowed sister-in-law a place to live with

her children after heard about the death of his brother, “if you will come down and see me”

Even though the sister-in-law gave up her home and suffered a detriment, the detriment was not a part of the bargain, it was just a condition for her to get the land

Therefore the court did not enforce the contract because of lack of consideration

Promises/Gifts The law will not enforce all promises, i.e.:

o Social promises “I promise I won’t be late for our date”

o Family promises “I promise I will clean my room”

o Gratuitous promises Gift Non-enforceable because the promisor is not seeking performance

The promisee doesn’t have to do anything and the promisor isn’t asking for anything

Only exception is making a gratuitous promise to make good on a prior debt when that debt is barred by:

o Bankruptcyo Statute of limitations

Example: Owe a creditor 50K Feel bad and send a dollar after statute of limitation is up Because you sent a dollar, you are bound to pay the rest

An illusory promise is not supported by consideration because it is a statement which appears to be promising something, but which in fact does not commit the promisor to do anything:

o “Because of our friendship, I am going to sell you these goldfish at a discounted price”

o Example from page 63 of Crunchtime: “I’ll see you as many widgets at $4 apiece, up to 1,000, as you

choose to order in the next 4 weeks.”o This promise is not supported by consideration, therefore it is not

enforceable Donative promises

o These types of promises are often made in highly emotional states and one reason why donative promises fail to arouse a secure expectation is


that the promisee realizes the promisor may back off when a sober self returns (see page 89 of casebook)

“Thank you for finding my lost dog…I will pay you $1000!”o These types of promises are typically:

Informal Gratuitous

o Donative promises are not enforced because it would be too easy to convince a jury that a promise was made, despite the lack of either objective proof or corroborating evidence (see page 89 in casebook)

o An argument against enforcing donative promises is that it would discourage people from making gifts

A promise to give a gift is not enforceable for lack of consideration; however, once a promisor gives a gift, he cannot rescind the gift because of lack of consideration

A person cannot mask a gift, by claiming that there is consideration, when in fact there is not

o Case: Dougherty v. Salt An aunt visits her 8 year old nephew and is so touched by the

hardship of his life that she writes a promissory note for $3000, payable at her death or before

On the note, she writes, “you have always done for me, and I have signed this note for you. Now, do not lose it. Some day it will be valuable.” Also, she used a printed form that contained the words “value received”

The court found that this was not a contract, but an executory gift because there was no consideration and said “The promise was neither offered nor accepted with any other purpose”

If the aunt really wanted her nephew to have the $3K, there were other ways for her to give it to him, instead of writing him a promissory note that had no consideration. She could have:

Given him the money outright (executed gift) Left him the money in her will (testamentary gift) Set up a trust fund for him (gift in trust)

Pre-existing Duties If a party does or promises to do what he is already legally obligated to do, or he

forbears or promises to forbear from doing something which he is not legally entitled to do, he has not incurred a “detriment” for purposes of consideration

o This is known as the pre-existing duty rule (see page 62 of Crunchtime) This also means that if parties to an existing contract agree to

modify the contract for the sole benefit for one of them, the modification will usually be unenforceable at common law, for lack of consideration. Be on the lookout for this scenario especially in construction cases. (see page 62 of Crunchtime)

The Second Restatement and most modern courts, follow this general rule, but they make an exception where the


modification is “fair and equitable in view of circumstances not anticipated by the parties when the contract was made” (see page 62 of Crunchtime)

However, if the party who promises to do what he is already bound to do assumes the slightest additional duties (or even different duties), his undertaking of these new duties does constitute the required “detriment” (see page 62 of Crunchtime)

o UCC § 209(1) does not apply the “pre-existing” rule to contracts for the sale of goods:

An agreement modifying a contract within this Article needs no consideration to be binding

o Restatement (Second) of Contracts § 89 : A promise modifying a duty under a contract not fully performed on

either side is binding

(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or

(b) to the extent provided by statute; or

(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise

Promissory Estoppel

Promises which foreseeably induce reliance on the part of the promisee will often be enforceable without consideration, under the doctrine of promissory estoppel (see page 65 of Crunchtime)

Restatement (Second) of Contracts § 90(1) :o A promise which the promisor should reasonably expect to induce action

or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires

Detrimental Reliance ≠ Detriment as Consideration because:o No “bargain for” the detrimento Not sought by the promisor

The doctrine of Promissory Estoppel requires that there is:o A promiseo Foreseeable relianceo Actual Relianceo Big injustice if promise is not enforced

Possible applications of Promissory Estoppel:o Promises to make a gift


o Charitable subscriptionso Gratuitous bailments and agencieso Offers by sub-contractorso Promises of employmento Negotiations in good faith

Promises to make a gift The P.E. doctrine can be applied to promises to make a gift, when the promisee

relied to his detriment (see page 65 of Crunchtime)o Case: Greiner v. Greiner

A mother promised to convey land to her son in order to rectify the fact that he had been disinherited by his father's will

After the son gives up his land and moves, his mother filed an action to recover possession of the land

The court ruled in favor of the son, basing the decision on promissory estoppel

Although the son paid nothing for the land, he gave up his homestead in another county, moved and established himself and his family on the tract, made some lasting and valuable improvements upon it, and made other expenditures, relying on his mother's promise; and he lived on the land for nearly a year before he was served with notice to quit.

o Comparing Greiner to Kirksey (see page ___of outline)…

Charitable subscriptions A written promise to make a charitable contribution will generally be binding

without consideration, under the promissory estoppel doctrine (see page 65 of Crunchtime)

Restatement (Second) of Contract § 90(2) o A charitable subscription or a marriage settlement is binding under

Subsection (1) without proof that the promise induced action or forbearance

Case: King v. Trustees of Boston Universityo Dr. Martin L. King, Jr. left several papers in the possession of Boston

University and promised that upon his death the University would receive his papers

o His widow argued that his promise was made without consideration and that he had made the statement with the intent to act in the future

o The court held that the benefit of having the school preserve his papers constitute consideration

o The court also held that the deceased had promised to give property for a charitable purpose, meaning there had been a charitable subscription.

o The court also found that the deceased had established a bailment with defendant university (providing evidence of donative intent)


Gratuitous bailments and agencies A bailment is the lawful possession of someone else’s property with the intention

to make a future gift If a person promises to take care of another person’s property (a “gratuitous

bailment”), the promisor may be held liable under promissory estoppel if he does not perform at all

o Review King v. Trustees of Boston University Dr. King transferred his property to the University although the

papers were still in his name The court felt that Dr. King’s gratuitous bailment of his papers to the

University also showed his intention to donate the papers to the University upon his death

Offers by Sub-contractors Where a sub-contractor makes a bid to a general contractor, and the general

contractor uses the bid in computing his own master bid on the job, the promissory estoppel doctrine is often used to make the sub-bid temporarily irrevocable (see page 66 of Crunchtime)

Current contractor law:o GC solicits bids from Subso GC uses Sub’s bid in its own bid to ownero If GC wins GC bound to ownero If GC wins GC has an implied option to accept Sub’s bid (Sub

can’t revoke) but GC doesn’t have to accept (no contract) o GC can look around and decide which Sub to contract with

The argument is that once the general contractor has used the sub-contractor’s bid, then the GC has accepted the sub-contractor’s offer

o In using the sub-contractor’s bid, the GC made the sub’s offer irrevocable Case: Drennan v. Star Paving

o The π was a general contractor that solicited bids from sub-contractors to place in a bid for a contract with a school district

o ∆ submitted a bid and the π used the amount in its bid to the school district

o However, when the π came by ∆’s office, the ∆ revoked the offer because the ∆ found that there was a mistake in the bid amount and ∆ could not do the paving work at that amount

o The court found for the π and held “[a]s between the subcontractor who made the bid and the general contractor who reasonably relied on it, the loss resulting from the mistake should fall on the party who caused it” (see page 115 of casebook)

o The court also held “[w]hen plaintiff used defendant’s offer in computing his own bid, he bound himself to perform in reliance on defendant’s terms” (see page 115 of casebook)

Restatement (Second) of Contracts § 90 (see page ___ of outline) J. Traynor’s Implied Option Contract via Promissory Estoppel

o Restatement (Second) of Contracts § 82(2)


Promises of Employment If an employer promises an at-will job to an employee, and then revokes the

promise before the employee shows up for work, promissory estoppel may apply (see page 66 of Crunchtime)

If the promisee relied to his detriment on the promise of employment and the promisor revokes the offer of employment, the promisee may be able to recover under promissory estoppel

Negotiations in Good Faith A person who negotiates with another may be found to have a duty to bargain in

good faith; if bad faith is found the court may use promissory estoppel to furnish a remedy (see page 66 of Crunchtime)

Case: Pop’s Cones v. Resorts Internationalo A local TCBY franchise enters into negotiations with a hotel to relocate to

its store onto the hotel’s premiseo The franchise did not renew its current lease and lost out on potential

revenue by relying on the hotel’s promise that it would lease space to the franchise

o The hotel ends up leasing the space to another companyo The court held that the plaintiff’s complaint should not have been

dismissed because the plaintiff relied to its detriment on the promise even though the parties had yet to enter into an agreement

Although the Pop’s Cones case is not one where the court found bad faith on behalf of the promisee, the fact remains that the plaintiff relied on the negotiations in good faith to its detriment

Promissory Estoppel & Remedies Reliance remedies

o Your actual losses (your cost downside) Contract remedies

o The benefit of your bargain (your lost upside and cost downside)

Promissory Restitution

Restatement of Restitution § 116 Elements:o Provided benefit without other’s knowledge or consent – but still entitled to

restitution if: Acted unofficiously and with intent to charge Necessary to prevent serious bodily harm No reason to know the other would not consent (if competent to

consent) It was impossible for consent to be obtained under the

circumstances


A person who confers a benefit upon another is not entitled to restitution if the interference in the affairs of another is not justified by the circumstances under which the interference takes place

In certain circumstances, however, restitution for services performed will be required even though the recipient did not request or voluntarily consent to be receive such services

Unjust enrichmento The term “unjust enrichment” is an equitable principle mandating that one

shall not be permitted to unjustly enrich oneself at the expense of another or to receive property or benefits without making compensation for them (see page 258 of casebook)

o Restatement of Restitution § 1 : A person who has been unjustly enriched at the expense of another

is required to make restitution to the other. (see page 255 in casebook)

Quantum Meruito Recovery for services performed

Contract Implied-in Law Quasi Contract1

o Remedy in a quasi-contractual action was damages (see page 255 in casebook)

Unjust Enrichment/ Quantum Meruit/ Contact Implied-in Law/ Quasi Contract all stand for the same principle

Case: Credit Bureau Enterprises, Inc. v. Peloo ∆ was hospitalized after making threats to harm himselfo A magistrate judge found probable cause that he was mentally impaired

and likely to injure himselfo During ∆’s admission to the hospital, he was given a release form to sign

which would have made either the ∆ or his insurance company responsible for the hospital bill

o ∆ refused to sign the form o According to the ∆, a nurse then demanded that he sign the release form

or the hospital could not insure the safety or return of his personal itemso ∆ finally signed the release, which stated that he understood his liability for

charges not covered by his insuranceo ∆ then refused to pay for the costs associated with his hospitalizationo The hospital assigned its claim against ∆ to the π for collection o The court found ∆ had benefitted by the hospitalization and therefore π

was entitled to the value of the services rendered and entered judgment in favor of π

o The court therefore determined that ∆ was legally obligated to pay for those services based on an implied in law contract theory

1 Although the term implies a relationship to contract law, the modern law of restitution is based on unjust enrichment and has no particular relationship to contract (see page 254 of casebook)


Electronic Contracting

3 types of electronic transactions:o Shrinkwrap terms

An order is placed, either over the phone, online, or at a store Once the product is received, it comes with terms that allow for the

purchaser to review the product and typically states that the purchaser has a window of time to review and return the product if not satisfied

If the product is not returned during the window, then the purchaser is agreeing to keep the product

o Clickwrap terms This is typically seen online In order for a purchaser to complete a sale, they must scroll

through the seller's terms and then click "I accept" Must affirmatively do something to agree

If the purchaser does not do this, then they cannot complete the transaction

o Browsewrap terms Typically seen on websites Website is providing information, not always free With these types of terms, the site is requiring that a viewer agree

to the terms before viewing the website Fundamentally different from "clickwrap" terms

Typically with clickwrap terms, the purchaser must scroll through the terms

Under the browsewrap terms, the viewer may not be required to scroll through the terms; however, the terms are available on the website if the viewer wants to see them

A little more controversial How do you know the terms are there, if you don't see them? Terms you can't see beforehand, yet you are assenting to

them License Agreements:

o Not acquiring property, but asking to use the propertyo Fastest growing type of agreementso The contract is the terms of the "permission slip" to use the property

i.e: music, software, trademarks, franchises o buy a right to use the name

o Not exactly a purchaseo Case: ProCD, Inc. v. Zeidenberg

Acceptance was keeping the software for 30 days and not returning it


Actual contract is not the purchase but shrinkwrap terms were included and stated that acceptance to the terms would be shown by keeping the product

Statute of Frauds

In general, there is no need for agreements to be in writing; however, there are certain types of agreements that have to be in writing:

o MYLEGS M arriage consideration Contracts that cannot be performed under one Year Contracts for Land E xecutory-Administrator agreements G uaranty agreements S urety agreements

General purposes of requiring writings:o Evidentiaryo Cautionaryo Channeling

The concept is to avoid risks of fraud Restatement (Second) of Contracts § 110

o (1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or applicable exception:

(a) a contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision);

(b) a contract to answer for the duty of another (the suretyship provision);

(c) a contract made upon consideration of marriage (the marriage provision)

(d) a contract for the sale of an interest in land (the land contract provision);

(e) a contract that is not to be performed within one year from the making thereof (the one year provision)

o (2) the following classes of contracts, which were traditionally subject to the Statute of Frauds, are now governed by Statute of Frauds provisions of the Uniform Commercial Code

(a) a contract for the sale of goods for the price of $500 or more (UCC § 2-201)

(b) a contract for sale of securities (UCC § 8-319); (c) a contract for the sale of personal property not otherwise

covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount of value of remedy (UCC § 1-206)


o (3) In addition the UCC requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party

o (4) Statutes in most states provide that no acknowledgement or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principle or interest

o (5) In many states other classes of contracts are subject to a requirement of a writing

What constitutes a writing?o Promise or some memorandum thereof in writingo Writing signed by party to be charged (the defendant)

Remember: Before you can determine whether or not the contract has to be in writing, you still have to determine if all of the other requirements have been met (meaning, was there a valid offer, acceptance and consideration)

o If those elements have not been met and there is no contract, there is no need to look to the Statute of Frauds

The SOF is an affirmative defense usually raised by the defendant who must show that the alleged contract is one that falls within the statute

Plaintiff can still defeat the defendant by showing there is qualifying writing signed by defendant

o Remember tacking (a grouping of various documents) is allowed If docs together include all essential terms At least one is signed by defendant And any unsigned documents on their face seem to refer to same

transactiono Restatement (Second) of Contracts § 132

The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction

Case: Crabtree v. Elizabeth Arden The court affirmed a judgment in favor of plaintiff in a breach

of contract action related to an employment contract. The court held that an unsigned office memorandum,

together with two signed payroll cards, were sufficient under the statute of frauds, to establish an employment contract with a tenure of two years.

All three documents referred on their face to the same transaction and the terms under which plaintiff would be employed by defendant, and contained all of the essential terms of the contract between the parties.

The court therefore held that the length of the contract could be established through reference to the unsigned office memorandum without violating the statute of frauds.


If plaintiff can show a writing, than defendant can attack the integrity of the writing (common law only):

o If a particular term is not included, can attack the integrityo In the UCC, you can't attack the integrity of the writing because essential

terms are not necessary; however, you must have quantity included If plaintiff can't show a writing

o Does an exception apply? Waiver or Affirmation

If the defendant has done or said things that show that there was a contract

Estoppel Not promissory estoppel Defendant has contributed to the lack of a writing, so then

they can’t use the lack of a writing as a shieldo i.e.: D has promised that they have already signed a

writingo i.e.: D has promised there will be a contracto i.e.: D tells P that no contract is necessaryo i.e.: P thinks D is an attorney or would know whether

or not there is a contract Full Performance

If the contract is fully performed, you can't go back and say that there was no contract

Partial Performance (for land sale equitable actions)o (see page ___ of outline)

Promissory Estoppel Instead of recovering under quasi-contract, a plaintiff can try

to get around the requirements of the statute of frauds through the doctrine of promissory estoppel

Courts are especially likely to apply promissory estoppel where the defendant has intentionally and falsely told the plaintiff that the contract is not within the statute, or that a writing will subsequently be executed, or that the defense of the statute will not be used (see page 94 of Crunchtime)

Restatement (Second) of Contracts § 139 o (1) A promise which the promisor should reasonably

expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

o (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:


(a) the availability and adequacy of other remedies, particularly cancellation and restitution;

(b) the definite and substantial character of the action or forbearance in relation to the remedy sought;

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

(there is clearly a contract) (d) the reasonableness of the action or

forbearance; (e) the extent to which the action or

forbearance was foreseeable by the promisoro Case: Alaska Democratic Party v. Rice

The Democratic Party member claimed that the Democratic Party official offered her a two-year position as executive director of the Alaska Democratic Party.

When the job failed to materialize, the party member sued on the alleged oral contract.

The jury awarded her damages based upon promissory estoppel and misrepresentation.

The official and the Democratic Party appealed the trial court's decision.

The court affirmed the judgment of the trial court and adopted the Restatement (Second) of Contracts §139 as the law of the state.

The court stated that the party member's proven § 139 claim had the effect of rendering the oral contract, which would have been invalid under the Statute of Frauds, legally enforceable on the basis of the terms that had been established by the party member. Injustice was avoided only by the court's enforcement of the oral contract of employment.

Quasi-contractual recovery A plaintiff who has rendered part performance under an oral

agreement falling within the statute of frauds may recover in quasi-contract for the value of benefits he has conferred upon the defendant (see page 94 of Crunchtime)

No writing requiredo No mutual assent even required


Unjust enrichment need to be showno Benefit conveyedo Not paid foro Unjust to let defendant “get away with it”

Restitution damages

Contracts for Marriage Consideration A promise for which the consideration is marriage or a promise of marriage is

within the Statute of Frauds (see page 88 of Crunchtime)o i.e.: A tycoon promises to transfer the title to his beach house to his

girlfriend if she agrees to marry him. Under the statute of frauds, this promise would not be enforceable if it was not written down (and signed by the party to be charged). Also, neither party could recover if this agreement was breached under the statute of frauds.

Contracts that cannot be performed under one year If there is any way the contract could have been performed (completed) in a year,

then it doesn't have to be in writing If a promise contained in a contract is incapable of being fully performed within

one year after making the contract, the contract will have to be in writing (see page 90 of Crunchtime)

o The one-year period is measured from the time of execution of the contract, not the time it will take the parties to perform

o The one year provision applies only if complete performance is impossible within one year after the making of the contract. The fact that performance within one year is highly unlikely is not enough

o i.e. signing employment contract for next academic year

Contracts for Land A promise to transfer or buy any interest in land falls within the statute of frauds

o Very difficult to know who owns land unless it’s in writingo Can have multiple people who claim to own a parcel of land

The statute does not apply to the conveyance itself but rather to a contract providing for the subsequent conveyance of land (see page 89 of Crunchtime)

The transfer of interest in land applies to most kinds of interests in land including:o Leases

Most states have statutes making oral leases enforceable if their duration is one year or less (see page 89 of Crunchtime)

o Mortgages However , contracts to build a building on a parcel of land do not fall under the

statute Although an oral contract for the transfer of an interest in land is typically not

enforceable, subsequent acts by either party may make it enforceable (see page 89 of Crunchtime)

o Partial performance


If the person receiving the land, moves onto the property, builds a home and makes costly improvements to the land, then a court may enforce the contract even though it was not in writing

Payment alone is not sufficient to enforce the contract, there has to be some showing of performance

Restatement (Second) of Contracts § 129 o A contract for the transfer of an interest in land may be specifically

enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so charged his position that injustice can be avoided only by specific enforcement

Case: Winternitz v. Summit Hills J.V.o A lease of property between a landlord and a tenant was terminated by

the landlord. The tenant brought an action against the landlord alleging breach of lease and interference with a contract.

o After a verdict in favor of the tenant, the trial court granted a judgment notwithstanding the verdict in favor of the landlord on all claims. The tenant sought review, and the court affirmed the judgment on the tenant's contract claims.

o The court held that the tenant's contract claims were barred by the statute of frauds.

o The doctrine of part performance was not available to the tenant because he sought monetary damages, and part performance was an equitable doctrine.

o The court reversed the judgment on the interference with a contract claim and reinstated the verdict in favor of the tenant. The court held that the landlord breached the lease for the purpose of hurting the tenant's sale of his business.

Executory-Administrator Agreements

Guaranty Agreements

Surety Agreements A surety agreement is a promise to pay the debt of another

o This falls under the SOF and unenforceable unless the agreement is in writing

Main purpose rule (see page 88 of Crunchtime)o If the promisor’s chief purpose in making his promise of suretyship is to

further his own interest, his promise does not fall within the statute of frauds

A surety differs from a guarantor, who is liable to the creditor only if the debtor does not meet the duties owed to the creditor; the surety is directly liable. (See Black’s law dictionary)


Statute of Frauds under the UCC UCC § 2-201 :

o (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

o (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten days after it is received.

o (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Section 2-606)

What is the required writing under the UCC?o Any tangible formo “signature” – any authenticating marko Merchant may be bound without signature

Merchant Confirmation Exception (The Merchants Must Read Their Mail Rule)o If there is an oral contract confirmed in writing by A, the written

confirmation will be construed as signed by B for statute of frauds purposes, unless:

B objects to the writing within 10 days


It wasn’t sent to the right place B didn’t have reason to know the contents of the writing It wasn’t sufficient against A for statute of frauds

o Burden is on the recipient to object or give up statute of frauds defense Case: Buffaloe v. Hart

o The tobacco farmer entered into an oral agreement to purchase five barns located on the property owners' farm.

o The tobacco farmer already had possession of the barns under a rental agreement.

o The tobacco farmer gave the property owners a check for partial payment on the barns, but the property owners returned the check four days later and informed the tobacco farmer that they had sold the barns to another buyer.

o A jury found in favor of the tobacco farmer on his breach of contract claim. o The court affirmed the trial court's denial of the property owners' motions

for directed verdict and for judgment notwithstanding the verdict. o The court agreed with the property owners that the personal check was

not sufficient to constitute a writing under the statute of frauds, because it was not endorsed by the property owners.

o The court, however, concluded that there was substantial relevant evidence that the tobacco farmer "accepted" the purchased barns and that the property owners "accepted" the tobacco farmer's check, thus taking the contract out of the statute of frauds.

CISG No statute of frauds Art. 11:

o A contract for sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses

Principles of Interpretation Three theories of contract interpretation:

o Subjective Theory Fact finding on what they believe the parties wanted the term would

mean Focused on what each party thought in their head Focus on private autonomy Main case discussed Raffles v. Wichelhaus

No contract because both parties meant two different things This theory was inefficient

Make enforcing contracts difficult because there was this long fact finding exercise

Words do have accepted meaningso Objective Theory


Rationale focuses on fairness and efficiency Look at what a reasonable person thought it would mean Textualist interpretation - "plain meaning"

Only looks at the text, and nothing else Doesn't worry about what was intended, examined the actions Doesn't take into account what the parties meant

Don't want to force parties to contract for something that neither party wanted

o Modified Objective (Modern) Theory Mixture of the subjective and objective theories Been adopted by most modern courts

Restatement (Second) of Contracts § 201 o (1) Where the parties have attached the same meaning to a promise or

agreement or a term thereof, it is interpreted in accordance with that meaning.

o (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent

Under the restatement approach: (Find the Least Cost Avoider)

o If agree, then it is the agreed meaningo If disagree, then ask: Did any party actually know of the other party's

meaning If yes, then the other party's meaning will control

o If no, then ask: Did any party have reason to know of the other party's meaning?

If yes, then the other party's meaning will control Sort of a reasonable person (in your position) standard If no, then ask: Should the absence of agreement on this term

mean no contract? 10 Helpful Interpretative Maxims:


o Look at context

o General limited to enumerated specifics

o Specific terms exclude those not listed

o Preference for valid and legal reading

o Construe ambiguities against the drafter

o Interpret contract as unified whole

o Give effect to parties’ purposes

Look at what was intended

What were they trying to do here?

o If two provisions conflict, read specific as an exception to the general

o Hierarchy of writings (handwriting, typed, form)

Handwriting takes precedence over typed docs, which takes precedence over forms…

o Construe to the public interest

o AND use common sense

Case: Frigaliment Importing Co. v. B.N.S. International Sales Corp.o Defendant state sales corporation had two contracts with plaintiff foreign

corporation for the sale of "chicken". o After plaintiff received one shipment of stewing chicken and another was

stopped, plaintiff brought a breach of warranty action, alleging that the goods sold should have corresponded to the description because the chicken was not suitable for broiling and frying.

o In dismissing plaintiff's complaint, district court held that plaintiff's reliance on the fact that the contract forms contained words with a blank not filled to negate agency was wholly unpersuasive where the clause's purpose was to permit filling in an intermediary's name to whom commission would be payable.

o Defendant's subjective intent that it could comply with the contracts by delivering stewing chicken coincided with objective meaning of "chicken," which had at least some usage in the trade; and plaintiff did not sustain its


burden that "chicken" was used in the narrower rather than in the broader sense.

Factors to consider for interpretationo Contract Language (textualist)o Preliminary Negotiations (purposeful)

More concerned about what the parties meant to say Look at testimony about what the is the intent of the parties

o Legal standards, trade usages, course of performance, etc. (contextual)o Maxims of Interpretation (constructionist)

10 enumerated maxims "Tie Breaker" goes to the non-drafter (?) Common sense

Reasonable resulto Performance

Accepting under protest reserves the right.. P can't say that because they allowed 2nd order to go through after

accepting the first shipment, D knew what it meant because D accepted under protest

Cancels out the performance argument Judicial Reformation on Contracts

Equitable action to have court rewrite a written manifestation of a contracto Because it fails to reflect the true terms of the agreemento Want the court to enforce the deal, but to enforce the way the contract

should have actually been (the correct way) i.e.: typos, descriptions, someone moved a decimal point

o Could be due to error/ mistakeo Parol Evidence Rule not applicable in reformation actionso To win a suit, you have to show what the actual contract waso Must show actual contract as different than memorandumo Must not prejudice the rights of 3rd parties and other

Doctrine of Reasonable Expectationso The contract should be read to give effect to the reasonable

expectations of the least advantaged party even if the plain language reads to the contrary

o The doctrine is limited to: Adhesion contracts Insurance contracts Ambiguous contracts

Court’s comment f testo Customers not bound by key terms they could not have reasonably

expected


o If the drafting party knows or has reason to know that the other party would not accept some contract term, then sneaking it in to the contract, does not operate to bind the adhering party

o How would you know it wouldn’t accept? Bizarre/oppressive Eviscerates the non-standard form terms explicitly agreed to Eliminates dominate purpose of transaction

Parol Evidence Rule

When parties to a contract have mutually agreed to incorporate a final version of their entire agreement into a writing, neither party will be permitted to contradict or supplement that writing with “extrinsic” evidence or prior agreements or negotiations between them

What is neededo A final version of an agreement ando It’s in writing

Purpose behind the parol evidence rule:o Avoid the “obvious inconvenience and injustice” that would result if

extrinsic evidence was admitted to contradict or vary terms of a written agreement

Integrated Agreementso Completely Integrated

Parties intend writing to be complete and exclusive statement of the terms of the agreement

Restatement (Second) of Contracts § 210(1) A completely integrated agreement is an integrated

agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.

For written agreements that are completely integrated, no extrinsic evidence is allowed to supplement or contradict

o Partially Integrated

A partial integration is a document that is intended to be final, but that is not intended to include all details of the parties’ agreement (intentionally left stuff out)

Restatement (Second) of Contracts § 210(2)

A partially integrated agreement is an integrated agreement other than a completely integrated agreement.


For written agreements that are partially integrated, the trier of fact can hear extrinsic evidence; however, only supplementary evidence can be considered not contradictory evidence

Merger clauses

o These types of clauses can be included into a written agreement to show that the parties intend the agreement to be the complete and exclusive expression of the entire deal

o Some courts find merger clauses conclusive of parties’ intent

o More modern approach is to consider all evidence (including extrinsic evidence) to determine parties’ intent as to scope of integration

There are two approaches to the applying the parol evidence rule:o Classic (Williston)

This approach looks to the four corners of the document only to determine if the terms (or a term) is ambiguous

The judge will not look at any outside documents to determine whether or not the document is completely integrated

o Modern (Corbin) This approach will look at everything,(including the intent of the

parties) to determine if the terms (or a term) is ambiguous The judge will consider all evidence regarding facts and

circumstances of contract to decide if the document is completely integrated

Six Exceptions to the Parol Evidence Rule Evidence to show agreement is void or voidable

o Evidence that shows incapacity, fraud, duress, undue influence, mistake, etc., will be allowed

Evidence to show a collateral agreemento Evidence of separate agreements (separate consideration) or consistent

additional term (that may have reasonably been left out of the writing) will be allowed

Evidence of an oral condition precedent to formationo Evidence of a condition that had to be met will be allowed (parties

intended no legal contract until condition was met) Evidence to show entitlement to reformation

o Evidence that the writing does not actually reflect the true “deal” will be allowed

Evidence of agreements made after the writing Evidence to interpret/explain ambiguity

o Restatement (Second) of Contracts § 214(c)


Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish: the meaning of the writing, whether or not integrated

UCC Approach to the Parol Evidence Rule UCC § 2-202 provides the parol evidence rule for contracts regarding the sale of

goods:o Terms with respect to which the confirmatory memoranda of the parties

agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) by course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); and

(b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement .

o UCC § 1-205(2) Usage of Trade A usage of trade is any practice or method dealing having such

regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to proved as facts. If it is established that such usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court

The usage must exist and must be binding on the party (members of trade; non members who by their dealings with members should know of the usage)

o UCC § 2-208 Course of Performance (1) Where the contract for sale involves repeated occasions for

performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

(2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205).

(3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a


waiver or modification of any term inconsistent with such course of performance.

Should look at how have the parties behaved in the past?

Is this behavior consistent with a particular interpretation/agreement?

One instance of performance does not equal “course of performance”

The UCC approach to the parol evidence rule is a liberal (modern) approach Case: Nanakuli Paving & Rock Co., v. Shell Oil Co.

o Appellant brought suit claiming a breach of a contract to sell asphalt by the appellee.

o The jury returned a verdict in favor of the appellant awarding damages. The trial court set aside the verdict of the jury.

o On review, the court determined that the Uniform Commercial Code in Hawaii required the court to look at external circumstances in order to determine the intent of the parties to a contract.

o The court also held that the unique circumstances of the market on Oahu and in Hawaii in general created a general trade usage of price protection in the sale of asphalt.

o The court found the trial court did not err in allowing evidence of trade usage to be admitted into the record, and found sufficient evidence supported the jury's verdict in favor of the appellant. The judgment of the trial court was reversed and the jury verdict was reinstated.

Should evidence of inconsistent trade usage, etc. be excluded?o (Some courts will say) Option one: ALWAYS Exclude

If the evidence is inconsistent with express terms, per UCC s. 2-205 it is barred

o (Other courts will say) Option Two: NEVER Exclude UCC's policy of favorable admission of trade usage, course of

dealing and course of performance is a blanket exception to the parol evidence rule for such matters

o Nanakuli Court's Approach: Option Three: SOMETIMES Excluded

Allow this evidence in unless it totally negates a contract term

If you can "read" the term as plausibly "consistent" - then UCC pro-commercial-practices policy counsels admission of such practices

The UCC implies into every contract, a duty to perform the agreement in good faith


CISG Approach to the Parol Evidence Rule No parol evidence rule Art. 8(3)

o In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties

Supplementation of the Agreement: Implied Terms

Implied in facto Adding a term because it seems because it seems like the parties really

have agreed to it Implied in law

o Adding a term because it seems that the parties would have agreed to ito Adding a term because our policies require that parties agree to it

Why imply terms?o Because parties would have agreed to the term (“tailored default”)o Because most parties generally agree to such terms (“untailored default”)o To save bargaining costs (“untailored default”)o For public policy reasons (“penalty default”)

Why not imply terms?o Systemic cost of having courts figure out the precise terms to which

parties would have agreedo Impossible to determine the precise terms to which parties would have

agreed Case: Wood v. Lucy, Lady Duff-Gordon

o An agreement existed between the fashion designer and the marketer, which gave the marketer authority to make sales and advertising decisions.

o Essentially, the marketer had the power to license the fashion designer's products to other marketers. The fashion designer subsequently marketed her own products but did not share in the obtained revenue.

o The marketer filed a lawsuit for breach of contract and damages resulting from the lost profits. The trial court denied the fashion designer's motion for judgment on the pleadings, which was reversed on appeal.

o On final appeal, the court affirmed the ruling of the trial court, holding that an implied contract existed between the parties.

o Specifically, the marketer's implied promise to faithfully market the designer's products amounted to fair consideration creating performance obligations by both parties.

UCC § 2-306(2)


o A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale

UCC § 2-309 (2)(3) o Where the contact provides for successive performances but is indefinite

in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party

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

Case: Leibel v. Raynor Manufacturing Co.o Appellant sought review of the summary judgment dismissing one count of

appellant's complaint, in an action brought by appellant following the termination, by appellee, of appellant's dealer-distributorship agreement.

o The court held that reasonable notification was required in order to terminate an on-going oral agreement for the sale of goods in a relationship of manufacturer-supplier, dealer-distributor, or franchisee.

o The court also held that appellant's distributorship agreement should have been recognized as an agreement for the sale of goods and subject to provisions of U.C.C. art. 2.

o The amount of money being invested in distributorships was increasing, distributorships were often not based on formal written agreements, and without requirement for good fair play, either party to distributorship could have been damaged.

o Therefore, the court held that because the distributorship agreement between appellee and appellant was one for sale of goods, appellee was required to give reasonable notification of intent to terminate distributorship contract.

Implied Obligation of Good Faitho UCC § 1-203 (Revised 1-304)

Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement

o Restatement (Second) of Contracts § 205 Every contract imposes upon each party a duty of good faith and

fair dealing in its performance and its enforcement Situations where covenant of good faith applies:

o When implication of term is necessary to protect party expectationso When termination or other action by one party appears to be pretextual or

in bad faitho When exercise of discretion granted by contract should be limited by

principles of good faith Restatement (Second) of Contracts § 228


o When it is a condition of an obligor’s duty that he be satisfied with respect to the obligee’s performance with respect to something else, and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied

Commercial Deals v. Deals involving an Aesthetic Matter For commercial deals:

o Reasonable person standard for determining work is acceptableo Reference to industry standards, etc.

For deals involving aesthetic matterso Subjective determination of party given discretion is fineo However , the determination must be honestly made (must truly be

dissatisfied with work)

Implied Warranties Implied Warranty of Merchantability

o U.C.C. 2-314 (1) Unless excluded or modified (Section 2-316), a warranty that

the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

(2) Goods to be merchantable must be at least such as:

(a) pass without objection in the trade under the contract description;

(b) in the case of fungible goods, are of fair average quality within the description;

(c) are fit for the ordinary purposes for which goods of that description are used;

(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved;

(e) are adequately contained, packaged, and labeled as the agreement may require; and

(f) conform to the promise or affirmations of fact made on the container or label if any.


(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade

o Applies to merchant saleso Can be disclaimed by specific language

Implied Warranty of Fitness for Specific Purpose o U.C.C. 2-315

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

o Applies to all sales of goods IF there is specific purpose known to sellero Disclaimer must be conspicuous & in writing

Home Builder Warrantyo Warranty of Qualityo Free from defective materialso Construction is good & workmanlikeo Compliance w/building codeso No latent defects

Implied Warranty of Habitability o Housing codes are read into all residential leases as implied warranties

from landlord that the premises will be habitable (comply w/code)o This warranty is mandatory (non-waivable)

Contract Avoidance

A contract can be voided based on:o The parties

A party is able to get out of a contract, because the party is not able to contractually bind themselves

Lack of party’s capacity to truly assento The process

A party is able to get out of a contract because there was something wrong or unfair with how the contract was formed

Process deprived party’s ability to truly assent o The substance

A party is able to get out of a contract because there is something wrong or unfair in allowing this sort of thing to be agreed to (either in general or in this particular way)

Terms are such that we will not allow assent Contract avoidance can be used as a sword or a shield

o Sword


Defend against contract enforcemento Shield

Seek contract rescission Question of restitution for benefits conferred

Courts are less sympathetic to cases of intoxicationo Restatement (Second) of Contracts § 16

A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication

(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or

(b) he is unable to act in a reasonable manner in relation to the transaction

Infancy Defense Infancy doctrine:

o The underlying purpose of the “infancy doctrine’… is to protect minors from their lack of judgment and “from squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace.”

Restatement (Second) of Contracts § 14 o Unless a statute provides otherwise, a natural person has the capacity to

incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday

Case: Dodson v. Shradero Plaintiffs, minor and next friend, sought to disaffirm the contract of the

minor for the purchase of a pick-up truck. The issue was whether the minor was entitled to a full refund of the money that he paid or whether the sellers were entitled to a setoff for the decrease in value of the pick-up truck while it was in the possession of the minor.

o The minor was 16 years of age at the time of purchase and used the vehicle for nine months without incident. After nine months, the vehicle had mechanical problems, but the minor continued to drive the truck until the truck's engine "blew up" and the truck became inoperable.

o At the time of the purchase, there was no inquiry by defendant sellers and no misrepresentation by plaintiff minor concerning his minority.

o Based on previous common-law decisions, the trial court reluctantly granted rescission of the contract.

o The court remanded and adopted a new rule concerning contracts with minors.

o Where the minor did not overreach, there was no undue influence, and the contract was fair, the court held that the vender was entitled to reasonable compensation for the use, depreciation, and willful or negligent damage to the article purchased.

Benefit Rule


o Upon rescission, recovery of the full purchase price is subject to deduction for the minor’s use of the merchandise (see page 521 of casebook)

Price – Minor’s use = Benefit Rule Use Rule

o The minor’s recovery of the full purchase price is subject to a deduction for the minor’s “use” of the consideration he or she received under the contract, or for the “depreciation” or “deterioration” of the consideration in his or her possession

Other exceptions to the minority rule:o Minors are liable for reasonable value of necessaries they contract foro If a minor fails to disaffirm a contract upon reaching 18, he will be held to

have affirmed it.o Misrepresentation of age?

A contract issue (fraudulent misrepresentation voids contract) A tort issue (can get damages for fraudulent misrepresentation)

o Statutory Exceptions to Infancy Doctrine

Mental Incapacity Defense Definition of “mental incapacity”

o Sufficient mental ability to know what she was doing and the nature and consequences of the transaction

o Cognitive Standard (traditional view)o Restatement § 15(1)(a) and alternate Volitional test

Restatement (Second) of Contracts § 15 (1) If a person incurs only voidable contractual duties by

entering into a transaction if by reason of mental illness or defect

o (a) he is unable to understand in a reasonable matter the nature and consequences of the transaction, or

o (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition

(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires

o Restitution normally must be madeo Provided contract was made in good faitho And provided contract was for fair consideration

Policy for both infancy and mental incapacity defenses is to protect incapable people

Questions in fact


o Was there cognitive impairment (no reasonable understanding of the transaction)

o Was there volitional impairment (no ability to control actions) plus reasonable knowledge of this mental deficiency by the other party?

Duress and Undue Influence Elements of Duress

o Improper Threato Lack of Reasonable Alternativeo Actual Inducement of Contract

Objective approach (would a reasonable person have been induced?)

Subjective approach (look at all attendant circumstances)o Restatement (Second) of Contracts § 175

(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

(2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction

Undue Influence requires:o “Over-persuasion” applied to a person who is particularly vulnerable

Over-Persuasion means free will is impacted Factors to consider:

o Negotiations at unusual/inappropriate timeo Consummation of transaction in unusual placeo Insistent demand to finish at onceo Extreme emphasis on consequences of delayo Use of multiple persuaders on one victimo Absence of 3rd party advisors (no time to consult)

o Restatement (Second) of Contracts § 177 (1) Undue Influence is unfair persuasion of a party who is under the

domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that the person will not act in a manner inconsistent with his welfare

(2) If a party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim

(3) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction


Fraud/Misrepresentation Elements of fraud

o Defendant made representationso The statements were falseo They were material (formed basis of contract)o Defendant knew they were falseo Defendant intended to deceive plaintiffo Plaintiff relied on statementso Plaintiff was damaged by relying on statements

If a party can show that the other made a misrepresentation to him prior to signing, he may be able to use this in either of two ways: (1) he may use this as a defense in a breach of contract action brought by the other; or (2) he may use it as the grounds for rescission or damages in a suit in which he is the plaintiff (see page 129 of Crunchtime)

Tort damage calculationo Out-of pocket ruleo Benefit-of-the-bargain rule

Restatement (Second) of Contracts § 169(a) o To the extent that an assertion is one of opinion only, the recipient is not

justified in relying on it unless the recipient (a) stands in such a relation of trust and confidence to the person

whose opinion is asserted that the recipient is reasonable in relying on it

Case: Syester v. Bantao The elderly widow first went to the dance studio as a gift from a friend. On

her second visit, she was sold a small course of lessons. Thereafter, the studio sold the widow more than 4,000 hours of instruction, including 3 lifetime memberships, and told her falsely that she could be a professional dancer.

o Upon the widow's filing of a lawsuit, the owners persuaded her to settle for a relatively insignificant amount and drop the action. A second release for more money was obtained, but nothing was paid on that release.

o The widow filed a second action for fraud and misrepresentation in the several sales to her and in obtaining the dismissal of the previous lawsuit and the releases.

o The jury returned a verdict for the widow. o On appeal, the court held that the evidence was adequate to find there

was a concerted effort constituting fraudulent overreaching When is there a duty to disclose?

o Restatement (Second) of Contracts § 161 A person’s non-disclosure of a fact known to him is equivalent to an

assertion that the fact does not exist in the following cases only: (a) where he knows that disclosure of the fact is necessary

to prevent some previous assertion form being a misrepresentation or from being fraudulent or material


(b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing

(c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part

(d) where the other person is entitled to know the fact because of a relation of trust and confidence between them

o Case: Hill v. Jones In response to the buyers' inquiry of whether a ripple in the home's

floor was termite damage, the sellers answered that it was water damage.

The termite inspection report placed in escrow as provided by the purchase agreement stated there was no visible evidence of infestation, but failed to note the existence of physical damage or evidence of previous treatment.

After the purchase, the buyers discovered termite damage and learned of past termite infestation of which the sellers had knowledge.

The court held that (1) the contract's integration clause could not shield the sellers from liability should the buyers be able to prove fraud in the statement that the ripple was water damage; (2) the seller had a duty to disclose to the buyer termite damage known to the seller, but not to the buyer, if it materially affected the property's value, (3) the buyers should have been allowed to present their case to a jury because the issue of whether the termite damage was material was a factual matter for the trier of fact to determine, and (4) the issue of the buyers' knowledge of the termite problem and their diligence in attempting to inform themselves should have been left to the jury.

o Seller has no duty to disclose anything unless: Seller has fraudulently concealed the state of the property Seller has made an affirmative misrepresentation Seller has some sort of confidential or fiduciary relationship with

buyero Innocent non-disclosure

Tort requires scienter But rescission can theoretically be based on innocent

misrepresentation OR non-disclosure But – most courts require actual knowledge before other party can

rescind Or at least reckless or negligent non-awareness


Unconscionability/Adhesion Contracts There is no accepted definition of unconscionability

o The issue is whether the clause is so one-sided, so unfair, that a court should as a matter of judicial policy refuse to enforce it (see page 130 of Crunchtime)

Two categories of unconscionability o Procedural

Lack of meaningful choice Burdensome clauses tucked away in the fine print boilerplate High pressure salespeople who mislead Industries with few players, all whom offer the same unfair

“adhesion contracts”o Substantive

Unreasonably favorable terms Excessive price Limits the buyer’s remedies for breach by seller

o Disclaimer or limitation of warrantyo Limitation of remedy to repair or replacement, where

this would be a valueless remedyo See other examples on page 132 of Crunchtime

o Restatement (Second) of Contracts § 208 If a contract or term thereof is unconscionable at the time the

contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result

o UCC § 2-302 (1) If the court as a matter of law finds the contract or any term of

the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination

Adhesion contract is an imprecise term used to describe a document containing non-bargained clauses that are in fine print, complicated, and/or exceptionally favorable to the drafter (see page 130 of Crunchtime)

Elements of adhesion contractso Disparity in bargaining power (Typically the non-drafter has very little

bargaining power)


o Standard form drafted by “superior” partyo Contract offered on take-it-or-leave-it basis (no opportunity to negotiate

terms) - or only price term negotiated Dragnet Clauses In several cases, arbitration clauses have been deemed unconscionable

o The preliminary question is, “can the underlying issues go forward in court, or must they have to be arbitrated?”

o How is Arbitration unlike Litigation? Private Different rules More informal Binding

o Arbitration Agreements can be avoided like any other contract (incl. for unconscionability)

I never assented No consideration for that provision Duress Fraud Undue Influence Etc.

o Typically unconscionability is highly debatable Consumer (waivers) Employer/Employee contracts

Case: Higgins v. Superior Court of Los Angeles Countyo The siblings claimed that an arbitration clause contained in a written

agreement they executed before the program was broadcast was unconscionable.

o The court agreed, holding that the arbitration clause was procedurally unconscionable.

o The siblings were young and unsophisticated, and had recently lost both parents.

o The arbitration provision appeared in one paragraph near the end of a lengthy, single-spaced document. No words were printed in bold letters or larger font, nor were they capitalized. Although the siblings were required to place their initials in boxes adjacent to six other paragraphs, no box appeared next to the arbitration provision.

o The arbitration provision was also substantively unconscionable. It required only the siblings to submit their claims to arbitration. Only the television defendants, not the siblings, could compel arbitration.

o The arbitration provision barred only the siblings from seeking appellate review of the arbitrator's decision.

o The harsh, one-sided nature of the arbitration provision, combined with the elements of procedural unconscionability, led the court to conclude that the arbitration provision was unconscionable and, therefore, unenforceable


Policy

Law is the embodiment of public policy The big public policy in contract law is the freedom to contract Illegal contracts:

o Criminal Statuteso Regulatory Statutes

Protect public Raise revenue

Exculpatory Clauseso “I agree I won't hold you liable for anything you may possible do”

This may be okay but you can't contract out of intentional torts…

o If people want to waive their ability to see, that's fine (some people make this argument)

But why not allow disclaimers for dangerous activities…?o Benefit vs. Cost to Society

Debatable Unresolved

o Ancillary vs. Non-ancillary restraints on competition Restatement (Second) of Contracts § 187 Non-Ancillary Restraint

A promise to refrain from competition that imposes a restraint that is not ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade

Restatement (Second) of Contracts § 188 Ancillary Restraint (1) A promise to refrain from competition that imposes a

restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if

o (a) the restraint is greater than is needed to protect the promisee’s legitimate interest, or

o (b) the promisee’s need is outweighed by the hardship to the promisor and the likely injury to the public

(2) Promises imposing restraints that are ancillary to a valid transaction or relationship include the following

o (a) a promise by the seller of a business not to compete with the buyer in such a way as to injure the value of the business sold

o (b) a promise by an employee or other agent not to compete with his employer or other principal;

o (c) a promise by a partner not to compete with the partnership

Restraints on trade that are ancillary


Enforceable in some circumstances, but they will be scrutinized

Concept: restraint only valid to the extent necessary

Any overreach will be struck down Case: Valley Medical Specialists v. Farber

o Defendant doctor, an internist and pulmonologist, entered into an employment agreement with plaintiff employer that contained a restrictive covenant not to compete.

o After defendant doctor left the practice and began practicing within the area defined by the restrictive covenant, plaintiff sued defendants based on the restrictive covenant not to compete.

o The trial court denied plaintiff's preliminary injunction request and held that the covenant violated public policy, or alternatively, was unenforceable because it was too broad.

o The appellate court reversed and held that the covenant was reasonable. On review, the court stated that because the doctor-patient relationship was special, it was entitled to unique protection.

o Furthermore, based on public policy interests, covenants not to compete between physicians were to be strictly construed for reasonableness.

o The court held that the covenant was unenforceable because plaintiff failed to prove that its interests outweighed public policy interests. The duration and geographic scope were unreasonable

Is the restraint reasonable? Time limits Geographic limits

Balancing of policy interests Balancing of hardships

o Benefit of non compete (to promisee) Must be legitimate for example:

o Goodwill in sale of businesso Retirement o Prospective Partner

I'm a partner with you, but at the same time competing with you

Good faitho Trade secrets/ Unjust use


There is a difference between saying "you can't work on computers for 3 years" vs. "you cannot do a particular type of networking"

All strong reasons to enforce a non-compete

o Cost of non-compete To Promissor To society in general

What to do if unfair or unreasonable Void contract (rescission) Void the clause (severance) Rewrite the clause (reformation) To blue pencil or not blue pencil…?

o Editing something out Changing the contract terms(?)

Limiting Familyo Contracts unreasonably restraining marriage are void for public policy

reasonso I'll pay you $ if you don't marry himo I'll pay you $ if you leave your spouse…o Courts don't like these o Restatement (Second) of Contracts §191

A promise affecting the right of custody of a minor child is unenforceable on grounds of public policy unless the disposition as to custody is consistent with the best interest of the child

Documents

Contracts I FINAL-2